Assumable Clause

Question: If your parents want to assume your loan and the loan has an assumable clause, what are the steps you need to take? Thanks!

Answer: Without knowing the assumable clause to which you refer, I must give a general answer.

If a note and/or a deed of trust (the loan "documents") are silent on the subject of assumption, the note can be assumed or the property bought "subject to" the note. If the documents contain assumption language, however, the provision may be with or without conditions. An example of an assumption clause without conditions is found in paragraph D(1)(a) of the Seller Financing Addendum to the One to Four Family Residential Contract. This clause states that no consent is required (from the note holder, hereinafter referred to as the "lender") to a transfer of title, but the buyer must assume the note, i.e., the buyer cannot take title "subject to" the indebtedness, but must assume (become personally liable) for the note's payment and performance.

In most instances assumption clauses require a qualification of the buyer or the performance of a condition, or both. An example of a qualification is the lender's approval of the buyer's credit prior to assumption. Conditions may include modifying the loan documents, raising the interest rate, furnishing additional security or other performances or concessions.

In whatever case, the lender should be notified as to who owns the property and the party responsible for paying the obligation. This is particularly important if the lender escrows taxes and insurance. The buyer also desires credit for mortgage interest paid, and wants the lender to have its address for notice purposes. To a certain extent, the buyer and lender enter into a contract of sorts to make certain the note is paid, that insurance is in the buyer's name and that all conditions of the documents are performed until the note is fully paid and discharged.

In your situation, considering the above, convey the property by assumption deed and make certain the lender is notified. If there are any requirements or conditions in the assumption clause, be sure to inquire ahead of time and meet them.

Title Insurance Company Affidavit As Release of Lien

Question: Is there a way someone other than a lender can give a release? I understand a title company can do this.

Answer: You probably refer to Title Insurance Company Affidavit As Release of Lien provided by Section 12.017 of the Texas Property Code. This is not a release as such, but a title company affidavit based on documentary evidence that a mortgage was in fact paid and received, which serves as a release.

The transaction involves a one-to-four family residence, or condominium, closed by a title officer who pays off a mortgage pursuant to a lender's written payoff statement. The title officer must have proof the lender received payment after which 60 days must elapse without a release furnished. The Code is straight forward in outlining the steps to follow in preparing and serving notice on the lender and ultimately filing the affidavit with certain evidence attached.

This procedure benefits our industry since it removes the lien from the record by following the Property Code. Another benefit is estopping (preventing) the lender from disclaiming its own inaccurate payoff statement long after the payoff occurred.

A similar provision is Section 52.0012 effective June 15, 2007. This allows a homestead owner (against whom a valid judgment is abstracted in the same county as the home) to release a judgment of record from the homestead.

Deceased Without A Will

Question: If a homeowner is deceased and has not left a will or it has not been probated, what papers does one need to take care of this?

Answer: Dying without a will, or leaving a will that is not offered for probate within four years of the testator's death, is known as dying intestate. In such instance, the decedent's estate passes in accordance with the Texas Probate Code which is the guide as to whom receives what part of the estate. This determination must be established by a document or court proceeding that confirms the decedent's family history, identifies the next of kin and defines the heirs under law. The document is known as an affidavit of heirship and the court proceeding is known as an action to determine heirship. Both have strict requirements and are less preferable than a duly executed and probated will.

Deeding Your Home to a Relative

Question: If a homeowner wants to deed his home to a relative, i.e., son, daughter, brother, etc., what does he need to do?

Answer: Prepare a deed from the homeowner (and spouse, if married) to the relative, execute the deed before a notary and file it of record. These steps are the mechanics of title transfer like any other conveyance. The ramifications and possible pitfalls of this transaction, however, are quite another matter and must be seriously considered before making this transfer.

Bankruptcy Can Affect Inheritance

Question: If a husband and wife have declared bankruptcy, but the wife has inherited money from her deceased mother and put it in a separate account in her name only, can the IRS take that money?

Answer: If a husband and wife have declared bankruptcy, all assets belonging to both husband and wife must be disclosed regardless of their source or how managed or maintained. Unless the assets qualify as exempt under state or federal law (homestead, etc.), they are subject to the claims of creditors. The IRS is definitely a creditor, although subject to the bankruptcy code as to priority of its claim. Under such scenario, within the jurisdiction of the bankruptcy proceedings, the IRS can be paid as a creditor and the separate property aspect of the funds are not protected.

Unreleased Notes

What happens when a secured obligation is fully paid but the lien is not released? If a closing is pending, the problem can become acute. The obvious procedure is to obtain a release if the lien holder is still alive, has legal capacity, can be found or, if an institution, is still in existence. The problem arises when the lien holder is deceased, incapacitated, cannot be found or no longer exists. Since there are several encumbrances that constitute "liens" in need of release, we will assume a mortgage note secured by a deed of trust, the most common instance

If the lien, holder is alive but incapacitated, you may take a release from his or her guardian, if one is appointed, or from someone acting under a timely executed "durable" power of attorney. If the lien holder is deceased, you may obtain a release from the executor of the decedent's estate,the trustee of a living trust wherein the decedent is beneficiary or the decedent's heirs, if established. If the lien holder is an entity that no longer exists such as a bank or corporation, you may find and obtain a release from it successors or shareholders. If these steps seem difficult, cumbersome and time-consuming, they may well be. However, should these remedies be unavailable, then what can be done?

First, inquire when the seller (or other maker) finally paid off the mortgage, if such can be determined. Find out what documentation, if any, remains with the seller, i.e., payoffs, letters, statements, cancelled checks and the like. If the seller can produce the original note and give affidavit of payment stating when it was paid (hopefully the note will be marked "paid" by the holder), the original note can be attached to the affidavit of payment as an exhibit and identified as such. Possession of the original note is proof of ownership, and the title company will usually accept this evidence as a release.

However, if a release cannot be obtained and an affidavit will not work, there is one final step to consider, that is, persuading the title company to simply declare the note barred by the statute of limitations. Here three factors come into play: (1) the amount of the note (the smaller the better), (2) the age of the obligation (the older the better) and (3) whether a copy of the note or memorandum of its terms (from the seller or an old title company file) can be obtained. If a copy of the note cannot be found, or its terms not known, the terms might be recited in the deed of trust as to payment, due dates, etc. Why is this important, and when can a note be safely deemed barred by limitations?

The Texas statute of limitations on a written obligation is four (4) years according to Section 16.004 of the Texas Civil Practices and Remedies Code. However, for a mortgage obligation an additional rule applies. Section 16.035(e) of the Code provides that "if a series of notes or obligations or a note or obligation payable in installments (a "series" includes a single installment obligation) is secured by a real property lien, the four years statute of limitations period does not begin to run until the maturity date of the last note, obligation or installment."

How does this apply? Suppose a ten year note is originally dated in 1990, when the last installment due on December 1, 2000 (the final maturity date of the last installment, whether stated or computed under its terms). Applying the Code, the note on December 1, 2004, would become barred and therefore enforceable. In such an example, the title company can declare the note barred (whether actually paid or not) and ignore it as if it were formally released. In most instances the title company's underwriting counsel must approve this determination before the lien can be deemed of no effect. Such is the procedure at LandAmerica American Title Company when dealing with this situation.

This memorandum is for guidance only and is not intended as legal advice. If confronted with this problem, consult your attorney or LandAmerica American Title Company.

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