Client Memo - COMMUNITY PROPERTY AND HOMESTEAD RIGHTS IN TEXAS. WHEN DOES A NON-TITLED SPOUSE NEED TO SIGN THE SECURITY INSTRUMENT?
Texas recognizes both community property rights and homestead rights in real property. When title to real property is held in the name of only one spouse, questions often arise as to whether either (or both) of these rights require that a non-titled spouse sign the security instrument in order to perfect the lien.
Despite the somewhat common assumption, Texas law does not require a non-titled spouse to sign the security instrument in order to perfect the lien against community property. So long as the property is non-homestead property, only the spouse vested in title must sign the security instrument.
The converse holds true for homestead property titled in only one spouse’s name. Both spouses must sign the security instrument in order to perfect a lien against homestead property, regardless of whether the property is community property or the sole and separate property of one spouse. There is one exception. A purchase money mortgage may attach to homestead property when signed by only one spouse if only that spouse is to be vested in title.
In Texas, the general rule is that where only one spouse is vested in title to non-homestead community property, that spouse may sell, mortgage, or otherwise encumber such property without the participation of the non-titled spouse.
All property acquired during marriage—other than by gift, inheritance, or with identifiable separate assets—is community property belonging to both spouses, regardless of which spouse is vested with record title. See Fam. Code. Sec. 3.002.
Texas law divides community property into two categories: (i) sole management community property and (ii) joint management community property. See Fam. Code Sec. 3.102. A spouse’s sole management community property includes his or her (1) personal earnings; (2) revenue from separate property; (3) recoveries from personal injuries; and (4) the increase and mutations of, and the revenue from, all property subject to the spouse’s sole management, control and disposition. All other community property is joint management community property, unless the spouses have provided otherwise by power of attorney or other written agreement.
Joint management community property is subject to the joint management, control, and disposition of the spouses. Accordingly, Texas law requires both spouses to join in the transaction to validly convey or encumber joint management community property.
Conversely, Texas law provides that each spouse has the power to sell, mortgage, or otherwise encumber his or her sole management community property without approval of the other spouse, even though both spouses have an undivided one-half interest in the property. See Fam. Code Sec. 3.104.
Therefore, unless the lender is aware that the spouse vested in title lacks authority to manage the property, Texas law does not require the security instrument be signed by the non-titled spouse. As always though, what Texas law permits and what title companies require may differ. Some title companies will nevertheless require the joinder of the non-titled spouse as a condition of issuing the title policy, so we always recommend checking with title before closing a loan with only one spouse signing.
Under Texas law, the homestead of a married couple is jointly held by both spouses, regardless of whether the underlying property is community property or the sole and separate property of one spouse. See, e.g., Crowder v. Union Nat. Bank of Houston, 114 Tex. 34 (Tex.Com.App. 1924). A married couple can only have one homestead at a time; spouses cannot claim separate properties as their individual homesteads.
The Texas Constitution requires both spouses sign the security instrument in order to perfect a lien against property that constitutes the family homestead. See Tex. Const. Art. XVI, Sec. 50(c):
No mortgage, trust deed, or other lien on the homestead shall ever be valid unless it secures a debt described by this section, whether such mortgage, trust deed, or other lien, shall have been created by the owner alone, or together with his or her spouse, in case the owner is married.
Furthermore, Texas does not recognize a waiver of homestead rights. A waiver of homestead rights in a separate instrument or agreement (e.g. a prenuptial or separation agreement) is void. Borrowers who own the property as their sole and separate property and have entered into such agreements with their spouses sometimes object to a lender’s requirement that the non-titled spouse sign the security instrument. These objections are usually rooted in a belief that the non-titled spouse will somehow acquire an interest in the property by signing the security instrument.
However, Texas law and the Fannie/Freddie Security Instrument used by most lenders are clear that a non-titled spouse does not acquire an ownership interest in the property merely by signing the security instrument.
Therefore, in order to perfect a lien against property that constitutes the family homestead, both spouses must sign the security instrument, regardless of whether the underlying property is community property or the sole and separate property of one spouse.
There is one main exception to the requirement that both spouses must sign the security instrument to encumber homestead property that is relevant to lenders—a purchase money mortgage.
Texas law does not prevent one spouse, acting independent from the other spouse, from acquiring residential property in their name only (even if it is to become the homestead of the borrower) and creating a lien against such property to secure the purchase money loan. See, e.g., Skelton vs. Washington Mutual Bank, 61 S. W. 3d 56, Tex. Civ. App. (Amarillo), 2001 (“Skelton argues that her homestead claim was superior to Washington Mutual's deed of trust lien because she did not execute any instrument creating Washington Mutual's lien and her homestead interest was superior to Washington Mutual's purchase money lien. We disagree.”).
However, we always recommend the lender verify the title insurance company will issue its mortgagee's title policy without taking exception due to non-titled spouse not signing the security instrument. Notwithstanding Texas law, some title companies require that the security instrument be signed by both spouses to create a purchase money lien upon property that will become the homestead of the spouses.