Bulletin: TX000036

Dear Associates:

The Texas legislature passed many bills relating to real estate in 1997. The following are the most important bills relating to title insurance.

CONVERSION -- SB 555 (effective 9-1-97)

This bill allows a corporation, limited liability company, partnership, limited partnership or limited liability partnership to "convert" (change its organizational form) to another legal entity. For example, Article 5.17, Texas Business Corporation Act, provides that a Texas corporation may convert to a limited partnership or to a foreign corporation. The legal entity adopts a plan of conversion. After conversion to another new legal entity, the new legal entity owns the converting entity's property without need for any deed or conveyance.

Company Policy: You may rely on a plan of conversion that has been filed with the secretary of state (or in your local real property records if the former entity is a general partnership) to effect a transfer of title to the new legal entity. We prefer that the deed from the new legal entity recite that it was converted from the former legal entity.

MECHANIC'S LIENS -- HB 740 (effective 9-1-97 as to matters arising out of original contracts entered on or after 9-1-97)

This bill amends Section 53.085, Property Code, which relates to a "final affidavit" of payment by a contractor or seller of any type of land. That person must furnish a "final affidavit" of payment of bills upon request of the paying party or buyer. The bill provides that the affidavit may include:

(1) a waiver or release of lien (by the contractor who is the affiant) that is conditioned on actual payment or collection of funds;

(2) a warranty or representation that certain bills will be paid from funds paid in reliance on the affidavit (for example, if the contractor has not paid all bills yet); and,

(3) an indemnity for any loss or expense resulting from incorrect information. The affidavit must include address and telephone number (if known) of each contractor, laborer or supplier who is owed money. The affiant (person swearing in affidavit) who lies is guilty of a misdemeanor (up to $4,000 fine and one year in jail without community supervision as alternative) and is liable for any false or incorrect information.

Company Policy: You are not required to verify compliance with this Section. You may continue to use your affidavits of payment of bills. See TX Final Affidavit and Agreement -Modified. If the affidavit discloses that it is subject to receipt or collection of funds (such as funds paid by check), confirm that good funds have been collected. If the affidavit discloses that certain bills or classes of bills are owed or will be paid by the affiant, confirm that the bills have been paid (or have the bills paid at closing).

The bill amends Section 53.158, Property Code. It provides two time limits to foreclose mechanic's lien claims:

(1) on residential construction projects (1-4 family property that is or will be a home, vacation or second residence of an individual who owns the land), one year after the affidavit is filed, if the original contract is entered on or after September 1, 1997; and,

(2) on all other land, the law remains the later of two years after the affidavit is filed or one year after completion of work under the original contract. [For example, this limit applies to builders, apartments, commercial property, and rent property.]

Company Policy: You may waive a mechanic's lien affidavit recorded more than two years previous to your exam if: (1) no suit has been filed on the lien; (2) your real property records do not disclose (and you do not personally know) that the owner, general contractor or claimant has filed a bankruptcy; and, (3) you do not know that construction work continued on the property within the last year pursuant to the same general contract. You may waive a mechanic's lien affidavit recorded more than one year previous to your exam if: (1) an individual was the owner at the time of the claim and remains the owner; (2) the property is a residence of the owner; (3) no suit has been filed on the lien; (4) the original contract for work was entered on or after September 1, 1997; and, (5) your real property records do not disclose (and you do not personally know) that the owner, general contractor or claimant has filed a bankruptcy.

The bill adds new Sections 53.160-53.162, Property Code. These sections apply to all types of land (residential, commercial, and other), so long as the mechanic's lien claim arises under an original contract entered on or after September 1, 1997. They provide for a summary (expedited) procedure to remove an invalid or unenforceable lien before full trial. The order removes the mechanic's lien, even though the order is not final and the case continues on the merits. The mechanic's lien is not enforceable against a subsequent lender or buyer if:

(1) an order of the district court removes the lien; and,

(2) a certificate of the court clerk states that:

(a) no bond or deposit in lieu of bond was filed (by the mechanic's lien claimant to preserve its lien) within 30 days after the order and

(b) no order staying the order to remove the lien was entered by the court; and,

(3) a certified copy of the order and the clerk's certificate are recorded in the real property records before the conveyance or mortgage. A later order of the same court that revives or establishes the mechanic's lien is not effective against a buyer or lender who acquired an interest after the order removing lien and certificate were recorded and before the later order reviving lien is recorded.

