Transcript Legal Update

LEGAL UPDATE
Revised November 2009
Course Objectives
Forms
 Legislative Changes
 Hot Topics
 Case Studies

FORMS
Forms – Addendum for Oil Gas &
Other Minerals (44-0)
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Adopted in response to transactions over Barnett
Shale (DFW and surrounding counties)
Historically, minerals were not at issue in urban and
suburban areas
Deals only with fundamental Mineral Issues – May
need assistance of counsel
Defines minerals; calls for a reservation by seller;
has simple waiver of surface rights
Forms - Short Sale Addendum
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Adopted in response to demand for
short sales
Mirrors provisions in Addendum for
Back-Ups
Upon execution, buyer must deposit
earnest money and pay option fee
All other performance is suspended
until lienholder gives approval
Extends option until after the
lienholder gives approval
Designed to protect Seller & Buyer
until lienholder consents
Forms – Notice of Termination
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Amended in 2008 to merge 2
prior forms that dealt with
termination rights under
Financing Addendum and
Option
Added other common reasons
why buyer might terminate
Forms – T-47 Affidavit
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Text of Form is promulgated by TDI
Survey Paragraph (6C(1)) calls for delivery of the
survey AND the affidavit at the same time; BOTH
should be delivered
Affidavit identifies if any changes have occurred in
survey
Question for Buyer is to decide if new survey is wise
Buyer may want to delete the boundary exception
to protect buyer
Forms – Water District Notices
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Common in MUDs and other Water
Districts
Chap. 49 of Water Code requires
delivery of the notice at time of contract;
otherwise buyer has termination rights
A second notice will be given at closing as
well
Problems:
Must be signed before notary
 Which of the 3 forms to give (must check
with District)
 Best to have District complete the Notice

CASES – Related to Forms
Nguyen v. Woodley
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Contract signed; TREC Financing Addendum used
Buyer was approved for financing but the lender
required repairs
Buyer wrote seller stating, “we cannot obtain financing
approval by now.” Asked to extend closing. Notice
given within time required by Financing Addendum.
Buyer was able to secure approval about 4 days after
the scheduled closing date
Seller then wanted new contract with increased sales
price and non-refundable earnest money
Nguyen v. Woodley (cont.)
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Buyer sued for specific performance
Summary Judgment awarded to Seller
Appellate court held Buyer could not sue for specific
performance because buyer’s notice that he could
not obtain financing (although still trying)
terminated the contract
Qst: What about Financing Approval v. Loan
Approval?
Rich v. Olah
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Buyer sued Seller after closing for foundation defects
Seller disclosed that there had been prior foundation
repairs
Buyer had inspections noting prior repairs
Buyer claimed that foundation needed additional
repairs & Seller did not disclose this need
Court held that undisputed facts were that Buyer was
aware of some problems and proceeded to close &
that Buyer could not rely on the Seller’s alleged failure
to disclose
Seller was able to recover attorney fees because of
attorney fee provision in contract form
Sierra Group v Bryan Hardeman
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Buyer sued seller and seller’s broker
Alleged that seller failed to disclose restrictions
Trial court granted summary judgment to Seller and
Broker & gave them attorney’s fees against Buyer
Buyer appealed that Seller and broker not entitled
to attorney fees because allegations were not
related to the contract
Court held the attorney fee provision is clear and
entitled seller and broker to attorney fees
ERA v Advocates for Children
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Broker sued buyer (client) for breach of buyer rep.
agreement
Client did not buy but leased property
Rep. Agrmnt. provided for 6% commission if client
bought property; but blanks were not filled in for
payment in event of a lease
Court held for Client because broker did not strictly
complete form and construed it against them since it
was their form
ERA v Advocates for Children (cont)
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The parties agree that Broker will receive a
commission calculated as follows: (1) % of the gross
sales price if Client agrees to purchase property in
the market area; and (2) if Client agrees to lease
property in the market a fee equal to
(check only one box): q ____% of one month’s rent
or q ____% of all rents to be paid over the term
of the lease.
Fawcett v Idaho Northern R&R
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Seller agreed to sell a ranch & used
TREC form
Parties were not sure of exact size of
ranch
Form contains a variance clause that
allows either party to terminate if the
actual size varies by more than 10%
after survey is complete
5,000 acres was used in initial
contract as the size
Survey showed that size was 5,531
acres; and seller terminated
Fawcett (cont.)
