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Note:
PowerPoint and audio for the January 15, 2015, “Trust - Types” webinar should now be available on our website.
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For this webinar, please include “Rural Lands” in the subject line of your email.
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ADDITIONAL HOUSEKEEPING INFORMATION
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attorneys who own title agencies which are Stewart Title Guaranty Agents
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Stewart entities
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which category you are in.
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Department of Insurance.
Rural Land Title Issues 2015
Charlie Craig
Associate General Counsel & Texas Underwriter
Stewart Title Guaranty Company
Austin, Texas
(512) 236-0405 [email protected]
Rural Land vs. Urban Land
Issues to be Discussed:
1. Homestead Protections for Debtors
2. Land Use Designations and Roll Back Taxes
3. Parties in Possession
4. Access Issues in the Rural Context
5. PACA/PSA Federal Agricultural Liens
1. Homestead Protections for Debtors
Deeply rooted in Texas history, dating back to Stephen F. Austin’s original
colony, adopted by the Republic of Texas, and imbedded in the original Texas
Constitution of 1845, and continues to today.
Some Homestead Protections near and dear to our hearts:
• No forced sale - except for certain (8) categories of debt (Const. Art. VXI §50)
• Cannot be sold or encumbered without the joinder of the spouse (Id., and
Family Code §5.001)
• Surviving spouse rights (Tex. Const. Art. VXI §52)
• Protected proceeds from sale of homestead (Tex. Prop. Code §41.001)
• Need for written contract for liens on improvements (Const. Art. VXI §50 (5))
• Can be “exempt” property in bankruptcy proceeding (11 U.S.C. §522)
.
1. Rural Homestead : What is it?
Under Texas Constitution Article XVI, Section 51:
“The homestead, not in a town or city, shall consist of not more than two
hundred acres of land, which may be in one or more parcels with the
improvements thereon; …”
- Homestead Maximum is 200 acres;
- Can be multiple parcels;
- Parcels do not have to be contiguous, or even close to each other.
.
1. The Rural Homestead: What is it?
Under the Texas Property Code, §41.002:
…(b) if used for the purposes of a rural home, the homestead shall consist of:
(1) for a family, not more than 200 acres, which may be in one or
more parcels, with the improvements thereon; or,
(2) for a single, adult person, not otherwise entitled to a homestead,
not more than 100 acres, which may be in one or more parcels, with
the improvements thereon.”
Note: statute says “family”, not just married couple - not defined! “Family” may
include individuals with minors or adults that live with them as dependents:
e.g., sister and disabled brother;
divorced parent and minor – sometimes there, sometimes with ex-spouse;
grandparents and grandchildren, or widower w/o dependent kids;
1. Comparing the Urban Homestead
Under Texas Constitution, Article VXI, Section 51:
“… the homestead in a city, town, or village, shall consist of a lot or
contiguous lots amounting to not more than 10 acres of land, together with any
improvements on the land…”
- Maximum homestead protection is 10 acres;
- Must be contiguous parcels, adjoining, next to, touching;
- Watch out for parcel across the street/alley, or platted lots that
extend to the center of an alley or street.
1. Comparing the Urban Homestead
Under Texas Property Code, §41.002 “Statutory Test”
…“(c) A homestead is considered to be urban if, at the time the designation is
made, the property is:
(1) located within the limits of a municipality or its extra-
territorial jurisdiction or a platted subdivision; and,
(2) served by police protection, paid or volunteer fire protection,
and at least three of the following services are provided by a
municipality or under contract to a municipality:
(A) electricity
(B) natural gas
(C) sewer
(D) storm sewer
or (E) water. ”
1. Rural vs. Urban Homestead
• Rule of thumb: all homesteads that do not meet the Statutory Test for
Urban property are considered Rural up to the rural limits discussed.
• Only 1 homestead: Whether rural or urban, debtor can claim only one
homestead. No “in-betweens”.
• Can review/accept an “Non-Homestead Affidavit” claiming and
disclaiming homestead property.
• There is no longer a separate “business homestead” designation; homestead
means occupied as a residence, (even if also operate a business out of the
home).
1. Homestead Issues
Abandonment as homestead depends on the intention of the owner:
• removal, even to another state, does not by itself constitute abandonment of
the homestead,
• so long as no other homestead is acquired and
• the owner intends at all times to return to and occupy the premises as a
homestead.
