If It Isn't in Writing It Probably Didn't Happen: New Opinion Touches on the Texas Statute of Frauds and Real Estate

Trey Wilson San Antonio Texas Real Estate Attorney, Trey Wilson Real Estate Lawyer in San Antonio wrote:

In a short opinion, the Fourth Court of Appeals appears to have reaffirmed the importance of the statute of frauds in agreements related to real estate. However, its "re-affirmation" turns on a legal technicality, and the Court could well have missed an opportunity to clarify and expound-upon the law relating to a legally-recognized exception to the SOF, and done so under an interesting set of facts.

In its opinion issued in Bakke Development Corp. v. Albin on March 16, 2016, the 4th Court upheld a summary judgment granted by the trial court on a waiver-type basis by focusing on the fact that one of the possible grounds upon which the summary judgment could have been rendered was not challenged by the Appellant (Bakke). 

Bakke did challenge the trial court's ruling on the "traditional" portion of the Motion for Summary Judgment granted in Albin's favor, but apparently failed to challenge the no-evidence portion on appeal.  In such instances,"we must uphold the summary judgment" said the 4th Court, citing Krueger v. Atascosa Cnty., 155 S.W.3d 614, 621 (Tex. App.—San Antonio 2004, no pet.) (“Unless an appellant has specifically challenged every possible ground for summary judgment, the appellate court need not review the merits of the challenged ground and may affirm on an unchallenged ground.”) and Lowe v. Townview Watersong, L.L.C., 155 S.W.3d 445, 447 (Tex. App.—Dallas 2004, no pet.) (“Because summary judgment may have been granted on the unchallenged no-evidence grounds, we must affirm the trial court’s summary judgment.”). Ultimately, the Court concluded that "the no-evidence grounds raised in Albin’s hybrid motion for summary judgement could, if meritorious, fully support the judgment..." and since they were not challenged, the trial court's ruling could not be disturbed.

The facts and trial court's grant of summary judgment in the case are worth review: 

Bakke, a real estate development firm, contacted the Albins to discuss the prospect of a joint venture to develop real property in Boerne that the Albins had inherited. Under the proposal, the Albins were to dedicate their land to the venture, and Bakke would contribute finances and development expertise. The ultimate objective was to develop the property for apartment and mixed-use.

The parties never signed a written partnership agreement or otherwise  signed any writing embodying the terms of the the alleged oral agreement. Rather, it appears that both parties employed lawyers for the purpose of negotiating the terms of a limited partnership agreement, but ultimately reached an impasse. After the negotiations were terminated, Bakke filed suit in Kendall County District Court alleging that there was already an oral general partnership that achieved the same ends as would have the limited partnership that could not be negotiated, that Albin had breached the fiduciary duty owed to Bakke, constructive trust, fraud, unjust enrichment, and promissory estoppel.

The trial court granted Albin's “Motion for Partial Summary Judgment on Applicability of the Statute of Frauds” and adjudged that “the Texas ‘statute of frauds,’ Texas Business and Commerce Code Section26.01, applies to the oral agreement alleged by the Plaintiff in this cause and prohibits judicial enforcement of that agreement under any theory or cause of action for which the statute of frauds is a defense recognized under law.”  Bakke later amended its claims in the suit, and Albin then filed a hybrid motion for summary judgment, asserting that the agreement was unenforceable as a matter of law, and that there was no evidence to support Bakke Corp.’s claims for breach of the partnership agreement, breach of fiduciary duty, fraud, constructive trust, and unjust enrichment. This MSJ, too, was granted by the trial court, but the court did not specify whether the "traditional" or "no-evidence" grounds formed the basis for the Summary Judgment.

On appeal, Bakke failed to challenge the no-evidence basis (if any) of the trial court's grant of Albin's hybrid MSJ.  As described above, this defect in the appeal resulted in a technical victory for Albin without the Fourth Court addressing the merits of the parties' arguments.

After reading the parties' briefs, this commentator believes that the trial court (and in-turn the Fourth Court) reached the right decision. However, the Court of Appeals passed on a golden opportunity to expound-upon and clarify the "Partial Performance Exception" to the Texas Statute of Frauds, as it relates to agreements for the conveyance of real estate. 