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There was a dispute on what was to be included (as
there were 14 different tracts)
 Buyer
alleged that tracts for which seller did not have
marketable title should not be included
 But court said that this was a Paragraph 6 objection
and not a determination of the size of the property the
parties agreed to buy and sell
 Therefore, seller had right to terminate
Chapter 2 – Legislative Changes
HB 3502 – Seller’s Disclosure Notice
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Clarifies amendments made in 5.008,
Property Code in 2007 regarding smoke
detectors
Added an explanation of provisions in
Chapter 766, Health & Safety Code (see
Page 15); specifically sets out when a buyer
may have seller install a hearing impaired
smoke detector
 Eliminated provision that required buyer to
acknowledge that property complies with
Chapter 766 and waives any rights under
766
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SB 862 and
the Real Estate Recovery Fund
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SB 862 = TREC Housekeeping bill
If consumer seeks payment from recovery fund and
licensee is in bankruptcy; the consumer can file a
verified statement that he has made good faith
effort to obtain a discharge & then can seek
payment
Legislation concerning ARB Protests
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Pilot Appellate Program to start
under SOAH
 may
appeal ARB order determining
market value
 SOAH will hear appeal with ALJ
 For properties with value in excess of
$1 million
ARB Protest Legislation (cont.)
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Chief Appraiser cannot increase value in year
after a successful tax protest unless supported by
substantial evidence (Burden of proof lies with
appraiser)
A sale is not comparable unless occurred in last 24
months
Appraiser cannot exclude sales as a result of
foreclosures or because of declining economy
Value of a residence is determined by value as a
homestead (not highest and best use)
Tax Exemption – Disabled Vet
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Disabled Vet who receives 100% disability
compensation due to service-related disability is
entitled to an exemption of total value.
Title Insurance Legislation
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Title agts. were required to maintain residence in
TX; now may have residence in adjoining state if
with an office in TX
Title Agents (like insurers could) may now file an
affidavit that confirms a release of lien if it paid
the lien and never received the release back from
the lender
 Applies
only to homes & liens under $1.5 million
 Must notify mortgagee (who can object)
Title Insurance Legislation (cont.)
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Title companies now permitted to charge (separate
from premiums) for 3rd party charges incurred with
a closing (electronic filing fees, or tax report)
Statute of Limitations at TDI against a title company
is 5 years from date of conduct or 2 years when TDI
learned of conduct
Commissioner is to provide for expansion of
coverage of title insurance to an individual for heirs,
divorced spouses, trustees or successor trustees, or
beneficiaries of trust on death of insured
Title Insurance Legislation (cont.)
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Legislation overhauled
solvency issues as a result of
failures of out-of-state
companies
TDI can conduct audits who it
deems impaired
 TDI can assess guaranty fee
(not more than $5.00)
 TDI can limit impaired agents
from issuing new policies
 TDI can require funds to be
held in trust for underwriters
 TDI can obtain access to
agent’s file to determine
financial impairment
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Landlord – Tenant Legislation
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Expanded rights of tenants who are subject to
family violence to terminate residential leases (See
Page 18 for discussion of expanded rights)
Expanded Smoke Detector requirements in
residential tenancies for hearing-impaired tenants
(may request hearing-impaired smoke detectors)
 Considered
a reasonable accommodation
Landlord – Tenant Legislation (cont.)
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If Landlord fails to repair a health and safety
repair, then justice court may award damages to
tenant (not to exceed $10,000)
 Such
proceedings are expedited (6 to 10 days after
service)
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The late fee provisions amended in 2007 were
clarified that late fee may be charged if rent is not
paid after 1 full day after rent is due
Landlord – Tenant Legislation (cont.)
