TEXAS HOMESTEAD LAW

 

 

 

 

                                                         

 

                                                         

 

 

 

 

 

 

 

 

 

STEVEN C. HALEY, Brenham

Moorman, Tate, Moorman,

Urquhart & Haley, L.L.P.

 

 

 

 

 

 

                                                         

 

 

 

 

 

 

 

 

State Bar of Texas

REAL ESTATE LAW BOOT CAMP

July 6, 2005

San Antonio

 

 

CHAPTER 11

 



 

 

 

 

 

      



TABLE OF CONTENTS

I.     INTRODUCTION......................................................................................................................................... 1

A.    Scope of the Article............................................................................................................................... 1

B.    Construction of Homestead Provisions - Generally..................................................................................... 1

 

II.    GENERAL CHARACTERISTICS OF THE HOMESTEAD................................................................................. 1

A.    Distinguishing the Rural and Urban Homestead.......................................................................................... 1

1.    Traditional Analysis......................................................................................................................... 1

2.    1989 Property Code Definition......................................................................................................... 2

3.    1999 Property Code Definition......................................................................................................... 2

B.    Distinguishing the Family and Single Adult Homestead............................................................................... 2

1.    Definition of "Family"...................................................................................................................... 2

2.    Social Status of Family.................................................................................................................... 3

3.    Duty of Support............................................................................................................................. 3

4.    State of Dependence....................................................................................................................... 3

5.    "Family" Status Affected by Death/Divorce/Marriage.......................................................................... 3

C.    Residential Homestead Must Include the Home.......................................................................................... 4

D.    Multi-Tract Homesteads......................................................................................................................... 4

 

III.   PROPERTY THAT MAY BE SUBJECTED TO HOMESTEAD........................................................................... 4

A.    Generally.............................................................................................................................................. 4

B.    Tenancy in Common.............................................................................................................................. 4

C.    Tenancy at Will..................................................................................................................................... 4

D.    Equitable Estate..................................................................................................................................... 5

E.    Life Estate............................................................................................................................................. 5

F.    Leasehold.............................................................................................................................................. 5

G.    Future Interests..................................................................................................................................... 5

H.    Other Non-Possessory Interests.............................................................................................................. 5

I.     Partnership Property.............................................................................................................................. 6

J.     Corporate Property................................................................................................................................ 6

K.    Cooperative Housing.............................................................................................................................. 6

L.    Mineral Property.................................................................................................................................... 6

1.    Severed Minerals............................................................................................................................ 7

2.    Open Mine Doctrine........................................................................................................................ 7

M.   Out-of-State Property............................................................................................................................. 7

N.    Proceeds From the Sale of Homestead..................................................................................................... 7

1.    Computing the Expiration of 6-Month Exemption Period..................................................................... 7

2.    Effect of Purchase of New Homestead During Exemption Period......................................................... 7

3.    Tolling of Exemption Period............................................................................................................. 7

O.    Improvements....................................................................................................................................... 7

 

IV.   CLAIMS ENFORCEABLE AGAINST THE HOMESTEAD................................................................................ 7

A.    Generally.............................................................................................................................................. 7

B.    Applicable Law...................................................................................................................................... 8

C.    What Constitutes an "Encumbrance" Against the Homestead....................................................................... 8

D.    Purchase Money Liens........................................................................................................................... 8

1.    Extent of Purchase Money Lien........................................................................................................ 8

2.    Owelty Liens.................................................................................................................................. 8

3.    Joinder of Husband and Wife Not Required........................................................................................ 9

4.    Purchase Money Lien Need Not Be In Writing................................................................................... 9

E.    Liens for Improvements......................................................................................................................... 9

1.    Regulatory Commentary.................................................................................................................. 9

2.    Generally....................................................................................................................................... 9

3.    Required Privity With Owner of Homestead....................................................................................... 9

4.    Effect of Forgery............................................................................................................................ 9

5.    Required Joinder of Husband and Wife.............................................................................................. 9

6.    Time of Execution of Mechanics Lien Contract.................................................................................. 9

