Beware of Spring Break Rental Fraud

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

From Fraud.org, here's an interesting warning of Spring Break rental and other vacation scams that target students. In past years, we have heard of such scams being publicized through Craigslist and other websites.

This year, I heard a radio report of a scammer who went so far as to set-up a fake website to book "reservations" and take advance payments. Of course, the condos for which the reservations were made do not exist or were not affiliated with the scammers.  A similar fraud employing fake bookings was reported on the Today Show.

Spring break scams plaguing students

Spring is officially here! But with temperatures across the country still in winter-like digits, what better reason to look forward to spring break escapes! Still recovering from the Great Recession and feeling the pinch of the ever-increasing cost of higher education, many students will be looking for deals as they make their spring break travel plans.

Scammers are keenly aware of this and are advertising custom-tailored schemes to defraud this vulnerable group. Police in many tourist areas, meanwhile, are often so busy trying to perform their normal duties while maintaining order during the often wild spring break period that they cannot track down all fraudsters, who may keep under the radar by swindling a relatively small amount of money compared to other criminals. Knowing that this lowers the chance of being caught, scammers have become increasingly bold.

Indeed, local media organizations and business groups across the country are warning students of this widespread fraud. In general, these notices caution of any offer that seems too good to be true. The reports show that these scams come in many different forms, from offers that promise vacation packages for far less than other companies, to misleading information on what accommodations a hostel has, to travel packages that seem to include flight or hotel reservations but really only offer something unrelated, and worth quite less. The list goes on and on.

Thankfully, there are ways for students and other consumers to protect themselves. Here are some guidelines students should consider before booking.

• Proceed with caution when considering deals that seem to offer a lot (five-star hotels, premium airfare, etc.) for a very low price or that require immediate payment to retain a rate. When something seems too good to be true, it generally is.
• Ensure that all details from the purchase are in writing, including the total cost, any restrictions that may apply, and the exact names of the hotels or airlines promised (if applicable).
• Be wary of any claims that say you “won” something, especially if the offer is unsolicited.
• Pay for the vacation with a credit card so you are protected if something goes wrong, and so authorities can more easily track the fraudulent vender. In fact, try to avoid companies that require payments by only cash, check, or wire transfer.
• Go online to see if the company has an established reputation. Look to see if other consumers have complained of hidden fees or sudden price increases.
• If a third party company claims to have purchased airline tickets or hotel reservations, call the companies yourself to ensure that the claim is valid. Some consumers have traveled long distances only to find that the hotel they thought they were staying at does not exist.

SELLER'S DUTY TO DISCLOSE PROPERTY CONDITION IS ONGOING UNDER TEXAS COURT RULING

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

I have written many times about the obligation of a Seller of residential real estate in Texas to disclose, in writing, material facts about the condition of property being sold. This obligation has been codified at Section 5.008 of the Texas Property Code, which requires the disclosures to be written, signed by the Seller, and delivered to the Buyer at or prior to closing of a purchase/sale of real estate. 

Section 5.008(d) expressly requires the disclosure notice to be "completed to the best of the Seller's belief and knowledge as of the date the notice is completed by the Seller."

Under the plain language of Section 5.008, it may appear that, so long as the disclosures are true when completed by the Seller and delivered to the Buyer, the Seller has fully complied with his legal obligations.  A recent (2014) court decision from the 11th Court of Appeals of Texas warns that this is not the case, and that a Seller has an ongoing duty to disclose conditions that occur following the date that the disclosures are completed by the Seller, and which render the disclosures to be incomplete or untrue.

In that case, Domel v. Birdwell, the Eastland Court of Appeals considered damages caused by a hail storm and flooding that had occurred after the Seller's completion of the required disclosures, but before the time that the Seller delivered such disclosures to the Buyer. 

