Every real estate transaction requires the preparation of legal documents – what are some of the more common real estate documents that are required in Texas?
Murray Lobb’s Houston, Texas real estate attorneys have represented owners, developers, financial institutions, and investors in Texas for over a quarter of a century, assisting our clients in the development, sale, and acquisition of most types of real estate including:
- Medical facilities,
- Mixed-use properties,
- Multi-family properties,
- Retail centers, and
- Undeveloped land.
Real Estate Documents in Texas
We provide a wide range of services to our real estate clients including the preparation of real estate documents for title companies, banks, and other clients. Below, we will look at an overview of some of the more common types of real estate documents that may be required for your acquisition or sale, including:
- Sales contracts,
- Option contracts,
- Promissory notes,
- Security agreements,
- Deeds of trust,
- Residential and commercial leases,
- Home equity loan documents, and
- Documents to establish LLCs or other holding companies.
The heart of every real estate transaction is the sales contract or purchase agreement. It is a written agreement between the buyer and the seller to convey the deed to the buyer in exchange for the agreed upon sales price and that contains provisions to protect both buyer and seller.
The sales contract will include details specific to the transaction including:
- The sales price,
- Closing date,
- Earnest money deposit amount,
- Who pays for inspections, surveys, and title insurance,
- Details about utility adjustments, property taxes, and other fees,
- Contingencies, or conditions that must be met before the deal can be closed, and
- Other details specific to the transaction and the buyers or sellers’ needs.
Often, real estate contracts will provide for an option period during which 1) the seller has accepted an offer to purchase, but 2) the buyer is given a set period of time to perform their due diligence including any necessary inspections.
In Texas, the buyer might pay an earnest money deposit and an additional option fee. If the buyer backs out of the deal, they can usually recover the earnest money deposit, but the option fee is not refunded. If the transaction goes through, however, the option fee is applied to the sales price of the property.
The deed is an essential document in every real estate transaction because it 1) represents the title to the property and 2) identifies the owner of the property. While other documents will contain the details of the transaction, it is the deed that transfers the title from one party to another, completing the transaction.
A promissory note is required to finance property over time, whether the financer is an individual, a bank, or other financial institution.
It is a written promise that the buyer will repay the loan used to purchase the property over a set period of time, and should include key terms like:
- The loan amount,
- The interest rate,
- The length of the loan,
- The monthly installments,
- Pre-payment penalty clauses, and
- Other terms of repayment specific to the transaction.
A security agreement is a document that gives the lender a security interest in the collateral for the real estate loan – usually either the property itself or another asset. The security agreement creates a “secured transaction,” assigning an interest in the collateral to the lender and giving the lender a preferred legal claim to the property in the event of default.
Deeds of Trust
The deed of trust, or power of sale, authorizes a lender to foreclose on the property without filing an action in court. When a lender enters into a promissory agreement with a buyer, the investor, bank, or other financing entity should always get a deed of trust signed by the buyer to avoid the time and cost of potentially lengthy foreclosure proceedings if the buyer defaults on their loan.
Residential and Commercial Leases
Residential or commercial lease or rental agreements in Texas should include key terms to protect the property owner and tenant. Lease agreements should be tailored to the unique circumstances of each transaction, but often include terms like:
- The names of all authorized occupants,
- Limits on occupancy and subletting,
- The term of tenancy, whether it is month-to-month or has a specific beginning and ending date,
- Rental and late fees, including details on how and where the rent should be paid,
- Details of the security deposit, including the amount of the deposit and when and how the deposit will be returned,
- Details of the tenant and landlord’s responsibilities for repairs and maintenance,
- Right of access for the landlord and notice requirements,
- Restrictions on illegal activity by the tenants,
- Details on whether pets are allowed and the type of animals that are permitted, and
- Disclosures and other restrictions that are specific to the rental property.
It may be necessary to draft and execute various releases as part of the real estate transaction, including the release of liens on the property that have been satisfied or that are invalid, including:
- Mechanic’s liens or material liens,
- Judgment liens,
- Child support liens,
- Invalid liens, and
- Fraudulent liens.
There are various types of assignments that may be necessary to complete a transaction. For example, in Texas, real estate contracts may be assignable unless there is a specific clause that prevents it. A buyer could enter a contract to purchase a property, and then assign their interest in the contract to another party, giving the assignee the rights to the contract and property (often for a fee).
Home Equity Loans
Home equity loan contracts, in conjunction with other real estate documents like security agreements and deeds of trust, allow a property owner to take out a second mortgage using the equity in the property as collateral.
If you are purchasing property for business purposes as opposed to a homestead, you may want to consider holding the property in a business entity like a trust or an LLC. It will be simpler to acquire the property with the entity from the start than to transfer the property to the holding company later, and there may be tax and liability benefits to purchasing the property with an LLC.
Please feel free to contact one of our Murray Lobb attorneys to obtain our legal advice regarding real estate documents, real estate transactions, or representation at real estate closings. We also remain available to help you with all your general business, corporate, and estate planning needs.