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Taxing bodies, creditors, and courts can lessen ownership interest by making a claim called a _____, against property to secure payments of taxes, debts, and other obligations.
What is a lien?
- -a charge against a property that provides security for a debt.
- -an encumbrance
- -lien holders have to approve the sale of the property, can force a sale, or confiscate the property.
A lien may be voluntary or involuntary. What is the difference?
- -voluntary; created by the lienee's action, such as taking out a mortgage loan.
- ---special assessment lien, mortgage lien, deed of trust lien, mechanic's lien contract, bail bond lien.
- -involuntary; created by the law and is either statutory or equitable.
- ---Ad Valorem Tax lien, affidavit claiming a Mechanic's lien (someone who worked on property), vendor's lien and vendee's lien.
What is the difference between a statutory lien and an equitable lien?
- -statutory; type of involuntary lien; created by statute; federal tax liens, ad valorem tax liens, judgement liens, and mechanics' and materialmen's liens
- -equitable; type of involuntary lien; arises out of common law; vendor's loan; a loan by other individuals other than a mortgage company (usually someone they know).
A mortgage is automatically a lien
true; voluntary lien
All liens are encumbrances, but not all encumbrances are liens.
any restriction (lien, easement, etc.) on the use of land (property) that may diminish the value of a property.
The four ways of creating a lien may be remembered by what?
VISE; voluntary, involuntary, statutory, equitable
affect all of a debtor's property, both real and personal, and include judgments, estate and inheritance taxes, debts of a deceased person, IRS taxes, and federal judgment liens.
- are secured by a particular parcel of real estate and affect only that property.
- -include ex: mechanic's liens, mortgages, taxes, special assessments, vendors' liens, vendees' liens, and surety bail bond liens.
General liens are only involuntary liens.
true; judgement lien, estate tax lien, inheritance tax lien, income tax lien, federal judgment lien, TWC Wage lien.
Specific liens can be either ________ or _________.
Liens will run with land means
-they stick with property, not owners.
What two liens take priority over other liens? How are other liens paid?
- -real estate taxes and special assessments.
- -remainder proceeds are used to pay out other liens based on the date of their recordings in public records of the county where the property is located (other than mechanics' liens and TWC wage liens).
- -IRS tax liens; do not have specific priority; they are general liens; attach only to taxpayer's equity interest in the property. (only based on if the owner made anything off the property)
Smith Estate is sold to satisfy a judgment resulting from a mechanic's lien ($25,000) for work begun on February 7, 2009, subject to a first mortgage lien ($295,000) recorded January 22, 2008, and to this year's outstanding real estate taxes ($10,000). If Smith Estate is sold at the foreclosure sale for $310,000, the proceeds of the sale will be distributed in what order?
- 1. $10,000 to the taxing bodies for this year's outstanding real estate taxes
- 2. $295,000 to the mortgage lender for the entire amount of the mortgage loan outstanding as of the date of the sale
- 3. $5,000 to the creditor named in the judgment line
- 4. $0 to the foreclosed owner
- ***Although the creditor is not repaid in full, this outcome is considered fair because the creditor's interest arose later than the other and the creditor should have known about the lien interests ahead of it and of the risks involved.
What are subordination agreements?
are written agreements between lienholders to change the priority of mortgage, judgment, and other liens.
what is the lienholder
the one who gives the lien
Why does the government pose taxes on property?
-to pay government functions and because the property is permanently fixed. (can't be hidden)
What are the two main ways the government taxes a property?
- -ad valorem tax (according to value); calculated by the appraised value of the property being taxed; are specific, involuntary statutory liens; pay for general government functions.
- -special assessment (improvement tax); tax to fix something; specific government functions.
Under Texas law, public or nonprofit property is not subject to taxation.
What are the four phases of processing the annual tax levy for ad valorem tax?
- 1. Property valuation; b/t Jan-April exemptions, etc, and tax appraisals are made.
- 2. Protest period; if homeowner disagrees on tax appraise or exemptions; before May 31 or 30 days after the appraised value was mailed by the appraisal district.
- 3. Tax rate adoption; the ARB gives each taxing unit (county, school district, etc.) a list of taxable properties; Aug-Sept each unit comes up with a budget of services they will provide and how much money they will tax.
- 4. Tax collection; Real estate taxes are paid in arrears (end of period for which they are levied), payable on or after Oct 1 of the year of the tax, and before Feb 1 the following year.
How does Property valuation work?