The Seller failed to update the disclosures, which denied flooding, roof damage and insurance claims -- none of which had occurred when the disclosures were completed the year before the sale.   However, by the time that the ultimate Buyer came along, these events had all occurred, and the Seller simply delivered the "old" disclosures without updating them to include the flood and roof damages.

Among many unsuccessful arguments made by the Seller  was a claim that the statutory duty of disclosure -- and Section 5.008 in particular -- contains no obligation to update information.  While technically true if one were to read Section 5.008(d) in a vacuum, this argument failed.

Instead,  the Court found that a common-law obligation to update information arises from the fact that the earlier representation -- even if true when made -- becomes untrue and only "partial" based upon the new development.  That is, when one makes a representation, he has a duty to disclose new information when he is aware the new information makes the earlier representation misleading or untrue.  Untrue and partial representations are actionable under Texas law.

Here's another informative excerpt from the case:

In addition, as the Prudential court and several other Texas courts have noted, a general duty to disclose information in an arm's-length business transaction may arise when a party makes a partial disclosure that, although true, conveys a false impression. Prudential Ins., 896 S.W.2d at 162; see, e.g., Bradford,48 S.W.3d at 755-56; Hoggett v. Brown, 971 S.W.2d 472, 487 (Tex. App.-Houston [14th Dist.] 1997, pet. denied); Ralston Purina, 850 S.W.2d at 636. 

A corollary principle is that, when there is a duty to speak, silence may be as misleading as a positive misrepresentation of existing facts. Smith, 585 S.W.2d at 658 (citing Rowntree v. Rice, 426 S.W.2d 890 (Tex. Civ. App.-San Antonio 1968, writ ref'd n.r.e.)). Silence, therefore, can be equivalent to a false representation when there is a duty to speak and the party deliberately remains silent. Bradford, 48 S.W.3d at 755; SmithKline Beecham Corp. v. Doe, 903 S.W.2d 347, 353 (Tex. 1995); Smith, 585 S.W.2d at 658.

Since the Texas Supreme Court has declined to review the Birdwell case, the Eastland Court's holding will not be disturbed, and Sellers and their agents should be aware of the duty to update disclosures based on changed conditions.

Have You Been the Victim of Real Estate Fraud?

San Antonio Real Estate Lawyer Trey Wilson wrote:  Check out my new video short on real estate fraud. I prosecute and defend lawsuits alleging fraud in a real estate transaction, fraudulent concealment and fraud by non-disclosure.

New Form for Seller's Disclosures Required as of 1/1/2016

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

I frequently write and speak about the importance of the proper and accurate completion of Seller's Disclosure Notices.  Such notices are required by Section 5.008 of the Texas Property Code, which requires that the Disclosures be:

• signed by the Seller;
• delivered to a Buyer at or prior to the time that a purchase contract is entered; and 
• accurate as of the date that they are signed.  

Texas courts have held that a Seller has an ongoing obligation to supplement or update the representations contained in the Seller's Disclosure Notice if facts change materially.  

If s Seller affirmatively misrepresents, or fraudulently conceals (fails to disclose a known property condition when a duty to disclose exists), that Seller can be liable for real estate fraud and possibly a violation of the Texas Deceptive Trade Practices Act.  The Texas Real Estate License Act even provides that a real estate salesperson and her broker can even be held liable if they are aware of a Seller's misrepresentation of a property's condition.

To assist Sellers in complying with the legal obligation to disclose a property's condition as required by Section 5.008, the Texas Real Estate Commission has promulgated a standardized form that is used in most real estate transactions. This form -- TREC form No. OP-H -- was revised in August 2015.  Here is a link to the newly revised form.

Texas real estate license holders are generally required to use forms promulgated by TREC when negotiating contacts for the sale of real property.  These forms are drafted and recommended for adoption by the Texas Real Estate Broker-Lawyer Committee, an advisory body consisting of six attorneys appointed by the President of the State Bar of Texas, six brokers appointed by TREC, and one public member appointed by the governor.

