Texas "Transfer on Death Deed" Inches Closer to Becoming a Reality

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

The proposed "Texas Real Property Transfer on Death Act" was passed by the Texas Senate on April 9, 2015, and appears poised to be passed by the Texas House (if time doesn't run out before the end of the 84th Legislative Session).  

This legislation, sponsored primarily by Rep. Jessica Farrar (Houston's 148th District) seeks to establish a Transfer of Death deed instrument in Texas. According to the bill analysis, the proposal is a response to the common scenario where a Texas real estate owner passes away intestate (without a will), and their property passes by intestate succession to certain categories of heirs defined by statute. 

This can lead to a cloud on the title due to multiple family members co-owning the property.  Sometimes these heirs are not on good terms, are not in contact, or are otherwise incapable of having common ownership of the inherited property.  This seems to be a particularly frequent problem for low-income homeowners in Texas who cannot afford a lawyer to prepare a will, or whose heirs cannot afford to probate a will after the death.  In such instances, consolidating ownership can be so costly and complicated that families abandon or otherwise lose their property. 

The legislation suggests that the newly-conceived transfer on death (TOD) deed instrument would allow heirs to efficiently obtain clear title to property, and serve as an alternative to probate for real property insofar as a TOD deed would be considered as a "will substitute" for real property (thereby 

allowing a property owner to transfer real property to a named beneficiary upon the owner's death without the need for the beneficiary to go through probate).

If successful, the "Texas Real Property Transfer on Death Act" would be added as a new Chapter 114 of the Texas Estates Code, effective September 1, 2015.

Changes in Life Circumstances May Require Deed Changes

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

Each week we receive several calls from folks whose life circumstances have changed, and, as a result, they desire to change the name on a deed.  The typical requests relate to marriage and/or divorce, and consist of adding or removing another individual's name to the title of residential real estate. In other cases, property owners wish to grant property to loved ones.

While the process of creating a deed or other legal instrument to convey or change title is somewhat simple for an experienced Texas real estate lawyer, the implications and legality of such an instrument may be more complex. Here are some important considerations associated with adding or removing names from existing deeds:

1.  Removal of a person's name from title to property does not alleviate that person from mortgage or other indebtedness. Stated simply, if you are a borrower (or co-borrower) on a loan for the purchase of real estate, conveying your interest in title to another person (including your co-borrower) does not in any manner absolve you of your indebtedness under a mortgage note.  The note is a contract between you and the lender, and unless such lender agrees to allow a co-borrower to assume the full indebtedness, you are still "on the hook" for the loan, even if you do not reside in or desire to own the collateralized property.

2.  Likewise, addition of a new spouse's or other person's name to title to property encumbered by a mortgage lien (or deed of trust evidencing such an encumbrance), does not mitigate the existing borrower's obligations under mortgage note indebtedness, or work as an assumption by the added-person of the mortgage note balance.

3.  Conveying an interest in the property could violate the terms of an existing mortgage lien (deed of trust), and result in acceleration of the entire mortgage balance. Most deeds of trust contain a "due on sale" clause. This clause should be reviewed before changing title to real property that is not owned free and clear of any indebtedness.

4.  Adding a spouse's name to real property might change the character of that property from separate property to community property. This is all well and good until a divorce is looming or inheritance of the property is considered.

If you have considered these factors, and still desire to move forward with making deed changes, you should be sure that a real estate lawyer who is knowledgeable about deed drafting and real estate transactions handles the process for you.