Company Policy: You may rely on an order and certificate removing a mechanic's lien if: (1) the certified copy of the order and the certificate are recorded before your new conveyance or mortgage; (2) the court has not entered a later order establishing the mechanic's lien; and, (3) the mechanic's lien arises under an original contract entered on or after September 1, 1997. If you issue a mortgagee policy to the former owner, show the mechanic's lien in that policy, unless the suit is now final and nonappealable and the suit did not establish a lien.

This bill amends Sections 53.171, et seq., Property Code (the indemnity bond to remove a specific mechanic's lien) for mechanic's liens filed pursuant to original contracts entered on or after September 1, 1997. It provides that the bond removes a mechanic's lien if the following are recorded:

(1) the bond by a corporate surety licensed in Texas [note additional requirements if bond over $100,000 as noted later in this bulletin] in the required amount (double the mechanic's lien if not over $40,000 claim, or the greater of 150% of the mechanic's lien or the amount of the mechanic's lien plus $40,000 if over $40,000 claim);

(2) a copy of the notice of bond; and,

(3) a certificate of mailing of the notice and bond to the mechanic's lien claimant by certified mail, return receipt requested, addressed to the claimant at the address in the lien affidavit. The notice is not required to be mailed if the mechanic's lien claim does not contain an address. Formerly, personal service was required.

Company Policy: You may rely upon the bond, copy of notice and certificate of mailing to remove a mechanic's lien claim. [See below if bond is over $100,000 for additional requirement.]

This bill amends Section 53.201, Property Code. It provides that the general contractor's bond (which must be approved by the owner, be for the amount of the contract, have attached the contract or memorandum of contract, and be issued by a corporate surety licensed in Texas) may be filed at any time (such as after work has begun on the contract). This bond will remove mechanic's liens by subcontractors of that general contractor.

Company Policy: Call our underwriting personnel in order to rely on this bond to waive subcontractors' claims. We will generally rely on the bond to remove those liens, if no suit is pending to foreclose the lien. [See below if bond over $100,000 for additional requirement.]

This bill requires new disclosures by an original contractor on residential construction projects:

(1) Disclosure Statement relating to mechanic's lien contracts before the residential construction project contract is executed [Section 53.255, Property Code];

(2) updated disclosures of subcontractors and suppliers [Section 53.256, Property Code]; and,

(3) periodic statements that bills are paid or will be paid. Failure to make proper disclosures does not affect the validity of a contract lien or deed of trust [Section 53.258, Property Code].

Company Policy: We do not require proof that these disclosure were properly made.

The bill requires new disclosure by a third party lender on residential construction projects:

(1) copies of all documentation relating to the loan one business day before closing (unless good cause or emergency and written consent) [Section 53.257, Property Code];

(2) Disclosure Statement relating to mechanic's lien contracts before the date of closing (unless good cause or emergency and written consent) [Section 53.257, Property Code]; and,

(3) lender's disbursement statement and disbursement statement obtained from original contractor. Failure to make proper disclosures does not affect the validity of a contract lien or deed of trust [Section 53.258, Property Code].

Company Policy: We do not require proof that these disclosures were properly made.

This bill adds new Section 53.259, Property Code. This Section is different from Section 53.085 (that Section applies to all land and requires a final affidavit of payment on any type of land if the affidavit is requested by the buyer or owner). This Section applies to:

(1) an original contractor under a residential construction project; and,

(2) a seller of land with 1-4 family unit structure intended as the principal residence of the buyer. [There are different views on whether a "seller" will include a builder.]

The contractor and owner must furnish a final affidavit of payment of bills, regardless of whether requested by the owner or buyer. The affidavit must include address and telephone number (if known) of each contractor, laborer or supplier who is owned money. The affiant (person swearing in affidavit) who lies is guilty of a misdemeanor (up to $4,000 fine and one year in jail without community supervision as alternative) and is liable for any false or incorrect information.

