At one time or another, a trusted friend or relative might ask you for a personal loan. Lending the money might seem like a good idea if you could attach the lien against the person’s home as security for repayment of the note. It would be reasonable to assume that a personal loan could be secured by some sort of lien on their property in case of default. However, that assumption is incorrect if the property is the borrower’s homestead property. In Texas, certain liens may not be attached to homestead property. A person can only have one homestead property at a time and it is usually their primary home.
Texas currently permits eight types of liens that can be attached to a person’s homestead. Article XVI, section 50 of the Texas Constitution details how a homestead property is protected from forced sale; mortgages, trust deeds and liens. Additionally, section 41.0001 of the Texas Property Code specifies the encumbrances or liens that may be placed on homestead property. These permissible liens include:
- purchase money;
- taxes on the property;
- mechanic’s lien for improvements; (work and material used in constructing improvements on the property if contracted for in writing)
- owelty of partition judgments; (divorce)
- refinancing of an otherwise permissible lien;
- home equity loans and lines of credit;
- reverse mortgages;
- conversion or refinance of a personal property lien secured by a manufactured home attached to the homestead.
Tex. Const. art. XVI, § 50; Tex. Prop. Code § 41.001 (West 2017).
Unless specified in the Texas Constitution and Property Code, all other liens that purport to attach to homestead property will be void. Consequently, liens associated with a personal loan may not validly attach to the homestead property. A Texas Court of Appeals judicially noted that the law does not permit a lien to be fixed against homestead property to secure payment of personal loans. Hill v. State of Texas, 718 S.W.2d 751 (Tex. App. – Tyler 1985), rev’d on other grounds, 719 S.W.2d 199 (Tex. Crim. App. 1986).
Historically, Texas has favored homestead rights to protect citizens from losing their homes. Only the eight types of liens described in the Texas Constitution and Property Code will attach to homestead property. Thus, a lien associated with a personal loan will not attach to a homestead property. If you are lending money to a friend or family member without the intent that it be a gift, you should realize that security for your loan may be nonexistent if the borrower’s only asset is homestead property. Before loaning money, consider consulting with a competent real estate attorney to protect yourself in case of default.
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