Beginning January 1, 2016, all real estate transactions involving TREC licensed brokers will require use of the newly revised Seller's Disclosure Form.

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. 

Texan Gets Four Years for Foreclosure Scam

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

Story By DAVID LEE - Courthouse News Service 

     PLANO, Texas (CN) - A Texan was sentenced to four years in federal prison for a scheme that sent false military orders to stop home foreclosures and converted one of the spared homes into a marijuana grow house.

     Jarrod Williams, 34, of McKinney, also was ordered to pay $1.4 million in restitution. He pleaded guilty in August 2013 to conspiracy to commit mail fraud and wire fraud.

     Co-conspirators Charles Williams, 39, of McKinney, Christopher Carter, 34, of Leicester, England, and Sean Harrell, 38, of Dallas, are each serving from 41 to 50 months in federal prison.

     Julius Williams, of McKinney, has yet to be sentenced. He faces up to five years in federal prison.

     According to the July 2012 indictment, the Williams clan controlled and operated Applied Investment Strategies, a purported foreclosure rescue service, from February 2007 to June 2012.

     "However, once a homeowner retained AIS, the defendants fraudulently used the customer's personal identification information to prepare and send false military orders to banks and lending institutions in order to claim relief from foreclosure under the Servicemember's Civil Relief Act," prosecutors said in a statement. "AIS would then lease out the home and collect rental payments for AIS' benefit."

     The scheme involved about 38 homes and also tried to stop repossession of cars, prosecutors said.

     "After at least one of the fraudulently acquired properties was vacated, Charles Williams, Jarrod Williams, Julius Williams, and Christopher Carter turned it into a marijuana grow operation that housed in excess of 1,000 marijuana plants," prosecutors said after the indictment.

Defective Notarization /Improper Acknowledgment May (But Doesn't Always) Render Deed Unenforceable or Even Void

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

As an attorney practicing real estate law in San Antonio, Texas, I am frequently called upon to challenge or defend the validity of a deed transferring an interest in real estate. 

Challenges to deeds come in all varieties, and for a host of reasons. When confronted with (or asserting) a challenge to a deed's validity, it is common practice to scour the language of the deed, itself, and the circumstances surrounding its execution, for defects. 

Generally speaking, deeds are presumed to be valid, and the filing of a deed is notice to all persons of the deed's existence and contents. See Alkas v. United Sav. Ass'n of Texas, Inc., 672 S.W.2d 852, 856 (Tex.App.-Corpus Christi 1984, writ ref'd n.r.e.);First Sav. & Loan Ass'n of El Paso v. Avila, 538 S.W.2d 846, 849 (Tex.Civ.App.-El Paso 1976, writ ref'd n.r.e.). Further, it is a conclusive presumption of law that a proper and legal recording of a deed in the county where the land lies is constructive notice of the recorded deed's existence. Quarles v. Hardin, 249 S.W. 459, 462 (Tex.Comm'n App.1923, judgment adopted); White v. McGregor, 92 Tex. 556, 50 S.W. 564 (1899). However, there are important qualifications to this presumption, including when an improperly acknowledged deed has been placed of record. 

The recordation of a deed without a proper acknowledgment does not constitute notice. Hill v. Taylor, 77 Tex. 295, 14 S.W. 366, 367 (1890) (deed acknowledged before an associate judge in Maryland state court, but not clear if this met requisites of Texas law allowing acknowledgment outside the state). 

However, the defect in the acknowledgment must appear on the face of the acknowledgment. Titus v. Johnson, 50 Tex. 224, 240 (1878); Peterson & Fowler v. Lowry, 48 Tex. 408, 412 (1877).  