Company Policy: You are not required to verify compliance with this Section. You may continue to use your affidavits of payments of bills. See TX Final Affidavit and Agreement 1. If the affidavit discloses that certain bills are owed, confirm that the bills have been paid (or have the bills paid at closing).

This bill adds new Section 53.260, Property Code. It forbids an original contractor to require that the landowner convey the land to the original contractor or an entity controlled by the original contractor as a condition to perform a contract on a residential construction project.

Company Policy: We will not insure based on a conveyance by an individual to a contractor (and subsequent reconveyance with vendor's lien) of property on which a home will be built for the individual.

MECHANIC'S LIENS -- HB 3158 (effective 9-1-97)

This bill amends Section 53.172, Property Code, and Section 53.202, Property Code. It requires that the indemnity bond (to bond around a specific mechanic's lien) and general contractor's bond (to bond around mechanic's lien claims by subcontractors of that general contractor) be issued or reinsured by a corporate surety holding a certificate of authority to act as a surety from the U.S. Secretary of Treasury, if the bond exceeds $100,000. Third parties may rely on:

(1) list of qualified sureties published in the Federal Register; or

(2) statement on the recorded bond that the surety has a certificate of authority; or,

(3) recorded affidavit by the surety that states that the surety has a certificate of authority (or reinsured with a reinsurer that had the certificate) at the time the bond was executed.

Company Policy: In order to rely on statutory bonds in excess of $100,000 to remove mechanic's lien claims, we require that the bond recite that the surety has a certificate of authority from the U.S. Secretary of Treasury or that the surety execute and record an affidavit reciting that the surety had a certificate of authority from the U.S. Secretary of Treasury at the time the bond was executed.

DISCLOSURES -- HB 1665 (effective 1-1-98)

This bill adds new Section 5.010, Property Code. It requires the seller (such as a developer) of unimproved land that will be used for residential purposes to disclose the location of transportation pipelines, unless the contract requires a title commitment and allows the buyer to terminate the contract if buyer's objections to title are not cured. Otherwise, the buyer may terminate the contract for any reason no later than 7 days after the effective date of the contract.

Company Policy: This requirement is an obligation of the seller. We do not require verification of compliance with this law.

DISCLOSURES -- HB 384 (effective 1-1-98)

This bill adds new Section 5.010, Property Code. It requires the owner of vacant land who contracts to transfer the land to include a notice in the contract. The notice regards possible liability for rollback taxes. Failure to comply may cause the seller to be liable for rollback taxes assessed before the fifth anniversary of the transfer.

Company Policy: This requirement is an obligation of the seller. We do not require verification of compliance with this law.

DISCLOSURES -- SB 1601 (effective 9-1-97)

This bill amends Section 240.901, Local Government Code. It provides that a commissioners court may file a notice in the real property records that identifies conditions violating permits or rules relating to flood plain management.

Company Policy: If a notice of violation is recorded by the commissioners court, except to the notice in Schedule B of your commitment and policy. Do not provide express insurance against the notice.

SUPER COLLIDER -- SB 728 (effective in part 9-1-97; effective in part 1-1-98)

This bill adds new Section 31.309, Natural Resources Code. If a person conveyed land to the state for use as the super collider, that person or that person's heirs have a preference right to buy the same land before the land is offered to anyone else.

Company Policy: If you know that the land was conveyed to the state for use as the super collider and if the land is now being conveyed by the state to a third person, verify that the predecessor was given an opportunity to exercise the preference right. You may rely on an affidavit by a knowledgeable person, together with evidence of written notice to the former owners (or their heirs).

HOMESTEAD -- HB 882 (effective 9-1-97)

This bill amends Section 41.005, Property Code. If a person receives a homestead exemption from taxation, that land is considered to be designated as homestead unless the person executes a voluntary designation of other land as homestead.

Company Policy: Do not rely on a designation of homestead if the land designated as non-homestead has been claimed as homestead or exempt for ad valorem tax purposes. [See Designation Language-Modified below]. Please review Section 8.08 "Homestead," Texas Underwriting Manual, for all of our homestead requirements.

