Underwriting Bulletin 2022-01

Posted on by Aaron Rich

Date: February 16, 2022
To: AGENTS OF TEXAN TITLE INSURANCE COMPANY
From: TEXAN TITLE INSURANCE COMPANY UNDERWRITING
RE: PRETENDED SALES – INCREASED RISK WHEN TRANSACTIONS INVOLVE FAMILY MEMBERS

Home equity lending was legalized in Texas on January 1, 1998; for the first time Texans could place a lien on their homestead to secure a cash withdrawal.  Many requirements were established by the Texas constitution which were carried over into TDI forms and rules.

Over time, scenarios arose where a homestead claimant tried to extract cash from their homestead without complying with the HEL laws.  Although HELs are now legal we cannot insure pretended sales of homestead transactions.  We established guidelines for these situations to protect us from loss.

  1. When someone is selling their homestead to a relative, the risk is that the transaction is merely an attempt by the seller to pull equity out of the homestead without taking out a home equity loan and complying with HEL requirements. In other words, it is a “pretended sale.”
  2. Require a Homestead Designation and Disclaimer from the seller. Remember that someone cannot disclaim a property as homestead unless he owns other property in Texas which he then designates as his homestead.  Merely renting other property will not suffice to support a homestead disclaimer of property the seller owns.
  3. If the seller can disclaim your property as homestead by designating other property as homestead you may proceed with the transaction without making any special requirements.
  4. However, if the seller cannot disclaim your property as homestead, regardless of whether the seller intends to vacate the property being sold, then place these 2 exceptions in the Loan Policy:

Exception 1:       Any claim of homestead interest in the property asserted by (insert seller’s name).

Exception 2:  Any failure of title by reason of: (1) any claim, assertion, or determination that the vesting of title in (name of buyer) was not a bona fide sale, but was instead a pretended sale; or, (2) any claim, assertion or determination that deed vesting title in (name of buyer) constitutes a mortgage or other security device.

  1. These rules do not apply to cash sales, only to sales with a 3rd party lender.

Please contact TTIC Underwriting if you have any questions.