An example of a defective acknowledgment that is not facially apparent occurs when one who is financially and beneficially interested in a transaction.  By law, such persons are disqualified from taking an acknowledgment concerning the transaction. Gulf Prod. Co. v. Continental Oil Co., 61 S.W.2d 185, 186-87 (Tex.Civ.App.-Texarkana 1933), aff'd, 139 Tex. 183, 164 S.W.2d 488 (1942). However, if the instrument and the notary's certificate are regular on their face, and in no way expressly disclose the interest of the notary in the property and/or transaction, the instrument is valid to subsequent purchasers without notice of the defect. Gulf Prod. Co. v. Continental Oil Co., 139 Tex. 183, 164 S.W.2d 488, 493 (1942); Titus, 50 Tex. at 240; Peterson & Fowler, 48 Tex. at 412.

Another non-facial defect with a deed occurs when the Grantor did not appear in person before the Notary who acknowledged the document. For better or worse, the law is well- settled that a certificate of acknowledgment is prima facie evidence that the grantor appeared before the notary and executed the deed in question for the purposes and consideration therein expressed. Bell v. Sharif-Munir-Davidson Dev. Corp., 738 S.W.2d 326, 330 (Tex.App.-Dallas 1987, writ denied); see also Stout v. Oliveira, 153 S.W.2d 590, 596 (Tex.Civ. App.-El Paso 1941, writ ref'd w.o.m.) (burden of proof is on party who denies genuineness of acknowledgment and instrument).  Again, if the Deed recites that the Grantor appeared in person (even if they didn't), this presumption is conclusive, and only "clear and unmistakable proof that either the grantor did not appear before the notary or that the notary practiced some fraud or imposition upon the grantor" will   overcome the validity of a certificate of acknowledgment.  Bell, 738 S.W.2d at 330.

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.

Texas Law Defines Real Estate-Specific Fraud, and Contains Meaningful Remedies for Defrauded Victims

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

Real estate fraud is so prevalent in Texas that our lawmakers enacted an individual statute dedicated to defining fraud, and setting forth the remedies available to victims.  The statute is often overlooked because it is not in the Texas Property Code, but rather, is nestled away in Chapter 27 of the Texas Business & Commerce Code. 

The statute -- located at Section 27.01 of the Texas Business & Commerce Code -- was originally adopted in 1967, but amended in 1983 to provide more "teeth." Violations of the statute are frequently referred to as acts of "statutory fraud," in contrast to more "traditional" types of fraudulent representations, which are generally characterized as "common law fraud."  Many lawsuits arising from fraudulent behavior in a real estate transaction (whether by active misrepresentation or failure to disclose) allege both "common law fraud" and "statutory fraud." 

Section 27.01(a) defines fraud "in a transaction involving real estate (or stock...)" as consisting of:

(1) false representation of a past or existing material fact, when the false representation is
(A) made to a 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; OR

(2) false promise to do an act, when the false promise is
(A) material;
(B) made with the intention of not fulfilling it;
(C) made to a person for the purpose of inducing that person to enter into a contract; and
(D) relied on by that person in entering into that contract.

As is clear from the plain language of subsection (a), the statute is implicated only in those instances where falsehood is material, made for the purposes of inducing entry into a contract, and actually results in entry into a contract involving real estate.

Subsection (b) declares that a person "who makes a false representation or false promise commits the fraud described in Subsection (a) of this section and is liable to the person defrauded for actual damages." Though not referenced in the statute, Texas law defines "actual damages" as both "direct" and "consequential" damages. Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 816 (Tex.1997); Henry S. Miller Co. v. Bynum, 836 S.W.2d 160, 163 (Tex.1992) (Phillips, C.J., concurring).

Subsection (c) applies to situations where a person commits fraud (as defined in subsection (a)) "with actual awareness," and prescribes "exemplary damages" (also commonly referred to as "punitive damages") for such conduct. Subsection (c) further provides that "actual awareness may be inferred where objective manifestations indicate that a person acted with actual awareness." This reduces the victim's burden of proving the mindset of the fraudster.

