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Let’s Talk About Wrap Around Mortgages

Have you have ever considered entering into a 7 day notice on a wrap around mortgage transaction? If so you must be aware of the due on sale clause. A competent Houston Attorney from Guerra | Days Law Group can help, when it comes to a 7 day notice on a wrap around mortgage. This “due on sale clause” that we speak about is a clause in a deed of trust that allows the underlying lien holder to call the note due in full if there is a transfer of the property without paying the lien in full.

This can be very scary for potential buyers and sellers entering into these type of transactions in Texas. Please feel free to contact a Houston attorney.

All though the 7 Day notice applies to conveyances of property with any existing lien, this blog will be focusing on wrap around mortgage transactions.

Wrap around mortgage transactions are the most common conveyance of property with an existing lien.

To help lienholders find out if properties are being conveyed, Texas has created laws requiring notices from the Seller to the Buyer and lienholder.

Pursuant toTexas Property Code Sec. 5.016, Texas law requires the person conveying the property to provide a notice to the purchaser and each lienholder with the following information:

1

Identifies the property and includes the name, address, and phone number of each lienholder.

2

States the amount of the debt that is secured by each lien.

3

Specifies the terms of any contract or law under which the debt that is secured by the lien was incurred, including, as applicable:

  1. the rate of interest;
  2. the periodic installments required to be paid; and
  3. the account number;
4

Indicates whether the lienholder has consented to the transfer of the property to the purchaser.

5

Specifies the details of any insurance policy relating to the property, including:

  1. the name of the insurer and insured;
  2. the amount for which the property is insured; and
  3. the property that is insured;
6

States the amount of any property taxes that are due on the property; and

7

Includes a statement at the top of the disclosure in a form substantially similar to the following:

WARNING: ONE OR MORE RECORDED LIENS HAVE BEEN FILED THAT MAKE A CLAIM AGAINST THIS PROPERTY AS LISTED BELOW. IF A LIEN IS NOT RELEASED AND THE PROPERTY IS CONVEYED WITHOUT THE CONSENT OF THE LIENHOLDER, IT IS POSSIBLE THE LIENHOLDER COULD DEMAND FULL PAYMENT OF THE OUTSTANDING BALANCE OF THE LIEN IMMEDIATELY. YOU MAY WISH TO CONTACT EACH LIENHOLDER FOR FURTHER INFORMATION AND DISCUSS THIS MATTER WITH AN ATTORNEY.

Where is the 7 DAY Notice?

If the person conveying the property does not send the notice, the purchaser may terminate the contract for any reason on or before the seventh day after the date the purchaser receives the notice. This is not something you want to miss. It can have serious repercussions.

After reading that, you may be thinking “Won’t that tip the lienholder off and increase my chances of the due on sale clause being called if a notice is sent?”. Luckily the Texas statute has exemptions.

The following are instances where the 7 Day Notice is not necessary:

  • Under a court order or foreclosure sale;

  • By a trustee in bankruptcy;

  • To a mortgagee by a mortgagor or successor in interest or to a beneficiary of a deed of trust by a trustor or successor in interest;

  • By a mortgagee or a beneficiary under a deed of trust who has acquired the real property at a sale conducted under a power of sale under a deed of trust or a sale under a court-ordered foreclosure or has acquired the real property by a deed in lieu of foreclosure;

  • By a fiduciary in the course of the administration of a decedent’s estate, guardianship, conservatorship, or trust;

  • From one co-owner to one or more other co-owners;

  • To a spouse or to a person or persons in the lineal line of consanguinity of one or more of the transferors;

  • Between spouses resulting from a decree of dissolution of marriage or a decree of legal separation or from a property settlement agreement incidental to one of those decrees;

  • To or from a governmental entity;

  • Where the purchaser obtains a title insurance policy insuring the transfer of title to the real property; or

  • To a person who has purchased, conveyed, or entered into contracts to purchase or convey an interest in real property four or more times in the preceding 12 months.

Now What Direction Should I GO with a 7 Day Notice?

Most parties exercise the 10th option to eliminate having to send the 7 Day Notice. Obtaining a title insurance policy does increase the expenses of an owner finance transaction but it decreases the likelihood of the due on sale clause being called.

Although it is possible to get a title policy in an owner finance transaction, keep in mind not all title companies conduct owner financing transactions. It is important to have a competent title company conduct your owner financing transactions.

Owner financing deals can be tricky and it is important to seek legal counsel from a competent Houston Attorney like Guerra | Days Law, we can prepare documents on guide you through the process of owner financing transactions. Call our office today to speak to an Houston attorney that has experience with owner financing transactions.

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