All Forum Posts by: Gaylene Rogers lonergan

Denterrius, when you are ready to open your real estate business in Dallas, contact the Lonergan Law Firm, PLLC, and title closing office. This forum doesn't allow phone numbers to be posted so just look up http://www.LonerganLaw.com for our contact info. We specialize in serving the legal and title closing needs of real estate investors. Ask for my assistant, Moe, and tell her you would like to know about NOWREE meetings and Landlord Investor Network meetings to help you get started with your business in Dallas.

If the transaction is a non owner occupied, then there are no restrictions.  I have had the misfortune of running into a relatively new hard money lender in our market who twice now has taken deals that were completely worked and we were only waiting for funding and required that the transaction be moved to their "preferred" title company who they are more "comfortable" with.  The first time that happened my clients went ahead and closed at the preferred company with my assistance but ended up finding another more reasonable lender for future deals. As someone in this thread said, if you don't like the lender's rules, find another lender.  

Having said that if the transaction is an owner occupied consumer transaction actions like this lender's would be a clear violation of RESPA.

How will the new Texas Senate rulings on Wholesaling, Assignments and Double Closes affect your real estate business?

If your real estate investor business includes wholesaling, assignments and double closes, you need to know how you will be impacted by Texas Senate Bill 2212 after September 1, 2017. Here’s what you need to know.

Perhaps you have been helping buyers who have experienced financial struggles, divorce, the need to relocate for business, or other matters by purchasing their properties below market value and “assigning” your purchase rights to another person. It’s done every day in Texas. Everyone wins.

Will you be able to continue using this and related real estate investment strategies?

The Bill

Texas Senate Bill 2212, which was enacted in the recent legislative session, effectively changes the way wholesale properties are to be advertised and sold. Specifically the bill amends section 1101 of the Texas Occupations Code to add a new Section 1101.0045 and adds a new Section 5.086 to the Texas Property Code. The new statute takes effect September 1, 2017.

New Section 1101.0045

“(a) A person may acquire an option or an interest in a contract to purchase real property and then sell or offer to sell the option or assign or offer to assign the contract without holding a license issued under this chapter IF THE PERSON:

“(1) Does not use the option or contract to purchase to engage in REAL ESTATE BROKERAGE; AND

“(2) Discloses the nature of the equitable interest to any potential buyer.

“(b) A person selling or offering to sell an option or assigning or offering to assign an interest in a contract to purchase real property without disclosing the nature of that interest to a potential buyer IS ENGAGING IN REAL ESTATE BROKERAGE.”1

New Section 5.086 to Texas Property Code

“EQUITABLE INTEREST DISCLOSURE”

“Before entering into a contract, a person selling an option or assigning an interest in a contract to purchase real property must disclose to any potential buyer that the person is selling only an option or assigning an interest in a contract and that the person does not have legal title to the real property.”1

What is “Real Estate Brokerage”?

The Real Estate License Act that took effect June 1, 2003, defines what acts constitute “real estate brokerage”:

Specifically a “Broker” means a person who, in exchange for a commission or OTHER VALUABLE CONSIDERATION, or with the expectation of receiving a commission OR OTHER VALUABLE CONSIDERATION, performs for another person of the following acts:

(1) Sells, exchanges, purchases or leases real estate;

(2) Offers to sell, exchange, purchase or lease real estate;

(3) negotiates or attempts to negotiate the listing, sale exchange, purchase or lease of real estate;

(4) Lists or offers, attempts, or agrees to list real estate for sale, lease or exchange;

(5) Auctions or offers or offers, attempts or agrees to auction real estate;

(6) Deals in option on real estate, including a lease to purchase or buying, selling or offering to buy or sell options on real estate;

(7) Aids or offers or attempts to aid in locating or obtaining real estate for purchase or lease…2

What is the effect on wholesale (assignment) transactions?

1) Must disclose in any advertising to buyers that the wholesaler does not own legal title but only equitable title as buyer under a contract;

2) Should offer to sell only the contract, not the property for a designated Assignment Fee price;

3) Assignment Contracts will need to be amended to specify that the wholesaler is only offering an assignment fee for a set fee; and

4) A new disclosure probably should be added to the closing documents for a buyer to sign at closing acknowledging that they were advised that the wholesaler did not own the property and they were aware of the nature of their interest.

Possible Examples of Advertising Dos and Don’ts

“973 Smith Street for Sale - $100,000”

Constitutes real estate brokerage pursuant to the Occupations Code – Offering the underlying real estate for sale.

“Assignment contract for real property at 973 Smith. Assignment fee of $10,000 payable to XYZ Wholesaler”

Should comply with the new Property Code provision and does not constitute real estate brokerage as it does not market the underlying real estate.

Will this effect double close transactions?

Although not directly addressed by the new law, a wholesaler could have an issue on a double close transaction as well.

