Buying Land In Texas
Types of Deeds:A deed is the legal instrument used to transfer title to real property in Texas. There are two primary types of deeds used to convey real estate in Texas, the quit claim deed and the general warranty deed.
With a warranty deed, the seller is making certain guarantees to the buyer. There are three basic covenants that the seller makes with a warranty deed: the covenant of seisen, the covenant against encumbrances, and the covenant of quiet enjoyment. The buyer and seller, of course, are free to add to or to omit some of these warranties; however, these warranties are what a buyer should expect in a "general warranty deed." The covenant of seisen is the seller's guarantee that he or she actually owns the property that they are selling and that they have the right to sell it. The covenant against encumbrances is the seller's guarantee that the property is free and clear of any encumbrances--e.g., tax liens, mortgage liens, etc. The covenant of quiet enjoyment is the seller's guarantee that if anyone shows up after the sale to challenge the buyer's rights to the property the seller will defend the buyer's rights.
A quit claim deed contains none of the gaurantees of a warranty deed. Basically, the seller is telling the buyer " if I own X piece of property, I am hereby selling it to you and you take it as is." This is the classic caveat emptor situation--buyer beware!
Types of Land Financing Contracts:
Buyers and sellers may with to finance the purchase and sale of property under a land sale contract. There are many types of land contracts, but the most common ones in Texas are: contract for deed (aka installment land contract or agreement for deed), deed of trust, and mortgages. Contracts for deed and deeds of trust are most often used with seller financing.
A contract for deed is commonly used on recreational property or raw land, and less seldom used on residential property (and in fact there are significant new restrictions under Texas law relating to their use for residential property). Under a contract for deed, the seller retains the legal title to the property while the buyer makes payments for the term of the contract. The buyer has equitable title during the term of the contract, meaning that the buyer has the right to access, use and development of the property. Legal title is transferred to the buyer by means of a deed at the end of the term of the installment contract. During the pendency of the contract, the buyer is responsible for all taxes and fees on the property. In case of default, the seller can "foreclose" by sending the buyer a notice of cancellation according to the terms of the contract and the seller then regains full title and retains all payments made by the buyer during the term of the contract.
Under a deed of trust, the legal title to the property is transferred to a third party trustee upon the sale of the property, and the seller retains a lien as a security interest in the property. The buyer retains equitable title, entitling the buyer to use and enjoyment of the land during the term of the contract. The deed of trust is recorded in the public records as notice to third parties that the seller has retained a security interest and that the property is not free and clear of encumbrances. The deed of trust is cancelled and the full title is transferred by the trustee to the buyer when the terms of the sale are satisfied. In case of default, the seller can instruct the trustee to foreclose on the property much like a contract for deed.
Under a mortgage, the seller conveys title to the buyer on closing. The party financing the mortgage then places a lien (recorded in the public record) on the property. The lien remains on the property until the terms of the mortgage are satisfied. Once the mortgage is satisfied, a release of lien is filed and the buyer owns the property free of encumbrances.
Severance of the Estate:
Many people buying land in Texas (or other mineral rich areas) encounter the concept of severed estates for the first time. In general, the ownership of real estate carries with it the right to use and develop from the surface to the center of the earth. In Texas, however, most real estate has been severed so that the surface estate is separately owned from the mineral estate. This means that while you may own the surface, someone else probably owns what's underneath (minerals on the surface belong to the surface owner).
As you might guess, in Texas the right to develop the mineral estate trumps the surface owner's right to stop someone from developing the mineral estate. The mineral rights holder has to pay the surface owner a reasonable rental fee for any portion of the surface used to develop the mineral estate--e.g., for the surface used to place a well--but the surface owner cannot stop the mineral rights owner from developing the mineral estate. Of course, there are limitations and the mineral rights owner cannot interfere with the surface owner's rights either--e.g., by building a catacomb of underground mines that causes the surface estate to collapse.
Generally, the severance of the surface and mineral estate is not something that needs to stop a buyer from purchasing real estate, but it is something to be aware of. You should ask yourself what the chances are that your property will be developed for minerals that are underground, and how would that effect your purpose in owning the property? As a note: I bought my last home in on a 1/4 acre lot and did not own the mineral estate--this did not bother me.
My father and I are both attorneys licensed and practicing in Texas. My father is also licensedin California and Nebraska. This guide, however, is not meant to convey legal advice. Instead, I hope that it will be a good primer for those interested in buying land online. See more information about our company at www.maklandcompany.com.
If there are topics you would like to see added to this discussion, please contact Andrew at email@example.com.