SA Appeals Court Reverses Real Estate Fraud/DTPA Judgment Favoring Buyer of Apartment Complex

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

On January 8, 2014, San Antonio's Fourth Court of Appeals reversed a $400,000+ verdict rendered in favor of the purchaser of the Woodlake Village Apartments against the seller of that real property.

The underlying verdict, entered by the Bexar County District Court in a 2007 lawsuit, found that the prior owner/Seller of the complex had engaged in statutory fraud in a real estate transaction, and had violated the Texas Deceptive Trade Practices Act ("DTPA") by making misrepresentation's about the condition of the complex' roof.

On appeal, the Fourth Court determined that the DTPA's express disclaimer of applicability to transactions where the consumer paid more than $500K for real estate other than their residence barred recovery on the DTPA claim. In reversing any recovery on the Buyer's DTPA claim, the Court cited evidence in the record demonstrating that  (i) the Buyer purchased a apartment complex (as opposed to his home); (ii) for a purchase price of $1.85 million. Author's Note:  TEX. BUS. & COMM. CODE ANN. § 17.49(f)) provides: “Nothing in this subchapter shall apply to a cause of action arising from a transaction . . . involving total consideration by the consumer of more than $500,000, other than a cause of action involving a consumer’s residence.” 

The court next considered the Seller's appellate claim that there existed no evidence that the Buyer, in consummating the purchase, relied upon any representation by the Seller concerning the roof. In his suit, the Buyer alleged that the Seller had committed statutory fraud under Texas Business and Commerce Code section 27.01. That statute provides: 

(a) Fraud in a transaction involving real estate . . . consists of a
(1) false representation of a past or existing material fact, when the false representation is
(A)made to the person for the purpose of inducing that person to enter into a contract; and
(B) relied on by that person in entering into that contract . . . 

TEX. BUS. & COM. CODE. ANN. § 27.01(a). “Fraud under section 27.01 requires evidence that the defendant made a false representation to the plaintiff that induced the plaintiff to enter into a real estate contract to his or her detriment.” Martin v. New Century Mortg. Co., 377 S.W.3d 79, 86 (Tex. App.—Houston [1st Dist.] 2012, no pet.); see TEX. BUS.&COM. CODE. ANN. § 27.01(a). Reliance is an essential element of a statutory fraud claim. TEX. BUS.&COMM.CODE § 27.01(a); see Van Marcontell v. Jacoby, 260 S.W.3d 686, 691 (Tex. App.—Dallas 2008, no pet.). 

The Court cited the following facts/evidence in determining that there existed no/insufficient evidence that the Buyer had relied on any false representation of the Seller in connection with the roof:

•  Prior to closing, the Seller delivered expense reports to the Buyer's real estate agent that di not contain entries for roof repairs;
• The Seller admitted to patching the roof himself;
• The Buyer personally saw the condition of the roof prior to closing
• The Buyer obtained a property inspection report prior to closing that identified issues and problems with the roof;
• The purchase/sale contract entered by the parties contained a "present condition clause" (also referred to as an "AS IS clause"); and
• The purchase price of the property was reduced by a contract amendment after the Buyer performed his walk-through.

The court characterized this evidence as conclusively establishing "the opposite of a vital fact (reliance)," and found that there was no-evidence to support the trial court's finding of statutory fraud.  Thus, the trial court's decision was reversed, and the case was remanded for consideration of the amount of attorneys' fees to be awarded to the Seller under the parties' contract, which provided for an award of fees to the periling party in litigation.

In reaching its conclusion, the Court cited Regal Finance Co., 355 S.W.3d at 603 (citing City of Keller, 168 S.W.3d at 815–16); see also Lesieur v. Fryar, 325 S.W.3d 242, 249 (Tex. App.—San Antonio 2010, pet. denied) (holding recovery for fraud was precluded when plaintiff obtained a pre-purchase inspection that detailed the same foundation problems they alleged defendants misrepresented in sale of home). 

The Fourth Court's full Opinion is available here.