7.    Place of Execution of Mechanic's Lien Contract - Renovation of Existing Improvements...................... 10

8.    Right of Rescission of Mechanic's Lien Contract - Renovation of Existing Improvements..................... 10

9.    Loan Closings On Liens for Improvements...................................................................................... 10

10.   Disbursement of Funds to Contractor.............................................................................................. 10

11.   Final Bills-Paid Affidavit Required................................................................................................... 10

12.   Required Conveyance to Contractor Prohibited................................................................................. 11

13.   Filing and Recordation of Mechanics Lien Contract........................................................................... 11

14.   Elements of a Valid Written Contract for Improvements.................................................................... 11

15.   Sham Contracts for Improvements................................................................................................. 12

16.   Amount of Lien for Improvements.................................................................................................. 12

17.   Improvements Must Be Made to the Homestead Property.................................................................. 12

18.   Involuntary Mechanic's Liens Against the Homestead........................................................................ 12

F.    Liens for Taxes.................................................................................................................................... 12

1.    Taxes Which Support a Lien on Homestead..................................................................................... 12

2.    Extent of Ad Valorem Tax Lien Against the Homestead..................................................................... 12

G.    Home Equity Liens............................................................................................................................... 12

1.    Regulatory Commentary................................................................................................................ 12

2.    Eligible Homestead Property........................................................................................................... 13

3.    Authorized Lenders....................................................................................................................... 13

4.    Restriction on Loan-to-Value Ratio.................................................................................................. 14

5.    Partial Restriction Against Open-Ended Credit.................................................................................. 14

6.    Home Equity Line of Credit (HELOC).............................................................................................. 14

7.    Restriction on Fees........................................................................................................................ 15

8.    Restriction Against Recourse Debt.................................................................................................. 16

9.    Restriction Against Prepayment Penalties......................................................................................... 17

10.   Restriction Against Additional Collateral........................................................................................... 17

11.   Restriction on Number of Home Equity Loans.................................................................................. 18

12.   Restriction on Frequency of Home Equity Loans.............................................................................. 18

13.   Restriction on Amortization of Home Equity Loans........................................................................... 18

14.   Restriction on Interest................................................................................................................... 18

15.   Restriction on Basis for Acceleration............................................................................................... 19

16.   Restriction Against Confession of Judgment/Waiver of Citation.......................................................... 19

17.   Restriction Against Assignment of Wages........................................................................................ 19

18.   Restriction Against Same Creditor Payoffs....................................................................................... 19

19.   Required Twelve Day Pre-Loan Disclosure...................................................................................... 19

20.   Required One Day Pre-Loan Disclosure........................................................................................... 20

21.   Borrower's Right of Recission........................................................................................................ 20

22.   Requirements for Loan Documents................................................................................................. 20

23.   Restriction on Place of Closing....................................................................................................... 21

24.   Restriction on Foreclosure............................................................................................................. 21

25.   Restriction on Release/Transfer of Note........................................................................................... 21

26.   Forfeiture Provision....................................................................................................................... 21

27.   Cure Provisions............................................................................................................................ 21

28.   Non-Severability Provision............................................................................................................. 22

H.    Reverse Mortgages............................................................................................................................... 22

1.    Regulatory Commentary................................................................................................................ 22

2.    Written Contract Required.............................................................................................................. 22

3.    Joinder of Spouse Required............................................................................................................ 22

4.    Limitation on Age of Borrower....................................................................................................... 22

5.    Loan Must be Non-Recourse.......................................................................................................... 22

6.    Restriction on Advances to Borrower.............................................................................................. 23

7.    Restriction on Loan Repayment Requirements.................................................................................. 23

8.    Required Borrower Counseling....................................................................................................... 23

9.    Priority of Reverse Mortgages........................................................................................................ 23

10.   Restriction on Interest................................................................................................................... 23

11.   Assignment of Reverse Mortgages.................................................................................................. 23

12.   Forfeiture Provision....................................................................................................................... 23

13.   Required Disclosures..................................................................................................................... 24

14.   Restriction on Foreclosure............................................................................................................. 24