DESIGNATION LANGUAGE-MODIFIED (9-1-97)

(include in nonhomestead affidavit reciting facts applicable to transactions)

"The Affiants reside at, occupy, use, and designate the following described land as their homestead:

Describe Homestead

"The following described land to be encumbered by a Deed of Trust to ____________________, Trustee securing the payment of that note in the originate sum of $____________________ to ____________________________ (the "Lender") is not the homestead of the Affiants and is not used or occupied as the homestead of the Affiants or intended to be used or occupied as the homestead of the Affiants and has not been claimed as exempt or homestead for ad valorem tax purposes:

Describe Property to be Mortgaged

"The Affiants acknowledge that the Lender may rely on this affidavit, which designates the homestead of the Affiants and states that the land to be encumbered is not the homestead of the Affiants."

HOMESTEAD -- HJR 31 (vote on 11-4-97; effective 1-1-98 if adopted)

This proposed constitutional amendment to Section 50, Article XVI, Texas Constitution would:

(1) modify the requirements for a mechanic's lien contract on homestead;

(2) allow "equity loans" on urban homestead and on rural homestead used primarily for production of milk;

(3) modify the provisions for refinance of mortgages on homestead; and,

(4) allow "reverse mortgages" on the home if the owner (or spouse) was over 55.

We will provide guidelines in a separate bulletin if this amendment passes.

JUDGMENT LIENS AGAINST STATE -- HB 833 (effective 5-20-97)

This bill adds new Section 43.002, Property Code. It provides that a judgment lien or abstract of judgment against the state, a unit of state government or a political subdivision of the state is void.

Company Policy: You may ignore judgment liens against the state, a unit of state government, or a political subdivision of the state (such as a city).

"COMMON LAW" LIENS -- HB 1185 (effective 5-21-97)

This bill adds new criminal and civil provisions relating to "common law" liens (and other fraudulent liens and claims). These liens and claims have included "common law judgments" against public officials, "common law liens" against land (including the claimant's former land), 21 silver dollar bids at foreclosures, and claims of "allodial title." New Section 51.902, Government Code, provides that a person may secure an ex parte (without notice) district court order extinguishing a fraudulent judgment lien (common law judgment). New Section 51.903, Government Code, provides that a person may secure an ex parte district court order extinguishing a fraudulent lien or claim; then an expedited appeal may occur and the claimant shall be given notice by mail. New Chapter 11, Civil Practice and Remedies Code, creates a cause of action for fraudulent court records or fraudulent liens or claims.

Company Policy: Call our underwriting personnel if your chain of title reveals an apparent "common law" lien or claim. If the claimant is not in possession of the land, we will generally be willing to issue without exception or subject to express insurance. Please let us know if the claimant is known to bring frequent lawsuits in your area. We prefer to secure and record a district court order removing the claim pursuant to the new procedure.

RESTITUTION LIENS -- HB 2830 (effective 9-1-97)

This bill amends Article 42.21, Code of Criminal Procedure to provide that a recorded restitution lien is subordinate to a prior mortgage or to a purchase money lien against the debtor.

Company Policy: You may insure that a restitution lien is subordinate to a purchase money mortgage by that debtor or to a previously recorded mortgage (and any refinance of such mortgage). You may do so by deleting the exception in Schedule B (if you retain Schedule B, number 4 as to subordinate liens and leases) or by insuring that the lien is subordinate (pursuant to P-11.b(8)). If such mortgage is foreclosed, it will extinguish the restitution lien.

CHILD SUPPORT LIENS -- SB 29 (effective 9-1-97) (see also HB 3281)

The bill amends Section 157.318, Family Code, to provide that a child support lien notice or abstract of judgment for child support is effective until the debt is paid. Future child support lien notices and abstracts of judgment for child support will not be subject to a 10-year duration; they will be effective until released. The bill amends Section 157.320, Family Code, to provide that a child support lien is subordinate to a vendor's lien retained in the deed to the obligor (debtor).