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Guaranty of a residential tenant is
limited to original lease term,
unless guarantor agrees to guarantee the
renewal
 Guaranty of renewal also requires lease to
state the last date on which the renewal
will renew the obligation of the guarantor
 Guaranty of renewal is permissible only if
renewal involves the same parties
 Guaranty of renewal is permissible only if
it does not increase potential financial
obligation
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Homestead Legislation
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Person can convey title to homestead to a
“qualifying trust’ and not lose the homestead
protection
 Prospective
only
 Statute defines “qualifying trust”
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Child Support lien will be treated same as judgment
lien for purposes of homestead protection
Foreclosure Legislation
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Previously buyer at foreclosure sale was required to
tender bid amount
Now trustee can agree to a reasonable time to
produce the funds
Mortgage Originator Legislation
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HB 10 passed to comply with
SAFE (Federal Secure and Fair
Enforcement of Mortgage
Licensing Act
Originator will be identified in the
new Nationwide Mortgage
Licensing System
Originator who is employee of
depository institution is licensed
by the banking agency; Other
Originators are governed by their
licensing agencies
Mortgage Originators (cont.)
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See definition of Originator and exclusions on Page
20
Picks up Mortgage Bankers
Originators are subject to continuing education and
must pay a recovery fund fee
The nationwide identifier will be disclosed on
applications and other documents
Condemnation Legislation
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Provides for an
amendment to the Texas
Constitution that states
that “public use” does not
include taking property
that will be transferred to
a private entity for
economic development or
enhancement of tax
revenue
Public Use is required for
a governmental entity to
have the right to exercise
eminent domain
Lis Pendens - Legislation
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To file a lis pendens, notice must
be sent to all parties having an
interest
Notified parties can move to
expunge the lis pendens
Requires court to expunge lis
pendens if pleading:
 Does
not contain a real property
claim;
 Fails to establish probable validity
to the claim; or
 Notices were not properly sent
HOA Legislation
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HOAs now required to issue updates to
Resale Certificates within 7 days (limited
to 180 days of original certificate)
If HOA fails to file management
certificate in property records, then
property owner is not liable for amounts
owed to HOA for amounts before a
transfer of the property
HOA that forecloses must give notice to
lienholder and lienholder can redeem for
the owner after 90 days but not
exceeding 180 days after the
foreclosure.
TX Res. Construction Commission
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TRCC was dissolved (“sunsetted”) in
2009 Legislative Session
 As
of 9-1-2009, TRCC no longer
accepts complaints or requests for
inspections
 Complaints before 9-1-2009,
processed by TRCC as it winds down.
HOT TOPICS
Earnest Money Disputes
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If parties cannot agree on
disbursement of EM after a contract
has been terminated; one party
may:
 Follow
procedures in Para. 18 of
contract
 Invoke mediation clause
 Ask escrow agent to interplead
 Seek assistance of counsel (maybe
seek injunctive action)
Earnest Money Disputes (cont.)
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Para. 18 Procedures
 Send
written demand to Escrow Agent for EM
 Escrow Agent will send copy of demand to other party
 Escrow Agent may release EM if other party does not
object within 15 days (automatically release Escrow
Agent)
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Mediation Procedures
 Demanding
party has to set up mediation
 Costs shared equally
 May need court to order mediation of other party is
not cooperative
Earnest Money Disputes (cont.)
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Injunctive Relief or Interpleader
 If
EM is less than $10,000, may be able to resolve in JP
 Prevailing party can recover costs and attorney fees
 Probably need to attempt demands under Para. 18
first
 May need assistance of counsel
 Para. 18 entitles prevailing party to penalty up to 3
times of EM
Failure to Document Amendments
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Amendments, even if seemingly insignificant, should
be documented
Oral extensions or amendments have been subject
to litigation and are difficult to enforce
Relates to broker’s duty to be meticulous
RESPA
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New Rules effective 1-16-2009
Third Party charges by title companies must be
separately itemized and cannot exceed actual
amounts
Settlement Service Providers can use an “average
charge” for amounts billed by 3rd party service
providers
Settlement Service Providers can offer combined
services if price is lower than the sum of the
individual services if use is voluntary (and therefore,
not violate required use provisions)
RESPA – Good Faith Estimate
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Effective January 1, 2010, new GFE to
be used
GFE to be provided with 3 days after
application
GFE must be good for 10 days after
issued
GFE is subject to tolerances; but
origination fees and transfer tax have
Zero tolerance
Tolerance apply if lender providers are
used; but not if buyer chooses providers
Lender can cure any violation by
reimbursement within 30 days
Executory Contracts
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Executory Contract (Contract for Deed or
Lease/Purchase or Lease/Option)
Involves residence
 Closing does not occur for 180 days
 Possession by buyer
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Additional Disclosures and Notices are Required
Significant Penalties apply to Noncompliance
Seek assistance of Counsel
Do not “warp” TREC or TAR forms for these types of
transactions
Unauthorized Practice of Law
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TREC Rules set boundaries for brokers when
negotiating contracts so as not to move into
unauthorized practice of law
Unauthorized practice of law is a criminal act and
carries significant penalties
Unauthorized Practice of Law (cont.)
