This memorandum attempts to clarify our August 15, 2005 memorandum on this subject by addressing the issue of whether Sections 32.06 and 32.065 of the Texas Tax Code are the exclusive method for refinancing ad valorem tax debt on Texas homestead property. Please refer to this firm’s August 15, 2005 memorandum located on our website at www.bmandg.com under the “what’s new?” icon for a full discussion of the transfer and refinance of ad valorem tax liens pursuant to Sections 32.06 and 32.065, Texas Tax Code. Prior to the 2005 legislative amendments to Sections 32.06 and 32.065, their use to refinance ad valorem tax debt assured lenders they had perfected a valid lien under the Tax Code and the Texas Constitution against a Texas homestead with little, if any, downside. However, the 2005 amendments now limit this method (with two exceptions) to delinquent taxes and place additional notification and documentation burdens on lenders and expand third-party redemption rights (see 8-15-05 memo). For this reason, it is now reasonable to inquire if there is an alternative method for perfecting a valid lien on a Texas homestead when financing the payment of ad valorem taxes. This memorandum explores that alternative method. When the purpose (or one of the purposes) of a loan is to pay ad valorem taxes due on real property and secure it with a valid lien, Texas case law, while informative, is not as clear as one would like. The weight of authority, however, appears to be that compliance with Sections 32.06 and 32.065 is not the exclusive method for perfecting a lien in payment of ad valorem tax debt1. Section 15, Article VIII, of the Texas Constitution provides, in pertinent part, that “The annual assessment made upon landed property shall be a special lien thereon.” Section 50, Article XVI, of the Texas Constitution lists the only debts that may be validly secured by a Texas homestead, providing in subsection (a)(2) that the Texas homestead is not protected from forced sale for the payment of “the taxes due thereon.” These constitutional provisions provide the legal basis for the validity of tax liens on a Texas homestead. However, prior to the 1998 amendments to Section 50, there was no constitutional provision that expressly allowed a tax lien to secure a third party who, at the request of the homestead owner, voluntarily agrees to pay the taxes secured by the tax lien. The 1998 amendments to Section 50 added subsection 50(e) which reads, in pertinent part, “[a]refinance of debt secured by a homestead … that includes the advance of additional funds may not be secured by a valid lien against the homestead unless: … the advance of all the additional funds is for … a purpose described by Subsection (a)(2) … of this section.”