In particular the wholesaler would still would have to be careful in advertising a property that they do not own. Doing so could cause the advertising to fall within the definition of real estate brokerage.

One fix could be to just add in advertising:

“Under contract – offering 973 Smith for $100,000 subject to XYZ Wholesaler’s closing on the purchase”

Penalties for Noncompliance

Section 1101.758 Texas Occupations Code

(a) A Person commits an offense if the person acts as a broker or sale agent under this Chapter without holding a certificate.

(b) An offense under this Section is a Class A Misdemeanor.

This would be a Class A misdemeanor for EACH OFFENSE.

Multiple Class A Misdemeanors can result in a Felony Charge.

In addition, the Occupations Code provides for a private cause of action for violations such as receiving consideration as a result of acting as a broker. The aggrieved person may receive a penalty of not less than the amount of money received or more than three times the amount received by the violator.3

Conclusion

Wholesaling in Texas can be a lucrative endeavor. However, under this new law, changes are going to have to be made in the way wholesale investors market their properties. Once the law goes into effect in September 2017, we will see how this new law is enforced and investors will need to adjust their behavior accordingly.

1Texas Senate Bill 2212. LegiScan. https://legiscan.com/TX/text/SB2212/id/1557149. Retrieved July 25, 2017

2 Texas Real Estate License Act. Texas Legislature. http://www.statutes.legis.state.tx.us/Docs/OC/htm/OC.1101.htm. Retrieved August 3, 2017.

3 Texas Occupations Code. Texas Legislature. http://www.statutes.legis.state.tx.us/?link=OC. Retrieved August 3, 2017.

If you reside in Texas, homestead protection is built into the Texas Constitution. It allows you to maintain your home free from the possibility of seizure by certain creditors. This protects Texas citizens from having their home taken from them in order to satisfy a judgment from creditors. And Texas is the only state that provides such safeguards.

Even if your salary is in the millions and you own a home in which you reside, you can have multiple judgments from creditors against you and basically be secure from those creditors because of the homestead protections under our state Constitution.

Under what conditions does the Texas Constitution actually protect your homestead from creditors?

The Texas Constitution protects Texas families or single adults from being forced to sell their homestead in order to pay debts and judgments. Although there are exceptions, these provisions are a great asset for homeowners. When you understand the basics, you can determine how this information can help you personally and how you can educate your real estate clients.

What is the definition of a “homestead”?

Possession of, actually living on, and using the real estate as your home is what makes the property a homestead in the eyes of Texas. If you don’t actually reside on the property, evidence of preparation for occupancy is needed. For example, a vacant lot can qualify so long as the owner expects to build a home on it. While mobile homes alone do not qualify, a mobile home permanently attached to real estate can be a homestead. These protections are applicable exclusively to individuals and families; however, only one property can qualify for homestead protection.

What is excluded from homestead protection?

1. Corporations, partnerships, and LLCs
2. Owner-financed mortgages
3. Financial transactions between spouses related to divorce
4. Taxes on the property and/or federal tax liens against both spouses
5. Home improvement loans
6. Reverse mortgages
7. Home equity loans
8. Liens that predate the homestead’s establishment
9. Conversion or refi of a lien on a mobile home that is attached to the homestead
10. Debtor’s ownership in corporations or business partnerships

How do the homestead protections affect real estate investors and their transactions?

Many times in connection with distressed properties which happen to be the seller’s homestead, the homeowner/seller will have liens and judgments against them for outstanding credit card debt and other consumer type indebtedness. These liens and judgments must be cleared from title in order to close with a title acceptable to the buyer. This is the case, although under the homestead provisions, these liens are not valid against someone’s homestead. Title underwriters, however, take the position that they are not going to determine what is and what isn’t someone’s homestead so these must be cleared in order to issue title.

Under Texas law, it is unlawful for a creditor to refuse to partially release a lien such as the above that is clouding the title of a person’s homestead. These liens can be cleared from the homestead often without the payment of any money to the creditor if attacked properly.

Another key point to remember is that homestead protection is only available to a primary residence, so we recommend that investors place their investment properties in an LLC or other entity structure to protect these properties from any personal creditors.

Texas homestead provisions protect a non-owner spouse.

One of the benefits to families of this protection is that the residence cannot be sold or financed with a lien without the express joinder of the non-owning spouse.

From the early days of the Texas Republic, our leaders felt the need to protect the spouse and children from the unilateral actions of the spouse holding the title to the family’s home. Our public policy has always placed a premium on maintaining the family home.

So if you, as an investor, are purchasing someone’s home (whether by cash, subject to, or with a loan), you must have BOTH spouses execute the Warranty Deed or there will be title issues down the road.

The title company will probably require the seller to execute a Marital Status Affidavit, in which the seller swears under oath to his/her marital status since owning the real property. This is essential for the title company to make sure that all required parties execute the warranty deed and other closing documents.