How to Take an Ownership Interest as Collateral in Texas

When a lender wants to reduce risk, she asks for collateral. The borrower gives the lender an ownership interest in some asset -- often real estate or a motor vehicle -- as collateral, to which the lender looks for compensation should the borrower fail to repay the loan. Texas lenders have good reason to take collateral: collecting unsecured debts in Texas -- even after getting a court judgment -- is notoriously difficult. Lenders cannot attach a home or its furnishings, nor can they attach wages. The procedure for taking collateral in Texas depends on the type of property offered as collateral.

Instructions

Real Property

1. Obtain a deed of trust from the borrower if you lend money to purchase a home. Texas uses deeds of trust rather than mortgages to secure real estate collateral. A deed of trust provides a lender with an ownership interest in the real estate and remedies in case of default.

2. Engage a title or escrow company as trustee. Ask your bank to recommend a responsible title company. The title company prepares the trust deed papers. A Texas deed of trust transfers title in the real property to the trustee, who holds title on your behalf.

3. Sign the deed of trust papers prepared by the title company. Under the terms of the agreement, you lend the borrower money, he transfers title to the trustee and the trustee manages repayment of the debt on your behalf. The trustee takes and sells the property to cover your debt in case of borrower default on the loan.

Vehicles

1. File an application for the issuance of a new certificate of title with the appropriate Texas regulatory agency. Under Texas law, an amended certificate creates a collateral interest in any property subject to Texas certificate-of-title statutes, including cars, trailers, recreational vehicles and boats.

2. Locate the property agency. The Texas Department of Motor Vehicles, or DMV, regulates most motor vehicles, including boats.

3. Obtain a copy of the application for certificate of title. Go to a Texas DMV office for a paper copy of the form, or access one on the agency's website.

4. Complete the form, listing yourself as the lien holder on the vehicle. File the document with the appropriate Texas agency. Obtain and retain for your files a certified copy of the certificate of title.

References

• Travis County (Texas) Justice of the Peace: Collecting Your Judgment
• Cary and Lippincott: Texas Secured Creditors
• Andrews and Kurth; "Clark Contracting: Texas Lien Assignees Unperfected?"; Michael D. Jewesson; March 2009
• Texas Department of Motor Vehicles: Protect Your Title
• Lone Star Land Law: Deeds in Texas

Resources

• Alliance Federal Crdit Union: Texas Title Application
• Texas Department of Motor Vehicles