Section 114.104 of the Estates Code

Transfer on Death Deed Property Subject to Liens and Encumbrances at Transferor's Death; Creditors' Claims.

(a) Subject to Section 13.001, Property Code, a beneficiary takes the real property subject to all conveyances, encumbrances, assignments, contracts, mortgages, liens, and other interests to which the real property is subject at the transferor's death. For purposes of this subsection and Section 13.001, Property Code, the recording of the transfer on death deed is considered to have occurred at the transferor's death.

(b) If a personal representative has been appointed for the transferor's estate, an administration of the estate has been opened, and the real property transferring under a transfer on death deed is subject to a lien or security interest, including a deed of trust or mortgage, the personal representative shall give notice to the creditor of the transferor as the personal representative would any other secured creditor under Section 308.053. The creditor shall then make an election under Section 355.151 in the period prescribed by Section 355.152 to have the claim treated as a matured secured claim or a preferred debt and lien claim, and the claim is subject to the claims procedures prescribed by this section.

(c) If the secured creditor elects to have the claim treated as a preferred debt and lien claim, Sections 355.154 and 355.155 apply as if the transfer on death deed were a devise made in a will, and the creditor may not pursue any other claims or remedies for any deficiency against the transferor's estate.

(d) If the secured creditor elects to have the claim treated as a matured secured claim, Section 355.153 applies as if the transfer on death deed were a devise made in a will, and the claim is subject to the procedural provisions of this title governing creditor claims.

Added 84th Leg., R.S., Ch. 841 (S.B. 462)

Editor Comments

In Subsection (a), this section of the Texas Real Property Transfer on Death Act fully adopts the substance of Subsection (b) of Section 13 of the Uniform Real Property Transfer on Death Act. Cf. The Uniform Real Property Transfer on Death Act: A Summary at 2 ("At the time of the transferor's death, title to the property is transferred automatically to the beneficiary, subject to any conveyances, encumbrances, assignments, liens, or other interests in the property. In other words, the beneficiary receives only the interest that the transferor owned at the time of death, and the holders of any security interests in the property are protected.").

A beneficiary normally "takes the real property subject to all conveyances . . . and other interests to which the real property is subject at the transferor's death." Section 13.001 of the Property Code, the Texas recording statute, protects only the rare beneficiary who is a purchaser for value without actual or constructive notice. Cf. Slaton v. Singleton, 9 S.W. 876, 877 (Tex. 1888) (citations omitted) ("[A] purchaser from an heir is not precluded from availing himself of the protection which our registration laws accord to innocent purchasers, when such purchase is asserted against an unregistered deed from the intestate and the same rule has been assented to as against an unregistered will.").

In other words, unless a bona fide purchaser, the beneficiary simply steps into the shoes of the transferor. Cf. Background Study: Liability of Nonprobate Transfer for Creditor Claims and Family Protections at 22 ("The rule that property passes to a beneficiary subject to liens on the property without exoneration from the estate is appropriate with respect to a voluntary lien such as a mortgage or deed of trust; that would accord with the decedent's likely intent. The same rationale does not apply to a nonconsensual lien or a general lien not tied to a specific asset, such as a tax lien, judgment lien, or Medi-Cal lien.").

In Subsections (b)-(d), this section of the TRPTODA details the treatment of secured claims against real property transferred by a transfer on death deed. Cf. Creditor's Claims in Estate and Guardianship Administrations at 540 ("When preferred debt and lien status is elected, the creditor's priority with respect to its collateral is preserved against all other claims, including the family allowance. Preferred liens also have priority over Class 1 claims for funeral expenses and Class 2 claims for administrative expenses, with the exception of those administrative expenses directly related to the preservation and maintenance of the property.").

