Bulletin: TX000066

Date:
September 26, 2003
To:
All Issuing Offices in Texas
RE:
Manufactured Housing A chronicle of underwriting standards

Dear Associates:

The Texas Legislature in 2003 (SB531) made significant changes to manufactured housing. Among the changes are 1. chattel loans are once again permitted; 2. taxes are to be escrowed by lender, chattel or real estate; 3. titling rules have been greatly simplified. The final section of this bulletin sets out in detail the new rules and standards. The first sections of this bulletin set out the standards for manufactured homes as they have evolved over the years and how they are treated under the new law.

Homes installed before 1985:

Background: Essentially, these homes are unregulated in the sense that even the Texas Department of Housing and Community Affairs (TDHCA) may not even have a record of them. We have applied a practical standard to these homes. They must be attached to real property in such a manner as to constitute real property as a matter of law.

Standards: The home must be located on a permanent foundation and attached permanently to utilities. The exact type of foundation or number of utilities is not mandatory. The wheels, tongue, hitch, axles and anything else that make the home transportable on the highways must be removed. It is mandatory that an inspection of the home be done and that someone competent executes an affidavit that the home is permanently installed. Nothing is required from the TDHCA nor sent to the TDHCA.

Title Insurance: T-31 endorsement is preferred but the T-31.1 is also available. The 2003 amendments do not affect these homes.

Homes installed after 1985 but before 1999:

Background: During this time, the certificate of attachment process was devised as the means to legally ''turn'' a manufactured home from personal property into real property. The mechanism for this conversion is the certificate of attachment issued by the TDHCA. Unfortunately, the mechanism required to convert the unit into a real property home (the certificate of attachment) does not convert the chattel lien on the unit into a lien on real estate.

Standards: The home must be located on a permanent foundation and attached permanently to utilities. The exact type of foundation or number of utilities is determined by the TDHCA and confirmed by an inspection by either the TDHCA or the lender. The wheels, tongue, hitch, axles and anything else that make the home transportable on the highways must be removed. The certificate of attachment from the TDHCA is required. It is obtained by sending the forms required to the TDHCA.

Title Insurance: Homes with a certificate of attachment and no chattel liens may be insured. Homes that were installed using a mechanic's lien contract may be insured.

T-31 endorsement is preferred but the T-31.1 is also available. The 2003 amendments convert the certificate of attachment into a Statement of Ownership and Location. Please see the 2003 amendment section for information on handling SOLs. We do not require a new SOL in the case of a sale or refinance of a manufactured home for which a certificate of attachment has been issued, although some owners may wish to obtain the new form.

Homes installed after 9-1-99 but before 1-1-2002:

Background: The law was changed to provide a mechanism to convert mhu liens into purchase money liens when the certificate of attachment was issued by the TDHCA.

Standards: The home must be located on a permanent foundation and attached permanently to utilities. The exact type of foundation or number of utilities is determined by the TDHCA and confirmed by an inspection by either the TDHCA or the lender. The wheels, tongue, hitch, axles and anything else that make the home transportable on the highways must be removed. The certificate of attachment from the TDHCA is required. It is obtained by sending the TDHCA the forms required by it.

Title Insurance: Any type of chattel mortgage (usually called a retail installment contract) was required. The deed of trust renews, extends and converts the lien on the home from personal property lien to a real property lien. T-31 endorsement used. The 2003 amendments convert the certificate of attachment into a Statement of Ownership and Location. Please see the 2003 amendment section for information on handling SOLs. We do not require a new SOL in the case of a sale or refinance of a manufactured home for which a certificate of attachment has been issued, although some owners may wish to obtain the new form.

Homes installed from 1-1-2002 to 9-1-03:

Background: During this period, prior excesses in the chattel lending industry were causing many mhu loans to be foreclosed and homes to be moved without taxes being paid. Additionally, the Texas Attorney General's office had rendered an opinion that the lien conversion bill from the prior legislation was probably unconstitutional because the process was not particularly set out in the constitution. HB 1869 was passed that eliminated chattel loans except on leased land, provided that homes were real property for tax purposes and changed the titling rules.

Standards: The home must be located on a permanent foundation and attached permanently to utilities. The exact type of foundation or number of utilities is determined by the TDHCA and confirmed by an inspection by either the TDHCA or the lender. The wheels, tongue, hitch, axels and anything else that make the home transportable on the highways must be removed. Within 30 days after the installation of the home, a notice of installation must be filed in the land records of the county where the home is located and a copy filed with the TDHCA. While the law did not contemplate that any other action would be required by the TDHCA, the agency did pass regulations requiring that it issue a certificate of attachment. We did not require the certificate of attachment but were willing obtain it if the lender or owner requested (at an additional escrow fee).

Title Insurance: T-31.1 endorsement at $50.00 premium authorized by Texas Insurance Department for use beginning Nov. 2003. This endorsement insures that the manufactured home is located on the land, that it is real property, that the owner of the home is the owner of the property, that there are no personal property liens or unpaid tax liens against the property. And, for mortgagee policies, that the lien is valid. The insuring provisions parallels the provisions of the land making the home real estate when placed on land owned by the owner of the home.

For units placed on land after 1-1-02, the document used should be a mechanic's lien contract. If the home was placed on leased land after 1-1-02 and later the lessee buys the land, the chattel lien can be converted to a real estate lien using the renewal, extension and conversion features of Art. 16, sec. 50 a8 of the Texas Constitution. The 2003 amendments convert the certificate of attachment into a Statement of Ownership and Location. Please see the 2003 amendment section for information on handling SOLs. We do not require a new SOL in the case of a sale or refinance of a manufactured home for which a certificate of attachment has been issued, although some owners may wish to obtain the new form.

