Encumbrances, Deed Restrictions, and Homestead on a 10-Acre Tract
Seller owns 10 acres and wants to sell to Buyer. The title commitment shows: (1) a 20-foot utility easement along the front; (2) a deed restriction prohibiting commercial use; (3) a mechanic's lien filed by a contractor for $18,000 for a barn built last year; (4) an HOA assessment lien for $2,400; (5) current-year property taxes not yet due; and (6) a homestead designation. Buyer plans to run a home-based welding business with customers visiting the property. Seller says, "The homestead protects me, so I can sell without clearing the liens."
1. Classify each title item and explain how it affects Buyer's intended welding business.
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The utility easement is an encumbrance; it does not prevent sale but limits use of the strip and may restrict building. The deed restriction prohibiting commercial use is the biggest issue: a welding business with customer visits likely violates it and could be enjoined by the HOA or neighbors. The mechanic's lien and HOA lien are monetary encumbrances that must be addressed for clear title. The current-year taxes are a lien that will be prorated at closing. The homestead designation does not prevent a voluntary sale; it protects against forced sale of the homestead and requires proper spousal signatures.
Buyer should not assume the business is allowed; Buyer should review restrictions, HOA rules, and local zoning before closing.
2. What must happen to the mechanic's lien and HOA lien before closing?
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The mechanic's lien must be paid and released, bonded around, or otherwise cleared to the title company's satisfaction. Because it is on a homestead, Buyer should also verify whether the contractor complied with Texas constitutional and statutory homestead-lien requirements; a defective lien may be challenged, but title companies usually require a release or indemnity.
The HOA lien must be paid and released, and the seller should obtain an HOA resale certificate/statement. The title company will likely withhold funds or require payoff at closing. Buyer should not accept title subject to these liens without a written credit or payoff arrangement.
3. Does the homestead designation prevent Seller from selling? Who must sign?
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No. Homestead does not prevent a voluntary sale. It prevents forced sale by most creditors and requires that the deed be signed by both spouses if the property is the homestead of a married person. If Seller is married, the non-owner spouse must join in the deed. A title company will require proper homestead affidavits and spousal joinder.