Company Policy: You may assume that child support lien notices and abstracts of judgment for child support recorded before September 1, 1997 are effective for only 10 years unless refiled and extended for another 10 years. You should assume that child support lien notices and abstracts of judgment for child support recorded on or after September 1, 1997 are effective until released. [This later rule will not be of concern until 9-1-2007.] If an abstract of judgment was rendered in an apparent divorce proceeding, you may assume it secures child support, unless you learn otherwise. You may insure that a child support lien is subordinate to a purchase money lien executed by the obligor (debtor) if a vendor's lien is retained in the deed.

DEEDS OF TRUST - LIMITATION PERIOD -- SB 754 (effective 5-23-97)

This bill amends Sections 16.035 and 16.036, Civil Practice and Remedies Code, to clarify that the limitations period for enforcement of a deed of trust or mortgage is four years, unless tolled up to one year by death of the payee or obligor, or unless extended by recorded extension. The provisions of Section 3.118, Business and Commerce Code, provide for a six-year limit (generally) for negotiable instruments (e.g., notes); but those time limits to not apply to foreclosures.

Company Policy: If you insure on or after a bona fide mortgage or conveyance, you may rely upon the statute of limitations to waive the prior mortgage provided: (1) the mortgage is held by FDIC as receiver or conservator and the mortgage is more than six years overdue and more than six years have passed since the receivership or conservatorship began; (2) final payment is more than four years past due and the owner of the land and the owner of the mortgage are not individuals; or, (3) final payment is more than five years past due and either the owner of the land or the owner of the mortgage is an individual. Do not waive a mortgage because of limitations if it is held by a U.S. government agency (e.g., SBA, FmHA, FDIC corporation) or a state agency, or if the mortgagee or mortgagor is in a bankruptcy.

MUNICIPAL LIEN - SANITATION -- HB 320 (effective 9-1-97)

This bill adds new Section 402.906, Local Government Code. The municipality may file a lien for costs of improvements for sanitation and water mains and to remedy acquifer pollution. The lien attaches when the certificate of lien is recorded and is binding on subsequent parties.

Company Policy: Require a release of the lien if it is recorded.

NOTARY PUBLICS - THE DISABLED -- HB 242 (effective 9-1-97)

This bill adds new Section 406.0165, Government Code. It allows a notary public to sign the name of an individual who is physically unable to sign or make a mark. The notary must use prescribed statutory language and sign in the presence of a disinterested witness. The prescribed language is "Signature affixed by notary in the presence of (name of witness), a disinterested witness, under Section 406.0165, Government Code."

Company Policy: We will rely on the signature of a notary public on behalf of a disabled person if: (1) the instrument is signed in your office and our suggested form is used [See TX Notary Public: Execution for the Disabled 1]; or, (2) the instrument contains the prescribed language and also is signed by a disinterested witness and you confirm that the execution appears regular (for instance, it was closed at office of a reputable title company or attorney).

NOTARY PUBLICS - IDENTIFICATION -- HB 243 (effective 9-1-97; use of prior certificate until 1-1-98)

This bill amends Section 121.005, Civil Practice and Remedies Code. A notary public taking an acknowledgment must know or have satisfactory evidence that the acknowledging person is the person who executed the instrument. The notary may accept the oath of a credible witness personally known to the notary, or a current identification card or other document issued by the state or federal government that has the photograph and signature of the acknowledging person. The short form acknowledgment is not changed. The long form acknowledgment adds "or through (description of identity card or other document)" if appropriate.

Company Policy: If you as a notary take an acknowledgment or affidavit, require government issued identification with the signature and photograph of the person.

PROBATE - MINOR'S INTEREST IN REAL PROPERTY -- HB 1126 (effective 9-1-97)

This bill amends Section 889, Probate Code, to allow a natural or adoptive parent or managing conservator of a minor who is not a ward (not subject to guardianship) to secure a probate court order to sell the minor's interest in property, if the net value (exclusive of liens) does not exceed $50,000. The bill adds new Section 890, Probate Code, to allow a guardian of the person of a minor who is not subject to a guardianship of the estate to secure a probate court order to sell the minor's interest, if the net value (exclusive of liens) does not exceed $50,000. Prior to the change, a natural or adoptive parent could secure a probate court order if the value of the interest did not exceed $25,000.