I.     Refinance of Manufactured Home Debt.................................................................................................. 24

J.     Liens Predating Homestead.................................................................................................................... 24

K.    Refinancing, Renewing and Extending a Lien on Homestead...................................................................... 25

1.    Risks of "Rolling In" Refinance Costs.............................................................................................. 25

2.    Refinancing, Renewing, and Extending Purchase Money Liens........................................................... 25

3.    Refinancing, Renewing, and Extending Liens for Improvements......................................................... 25

4.    Refinancing, Renewing, and Extending Liens for Taxes..................................................................... 25

5.    Refinancing, Renewing, and Extending Home Equity Loans............................................................... 25

6.    Doctrine of Subrogation................................................................................................................. 26

L.    State Criminal Forfeiture Claims............................................................................................................. 26

M.   Federal Criminal Forfeiture Claims......................................................................................................... 26

N.    Effect of Liens Not Permitted by the Constitution.................................................................................... 26

O.    Lien Spreading..................................................................................................................................... 26

P.    Lien Overburdening.............................................................................................................................. 27

Q.    Judgment Liens.................................................................................................................................... 27

R.    Application of Loan Payments When Lien Partially Invalid........................................................................ 27

 

V.    ESTABLISHMENT OF THE HOMESTEAD................................................................................................... 28

A.    Generally............................................................................................................................................. 28

B.    Use Sufficient to Establish a Homestead (Generally)................................................................................. 28

C.    Use Must Be By Debtor or Constituent Family Member............................................................................ 28

D.    Sufficient Use to Establish a Rural Homestead......................................................................................... 28

1.    Use Must Include a Home.............................................................................................................. 28

2.    Use Must be Permanent................................................................................................................. 28

3.    Sufficiency of Use - Generally........................................................................................................ 29

4.    Sufficiency of Use - Economic Analysis Approach........................................................................... 29

5.    Sufficiency of Use - Checklist Approach......................................................................................... 29

6.    Sufficiency of Use - Use As a Home Approach................................................................................. 29

7.    Sufficiency of Use - Single Tract Rural Homestead........................................................................... 29

8.    Sufficiency of Use - Multi-Tract Rural Homestead............................................................................ 29

9.    Time That Sufficiency of Use is Determined.................................................................................... 30

10.   Effect of Business Use of Rural Homestead...................................................................................... 30

E.    Sufficient Use to Establish a Business Homestead.................................................................................... 30

F.    When Use Short of Actual Occupancy Establishes a Homestead................................................................ 31

G.    Intent Sufficient to Establish a Homestead............................................................................................... 32

1.    When Evidence of Intention is Conflicting........................................................................................ 32

2.    Vicarious Intention Via Personal Representative of Homestead Claimant.............................................. 32

H.    Written Designation of Homestead Required?.......................................................................................... 32

I.     Involuntary Designation of Homestead.................................................................................................... 33

J.     Duration of the Homestead Designation.................................................................................................. 33

K.    Who May Designate the Homestead?...................................................................................................... 33

L.    Gerrymandered Designation of Homestead.............................................................................................. 33

M.   Consumer Protection - Third Party Designation of the Debtor=s Homestead................................................ 34

 

VI.   DEFENSIVE STRATEGIES AGAINST THE HOMESTEAD CLAIM................................................................ 34

A.    Abandonment...................................................................................................................................... 34

1.    Generally...................................................................................................................................... 34

2.    Elements of Abandonment.............................................................................................................. 34

3.    Temporary Absence From the Homestead........................................................................................ 34

4.    Renting of the Homestead.............................................................................................................. 35

5.    Acquisition of a New Homestead as Abandonment of the Old............................................................. 35

6.    Abandonment of Family Homestead Requires Joinder of Both Spouses................................................ 35

7.    Abandonment of Homestead by Guardian of the Debtor..................................................................... 35

B.    Alienation............................................................................................................................................ 35

1.    Sale Without Abandonment May Extinguish Homestead..................................................................... 35

2.    Sale Requires Joinder of Husband and Wife...................................................................................... 36