The subsections, which are unique to Texas, generally make the rules contained in the Estates Code regarding secured claims against probate estate property applicable to secured claims against real property transferred by a transfer on death deed. Cf. In re Estate of Carlson, 367 P.3d 486, 489 (Okla. 2016) ("At issue in this cause is whether the estate of a deceased grantor of mortgaged properties conveyed by transfer-on-death deed is liable for the underlying debt, when the grantor's will contained express instructions for the payment of all debts secured by mortgages. We determine that it is.").

Subsections (b)-(d) address only the situation in which a personal representative has been appointed for the transferor's probate estate. The rights of secured creditors when a personal representative has not been appointed are not entirely clear. Cf. Pearce v. Stokes, 291 S.W.2d 309, 312 (Tex. 1956) ("Under our holding all mortgagees will know that any sale made after the death of the mortgagor and within four years thereof will be cancelled if an administration is opened and the administrator seeks cancellation, and they will thus be encouraged to pursue their remedy in an administration proceeding in the first instance.").

Finally, nothing in this section affects the special rules that govern homestead properties. Cf. Laster v. First Huntsville Props. Co., 826 S.W.2d 125, 130 (Tex. 1991) ("A mortgage or lien that is void because it was illegally levied against homestead property can never have any effect, even after the property is no longer impressed with the homestead character."); Harms v. Ehlers, 179 S.W.2d 582, 583 (Tex.Civ.App.–Austin 1944, ref'd) ("But there is an essential and controlling difference between loss of the homestead character of property by abandonment and termination of the homestead estate by death of the judgment debtor.").

—Steve Smith

Court Decisions

No appellate court decision has interpreted any section of the TRPTODA.

Legal Commentaries

• Glad You Asked: Questions from Readers at 2 ("Suppose the house has a fair market value of $50,000. However, the mortgage and tax liens amount to $100,000. Does the law require the sister to accept the house? The answer is no (Section 114.105, Texas Estates Code).")

• New Tool in the Toolbox at 3 ("If treated as a matured secured claim, the beneficiaries may pay the debt, or the property may be sold to pay the debt, with the beneficiaries receiving any remaining proceeds. If the proceeds are not enough, the deficiency is paid from other assets in the estate, if possible.")

• Transfer on Death Deed: Information and Answers at 1 ("[O]wners cannot escape the claims of creditors with a Transfer on Death Deed. All valid liens, mortgages, and judgments, as well as claims of other creditors, may be applied against the real property. Mortgages, liens and notes follow the property and will now be the responsibility of the new owner.")

• Transfer On Death Deed In Texas at 1 ("Fifth, the beneficiary takes the property, subject to all conveyances, encumbrances, assignments, contracts, mortgages, and liens. In some instances, this can lead to a beneficiary not being able to pay off the lien obligations and forcing either a sale of the property, if possible, or a foreclosure.")

• Transfer on Death Deeds: A Texas Primer at 7 ("The creditor then must elect to have the claim treated a matured secured claim or as a preferred debt and lien. If the creditor elects either expressly or by failure to elect to be treated as a preferred debt and lien, the creditor may not seek a deficiency against the grantor's estate.")

Uniform Act Text

Section 13. Effect of Transfer on Death Deed at Transferor's Death.

. . . .

(b) Subject to [cite state recording act], a beneficiary takes the property subject to all conveyances, encumbrances, assignments, contracts, mortgages, liens, and other interests to which the property is subject at the transferor's death. For purposes of this subsection and [cite state recording act], the recording of the transfer on death deed is deemed to have occurred at the transferor's death.

. . . .

Approved by ULC in 2009 (Uniform Act)

Uniform Act Comment

The official comments to the Uniform Act provide authoritative commentary regarding the drafters' intent.

For example, the comment to Section 13 states in part:

One extreme would provide that transactions during the transferor's life affect the beneficiary only if the transactions are recorded before the transferor's death. . . . The other extreme would provide that transactions during the transferor's life always supersede the beneficiary's interest, even if the recording act would provide otherwise. Between these two positions is the rule of subsection (b).

The full comment is available on the Uniform Law Commission website.