City National Bank of Bryan v. Walker, 111 S.W.2d 350 (Tex.Civ.App.—Waco 1937);
Condit v. McKeithlan, Case No. 11-41305 (5th Cir. 2012)
Any temporary renting of the homestead does not change the character, when
no other homestead has been acquired.
Tex. Const. Art XVI§51; Tex. Prop. Code §41.003
2. Land Use Designations and Rollback Taxes
Rural Properties can be subject to “Special Use Designations” or classifications
depending on the land’s usage.
Special Use Designations are under Tax Code, set by Tax Appraisal Districts and
result in a reduced valuation for Tax –Appraisal purposes:
Tax Code §23.51(1) Qualified Open-Space Land
Tax Code §23.41 and 23.51(2) Agricultural Use
Tax Code §23.51(2) and (7) Wildlife Management
Tax Code §23.71 Timber Land
Tax Code §23.81 Recreational, Park or Scenic Use
Tax Code §23.91 Public Access Airport Property
2. Land Use Change under Texas Tax Code §23.55
Land Use Change = Rollback Taxes
A “land use change” (e.g., from Ag to Residential use, etc.) can result in
additional taxes imposed for each of the 5 years preceding the year when the
land use change occurs
- Additional tax is the difference between the assessment at the special
use valuation and the assessment at market value… for the previous 5
years!
(b) A tax lien attaches to the land on the date the change of use occurs to
secure payment of the additional tax and interest and any penalties
imposed….
…(i) Construction of homestead improvements on Special Use designated
land is not a “land use change” for purposes of triggering rollback taxes,
but TAD will usually re-designate one acre for the home to residential
use.
2. Insuring Against Rollback Taxes: Rule P- 20
• Each policy in Texas (T-1 OP, T-2 LP, T-2r) insures against “lien of real estate
taxes or assessments imposed on the Title by a governmental authority due or
payable but unpaid”
• But each policy limits that coverage in Schedule B through exceptions in various
forms.
• As to Rollback Taxes, each policy includes an exception (Sch.B3) that includes the
following language “… and subsequent taxes and assessments by any taxing
authority for prior years due to a change in land usage or ownership…”
• “Insuring against rollback taxes” means deleting the phrase “and subsequent
taxes and assessments by any taxing authority for prior years due to a change in
land usage or ownership…” from the Schedule B exception
2. Insuring Against Rollback Taxes: Rule P-20
“Insuring against rollback taxes” can be done ONLY on the Loan Policy
and Interim Construction Binder
- NOT allowed for the Owners Policy – purchaser always assumes the risk
of rollback tax assessment
P20-B2: Rollback Taxes Coverage only allowed when:
1) the title company has proof in the file that the property is NOT subject
to Agricultural, (Wildlife) or Open Space tax designations; OR
2) rollback taxes for the current year and prior years have been (i)
assessed, (ii) are collected at closing and paid at closing or “in the
ordinary course of business” i.e., by the end of the year
2. Insuring Against Rollback Taxes: Rule P-20
• No discretion allowed in giving coverage.
• No affidavit for “No Change of Use” can allow for rollback tax coverage
on any owners policy;
• Must comply with P-20 B2 on Rollback Taxes
The “Insuring against rollback taxes” deletion is done by one of the following:
- box check-off on the T-2 or T-2R Loan Policy forms; or
- line through the exception phrase on T-2 or T-2R Schedule B; or
- produce electronic form T-2 or T-2R omitting the phrase; or
- issue a T-30 Tax Deletion Endorsement.
See, STG Bulletin TX 20100009
3. Parties in Possession: Rural Lands and P-3
Rights of Parties in Possession is a more unique issue when
insuring rural lands than urban. Examples include:
• Unrecorded Farming or Ranching Leases – whose tractor is that? Whose
cattle is that? Miniature Donkeys? Buffaloes? Llamas? Emus?
• Unrecorded Hunting Leases – whose deer blind, deer feeders are those?
• Moved livestock fences - errant cross-fencing can lead to litigation
• Oil and Gas Wells/Commercial Water Wells - surface use rights?
• Lease recorded, but expired. Tenant still in possession?
