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.

5th Circuit: Last Minute Approval for Mortgage Modification Does Not Excuse Mortgage Arrears

Posted by Trey Wilson San Antonio Texas Real Estate Attorney, Trey Wilson Real Estate Lawyer in San Antonio 

Last Minute Approval for Mortgage Modification Does Not Excuse Couple from Mortgage Arrears, Says 5th Circuit: Evidence insufficient to show a couple was damaged by the lengthy application process

Lawrence v. Federal Home Loan Mortgage Corp., et al.

In 2008, Ronald and Jennifer Joyce purchased a home with a mortgage, serviced by Wells Fargo (“Wells”), and secured with a deed of trust.  Two years later, the couple contacted Wells to discuss payment options because they were having trouble making their mortgage payments.  At that time, the homeowners submitted an application through Wells for a mortgage loan modification program under the federal Home Affordable Modification Program (“HAMP”). 

Federal Home Affordable Modification Program (“HAMP”) Was Their Only Hope

HAMP was a program created under President Obama’s Administration to help homeowners avoid foreclosure and to stabilize the nation's housing market.  Under HAMP, eligible homeowners could lower monthly mortgage payments and get into more stable loans at present-day interest rates.  12 U.S.C. §§ 5219, 1715z-23.  HAMP also provided a way out of a home loan that avoids foreclosure altogether for homeowners who were unable maintain their mortgage for the long term.  Making Home Affordable.  See www.makinghomeaffordable.gov (accessed Feb 16, 2016).  According to the Lawrences, participation in the HAMP program was the only way to avoid foreclosure.

Bank Denied HAMP Modification, Sites Texas Constitution

Wells, however, denied the HAMP application because the deed of trust for the home was secured with a Texas Cash Out Loan.  According to Wells, the terms of Texas Cash Out Loans, governed by Article XVI, Section 50(a)(6) of the Texas Constitution, may not be modified and are not eligible for HAMP modification.  Wells did, however, create a payment plan, but the Lawrences were not able to keep up with the payments and completely defaulted in June 2011.  

Foreclosure Looming on the Horizon

            Wells started foreclosure proceedings while trying to work with the Lawrences to avoid foreclosure by rescheduling the foreclosure sale four times.  In the meantime, the Lawrences applied several times for HAMP modification.  In a surprising turn of events at the 11^th hour, Wells agreed that the mortgage was eligible for modification under the federal program, but that the couple would have to hurry because the foreclosure had been rescheduled for December 6.  The Lawrences applied on November 14, but their application remained incomplete until December 2.  Wells informed the couple that the bank was not able to fully review all of the application materials and that the December 6 foreclosure would go on as planned.  The Lawrences remained in the home until 2013 without making any further payments.     

The Lawrences Took Wells Fargo to Court

            The Lawrences sued Wells for fraud and fraudulent-inducement in state court, and Wells removed the dispute to federal court and moved for summary judgment before a district court via a Magistrate Judge’s review.  The Magistrate concluded that the Lawrences raised a genuine issue as to whether their eligibility for a HAMP modification had been misrepresented to them over the months leading up to the eventual approval of their application.   Accordingly, the Magistrate gave his recommendations to the district court.  However, the district court granted summary judgment to Wells, citing insufficient evidence to show damages for fraud and fraudulent-inducement.

The Lawrences have appealed to the Fifth Circuit Court of Appeals, asserting common-law fraud and fraudulent inducement.  Specifically, they argue that the district court ignored evidence of their out-of-pocket damages when communicating with Wells via mail; that the district court ignored evidence that the bank’s misrepresentations denied them the opportunity to sell their home to mitigate their damages, and lastly, that the arrears that accumulated on the mortgage are damages.  The Lawrences have taken the position that the bank lead them on and caused the missed payments, thus increasing the monthly payments under the repayment agreement.  Therefore, the big issue before the Fifth Circuit was whether Wells was liable for fraud or fraudulent-inducement from 2010 to 2011 when Wells denied HAMP applications, but then allowed the HAMP modification less than thirty days before the foreclosure sale. 