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Licensees must use only TREC forms except:
 When
licensee is a principal
 When Gov’t agency requires different form
 When no form is promulgated and an attorney has
drafted the form for that particular use
 When form is prepared by property owner or his
attonrney and required by property owner
Unauthorized Practice of Law (cont.)
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Licensees may not
 Give
legal advice (directly or indirectly)
 Act as a public conveyancor
 Give opinion as to the legal effect of a contract or
instrument
 Give opinion as to validity of title
 Discourage person from seeking a lawyer
 Prepare documents defining legal rights of parties
Unauthorized Practice of Law (cont.)
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When using standard forms, licensees may:
 Fill
in blanks
 Add factual statements or business details (Para. 11)
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If a promulgated addendum exists for a matter, the
licensee must use it and not draft otherwise
Unauthorized Practice of Law (cont.)
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See Discussion on Page 27 and 28 on Common
Issues concerning Standard Forms
 Writing
in 7D(1), “everything found in the inspection.”
 Delivery of Option Fee
 Escalation Clauses in Paragraph 11
Energy Audits
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Local Ordinances (Austin) may require an energy
audit as a condition of selling property
CASE STUDIES
Cases on Forms – Johnson v. Conner
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Agt. completed Farm & Ranch form
In the “Reservation” blank, agent wrote, “None of
the above are available to be conveyed.”
Sellers thought they were reserving minerals
After closing, sellers learned buyers had leased
minerals and were receiving rentals
Seller sued to reform deed
Agt. testified in support of seller
Johnson v. Conner (cont.)
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Trial court held for buyer
Despite agent’s testimony, the court held that the
language was clear; namely, that the language says
that the sellers did not have any minerals to convey
but did not say that they were reserving any
minerals
Busby v. JRHBW Realty
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Admin. Fee charged to buyer at closing
Fee was in addition to commission paid by seller
Buyer sued and attempted to have case certified as a
class as a RESPA violation
Trial court denied certification & appl court reversed
Trial court found that broker violated RESPA because it
was not for separate charges, but for a fee to the
broker
Transaction fees are concern – must clearly state why
additional fee is charged and must be supported by
additional services provided by broker
Prudential v. Italian Cowboy
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Restaurant lease; both parties
represented by counsel and were
sophisticated parties
After moving in tenant notices a bad
sewage odor
Attempts to remedy odor were not
successful
Tenant later learned the prior tenant
had same problem
Tenant closed restaurant and sued
landlord
Prudential v. Italian Cowboy (cont.)
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Trial court found the agent stated:
 Premises
were practically new and problem-free
 Prior tenant did not have any problems
 Site was perfect for a restaurant
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App. Ct. held the statements were not actionable
because:
 Lease
said landlord and agt. did not make any
representations
 Parties were represented by counsel and sophisticated
 Written lease was to be given effect as it was
negotiated
Dick’s Last Resort v. Market/Ross
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Tenant signed commercial lease
Lease was guaranteed by an affiliate company
Tenant breached lease
Trial court held that tenant and the guarantor were
liable for damage (through corporate veil piercing)
 Tenant
had been set up as a no-asset company
 Lease had been transferred within various affiliate
companies for the purposes of avoiding liability under
the lease and the guaranty
Dick’s Last Resort (cont.)
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App. Ct. permitted the piercing of the veil because
it determined the evidence at trial was sufficient to
permit the jury to conclude that the corporation was
used for the purpose of perpetuating a fraud for
the direct benefit of the affiliate
Piercing Corporate Veil usually occurs through
allegations that corporation is the alter-ego of
another or that the 2 entities are a single enterprise
Here, court held arrangement was a sham, was an
alter-ego arrangement designed to avoid legal
obligations
Pleasant v. Bradford
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Buyers bought house that was shown to have 1,824
square feet in MLS
Source was not identified in MLS
Buyers claimed that they based their purchase on a
price per square foot basis
There was a disclaimer in MLS stating that
information needed to be verified
After closing, buyer obtained a copy of the lender
appraisal which showed house had 1,571 square
feet
Pleasant v. Bradford (cont.)