Property valuation is processed between January 1 and April 30. The appraisal districts considers applications for tax exemptions, agricultural appraisals and other tax relief. After the appraisal district calculates the value and exemptions a notice for single-family residence is delivered by April 1 and by May 1 for other properties.
Appraisal district property tax records are available online and they reflect what?
- -the current appraised value
- -sales history
- -building characteristics
- -land value
- -legal description
- -taxes on each property taxed in the district
- --some appraisal districts may not post a photograph, sketch, or floor plan of a residential property for occupant safety.
How does an exemption affect the value of a home from taxation? And what are the three main exemptions?
- -exemptions remove part of the value of a home from taxation and lowers the tax bill
- 1. Homestead exemption; you don't have to pay part of the school district tax; $15,000 off a home's taxable value; other taxing districts may also allow for optional homestead tax exemptions.
- ---To QUALIFTY: 1. principal must own and live in the property on January 1 of the tax year. 2. submit a homestead exemption application form b/t Jan1-April 30. 3. submit a copy of the homeowner's driver's license and vehicle registration receipt, showing the same address as the property for which the exemption is requested.
- ***If you move permantly for before two years of owning and living in the property you have to pay back the full amount of taxes. BUT if you move but return or are relocated due to military, the homestead exemption stays.
- 2. Age 65 or older exemption; qualifies as of Jan 1 of the year age 65 is reached; is automatic if the homeowner provided a birth date on the original homestead exemption application; reduces school district tax of $10,000 on top of the $15,000 homestead exemption (is required by school district). Other taxing districts may pose tax reductions. Other BENEFITS of the 65 exemption: *tax ceiling freeze; school taxes cannot increase as long as the homeowner owns and lives in the home and does not make improvements on the home other than general maintenance. *Portability of tax freezes; if another home is purchased in Texas, tax freezes for school taxes are portable to the new residence. *Installment payments; tax payments on the primary residence may be made in four equal installments, without penalty or interest. *Tax deferral; deferment of delinquent taxes, penalty, interest or attorney fees; preserved and continue to accrue interest at a rate of 8% until paid off. if homeowner or surviving spouse sells the home or moves from it, all accumulated taxes and interest must by PAID within 181 days. *Surviving-spouse benefit; the surviving spouse of an individual receiving the 65-age exemption is entitled to that exemption if the spouse is 55 or older.
- 3. Disability status; school district grant a $10,000 exemption to persons having a disability (required); other districts optional. *cannot obtain both a 65-age exemption and a disability exemption. *have other benefits similar to the 65-age tax benefits. *A totally disabled veteran may receive an exemption of 100% of the appraised value of the veteran's residence homestead.
If a homestead property is rendered uninhabitable by a casually or by wind or water damage the homestead exemption is discontinued.
-false; homestead exemption can continue up to two years while building a replacement; construction must begin within one year and principal must intend to return to the property for residence.
The real estate licencee must determine from official sources the basis for the ad valorem taxes. What does this mean?
If you are showing someone a house and they ask you what the taxes are you don't base the taxes off of what the owners are paying, because they may qualify for differenet exemptions.
Usually, the appraisal district uses mass appraisal to appraise large numbers of properties. What is mass appraisal?
- -the district collects detailed descriptions of each taxable property in the district, then classifies properties according to certain factors, such as, size, use, and construction type.
- -To compare one property to another, there has to be similarities in location, lot size, improvements, age, condition, access, amenities, views, etc.
- -Although rare, an appraiser can ask to come into the home, which a homeowner must be cautious due to tax mark up.
To qualify for an agricultural use valuation, Article 8, Section 1-d, of the Texas Constitution requires how much of the landowner's income come from farming or ranching? If the property is sold or changed, the land is subject to how many years of tax roll back and interest?
What is the Open space valuation? And how much rollback taxes and interest is charged is the property is changed?
- -an tax appraisal exemption if the land has been used for agriculture for five of the previous seven years, such as, farming, ranching, timber production, and wildlife management. The PRIMARY source of income does NOT have to come from agriculture.
- -5 year rollback, 7%
Texas law, properties are reappraised...
at least every three years. Depending on area changes and tax fluctuation.
ARB stands for...
- Appraisal review board; A group of people who hear appeals concerning assessed valuations for tax purposes and recommend or deny changes in values shown of record.
- ***who are independent from the employees and directors of the appraisal district.
When is the protest period of the annual tax levy process of the Ad Valorem Tax? How may property owners claim errors on their property appraiser?