Company Policy: We will rely on the probate court order without need for guardianship of the estate of the minor, if the net value of the interest to be sold (by the parent or guardian of the person on behalf of the minor) does not exceed $50,000.

INFORMAL PROBATE, MUNIMENTS OF TITLE, SMALL ESTATES -- HB 2007 (effective 9-1-97)

This bill terminates Informal Probates (Chapter XII, Probate Code). The bill amends Section 89A, Probate Code, and adds Sections 89B and 89C, Probate Code, concerning probate of wills as a muniment of title. The bill amends Section 137(a), Probate Code, relating to small estates affidavits, to require "relevant family history facts concerning heirship that show the distributees' rights." A bona fide purchaser may still rely on a small estates affidavit in buying the home of the decedent.

Company Policy: We will rely on an order admitting a will to probate as a muniment of title, regardless of whether admitted before or after four years subsequent to the death of the decedent. [If the application is filed more than four years after the death of the decedent, the application, written testimony, or order should recite that the applicant was not "in default" for the late application.] We will rely on a small estates affidavit and a deed from the named heirs of the decedent if: (1) the affidavit is approved by the probate court; (2) the heirs confirm (swear) that there are no debts of the decedent; and, (3) the chain of title does not reflect omitted heirs.

PROBATE - EFFECT OF DIVORCE ON WILL, ABANDONMENT OF PROPERTY -- SB 506 (effective 9-1-97)

This bill amends Section 69, Probate Code. If a testator is divorced or the marriage is annulled after making a will, all provisions in favor of the former spouse or appointing the former spouse as fiduciary " must be read as if the former spouse failed to survive the testator" and shall be void unless the will expressly provides otherwise. It also amends Section 234, Probate Code, which provides that the court may order property abandoned from administration of a decedent's estate. A mortgage may then be foreclosed without further court order (and is not void or voidable because conducted during administration).

PROBATE - GUARDIANSHIP/ABANDONMENT OF PROPERTY -- SB 997 (effective 9-1-97)

This bill amends Section 774, Probate Code. It provides that a probate court may order abandonment of property subject to a guardianship of the estate of a ward. A mortgage may then be foreclosed without further court order (and is not void or voidable because conducted during a guardianship).

PROBATE - DEVISE TO ATTORNEY -- SB 1176 (effective as to wills written on or after 9-1-97)

This bill adds Section 58b, Probate Code. A devise or bequest in a will to an attorney who prepares or supervises preparation of a will or to an heir or employee of the attorney is void. This provision does not apply if the attorney is related within the second degree of consanguinity (e.g., grandparent or grandchild) or affinity (a spouse is related by affinity), or if a bona fide purchaser buys from the devisee.

POWER OF ATTORNEY - DIVORCE AND ANNULMENT -- SB 620 (effective 9-1-97)

This bill adds new Section 485A, Probate Code. It provides that a "power of attorney" terminates if the principal is divorced from the agent or if the marriage with the agent is annulled, unless the power of attorney provides otherwise. Sections 486 and 487 as amended protect innocent third parties and allow third parties to rely on an affidavit that the agent does not know of annulment or divorce. Amended Section 490 modifies the statutory durable power of attorney form; the prior form remains effective if executed before September 1, 1997. The new form requires that the principal strike those provisions that will not apply. [See TX Power of Attorney, Statutory Durable 1]

Company Policy: If you are furnished a statutory durable power of attorney or a durable power of attorney otherwise complying with the law, you should verify the power of attorney within one week prior to the closing of the real estate transaction. You should verify the power of attorney by contacting the principal to verify that the principal is alive, apparently competent, and has not revoked the power. You should require an affidavit from the agent that the power of attorney remains in effect. [See TX Affidavit Regarding Power of Attorney 1997]

TAXES - FORECLOSURES -- HB 3263 (effective 9-1-97) (see also SB 1249)

This bill amends Section 33.54, Tax Code. This amendment shortens the time to attack a tax foreclosure sale. Previously (for suits brought before 9-1-97) the time was 3 years after recordation of the tax deed. Sales (where suit is brought after 9-1-97) may be avoided only if the suit is commenced before:

(1) the second anniversary after the tax sale deed is filed if the land was the residence homestead of the owner or was appraised or eligible to be appraised for open space or agricultural use; or,

(2) the first anniversary after the tax sale deed is filed on other land.