Subsection (d) contains what I like to call a "derivative liability element," meaning that fraud can also occur by knowing complicity with another person's fraudulent conduct. This subsection provides that "a person who (1) has actual awareness of the falsity of a representation or promise made by another person and (2) fails to disclose the falsity of the representation or promise to the person defrauded, and (3) benefits from the false representation or promise commits the fraud described in Subsection (a) of this section and is liable to the person defrauded for exemplary damages." As with subsection (c), "actual awareness" of someone else's fraud under subsection (d) "may be inferred where objective manifestations indicate that a person acted with actual awareness."

Subsection (e) of the statute contains some of the real "teeth" and allows a victim who has been defrauded under the statute to recover the following damages (in addition to the damages defined in subsections (a-d))

• reasonable and necessary attorney's fees
• expert witness fees
• costs for copies of depositions, and 
• costs of court.

If you have been a victim of real estate fraud, and have entered into a contract for the purchase, sale or exchange of real estate, you should contact an experienced real estate lawyer who understands the Texas laws pertaining to the rights and remedies of defrauded victims.  While the statute described in this post provides meaningful remedies, its elements can be challenging to prove.

"Undoing" a Real Estate Sale -- the Remedy of Rescission

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

Sometimes when real estate contracts go bad -- really bad -- and fraud or mistake is involved, suing for damages is not enough. This scenario occurs when a recently-bought/sold property is not fit for the buyer's intended purpose, is not as described in the contract, or otherwise would result in an unjust enrichment to the non-complaining party to the contract.  Under these circumstances, the equitable remedy of RESCISSION may be be appropriate as a cure for a breach of contract.

"Rescission is an equitable remedy that seeks to set aside an otherwise legal contract due to fraud, mistake, or for some other reason when it is necessary to avoid unjust enrichment of the non complaining party to the contract, so that the parties thereto may be restored, insofar as is possible, to the status or position they were in prior to execution of the contract." City of The Colony v. North Tex. Mun. Water Dist., 272 S.W.3d 699, 732 (Tex. App. Fort Worth 2008, pet. dism'd)(citations omitted). As an equitable remedy for breach of contract, rescission serves to "undo" the contract in lieu of monetary damages that would be inadequate to compensate the complaining party. Id. (discussing rescission as a contract remedy); Humphrey v. Camelot Ret. Cmty., 893 S.W.2d 55, 59 (Tex. App.-Corpus Christi 1994, no writ) ("Rescission is an equitable remedy that operates to set aside a contract that is legally valid but is marred by fraud, mistake, or for some other reason, the court must set it aside to avoid unjust enrichment."); see also Nelson v. Najm, 127 S.W.3d 170, 176 (Tex. App.-Houston [1st Dist.] 2003, pet. denied) ("Texas courts have long held under general principles of common-law fraud that one who is induced by fraud to enter into a contract has a choice of remedies: he may either recover his monetary damages flowing from the fraud or he may elect the equitable remedy of rescission in lieu of damages and demand a return of any amount paid.")

"Restitution," means the act of restoring or a condition of being restored. WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY.  Rescission is merely the "common, shorthand name" for the composite remedy of rescission and restitution. RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § 54 cmt. a (2011). Rescission is a form of restitution that applies if the transaction may still be unwound; if it cannot, a plaintiff may sue for damages. See id. § 37 cmt. a. Thus, "[r]escission is one of the principal asset-based remedies in restitution," and it "restore[s] the parties to the status quo ante by unwinding the contractual exchange instead of pressing it forward." Id.

But rescission is not a one-way street. It requires a mutual restoration and accounting, in which each party restores property received from the other. Id.§ 37 comment d. "Rescission is mutual: a plaintiff seeking to be restored to the status quo ante must likewise restore to the defendant whatever the plaintiff has received in the transaction."); see also Kennedy, 143 S.W.2d at 585.  Thus, it is generally limited to cases in which counter-restitution by the claimant will restore the defendant to the status quo ante. RESTATEMENT § 54(3).

