12.36 Mortgages Executed By Parties Not Receiving The

12.36.1

In General

Mortgages, the proceeds of which are not disbursed or applied to the account of those parties who execute the same, can be avoided by the mortgagors' creditors under both federal and state laws. The federal law is contained in those provisions of Sections 547 and 548 of the Bankruptcy Code dealing specifically with transactions affecting creditors on the basis of fraud or preference. The Texas policies contain a creditor's rights exclusion which cannot be modified or deleted. Additionally, Texas Law prohibits title insurance companies licensed in Texas from providing creditors rights coverage anywhere in the USA unless required by state law.