These limits do not apply if the person attacking the sale was not served with citation in the foreclosure and that person pays the taxes on the land during the limitation period and until the commencement of the suit to attack the tax foreclosure sale. New Section 34.08, Tax Code, provides that a person who attacks the tax foreclosure sale must tender the amount of delinquent taxes, penalties, interest, and costs of foreclosure or must file an affidavit of inability to pay. A bona fide purchaser may conclusively presume the tax sale was valid. If a person is not barred by other law from attacking a tax sale, that person must commence the suit no later than two years after the cause of action accrues against a person who pays the taxes before overdue and claims under a recorded tax deed.

Company Policy: You may insure on the basis of tax deeds based on judicial foreclosures in the chain of title, subject to the following requirements:

(1) If the tax foreclosure suit is brought before 9-1-97:

(a) Verify (by inspection or affidavit) that no one is in possession of the land (other than the person buying pursuant to the tax sale).

(b) Verify how the former owners and lienholders were served. If they were personally served, verify that the order of foreclosure is final (at least 45 days and no appeal or motions for new trial).

(c) If the former owners and lienholders were not personally served, do the following:

(i) verify an attorney ad litem was appointed (required by Texas Rules of Civil Procedure, Rule 244);

(ii) based on your actual knowledge and review of the foreclosure, it should not appear to you that the former owners and lienholders could have been personally served (for example, if you know that the former owner has a local telephone number or address or that the former owner's address is known, do not insure based on citation by publication or posting);

(iii) verify that attorney for taxing authority made an affidavit that the defendant could not be found after diligent inquiry (this should be in suit file);

(iv) if defendant is cited by posting and not by publication, verify that attorney for taxing attorney filed an affidavit stating that publication could not be had for the maximum fee as provided (by Rule 117a) chargeable as costs payable upon sale of the land (this should be in suit file);

(v) verify the former owners and lienholders were served by posting or publication as evidenced by affidavit of publication or posting (this should be in suit file);

(vi) require a release of any lien in favor of an institutional lender, IRS, or governmental entity, unless that creditor was personally served; and,

(vii) add the following exception if the tax sale deed was recorded within the last three years "Any claim of invalidity of the foreclosure and tax sale pursuant to that suit under cause number [describe tax foreclosure suit] and as reflected by that deed [describe tax deed]."

(d) Do not insure the original purchaser at the tax foreclosure sale, unless the former owners and lienholders were personally served or unless you secure approval from our underwriting personnel.

(e) If the land was the residence homestead of the former owner or agricultural land, add the following exception if you issue a policy within two years after recordation of the tax deed: "Any rights of redemption in connection with that foreclosure and sale reflected by [describe tax foreclosure suit and tax deed]."

(f) If the land was not the residence homestead of the former owner or agricultural land, add the following exception if you issue a policy within six months after recordation of the tax deed: "Any rights of redemption in connection with that foreclosure and sale reflected by [describe tax foreclosure and tax deed]."

(2) If the tax foreclosure suit is brought after 9-1-97:

(a) Verify (by inspection or affidavit) that no one is in possession of the land (other than the person buying pursuant to the tax sale);

(b) Verify how the former owners and lienholders were served. If they were personally served, verify that the order of foreclosure is final (at least 45 days and no appeal or motion for new trial);

(c) If the former owners and lienholders were not personally served, do the following:

(i) verify an attorney ad litem was appointed (required by Texas Rules of Civil Procedure, Rule 244);

(ii) based on your actual knowledge and review of the foreclosure, it should not appear to you that the former owners and lienholders could have been personally served (for example, if you know that the former owner has a local telephone number or address or that the former owner's address is known, do not insure based on citation by publication or posting);

(iii) verify that attorney for taxing authority made an affidavit that the defendant could not be found after diligent inquiry (this should be in suit file);