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Buyer had visited appraisal district website before
closing and saw that the district reported the higher
square footage
Buyer sued and Trial Court found for Buyer; namely,
that listing agent made a misrepresentation about the
size
App. Ct. upheld award for buyer
Buyer’s visit to CAD website was not an independent
investigation that removed reliance on the size reported in
MLS
 Statement signed by Buyer could have applied only to their
broker and not listing agent
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CB Whiteside v. Ryan Equity
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Apts. built in 1964
Rezoned in 1978 to SFR, but allowed
nonconforming use
In 1994 City required special-use permit of any
nonconforming use
Owner applied for SU-Permit in 1995 but denied,
but continued to operate apts.
In 1998, owners sell property to Ryan Equity
CB Whiteside v. Ryan Equity (cont.)
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Buyer never asked owners about zoning or
investigated; did ask Brkr who said it was legal
nonconforming use.
Buyer filed for application after closing but
denied
Bldgs were later demolished
Buyer sued seller and brkr
Sellers were not liable
Ct held that zoning status was not a “material
defect” required disclosure; but was “legal status”
CB Whiteside v. Ryan Equity (cont.)
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Buyer alleged seller committed fraud and
misrepresentation
Seller is under no duty to disclose facts that buyer
should be able to uncover (reasonable diligence)
Buyer did not present evidence why zoning status
was could not have been uncovered
Sutton v. Ebby Halliday
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Owner built house and then listed
it for sale
Agt. was same agt. Owner used
when he bought the lot
Seller signed Seller Disclosure
Notice and did not report any
prior flooding
Buyer was represented by same
firm as listing agent
Buyer received a $4,500 credit
at closing

Seller said it was for grading;
buyer said for other purpose
Sutton v. Ebby Halliday (cont.)
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After closing, flooding occurred and water ponded
Buyer sued agents claiming they knew the property
flooded
 Brkr
had spoken to neighbor who said lot had flooded
 Brkr had disclosed statement from neighbor but said
buyer must verify
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Jury awarded damages to the buyer; but Trial
Court granted Judgment NOV to broker as to
mental anguish and exemplary damages
Both parties appealed
Sutton v. Ebby Halliday (cont.)
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On appeal, the court noted that finding that
determination of whether the agent “actually knew
of prior flooding” was critical to buyer prevailing
App. Ct. held that evidence was insufficient to
establish actual knowledge of prior flooding
None of the buyer’s arguments (see Page 37) would
have established actual knowledge
Van Marcontell v. Jacoby
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Landlord leased house
Tenant moved out; but landlord let her
boyfriend (not a tenant) to remain
An agt. informs a buyer that the house
was for sale
Agt. told buyer that the occupant was a
nice guy
Buyer bought property but made no
inquiry about occupant nor asked agt.
anything about occupant
Buyer wanted $15,000 from the
occupant as an option for occupant to
buy the property from him
Van Marcontell v. Jacoby (cont.)
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At closing, the seller gave the buyer a credit for the
$15,000 option for the occupant
After closing, the buyer had to evict the occupant
for non-payment of rent
Buyer sued seller for misrepresentation and failure
to disclose information about tenant
Trial Ct. held for buyer
Reversed on appeal because seller had no duty to
provide information about occupant/tenant
 Buyer
did not ask; and
 Buyer had negotiations directly with tenant
Seller v Gomez
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2 brokers submitted offer to seller
Seller rejected offer
Subsequent offers made; but seller
rejected
Seller then engaged an attorney to
negotiate a sale.
 Attorney
informed brokers that seller
would not pay a commission
Seller v. Gomez (cont.)
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Attorney negotiated sale with buyers
Brokers sued seller
Since brokers did not have a written agreement
with the seller for a commission, the statute of
frauds provision in TRELA prohibited brokers from
recovering
 The
alleged oral statements that the brokers said were
made, are not sufficient for brokers to maintain a claim
for a commission
The End – Keep up-to-date
and Get Smart