Sub2's illegal in TX

[NoMoneyDown]

Funny story.

So I contact a local title company with a few questions to ask.  One of the questions I ask was if they handle closings whereby I take ownership of the property subject-to the existing financing.  After explaining the difference between "subject-to" and "assumption", the lady says that "not only do they NOT do subject-to closings, but that they are illegal in the state of Texas."  Huh?!?!  It amazes me how much people who are in the RE profession everyday know less than I do about things.  Ugh!

[Tallboy61]

You should call them back and ask them what lines 203 and 503 are still doing on the HUD-1 then.

Gary

[NoMoneyDown]

Actually, I almost did ask her about those exact lines, but after spending 5 minutes trying to tell her the difference between a "subject-to" vs, an "assumption", I thought it best not to spend anymore time.  

[wells]

When I first started researching, I once had a Realtor TM try to tell me that conducting any RE transactions without a real estate license was illegal in Illinois.  I asked her what about all the FSBO services or people who just hang a sign outside without using any service. She gave a very technical explanation--"well, that's different." Upon further digging, I learned that it's different because, according to my learned professional advisor, "it just is."

I am learning that among many people I'm encountering in my REI learning process, the phrase "that's not legal" is code for "but if you do that, what do you need me for?"or "I don't understand that process and damned if I ever admit it"

[kdhastedt]

Tallboy1,

Are you any relation to Mike Novosel, the aviator?

Keith

[David A. Hurlbrink]

As of 1 October 2005, they are illegal in the great state of Texas as are any forms of seller assisted financing, unless the seller owns the property free and clear. A lease purchase is a bi-lateral contract for a purchase and the current Texas law requires that under any contract for a purchase, the deed must be delivered within 6 months of the execution of the contract.
Good news though: All L/O's and CFD's extant prior to the amendments to SB 629 and HB 1823 are grandfathered, and each such transaction is to remain in full force and effect and original intent without penalty.
Texas just became almost impossible to do business in.
Good luck,
Dave

[TonyDiCorpo]

As of 1 October 2005, they are illegal in the great state of Texas as are any forms of seller assisted financing, unless the seller owns the property free and clear. A lease purchase is a bi-lateral contract for a purchase and the current Texas law requires that under any contract for a purchase, the deed must be delivered within 6 months of the execution of the contract.
Good news though: All L/O's and CFD's extant prior to the amendments to SB 629 and HB 1823 are grandfathered, and each such transaction is to remain in full force and effect and original intent without penalty.
Texas just became almost impossible to do business in.
Good luck,
Dave

huh?  are u talking about Subject 2, the title of this thread?

[David A. Hurlbrink]

.....any forms of seller assisted financing. Call me if you ever run into probs in Texas, I may be able to bail you out.
Regards,
Dave

[NoMoneyDown]

.....any forms of seller assisted financing.

Contract For Deed and Lease/Options I can understand, but ALL?  So I can't do an All-Inclusive Trust Deed anymore?  Are you 100% sure?  If so, this would be news to me, and I've talked with many seasoned investors in Texas about the new law.

[TonyDiCorpo]

as i understand the law, it's only on executory contracts.  an executory contract is a contract which has not yet been completely fulfilled by one or more of the parties, as in CFD, L/O.  using a wrap, as i understand is fullfilling the contract of sale because u convey title.

[mtnwizard]

Like NoMoneyDown, I was also of the opinion that you could use an AITD for a subject 2 in Texas but I guess I was wrong.

This bill converts ALL residential home leases containing a purchase option into "executory contracts". For newbies, an executory contract is considered a sale under IRS tax rules, whereas a lease with option is not. This will result in DRASTIC adverse tax consequences to investors who cannot take advantage of long term capital gains rules.

The bill requires that any seller of a property under an executory contract own property free and clear of all liens. There are many cases where this would be impractical, since creative financing is often a solution to a property that is difficult to sell.

It is my opinion that not ALL subject 2's are illegal in Texas.  When using a land trust, conveyance is not of realty but personalty, and does not pertain to the execution of a contract to purchase real estate.

An analogy might be that of the leasing of a car wherein the lessee has virtually 100% of the benefits of ownership of the car without a title transfer; but does never own the vehicle until/unless he or she would decide to buy it for its Fair market value at the termination of the agreement. The lessee has the first right to purchase, but is under no obligation to do so, and receives no more of a contracted bargain price than would anyone else buying the same car if the lessee opted not to.

The "substance over form" argument should come into play only if the simultaneous contracts were fully dependent upon one another to accomplish a stated objective. In the case of a land trust, the lease agreement and the trust document are independent of one another.  It is my understanding that in these transactions, there is no "sale" which helps to avoid the due on sale clauses and tax reassessments.

[NoMoneyDown]

as i understand the law, it's only on executory contracts.  an executory contract is a contract which has not yet been completely fulfilled by one or more of the parties, as in CFD, L/O.  using a wrap, as i understand is fullfilling the contract of sale because u convey title.

This is my exact understanding also.

[David A. Hurlbrink]

Yes, it appears you'd be clear that way assuming you can deliver title free of all liens and encumbrances within 180 days. At least that's what I'm reading into it. I enjoyed the great exchange of ideas from this thread. Good luck, all you Texicans! Remeber the Alamo!
Regards,
Dave

[TonyDiCorpo]

as i understand it, using a wrap is not leasing with an option to buy, nor is it CFD becuz the title conveys to the seller upon execution of the sales contract.  the title does not have to be free and clear on a real estate sale.  the bill itself defines it's agenda, as it states: "a purchaser of real property under a contract for deed, executory contract, or other executory conveyance".

so as i read it then, Bobby Buyer cannot buy any property from Sammy Seller unless it's title is free and clear, meaning that the state of Texas will not allow any houses sold in it's state even conventionaly becuz the seller's house has a current mortgage on it.  in essance, they have just halted the residential real estate market in TX.

[David A. Hurlbrink]

Tony,
  Maybe you acquire the property under a wrap and you're good to go under current TX law. What do you do now? If you rent it out, the original seller has to give title in 6 months, as I understand it. You, as the investor, obviously can't L/O it long term for positive cash. Do you have any thoughts on how to structure the back end of the deal so the investor can make some cash? Thinking out loud here...
Dave