- -Property owners can protest right after they receive their property tax appraisal, usually before May 31 or within 30 days after the appraised value has been mailed by the appraisal district.
- -Property owners who claim errors where made may present their objections to the district's appraiser's office for review, most of the time it will be fixed. *If the issue is not resolved a property owner may file a written protest with the appraisal district before May 1 or within 30 days or receive. The property owner will receive a hearing in front of the ARB. **If the issues are not resolved through the ARB, the property owner may appeal to the district court in a binding arbitration (in front of a judge) or an expedited arbitration (making an argument in front of an attorney, real estate person, etc.).
A real estate person can automatically be an arbitrator.
-false, you have to take some extra classes.
Tax Rate Adoption
-each property is taxed by county and school district. Properties may also be taxed by other units too such as, city, hospital, community college, water, etc. Once the ARB reviews and approves the appraisal records and all appeals have been resolved, a budget is set in place for the units: taxes are appropriated, tax levy, tax rate, tax bill and tax collected.
Real estate taxes are paid in arrears (end of the period for which they are put on). The mortgage company pays for them, it is blended into monthly payments.
an imposing or collecting, as of a tax, by authority or force.
Tax liens generally are given priority over all other liens against a property, and they are not extinguished in a mortgage foreclosure.
true; if you are behind 3 months of mortgage payments, you owe taxes for those three months.
A mortgage foreclosure does not clear tax liens on the property, this means...
-the bank pays the taxes, or the new owners of the foreclosure pay the backed taxes.
If real estate taxes become delinquent, the tax collector will send at least one delinquent tax notice. Sometimes a taxpayer can pay delinquent taxes in installments up to 36 months. What happens when the taxes are not paid?
-last resort of the tax collector is to take the delinquent taxpayer to court. The court will most likely foreclose on the home on the tax lien and order the property to be sold as a tax sale. owner and mortgage lose out. The purchaser must pay at least the delinquent tax amount, penalty, interest and attorney's fee or the appraised value of the property, whichever is less.
Equitable right of redemption
The delinquent taxpayer can redeem the property at any time prior to the tax sale by paying the delinquent taxes plus interest and charges (court costs).
Statutory right of redemption
Texas law provides this period of redemption after the tax sale during which the defaulted owner may redeem the property by paying the amount paid at the tax sale, plus interest and other charges.
With the Statutory right of redemption, the default owners have up to two years after the purchaser's deed was recorded to pay off the taxes and other charges if the property is...
- -residence homestead, mineral interest, or if the property was designated for agricultural use. Other properties have six months.
- **cost of the statutory right of redemption is an additional 25% of the purchaser price if redeemed during the first year and 50% if redeemed during the second year.
A property sold after foreclosure of a homeowners association assessment lien may be redeemed no later than ____ days after written notice of the sale is mailed to the owner.
- -if the owner does not pay the homeowner association fees (hundred acres).
Special Assessment (Improvement Tax)
- -taxes levied on real estate that require property owners to pay for improvements that benefit the real estate they own.
- -can be voluntary: property owners petition the local government to install a public improvement for which the owners agree to pay, such as a sidewalk or paved alley.
- -can be involuntary: such as extension of water lines to a new subdivisions.
- -steps of special assessments are: notice of petition, notice of hearings, adoption of ordinances, assessment roll (how much each parcel will pay depending on the benefit of each parcel), assessment becomes a lien, warrant is issued for legal collection.
- -assessments can be paid in annual installments over a period of 5 to 10 years. *Property owners have the right to prepay any or all installments to avoid the interest charges.
Utility District Tax
-to provide water, sewer, drainage, and/or flood control protection facilities or services for properties located outside the boundaries of a town or city, although it is possible for a utility district to be located in whole or part within the boundaries of a municipality. (our water bill). lien.
Mortgage Liens (Purchase money lien or Deed of trust lien)
- -is a voluntary, specific lien
- -Mortgage lenders generally require a preferred lien, referred to as a first mortgage lien; this means no other major liens against the property (other than real estate tax lien) take priority.
- -even a discharge of debts in bankruptcy does not eliminate a mortgage lien, the mortgage will foreclose on the owner.
Mechanics' lien is a specific lien that gives security to persons or companies the perform labor or furnished material to improve real property. It is based on the enhancement of value theory, because the labor performed enhanced the value, the property should be security for payment. Mechanics' Lien comes in two types, what are they?
