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Article of Interest

Buy, Buy, Buy, Sell, Sell, Sell When the Market is Still Great: Now, When Do I Take Possession of My New Home?
By: Sean A. Clemmensen

A Quick History Lesson on Interest Rates

While other factors such as inflation, incomes, and GDP growth can certainly affect the purchase and/or sale of homes, interest rates are one of the most important determinants over the long term.  Generally, the Texas real estate market has benefited, as have all markets across the United States, from historically low mortgage rates.   And, while there has been a spike in mortgage rates recently, the highest level in two years, mortgage rates are still low by historic standards.  For example, as seen in Figure 1 below, a 30 year Fixed Rate Mortgage in July 2000 was approximately 8%.  In contrast, that same mortgage in July 2013 was 4.5%.

 
Figure 1. Historic Interest Rates.¹

As rates rise, mortgage payments will be increasingly higher for a given home price, resulting in declining affordability³.   What does this mean for us, the buyers – there is no time like the present.  Now is the time for potential buyers to lock these rates in before any potential future increase. 

PURCHASING YOUR HOME AND A TITLE COMPANY’S ROLE

You have decided that interest rates are still great, your application for a mortgage loan has been approved, you have received a commitment letter⁴  from the lender, and you have chosen a home you love, what now. The final step before you can call the house your own is the closing, or settlement, of the purchase transaction and mortgage loan. Even though the purchase agreement has been signed and the loan request has been approved, you have no rights to the property until legal title to the property is transferred to you and the loan is closed.  This is where a title company takes over.   

At any real estate closing, the parties involved must be assured that the title of the subject real property is as represented and expected. #huh? #explain.  Title insurers seek to “eliminate” all risks of the title defects rather than to “assume” risks, like most typical insurance.  To do this, the title company handles the actual closing to assure that the documents necessary to convey title have been properly executed and filed, and that all previous interests in the property have been disposed.

A Real Life Example

For example, if a person dies without a will, and the deed to the property does not expressly include joint tenancy with survivorship language, then concerns arise as to which persons have title to that property. This property is regularly referred to as “heirship property.⁵”  A title company will not issue title insurance until heirship issues are resolved. This can be done by (1) a probate proceeding in county court or (2) an “affidavit of heirship” followed by a curative deed signed by the heirs.

Title companies typically require an affidavit executed by an immediate member of the family and corroborated by at least two disinterested parties containing the marital history of the deceased and his spouse and a complete list of heirs, together with an original death certificate attached.

An Affidavit of Heirship is used to describe the heirs of a deceased person pursuant to the Texas Probate Code⁶.  The affidavit must be signed under oath by a person familiar with these facts, and then filed in the real property records of the county where the property is located⁷.   When a person dies without a will, that person died intestate⁸.  In this situation, the Texas Probate Code has specific rules, referred to as the rules of intestate succession⁹.  If a person dies intestate, then the State of Texas, basically, has made a will for that person.

If the decedent is unmarried, then Section 38 of the Texas Probate Code applies, providing that the property goes in equal shares to the children, if any. If not, then the property goes in equal shares to the parents¹⁰.  If the decedent was married, then community property is involved, and Section 45 applies¹¹. 

A good affidavit refers to specific sections of the Probate Code and reaches a conclusion as to the proper heirs. To cure title of heirship issues outside of court is usually a two-step process, or in Texas what we like to call, The Texas Two-Step.

First, a statement of facts, in other words, the affidavit of heirship, concerning the family history, genealogy, marital status, or the identity of the heirs of a decedent must be prepared and signed by someone with first-hand, personal knowledge¹².   Texas Probate Code Section 52A offers a suggested form for this affidavit.  Probate Code Section 52 provides that the affidavit will be presumed to be true “if the affidavit or instrument has been of record for five years or more in the deed records of any county in this state in which such real or personal property is located¹³. . .”  

Second, in addition to the heirship affidavit, a special warranty deed is required to consolidate title into a single heir who may then either keep or sell the property. All heirs named in the affidavit of heirship must sign the deed. Both the affidavit of heirship (filed first) and the special warranty deed (filed second) are filed in the real property records of the county where the property is located.

The above example happens and it is the title company that helps resolve these issues so that the closing can occur smoothly and timely.   This is just one of the many responsibilities that fall on title companies.   Additionally, the title company actually handles the closing of the transaction by coordinating all parties - the lender, the buyer and the seller - and assembling all necessary documents and preparing, based on the contract of the parties, the settlement statement (HUD-1).  Title companies also collect and disburse the loans and sales proceeds, in other words, handle all the money involved in the closing. After the closing, you can take possession of your home.

CONCLUSION

Real estate, and most often a person’s home, has always been considered a person’s most valuable possession.  A few years ago people were running over each other to get a 4.5% interest rate.  Now, people are concerned by the rising interest rates.  While not ideal, history shows that the interest rates are still very much favorable.  Buy, buy, buy and sell, sell, sell. Again, there is no time like the present.

Sean A. Clemmensen is General Counsel and a Managing Partner of Tiago Title, LLC.

¹Mortgage News Daily, Average Mortgage Rates July 2013 (August 13, 2013)
³K.C. Hayes, Impact of Rising Mortgage Rates on the Housing Recovery, ValueWalk, July 16, 2013, at Chart 2
⁴A commitment letter is a lender’s written offer to grant a mortgage loan, which generally outlines the loan amount, the interest rate, and additional terms. See BLACK’S LAW DICTIONARY 289 (8th ed. 2004).
⁵US Legal, Heirship Affidavit; see also TEX. PROBATE CODE SECTION 52A (2009).  
⁶See TEX. PROBATE CODE SECTION 52A (2009).  
⁷See id. 
⁸See BLACK’S LAW DICTIONARY 840 (8th ed. 2004).
⁹See TEX. PROBATE CODE SECTION 38 (2009).  
¹⁰See id.
¹¹See TEX. PROBATE CODE SECTION 45 (2009).  
¹²See id. at SECTION 52.  
¹³See id. at SECTION 52A.