3.    Effect of Incapacity of One Spouse on Joinder Requirement.............................................................. 36

4.    Sale Must Be Completed................................................................................................................ 36

5.    Pretended Sales............................................................................................................................. 36

6.    Effect of Sale on Subsequent Purchasers......................................................................................... 37

7.    Sale of Homestead as Fraudulent Conveyance?................................................................................. 38

C.    Estoppel.............................................................................................................................................. 38

1.    Elements of Estoppel..................................................................................................................... 38

2.    Effect of Homestead Disclaimer...................................................................................................... 38

3.    Effect of Homestead Disclaimer When the Debtor is in Actual Use and

Possession of the Property............................................................................................................. 39

4.    Effect of Homestead Disclaimer When There is Ambiguous Possession by the Debtor.......................... 39

5.    Requirements of a Valid Homestead Disclaimer................................................................................. 39

6.    Debtor Misrepresentations Regarding Validity of Mechanic's Lien....................................................... 39

7.    Debtor Misrepresentations Must Be Clear, Deliberate, and Unequivocal............................................... 39

8.    Lender Reliance on Debtor Misrepresentations Must Be Reasonable.................................................... 40

9.    Husband and Wife Must Join in the Misrepresentations...................................................................... 40

10.   Estoppel Will Not Create a Lien....................................................................................................... 40

11.   When the Debtor Claims Excessive Homestead................................................................................. 40

12.   When the Debtor Claims Less Than the Allowed Homestead.............................................................. 40

D.    Judicial Estoppel.................................................................................................................................. 40

E.    Death of the Homestead Claimant........................................................................................................... 41

1.    The Right of the Property to Descend Free of Debt is Fixed at Death.................................................. 41

2.    The Right of the Property to Descend Free of Debt is Not Dependent on Occupancy........................... 41

3.    Estate Recovery for Medicaid Services............................................................................................ 41

F.    D'Oench Duhme.................................................................................................................................. 41

1.    When the Debtor Executes a Homestead Disclaimer.......................................................................... 41

2.    When the Debtor Executes an Antedated Mechanic's Lien Contract.................................................... 41

3.    When the Debtor Participates in a Pretended Sale.............................................................................. 42

G.    Federal Preemption............................................................................................................................... 42

1.    Home Owner's Loan Act and Home Equity Lending.......................................................................... 42

2.    Federal Tax Liens.......................................................................................................................... 42

3.    Federal Criminal Restitution Act...................................................................................................... 43

4.    Bankruptcy Code and Family Support Obligations............................................................................. 43

5.    Commerce Clause - U.S. Constitution.............................................................................................. 43

6.    Truth In Lending Act..................................................................................................................... 43

7.    Equal Credit Opportunity Act.......................................................................................................... 43

8.    Anti-Preemption Amendments to the Property Code.......................................................................... 43

H.    Resulting Trusts/Constructive Trusts..................................................................................................... 44

I.     Fraudulent Conveyance......................................................................................................................... 44

J.     Holder in Due Course........................................................................................................................... 44

K.    Waiver................................................................................................................................................ 44

 

VII.  FORECLOSURE AGAINST THE HOMESTEAD............................................................................................ 44

A.    What Constitutes a "Forced Sale" of the Homestead?................................................................................ 44

B.    What Liens May Be Foreclosed Against the Homestead?........................................................................... 44

C.    Notice to Cure Required........................................................................................................................ 44

D.    When the Lien Attaches Only to Surplus Non-Exempt Acreage................................................................. 45

E.    When the Lien Covers Both Exempt and Non-Exempt Lands..................................................................... 45

F.    Wrongful Execution of the Homestead.................................................................................................... 45

G.    Foreclosure of a Home Equity Loan/ Reverse Mortgage............................................................................ 45

1.    Notice to Cure.............................................................................................................................. 45

2.    Application for Expedited Foreclosure Proceeding............................................................................. 45

3.    Notice of Expedited Foreclosure Proceeding.................................................................................... 46

4.    Response to Application for Expedited Foreclosure........................................................................... 46