Under that exception, if an agreement involves an oral (non-written) conveyance of real property, it may be removed from the Statute of Frauds upon proof of: 1) payment of consideration; 2) possession by vendee that is exclusive and adverse to the owner of title of the land; and 3) the making of valuable improvements upon the land without consent of the conveying party. Carpenter v. Phelps, 391 S.W. 3d 143, 149 (Tex. App.—Houston [1^st Dist.] 2011, no pet.); see also Pappas v. Gounaris, 311 S.W.2d 644, 646 (Tex. 1958). 

While Bakke alleged facts that might have fit into the Partial Performance Exception, the Court never reached that issue. Thus, we'll have to wait for another day and another case for the Texas courts of appeals to develop this important concept in Texas real estate law.

Interplay of Limitations and Imputed Notice (Based on Public Deed Records) in Real Estate Fraud / DTPA Claims

Trey Wilson San Antonio Texas Real Estate Attorney, Trey Wilson Real Estate Lawyer in San Antonio wrote:

THE RECORDING STATUTE 

Texas law provides for a comprehensive statutory recording system which provides in part that “[a]n instrument ... properly recorded in the proper county is notice to all persons of the existence of the instrument.” TEX. PROP. CODE ANN. § 13.002. 

The statute makes sense because purchasers of real estate are -- or definitely should be -- on notice of the contents of the deed history/ chain of title of property that they have purchased. Often, this notice arises from a title search performed as part of a closing.

THE STATUTE IS NO DEFENSE TO REAL ESTATE FRAUD

The recording statute has often, but unsuccessfully, been asserted as a defense in claims against a Seller of real property.  The defensive theory is generally something akin to:

"If the Plaintiff would have searched the deed records, he would have known that I did not... [own all of the land that I purported to transfer to him under our contract]or [disclose the fact that I had conveyed the property to somebody else] or [disclose the easement running through the property], etc., etc."

Despite the plain language of the recording statute, Texas courts have very rarely -- if ever - held that a purchaser’s failure to search the deed records would bar his fraud action against the seller. See Graham v. Roder, 5 Tex. 141, 147 (1849) (fraud and deceit action maintainable despite fact that plaintiff “did not go to the records, the proper source for information”); Buchanan v. Burnett, 102 Tex. 492, 119 S.W. 1141 (1909); Ojeda de Toca v. Wise, 748 S.W.2d 449 (Tex. 1988) (imputed notice under the real property recording statutes does not operate as a defense to a buyer’s action for damages arising out of deceptive trade practices). Instead, Courts have stated that the purpose of this "recording statute" is "to notify subsequent purchasers ... and not to give protection to perpetrators of fraud” See Boucher v. Wallis, 236 S.W.2d 519, 526 (Tex. Civ. App.— Eastland 1951, writ ref’d n.r.e.).

GENERAL STATEMENT OF THE LAW

Thus, it can fairly be stated that the law is currently as follows: In Texas, the existence of a recorded instrument (deed, easement, etc.) in real property records does not, in and of itself, bar a claim arising from fraud or deceptive trade practices related to the property made the subject of the instrument.  That is, imputed notice arising from the deed records does not constitute a direct defense against a real estate fraud or DTPA claim.

However, the implications of a recorded instrument on whether a real estate fraud claim is barred by limitations -- and when a cause of action accrues -- are far more dicey.  

RECORDING STATUTE AND LIMITATIONS

In Scott vs. Furrow (Opinion delivered March 9, 2016), the Fourth Court of Appeals recently addressed the interplay of the recording statute and statutes of limitations in the context of a Buyer's claim that a Seller of real estate and that Seller's broker had engaged in misrepresentations related to the waterfront character of  property in Seguin, Texas.

After a detailed analysis of established case law reflecting the General Statement of Law provided above in this post, the 4th Court concluded that, while the Texas Supreme Court's holding in Wise prevents a defendant from using imputed notice from the deed records as a direct defense against a DPTA claim, that Defendant could rely upon the deed records to establish when a plaintiff should have discovered a claim for limitations purposes. 

