Contracts for Deed & Executory Contracts -- New Texas Law Gives Real Teeth to Recording Requirement - HB 311

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

Over the course of several years and multiple legislative sessions, Texas lawmakers have tinkered with Chapter 5, Subchapter D of the Texas Property Code related to "executory contracts" a/k/a "contracts for deed." In prior posts on this blog, I have outlined some of the issues, problems and requirements related to this category of transactions for selling real estate to buyers who cannot obtain conventional financing (mortgage loans). I have also pontificated on my experiences with these instruments, as a lawyer who routinely handles real estate transactions and real estate litigation. It's no secret that I have very mixed emotions about the need for and potential for abuse of Contracts for Deed.

Obviously, the Texas Legislature feels the same way, as they, again, "beefed-up" the requirements, and told us how serious they are about the requirement that contracts-for-deed be required. Enter HB 311...

This new law, which becomes effective on September 1, 2015, amends numerous statutes contained in Chapter 5 of the Property Code. According to the legislation's author/sponsor, the intent of the new law is pretty clear. He introduced the law as follows:

Executory contracts for the sale of residential property (sometimes referred to as “contracts for deed”) have long been disfavored because they encumber title without transferring title, cannot be sold in the real estate market, cannot be used to borrow money to make improvements, and are potentially abusive transactions under which legal title to homestead property may be withheld until many years after the buyer has built a home and made other expensive improvements. While the Texas Legislature has made changes to discourage the use of these instruments, serious problems persist from their use. Parties also contend that there remain significant misunderstandings among sellers, buyers, and even judges and attorneys about the nature of executory contracts and about the rights and obligations of the various parties to such instruments. H.B. 311 continues the progression to modernize residential real estate transactions, improve transparency, and improve the process of conversion of these relics of real estate. 

As eventually passed, HB 311 also enacts a new civil penalty for violations of state law related to executory contracts.  

Stay tuned, in a future post on this blog, I will cover the numerous changes to Chapter 5, on a section-by-section basis, and give a personal commentary on HB 311. 

Texas Real Estate Fraud Lawsuits

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

As a Real Estate Attorney in San Antonio, Tx, I am experienced at litigating real estate fraud and nondisclosure suits arising from the purchase, sale, transfer and exchange of real property.

Fraud in a Real Estate Transaction (irrespective of whether the real property in question is residential or commercial), occurs when:

• there is a false statement or material misrepresentation of facts related to real property (whether made by the Seller or his agent). In some cases, it is not even necessary for the person to know that the statement is false at the time it is made;
•  concealment or nondisclosure of material facts related to real property; and/or
• there is a breach of fiduciary duty by a real estate agent, real estate broker, title company, escrow officer or attorney. The agent may represent either the Buyer or the Seller.

We file/prosecute and defend claims and lawsuits based on fraud or concealment in a real estate transaction, including cases involving a Seller's non-disclosure of facts (the existence of an undisclosed easement, prior problems or repairs, prior flooding, title clouds, competing ownership claims, size/acreage discrepancies, etc.). We also handle and defend cases against real estate professionals (brokers and agents) concerning fraud, professional misconduct and breaches of fiduciary duty. 

When evaluating the feasibility of a real estate fraud case, several factors are considered, including the following:

1)  Was the Fraudulent Activity “Affirmative,” or a “Misrepresentation by Non-Disclosure?” Affirmative fraud generally arises when a seller or his realtor knowingly makes a false statement or misrepresentation of material fact with an intent that the Buyer relies on the false statement. By contrast, Fraud by Non-Disclosure (also referred to as “fraudulent concealment”) generally occurs when the Seller or his real estate agent fails to disclose a material fact about the property, including known defects and title issues, with an intent to effect the Buyer’s decision concerning whether to purchase the property, and at what price.

2)  Was the Seller's Real Estate Agent Aware of the Fraud? If a seller's broker has knowledge of material facts, not known to the buyer, the seller's broker is under a duty of disclosure and may be held liable for mere nondisclosure since his/her conduct in the transaction amounts to a representation of the nonexistence of the facts, which he has failed to disclose.

3)  Is the Real Estate Transaction Implicated by "As-Is" or Other Contractual Nuances? Sellers and their real estate brokers are always under a duty to disclose concealed or known material facts that are not known or observable by the buyer.  A property sold "As-Is" may limit the Seller’s disclosure duties, but an "As Is" provision will not relieve the Seller or Seller's Agent fraud liability arising from purposeful nondisclosure or concealment. 

4) Does the Fraudster have Insurance or the Resources to Satisfy a Judgment?   A sometimes sad and frequently frustrating reality of litigation (particularly unfortunate in lawsuits arising from fraud) is that the costs and burdens of filing a lawsuit must be economically feasible. In other words, before pursuing a claim, the claimant/fraud victim should have reasonable assurances that the opposing party can pay money to settle the claim or satisfy a Judgment in the event that the case goes to trial. In instances where the party engaging in fraud has no resources, no non-exempt assets, and no insurance policy available to satisfy a  claim, it frequently doesn't make "financial sense" to spend the time, money and energy to pursue a civil lawsuit for money damages.  While alternate remedies may exist when the fraudster lacks resources (rescission of sale, criminal charges, etc.), the victim sometimes has to make a tough decision of whether to risk "throwing good money after bad." However, where the party engaging in fraud has a professional liability insurance policy, financial resources and/or non-exempt property, the "economically feasible" consideration is more easily resolved.