5.    Default......................................................................................................................................... 46

6.    Determination When Response Filed................................................................................................ 46

7.    Order to Proceed with Expedited Foreclosure................................................................................... 47

8.    Abatement and Dismissal............................................................................................................... 47

H.    Foreclosure of Involuntary Mechanic=s Lien Against the Homestead........................................................... 47

 

VIII. DIVORCE AND HOMESTEAD................................................................................................................... 47

A.    Decree May Award a Lien Against the Homestead................................................................................... 47

1.    Permitted Purposes of the Lien....................................................................................................... 47

2.    Extent of the Lien Claim................................................................................................................. 47

B.    Decree May Set Aside Homestead to One Spouse For Period of Years....................................................... 47

C.    Decree May Direct the Sale of the Homestead......................................................................................... 47

 

IX.   TEXAS PROBATE HOMESTEAD................................................................................................................ 48

A.    Generally............................................................................................................................................. 48

B.    Extent of the Probate Homestead........................................................................................................... 48

C.    Duration of the Probate Homestead........................................................................................................ 48

D.    Who is a "Survivor" for the Purposes of a Probate Homestead?................................................................. 48

E.    Rights and Responsibilities of Survivor During the Survivorship................................................................ 48

F.    Survivor's Right to the Probate Homestead May Be Waived...................................................................... 48

G.    Election to Take Under or Against Will................................................................................................... 48

 

X.    TAXATION OF THE HOMESTEAD............................................................................................................. 48

A.    Purpose of Homestead Tax Exemption................................................................................................... 48

B.    Construction of Homestead Tax Exemption............................................................................................. 49

C.    Nature of Homestead Tax Exemption..................................................................................................... 49

D.    Who is Entitled to Claim the Homestead Tax Exemption?.......................................................................... 49

1.    Individual Ownership..................................................................................................................... 49

2.    Corporate Ownership.................................................................................................................... 49

3.    Condominium Ownership............................................................................................................... 49

4.    Cooperative Housing Ownership..................................................................................................... 49

5.    Trust Ownership........................................................................................................................... 49

E.    Required Use of Property Claimed For Homestead Tax Exemption............................................................. 49

1.    Temporary Absence (Generally)..................................................................................................... 49

2.    Temporary Absence for Military Service.......................................................................................... 49

3.    Temporary Absence for Care in a Residence Facility......................................................................... 50

4.    Rental of the Entire Homestead....................................................................................................... 50

5.    Rental of Part of the Homestead...................................................................................................... 50

6.    Use of Part of Homestead for Incompatible Purposes........................................................................ 50

F.    Application for Homestead Tax Exemption.............................................................................................. 50

G.    Who is Entitled to Claim the Over 65/Disabled Exemption?....................................................................... 50

H.    Amount of Homestead Tax Exemption for Elderly/Disabled....................................................................... 50

I.     Limitations on Increase of School Tax on Homesteads of Elderly or Disabled............................................. 50

J.     Installment Payment of Homestead Taxes By the Elderly.......................................................................... 51

K.    Manufactured Homes as Homestead....................................................................................................... 51

L.    Duration of Homestead/Over 65 Tax Exemption...................................................................................... 51

M.   Back-Appraisal of Property If Homestead Tax Exemption Erroneously Taken............................................. 51

N.    Redemption of Residence Homestead Sold at Tax Sale............................................................................. 52

 

XI.   ACTIONS INVOLVING THE HOMESTEAD................................................................................................. 52

A.    Pleading.............................................................................................................................................. 52

1.    The Homestead Defense Must Be Affirmatively Pleaded.................................................................... 52

B.    Proof.................................................................................................................................................. 52

1.    Homestead a Fact Issue................................................................................................................. 52

2.    Burden of Proof............................................................................................................................ 52

3.    Proof of Homestead Facts by Request for Admission........................................................................ 52

4.    Issue Submission.......................................................................................................................... 52

C.    Alternative Dispute Resolution............................................................................................................... 52

1.    Arbitration.................................................................................................................................... 52

 

ENDNOTES...................................................................................................................................................... 55