• Utility/Pipelines/Transmission Lines – is there an easement of record in the
county records or not?
– May be referenced in a different instrument or property description and not
in a separate recorded easement, or not at all.
3. Parties in Possession: Rural Lands and P-3
In Texas, a purchaser or mortgagee of real property is automatically charged
with notice of the rights claimed by those parties in possession of any part of
the property, even though no notice of such rights may appear in the land
records.
Under TDI P-3: PIP means “one or more persons who are themselves actually
physically occupying the property or a portion thereof under a claim of right
adverse to the record owner of the property as shown on Schedule A of the
policy.”
• does not include any right claim or interest evidenced by a document
recorded in the county where all or part of the property is located.
3. Parties in Possession Exception: P-3
Some people in Texas may think that the PIP Exception is to be done as matter of
course in every commitment /policy – NOT REALLY.
TDI P-3, VU 15.04.1 : In order to place the PIP exception in the policy, the INSURED
must execute a written waiver, waiving inspection of the property by the title insurer
and will accept the policy with the PIP exception in the policy.
• If no waiver given, you must delete the exception and then make a physical
inspection of the property – yes, put your boots on and go out there to see for
yourself.
• Inspections cost. So TDI says you may charge your “reasonable and actual”
costs to inspect, in addition to premium – determined by the size, location and
distance from your office
• If your inspection reveals PIP, you must make a specific exception to the PIP.
– See also, Bulletin TX2012007
3. Parties in Possession
Waiver by Owner’s Affidavit? Will review on case by case basis. Affidavit
must affirmatively state “there are no parties in possession”.
General PIP Exception does not take the place of a specific exception for
written and recorded instruments. Use specific exception for each recorded
adverse interest.
Surveys, Satellite Imagery
• does not usually replace need for an inspection where no waiver
obtained; but we can consider a current aerial survey on case by case
basis – call your Texas underwriter
• but can be a good starting place prior to going out there
• can help verify Owner’s Affidavits as well
4. Access in the Rural Context: Easements
Examples:
Trails or roads to neighboring parcels; from one adjacent pasture to another
adjacent parcel; or to a highway via across another’s land.
Access is the legal right of access to a public road, highway
• Usually abuts a public road, street, or is in a valid recorded subdivision
that has access to public street
• When property does Not have legal right of access, access usually gained
only by crossing another’s land that abuts the public road. Permission, if
granted, will usually be by a private right of way agreement/deed
a.k.a. = Easement
4. Rural Access: Easements Types
Easement Appurtenant – grants an interest in the “servient” land (land
burdened by the easement) in favor of the “dominant” land (land benefited by
the easement);
– in writing and recorded;
– “runs with the land”, = is an interest in the servient land;
– usually for a specific purpose – read the easement deed/agreement terms!
– is the only insurable easement interest
Easement in Gross – vests in the person, not the land; usually not recorded;
does not run with the land; not favored.
By Law/Equity: Prescriptive Easement/ Easement by Estoppel/ Implied
Easement / Equitable Easement / Easement by Necessity
4. Access in the Rural Context: Easement Issues
Merger of dominant and servient lands of the Easement into same owner
Abandonment of Easement by non-use
Overburdening the Easement by excessive use or other use outside the scope
or purpose of the easement
Easements by Necessity implied for roadway access to landlocked, previously
unified parcel – necessity at the time of severance, and continuing thereafter
• Check with your Texas Underwriter on these
Unrecorded Easements
If you suspect an unrecorded easement, you may need to inspect the land.
Review Surveys, Satellite Imagery
• can be a good starting place prior to going out there; we can review aerial
surveys on a case by case basis – call your Texas Underwriter
• helps verify Owner’s Affidavit’s on use, access rights, easements granted, etc.
4. Access in the Rural Context : Cemeteries
Any person who wishes to visit a cemetery that has no public ingress or egress
shall have rights for visitation during reasonable hours and for purposes
associated with cemetery visits. Health and Safety Code§711.041
• Davis v. May, 135 S.W.3d 747 (Tex.App.–San Antonio 2003, pet. denied),
descendants have the right of ingress and egress to a private family cemetery
surrounded by a single landowner
• The owner of the lands surrounding the cemetery may designate the routes
for reasonable access, but cannot deny access.
