In Texas, a warranty deed includes specific assurances made by the seller to the buyer. One of these assurances is a guarantee that title to the property is free of encumbrances, meaning the title will be freely transferable if you later decide to sell the property. A warranty deed with a vendor's lien contains all the usual seller's assurances, but the lien acts as a protection for the seller.
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Warranty Deeds
A warranty deed is an instrument used to transfer title of property from the grantor/seller to the grantee/buyer. There are lots of types of deeds but warranty deeds are the gold standard since they give the most protection to the buyer. By signing a warranty deed, the seller essentially promises that he owns the property outright, and there are no mortgages or liens encumbering it. If the promise turns out to be wrong and the seller does not have good legal title to the property, the buyer can sue for his financial losses.
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Understanding Liens
A lien is a legal arrangement between a debtor and a creditor. It gives the creditor — a person who is owned money — the right to hold onto the debtor's property until the debtor has paid their debt. You likely will have come across the term "lien" in the context of a mechanic's lien, which allows contractors to record a lien against your home when you haven't paid your constructions bills. The lien stops you from selling or mortgaging your home until you've paid off the debt in full, at which point the lien is released.
The Effect of a Vendor's Lien
A vendor's lien is a lien in favor of the "vendor" or the seller of real estate. When a warranty deed contains a vendor's lien, the buyer agrees to allow the seller to seize the property until the property is paid for in full. It's used in situations where the buyer is taking immediate possession of the property, but is paying the purchase price in installments or at some later date. So, if a warranty deed includes a vendor's lien, it means the seller keeps the right to take possession of the property until the buyer finishes making payments. The seller holds legal title until the buyer makes the last scheduled payment, and the buyer cannot sell the property until that payment is made.
It Works Like a Mortgage
In many ways, a Texas warranty deed with a vendor's lien works like a mortgage — and it's used in a similar way, too. Most people use this type of deed when the buyer is not borrowing from a bank or financial institution but is instead borrowing the purchase price from the seller of the property. When a buyer has difficulty obtaining a mortgage from an institutional lender, the seller of property can loan him the money. Just as institutional lenders retain the right to seize mortgaged property, a seller with a vendor's lien retains the same right in the event the buyer fails to make scheduled payments.