Definition of Fraud Under Texas Law

            Under Texas law, fraud occurs when a (1) material misrepresentation is made that is (2) false; (3) at the time the representation is made…[and]; (4) the speaker makes the representation with the intent that other party should act upon it; [that the] (5) the party acted in reliance on the representation; and (6) as a result, the party suffered an injury.  Italian Cowboy Partners, Ltd. V. Prudential Ins. Co. of Am., 341S.W.3d 323, 337 (Tex. 2011).

The Fifth Circuit Weighed In

          Here, the Fifth Circuit affirmed the district court’s findings.  First, the Court said the Lawrences did not offer evidence showing damages as a result of corresponding with Wells.  While postage and time spent filling out the applications may be damages, the couple did not offer receipts from the post office, or a log of their time away from work.  “Mere assertion of injury, unsupported by evidence, is insufficient to survive summary judgment.”  Likensv. Hartford Life & Accident Ins. Co., 688 F.3d 197, 202.

            Secondly, the Court said the Lawrences offered no evidence to demonstrate that they had planned to sell their home.  They did not demonstrate that they had hired a realtor, cleaned the home or made improvements in anticipation of selling, nor did they list their home for sale.  “Without some evidence that [the bank’s] misrepresentations denied them the chance to actually sell, claim[s] that they would have sold are “speculation” and that is not enough to oppose summary judgment.  Id. 

            Lastly, the Court explained that while the new payment agreement did increase the monthly payments, it did not alter the total obligation under the mortgage.  As a result, “the Lawrences may not claim the arrears as damages or injury, because those amounts were already owed under the original mortgage.”  In re Swift, 129 F.3d 792,799 (5th Cir. 1997). 

The Court of Appeals affirmed the district court’s judgment, holding that there is insufficient evidence to show that the Lawrences suffered damages because the claimed damages were either not true damages, were too speculative or were merely unsubstantiated assertions. 

Collecting and Preserving Evidence is Critical

Preserving and showing evidence is critical to winning in court.  Notice that the Fifth Circuit never actually commented as to whether it believed that Wells committed fraud or fraudulent inducement, or acted in a gray area.  Even though the Magistrate at the district court found the Lawrences to have raised a genuine issue, the buck stopped at the lack of solid evidence on appeal.   

This article is intended for educational and informational purposes only and does not substitute legal advice.  If you are in need of real estate or property legal counsel, please contact my office at (210) 223-4100.

Apartment Violence Leaves Management Company Vulnerable to Premises Liability, Says the Fifth Circuit

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

The following is a summary of the holding of the Fifth Circuit Court of Appeals in an Opinion filed on January 26, 2016.

JENKINS v. C.R.E.S. Management, L.L.C.

A Shooting at an Apartment Complex Leads to a Civil Lawsuit

            Security guard Shannon Jenkins worked for the Fountains of Westchase apartment complex, managed by C.R.E.S. Management, L.L.C. (“CRES”).  As part of his salary, Jenkins lived rent-free at the complex.  Early one morning, Jenkins heard loud banging on his door.  Concerned that someone needed help, he opened the door, but was shot in the doorway at close-range by an unknown person.  The shooter fled the scene and was never apprehended.  Jenkins sustained injury to his elbow, but later recovered.         

            Jenkins sued the property management company under a premises liability theory, asserting that the property manager had a duty to protect him from unreasonable and foreseeable harm due to the criminal acts of third parties.  CRES moved for summary judgment on the ground that Jenkins could not adequately show that his assault was foreseeable, given the lack of violent crimes occurring at the Fountains of Westchase. 