(iv) if defendant is cited by posting and not by publication, verify that attorney for taxing attorney filed an affidavit stating that publication could not be had for the maximum fee as provided (by Rule 117a) chargeable as costs payable upon sale of the land (this should be in suit file);

(v) verify that the former owners and lienholders were served by publication or posting as evidenced by affidavit of publication or posting (this should be in suit file);

(vi) require a release of any lien in favor of an institutional lender, IRS, or governmental entity, unless that creditor was personally served; and,

(vii) add the following exception if the land was the residence homestead of the former owner or was agricultural land and if the tax sale deed was recorded within the last two years "Any claim of invalidity of the foreclosure and tax sale pursuant to that suit under cause number [describe tax foreclosure suit] and as reflected by that deed [describe tax deed];"

(viii) add the following exception if the land was not the residence homestead and was not agricultural land and if the tax sale deed was recorded within the last year "Any claim of invalidity of the foreclosure and tax sale pursuant to that suit under cause number [describe tax foreclosure suit] and as reflected by that deed [describe tax deed]."

(d) Do not insure the original purchaser at the tax foreclosure sale, unless the former owners and lienholders were personally served or unless you secure approval from our underwriting personnel.

(e) If the land was the residence homestead of the former owner or agricultural land, add the following exception if you issue a policy within two years after recordation of the tax deed: "Any rights of redemption in connection with that foreclosure and sale reflected by [describe tax foreclosure suit and tax deed]."

(f) If the land was not the residence homestead of the former owner or agricultural land, add the following exception if you issue a policy within six months after recordation of the tax deed: "Any rights of redemption in connection with that foreclosure and sale reflected by [describe tax foreclosure and tax deed]."

Section 34.051, Tax Code, provides that a municipality may resell land after tax foreclosure pursuant to an urban redevelopment plan. If such sale occurs, the deed must except to the applicable terms of the urban redevelopment plan.

Company Policy: If the deed from a municipality after a tax foreclosure refers to an urban redevelopment plan, except to such terms in Schedule B of your commitment and policy.

TAXES - SUMMARY SALES -- SB 141 (effective 9-1-97)

In 1995, Sections 33.91-33.95, Tax Code, authorized seizure and administrative sale of property for ad valorem taxes if the land was in a municipality; if the land is less than one acre; and if the land has been abandoned, unused, or vacant at least one year. Taxes are required to be delinquent for the preceding five years or for the preceding three years if the municipality has a lien for remedying a health or safety hazard. A district court must issue a tax warrant. The warrant directs the sheriff or constable and collector to seize the land. The collector must deliver notice of the proposed sale (time, place, and description) to the owner and lienholder. The sale may be set aside within one year of sale. This bill adds new Section 33.911, Tax Code, to allow seizure by a county if the land is outside a municipality, has been abandoned for at least a year, and the taxes are delinquent for each of the preceding five years. A district court must issue a tax warrant.

Company Policy: We require review of the tax warrant issued by the District Court and recordable evidence of personal notice of the sale given to the owner and all lienholders. We will require a release of all liens on the land. We must be satisfied that the period of redemption has passed (two years on residential homestead; six months otherwise, after the deed is recorded). Verify that no one is in possession of the land. Do not issue until after one year after the sale.

TRUSTS -- HB 3329 (effective 9-1-97)

In 1995, the legislature provided that a city or county may not purchase land held in trust unless the trustee furnishes a copy of the trust agreement "identifying the true owner of the property". A conveyance by the trustee is void if the disclosure has not occurred. This bill amends Sections 2252.091-2252.093, Government Code, to provide that a "governmental entity" (state agency or political subdivision of the state) may not buy from or sell to a trustee until the governmental entity receives from the trustee a copy of the trust agreement identifying the person who is the true owner of the land. The conveyance is void if the governmental entity fails to comply with this requirement. The trust is confidential.

Company Policy: Require written evidence from the city, county or other governmental entity that it received a copy of the trust agreement if the city, county or other governmental entity is selling to or buying from a trustee by purchase or condemnation or if the city, county or other governmental entity is reselling after such acquisition.