In reaching this conclusion, the 4th Court relied on Am. Homeowner Pres. Fund, LP v. Pirkle, No. 02-14-00293-CV, 2015 WL 5173066, at *9 n.11 (Tex. App.—Fort Worth Sept. 3, 2015, pet. filed) (citing Wise to note that failure to search deed records would not preclude fraud claim by purchaser but further noting limitations on such a claim would begin to run immediately because the purchaser was on notice of the deed records for purposes of limitations), Sherman v. Sipper, 152 S.W.2d 319 (Tex. 1941) (fraud will prevent the running of a statute of limitation only until such time as the fraud is discovered, or by the exercise of reasonable diligence it might have been discovered).

The Fourth Court also reconciled their decision with the Texas Supreme Court’s more recent holding in Ford v. Exxon Mobil Chem. Co, in which a plaintiff sued for real estate fraud, but -- in addressing a statute of limitations defense -- the Texas Supreme Court held constructive notice from the deed records provided sufficient notice for limitations to immediately begin to run. 

THE TAKE-AWAY

The take-away form the 4th Court's opinion in Scott vs. Furrow is this: A Plaintiff with a right in real property is not excused by another's fraud from reviewing open and available title records that reveal a title defect, and timely discovering such defect. Even in the face of fraudulent misrepresentation, a Plaintiff must exercise reasonable diligence to discover a title defect, and where -- by the exercise of such diligence he could have discovered such defect and would have known of his right -- he is legally presumed by the recording statute to have known it, and limitation will run against his claim from the time he could have made such discovery by the exercise of ordinary diligence.

Foreclosure Buyers and Real Estate Flippers - You Need to Watch 99 Homes!

This movie is overly-dramatic, but a fair depiction of the potential for a dirty underbelly of the home-flipping industry. Good acting and definitely worth a watch!

Trey Wilson San Antonio Texas Real Estate Attorney, Trey Wilson Real Estate Lawyer in San Antonio wrote:

Feds to Track Secret Buyers of High End Real Estate, Starting in Manhattan and Miami

Trey Wilson San Antonio Texas Real Estate Attorney, Trey Wilson Real Estate Lawyer in San Antonio wrote:  

In case you missed it on CBS News this Morning, the federal government is cracking down on secret, high-end real estate purchases. 

From the New York Times: By Louise Story.

Concerned about illicit money flowing into luxury real estate, the Treasury Department said Wednesday that it would begin identifying and tracking secret buyers of high-end properties.

The initiative will start in two of the nation’s major destinations for global wealth: Manhattan and Miami-Dade County. It will shine a light on the darkest corner of the real estate market: all-cash purchases made by shell companies that often shield purchasers’ identities.

It is the first time the federal government has required real estate companies to disclose names behind cash transactions, and it is likely to send shudders through the real estate industry, which has benefited enormously in recent years from a building boom increasingly dependent on wealthy, secretive buyers.

The initiative is part of a broader federal effort to increase the focus on money laundering in real estate. Treasury and federal law enforcement officials said they were putting greater resources into investigating luxury real estate sales that involve shell companies like limited liability companies, often known as L.L.C.s; partnerships; and other entities.

Read the full article HERE.

Woman sues husband, claims real estate fraud in Austin, Texas condo deal

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

AUSTIN, Texas, Dec. 31 (UPI) -- A woman claims she was cheated by her husband of $1.2 million in a real estate deception, court records in Austin, Texas, show.

Mari-Louise Larsen, 26, sued her estranged husband Andre Jones, 33, and five people and four businesses she says helped pull off the fraud, the Courthouse News Service reported Tuesday.  Jones, a convicted felon and registered sex offender, and Larsen married in Denmark in 2009, soon after she had inherited a "significant amount of money," her complaint states.

She claims Jones persuaded her to buy an under-construction condo in Austin for $1.3 million after convincing her Texas law requires the names of both spouses to be on titles to contracts and deeds.

Her complaint alleges he altered closing documents on the property that increased the purchase price by $200,000, which she provided and he kept, then retained the money derived from selling the condo after the marriage deteriorated.

Read more: http://www.upi.com/Top_News/US/2013/12/31/Woman-sues-husband-claims-fraud-in-Texas-real-estate-deal/UPI-21001388529523/print#ixzz2pPLz0PNI

A much more salacious version of the story, entitled "The Worst Husband in the World?" can be found at the Courthouse News Service site.