Jenkins reported the apartment complex’s crime history to the court, which included seven aggravated assaults, fourteen residential burglaries, seven motor vehicle burglaries, six thefts, four auto thefts, one sexual assault and one robbery-shooting.  However, the magistrate judge assigned to conduct a Foreseeability Review, limited the review to only crimes with violent characteristics, removing all of the property-based crimes.  The district court adopted the standard of review, stating, “the Court agrees…the foreseeability analysis must be limited to…[violent] crimes…[and] because Jenkins’s [shooting] was a violent crime, property crimes…are excluded…when analyzing the foreseeability of a personal crime, such as the shooting [here].”  Removing all of the property crimes from the crime history had the effect of lowering the total number of crimes reported during the Foreseeability Review.

Under this analysis, the district court granted a summary judgment motion in favor of the property manager because the apartment complex’s criminal history was insufficient to show that the assault against Jenkins was foreseeable to the management of the apartment complex.

The Big Issue Before the Court of Appeals for the Fifth Circuit

On appeal to the Court of Appeals for the Fifth Circuit, the Court was tasked with determining whether the shooting of Jenkins was “foreseeable” by the property manager.  In other words, should the district court have removed all of the property crimes from the criminal history during the Foreseeability Review?        

Premises Liability and Foreseeability Under Texas Law

            Under Texas Law, “one who controls … [a] premises does have a duty to use ordinary care to protect invitees from criminal acts of third parties if he knows or has reason to know of an unreasonable and foreseeable risk of harm to the invitee.”  Timberwalk Apartments, Partners Inc. v. Cain, 972 S.W.2d 749 (Tex. 1998); Lefmark Mgmt. Co. v. Old, 946 S.W. 2d 52, 53 (Tex. 1997).  To evaluate foreseeability, Texas courts narrow the relevant criminal history to be included in a foreseeability review.  TrammellCrow Cent. Tex., Ltd. V. Gutierrez, 267 S.W. 3d 9, 13-15 (Tex. 2008).  After the criminal history is narrowed, courts compare the criminal history with the crime at hand.  Specifically, courts examine the facts of the case against the following five factors:  (1) proximity;  (2) publicity;  (3) recency; (4) frequency; and (5) similarity.  Id.  at 15; Del Lago Partners, Inc. v. Smith, 307 S.W. 3d 762, 768 (Tex. 2010).    

The Fifth Circuit Court of Appeals Weighs In

            The Fifth Circuit determined that the lower court did not commit error by narrowing the criminal history of the apartment complex, as “Texas appellate courts…follow Trammell Crow’s framework by limiting their review to relevant crimes.”  However, the Fifth Circuit did find that the district court erred “in excluding burglaries as irrelevant to the foreseeability analysis.”  The Court explains, “Trammell Crow did not call for a rigid categorical analysis; [rather] it accepted the notion that residential burglaries could suggest the likelihood of personal crime.”  The Court further declared, “residential burglaries, by their very nature, may suggest the foreseeability of violent crime [because] an apartment intruder initially intent upon stealing, may decided to assault a tenant discovered inside, even if the tenant avoids confrontation.”  Aaron v. Havens, 758 S.W.2d 446, 448 (Mo. 1988).  Accordingly, the Court reversed the judgment of the district court and remanded the case back to the lower court.

Implications for Texas Landlords

            Generally speaking, this case has implications for landlords in Texas.  Under existing Texas law, landlords have a duty of ordinary care to protect tenants against the criminal acts of third parties if the landlord knows, or has reason to know that the risk to tenants is unreasonable and foreseeable.  Hypothetically, a Landlord could “know or have reason to know” about crime risks based upon police reports, media broadcasts, security assessments, and tenant complaints, for example.  The Court in this case held that in premises liability suits, the Court will limit the scope of the criminal history to include similar crimes.  However, when it comes to apartment communities, property crimes are relevant in terms of foreseeability of future violent crimes against tenants. 

In sum, Texas courts may examine the number of property crimes in an apartment complex to determine whether the criminal acts of third parties against renters were foreseeable to landlords, and if so, then the apartment complex and/or managing company may be held liable for damages in a premises liability suit.    

This article is intended for educational and informational purposes only and does not substitute legal advice.  If you are in need of real estate or property legal counsel, please contact my office at (210) 223-4100.