Units placed on owned land without a mechanic's lien contract create a special problem since by law they are real estate but do not follow the constitutional method for creating an improvement lien. In these cases the most appropriate method to "refinance" the lien on the unit is by a home equity lien. However, if the purchaser buys the land and the home simultaneously, no mechanic's lien contract is necessary.

Home placed on land after 9-1-03

Background: The law was changed in 2003 in reaction to claims by the Texas Manufactured Housing Association that HB 1869 was harming the manufactured housing industry. The main change sought was to allow unfettered chattel lending. Because Stewart Title had been instrumental in changing the constitution in 1999 to provide for conversion liens, Stewart avoided the philosophical battle over chattel lending. The law was so changed.

Stewart concentrated on revamping, yet again, the licensing of manufactured homes. Working with new management at the TDHCA, the law was amended to provide that there are no longer certificates of attachment or notices of installation. Instead, the department has created a multi-purpose form called the Statement of Ownership and Location (SOL). This form has 4 sections. The form is attached to this bulletin as example one.

  • The first section contains the information about the home. It has the date of the SOL, the certificate number, the label or serial number for each of the sections of the home, the weight and size of the homes. It also contains the name and signatures of the owners of the property, the county where the home is located and the name and address of the lienholder.

  • The second section is boxed off and allows the department to "X" a line as to whether the home is real property, personal property, business use or salvage use. If real property, the legal description of the land to which the home is affixed is included. (Please understand that a partial description is all that is required, a complete description as per the deed is not necessary.) This section also contains a statement that the status of the home as real property does not take effect until the SOL is recorded in the county records where the home is located.

  • The third section is a yes/no box for whether the home is shown title as joint tenancy with right of survivorship. DO NOT RELY ON THIS SECTION. You will need to make this determination for yourself based on Section 46 of the Probate Code by reviewing a separate written agreement signed by the owners.

  • The fourth section is the signature section for the TDHCA. It states that the status of the home as real or personal stays that way until a new SOL is issued by the TDHCA.

When the home is treated as personalty, all liens or notices dealing with the home must be filed with the TDHCA. When treated as realty, documents must be filed in the land records of the county where the home is located.

When the owner of a home shown as personalty elects to convert the home to realty, the SOL will be turned into the TDHCA and a new SOL will be issued with the realty section checked. The form for this is called the Application for Statement of Ownership and Location. This form is also composed of 4 sections. A copy of this form is attached to this bulletin as example two.

  • Home and ownership information. The certificate number, the label or serial number for each of the sections of the home, the weight and size of the homes and the wind zone rating. It also contains the names, address and phone number of the owners of the property, the physical address of the home, the name, address and phone number of the applicant or transferee and a statement as to whether the home has been moved and whether it is new or used.

  • The second section is the home designation as real property, personal property or business/salvage. A legal description must be attached to convert to real property.

  • Section three sets out the liens.

  • Section four is for signatures of the owners and purchasers. They must be acknowledged.

The department may not issue a new SOL until all liens against the home are paid, except that the department may send the SOL to a title company that is issuing a title policy covering (insuring against) the existing liens.

The final form is FORM B that is used releases of liens and foreclosures. You will rarely be called upon to assist in filling out this form. A copy of this form is attached to this bulletin as example three.

Effective September 1, 2003, all outstanding documents of title (manufacturer's certificate of origin or certificates of attachment) are "converted" into SOLs. Any action the department takes on homes with outstanding documents of title will be handled by issuing a SOL.

Not later than 30 days after the home has been transferred to a new owner, the seller must forward all documents to the buyer who shall apply for a SOL. This applies to retailer as well as a residential seller. The new TDHCA regulations require the retailer to complete the forms and send them to the TDHCA. The title agent will probably need to assist with the forms in the case of sale of a home that has not been previously attached.

To be real estate the home must be attached to a foundation that complies with the regulations of the TDHCA and must be connected to at least one utility (water, electric, natural gas, propane or wastewater).

Standards: All homes, whenever installed, will now be subject to the Statement of Ownership and Location. All Manufacturer's certificates of origin and certificates of attachment will be converted to SOL's as of September 1, 2003. We can insure a home only when a SOL has been issued with the section of the form completed that treats the home as realty. Title companies may elect to work with parties to transactions to convert either the prior documents into a SOL or convert a SOL on personalty into a SOL on realty. The title company may charge an additional escrow fee for such service. The TDHCA may send the SOL on realty to the title company in advance of closing with the understanding that the title company will obtain and file with the department all releases of liens that affected home, whether realty or personalty.

Fees: The basic fee for a SOL is $55.00. Each time a new SOL is requested there is a $55.00 fee. There is a separate $150 fee for a certification for a home that is permanently affixed. There is a separate transaction fee of $55 for the Quick Processing Service for an SOL to be issued within 3 days after the complete application is received by the TDHCA. All requests for quick processing must be delivered by overnight mail or delivered in-person. The normal time for the TDHCA to handle the SOL is 10 working days.

Title Insurance: T-31.1 should be issued. Homes installed as realty must use a mechanic's lien contract. Homes installed as personalty must use a retail installment contract; conversion of these homes to realty requires a SOL and a renewal, extension and conversion deed of trust. The language on the deed of trust should read substantially as follows: This deed of trust is given in renewal, extension and conversion under Art. 16, Section 50a8 of the Texas Constitution of a retail installment contract in the amount of $____ payable to _______.

THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER  AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.

References

Bulletins Replaced:
TX000058 This Bulletin has been replaced by TX000066.
 
TX000059 This Bulletin has been replaced by TX000066.
Related Bulletins:
TX000051 1999 Legislation
 
TX000060 2001 Legislation
Underwriting Manual:
None
Exceptions Manual:
None
Forms:
None