- -Affidavit Claiming a Mechanic's Lien; is an involuntary lien: happens when a homeowner does not pay a general contractor or subcontractors (who the general contractor hires) in full. Subcontractors can sue you, then you sue the contractor. Takes effect from the time labor was performed or the material was supplied in whole or in part; sell to satisfy the claimant.
- -Mechanic's Lien Contract; may be a voluntary lien, commonly used for new constructions and improvements on homesteads; signed agreement; there is no redemption after foreclosure of a mechanic's lien; *A purchaser of property that has been recently constructed, altered, or repaired should be cautious about possible unrecorded mechanics' liens against such property.
-10% of what the total construction bill was put to the side to pay unknown subcontractor up to 30 days after work completions; required by Texas Property Code
-a formal and authoritative order
What is a Judgment?
- -a decree (order) issued by the court for a debtor to pay the creditor.
- -is a general, involuntary, statutory lien on both real and personal property owned by the debtor; there are exemptions and conditions for personal property.
- -Judgment liens usually don't attach to homestead property, only under certain conditions.
- -Creditors have up to 10 years to take action after judgment has been made.
What is an attachment?
-to prevent a debtor from trying to sell unsecured real estate (real estate paid off, no mortgage), a creditor can ask the court to retain custody of the property until the suit is concluded.
What is Lis Pendens?
-a notice on a debtors real estate deed that warns possible purchases (if debtor tries to sell), that the owner is in court and they may be responsible for debt.
Federal estate taxes and state inheritance taxes are general, statutory, involuntary liens that encumber a deceased person's real and personal property.
-true; normally paid or cleared in probate court proceedings.
What is a Vendor's Lien?
- -a lien by the seller (vendor) to receive cash in full of the purchase price from the buyer (vendee) of the real estate.
- -is a specific, equitable, involuntary lien for the amount of unpaid balance due to the seller.
What is a Vendee's Lien?
- -a buyer's (vendee) claim against the seller's property in the event that the seller failed to deliver title; usually under installment contract or contract for deed and the seller fails to deliver title after all the terms of the contract have been satisfied.
- -is a specific, equitable, involuntary lien.
How does the Surety Bail Bond Lien work?
- -if you get yo self in trouble than you can choose to put up real estate instead of cash as a surety for bail. To do this you have to provide assurance that the net worth of the property is worth at least twice the amount of your bail.
- -This is a voluntary lien, but cannot be levied against a homestead property.
What is a TWC Wage Lien??
- -a lien on an employer's real and personal property who owes back wages to an employee as determined and ordered by the Texas Workforce Commission.
- -the lien is given superiority status, except for ad valorem tax liens.
- -should not attach to homestead property; only under certain conditions.
IRS Tax Lien
- -a lien by the IRS from a person's failure to pay any portion of federal IRS taxes owed.
- -is a general, statutory, involuntary lien on the taxpayer's equity interest in all real and personal property owned.
- -is effective for 10 year unless renewed.
Federal Judgment Liens
- -liens in favor of the federal government for debts such as unpaid student loans
- -becomes a lien on all property
- -lasts for 20 years unless renewed
- -are general, statutory, involuntary liens.
What is the Uniform Commercial Code (UCC)?
- -A national wide law that applies to pledging personal property or fixtures to a secure a loan or credit purchase.
- -personal property that will become fixtures (appliances), the Texas code requires the use of a security agreement, which must contain a complete description of the items against which the lien applies.
- -a short notice of this agreement, a financing agreement, includes the legal description of the real estate involved.
What are the nine exemptions on a homestead property?
- -purchase money liens
- -ad valorem taxes
- -mechanics' and materialman liens
- -owelty of Partition liens
- -refinancing liens
- -home equity liens
- -reverse mortgage liens
- -manufacturing home refinancing
- -preexisting liens; liens on property before it became a homestead property.
Commercial transaction is...
The priority of liens generally is determined by the order in which they are placed in the public record of the county in which the debtor's property is located. Exceptions are...
- -IRS tax liens
- -real estate liens
- -TWC wage liens
- -mechanics tax lien.
Priority of liens refers to...
the order in which liens will be paid if property is sold by court order to satisfy a debt.
A specific parcel of real estate is appraised for tax purposes at $80,000 market value. The tax rate for the county in which the property is located is $1.50 per $100 of value. The tax bill will be...
This tax is used to distribute the cost of public services among real estate owners...
Real property tax
Special assessment liens take priority over mechanics' liens.
To give notice of a security interest in personal property items, a lienholder must record a...