Texas Commercial Law Firm

When legal issues are the only consideration, Deeds in Lieu should not be used. It is recognized, however, that notwithstanding advice to the contrary, lenders may be willing to accept risks attendant in using Deeds in Lieu for business reasons. Such reasons include preventing the property from being tied-up in bankruptcy or to preserve a valued customer relationship. When a lender makes the business decision to use a Deed in Lieu, certain precautions are recommended to minimize the lender's risk.

Deeds in Lieu should not be utilized in Texas without first obtaining a “clean” title commitment showing no intervening liens from the date of the deed of trust to the present. In this respect, a title report is insufficient as it does not warrant title or insure against defects. Lenders should recognize accepting a Deed in Lieu in reliance on a “clean” title commitment is not without risk. However, in the event the title company misses an intervening lien, for example, recovery under the policy is contingent on meeting conditions precedent for recovery required under the terms of the policy (e.g. providing timely notice to the title company of the possible claim). Title companies may dispute coverage or go out of business. In short, intervening liens normally extinguished through foreclosure may pose problems not otherwise encountered if a Deed in Lieu is accepted.

Occasionally, creative borrowers will attempt to accomplish the goals of a deed in lieu by unilaterally reconveying the property to the lender. If the lender gives no indication of accepting the conveyance and if it gives notice that it does not accept the deed, the attempted conveyance will be void. Hennessey v. Bell, 775 S.W. 2d 650 (Tex. Ct. App.-- Corpus Christi 1988), writ denied.

Next Page>>> | Previous Page>>>