• H&S Code §711.0521: interference with ingress and egress is a Class C
criminal misdemeanor.
4. Access in the Rural Context : Cemeteries
Old Cemeteries: Abandonment?
• As long as the remains of the dead buried in a cemetery have not been
removed and tombstones mark the places of burial, is sufficient to show
that the cemetery has not been abandoned. Michels v. Crouch, 122 S.W.2d
211 (Tex. Civ. App.–Eastland 1938, no writ).
• Land outside a cemetery fence was not abandoned because several graves
were still evident. Markgraf v. Salem Cemetery Assn., 540 S.W2d 524
(Tex. Civ. App.–San Antonio 1976, no writ).
If you have a property involving a cemetery, contact your Texas
underwriter.
5. Federal Liens Involving Agriculture - PACA
The Perishable Agricultural Commodities Act of 1930 (7 U.S.C. §499a et seq.)
imposes a “trust” (lien) on commercial produce buyers in favor of unpaid suppliers
(farmers), sellers and agents/brokers of fresh fruits and vegetables.
• Lien on Real Estate: PACA trust can apply to all produce buyer’s assets,
including real estate and can be superior to the rights of third parties, such as
mortgagees, dealing with the merchant, dealer or broker.
• Even a bankruptcy cannot avoid the priority of the trust.
• No Notice Required! Does not require that the unpaid suppliers, sellers and agents
file any notice, lis pendens, or claim of the trust in the real property records to perfect
the lien.
• Terminated only by paying all suppliers in full prior to the applicable transaction,
(we cannot verify with certainty and we cannot rely on).
5. PACA: From Veggies to Liens
Parties whose assets may be subject to a PACA trust:
Food processors, food and grocery chains and wholesalers, food service firms,
produce dealers, distributing companies, canners, processing plants, even wineries,
distilleries, and breweries.
Grocery chains and supermarket chains; Chain restaurants and other major
restaurants.
• Company name that includes “food” or a type of food, “produce,”
“packing,” or “distributor.”
If your transaction involves a party whose assets may be subject to a PACA trust, you
must contact your Underwriter. We may require a PACA title exception such as the
following:
• “Any trust, right, interest or claim that may exist, arise, or be asserted against the
Title under or pursuant to the Perishable Agricultural Commodities Act of 1930, as
amended, 7 U.S.C. §499a, et seq., or any similar state or federal law.”
5. Federal Liens Involving Agriculture - PSA
The Packers and Stockyards Act of 1921 (7 U.S.C. §§181 et seq.) also establishes a
similar unrecorded “trust” (lien) on the assets of Meat Packers to protect
producers/suppliers of Livestock and Poultry. Applies to all Packer’s assets,
including real estate assets.
“Livestock” is defined as cattle, sheep, swine, horses, mules, or goats, whether dead or
alive, and “Poultry” defined as chickens, turkeys, ducks, geese and other domestic
fowl.
“Packer” is a person or entity in the business of:
(a) buying livestock in commerce for purposes of slaughter, or
(b) manufacturing or preparing meats or meat food products for sale or shipment in
commerce, or
(c) marketing meats, meat food products, or livestock products in an unmanufactured
form acting as a wholesale broker, dealer, or distributor in commerce.
5. PSA: The Packers are not just in Green Bay
Packers whose assets may be subject to a PSA trust may include:
• Stockyards, supermarket or grocery chains, wholesalers and retailers of meat
products, meat packing companies, meat processing companies, farms that purchase
livestock and poultry for slaughter.
If your transaction involves a party whose assets may be subject to a PSA trust, you
must contact your underwriter. We may require a PSA title exception such as the
following:
• “Any trust, right, interest or claim that may exist, arise, or be asserted against the
Title under or pursuant to the Packers and Stockyard Act of 1921, as amended, 7
U.S.C. §181, et seq., or any similar state or federal law.”
See, STG Bulletin TX 2014001
Be Careful Out There
Charlie Craig
Associate General Counsel
Texas Underwriter
Stewart Title Guaranty Company
Austin, Texas
(512) 236-0405 [email protected]
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This Presentation Name
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Next Month’s Texas TIPS Online presentation is
March 19, 2015 “Checklists and Special Forms Update”
presented by Richard Black
For Questions/Comments Email [email protected]