In a real estate context RESCISSION generally refers to a conveyance (by deed) of real property from the Buyer back to the Seller, and a refund by the Seller of the Buyer's purchase money.  In this regard, the sale has been "undone" or "unwounded," and the parties are restored to their positions immediately preceding the sale.

Obtaining an award of (or agreement for) rescission can be complicated. And, like all equitable remedies, the party seeking rescission must have "clean hands," and must timely request the remedy. 

Misrepresentations and the DTPA -- Even Unknowingly False Statements Can Lead to Liability

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

As a real estate lawyer in San Antonio, TX, I have always perceived the Texas Deceptive Trade Practices Act ("DTPA") to be a mixed bag -- one of those statutes with equal parts good and bad implications. My belief has been developed over the past decade based upon what I characterize as a "strict liability" interpretation of the DTPA adopted by the Texas Supreme Court and its subordinate Texas state courts.

One would be hard-pressed to argue legitimately against the DTPA's policy purpose:  to protect consumers against false, misleading, and deceptive business practices, unconscionable actions, and breaches of warranty.  However, the DTPA's application in real estate fraud cases has oft' reminded me of the old maxim: "the road to hell paved is with good intentions." 

For better or worse, since at least 2002, Texas courts have  rejected the argument that an individual cannot be held liable under the DTPA when he does not know the falsity of his representations.  Stated differently, the law in Texas provides for strict liability for misrepresentations, as follows:

“[A] DTPA claim does not require that the consumer prove the [defendant] acted knowingly or intentionally. The DTPA requires that the consumer show that the misrepresentation was false and that the false misrepresentation was the producing cause of the consumer's damages. A consumer is not required to prove intent to make a misrepresentation to recover under the DTPA."

Miller v. Keyser, 90 S.W.3d 712, 716 (Tex. 2002)(emphasis added). Moreover, "misrepresentations that may not be actionable under common law fraud may be actionable under the DTPA." Id.

In the context of a typical real estate dispute, DTPA claims are frequently asserted in connection with misrepresentation or failure to disclose (concealment) allegations. These allegations are usually made by a Buyer against the former Seller and/or that Seller's broker-agent. Often the DTPA is thrown-in as a "catch-all" allegation, when the real crux of the Plaintiff's claims sound in fraud or breach of contract. 

I have seen DTPA causes of action filed in cases relating to a given property's: a) suitability for a certain purpose; b)  zoning classification; c) propensity to flood; d) right of access to a water well; e) existence or non-existence of a foundation warranty; and f) access to a public roadway. The underlying representations were made innocently -- without knowledge of their falsehood, and in all of these instances, the Seller-Defendant (or that defendant's broker) asserted some variant of the defensive argument that they did not know that their representations were false at the time that they were made.  Because this defensive theory goes to intent, which is not a necessary element of proof for recovery under the DTPA (or any strict liability claim), it is usually unsuccessful.

Thus, where real estate representations (or misrepresentations) are concerned, a DTPA violation is usually much easier to prove than a fraud claim.  This is so because, in order to prevail on a fraud claim, the Plaintiff must prove that the Defendant knew (or should have known) of the falsehood of their representation at the time that such representation was made.  Proving 'intent to defraud' can be difficult because it requires some evidence of the state of mind or knowledge of the actor. By contrast, simple falsehood (however innocent) is the only showing required by the DTPA, and can usually be proven by circumstantial evidence without inquiry into an actor's knowledge or intent. 

DTPA claims are nebulous; and, thus, tough to defend.  For the Plaintiff they can be tough to prosecute because of various procedural requirements.  This is definitely one area in which having a knowledgeable lawyer can make a huge difference.

NOTE:  Section 17.49(i) of the Texas Business & Commerce Code exempts from the DTPA claims against TREC licensees arising from an act or omission by the person while acting as a broker or salesperson, except for claims arising from

(1)  an express misrepresentation of a material fact that cannot be characterized as advice, judgment, or opinion;

(2)  a failure to disclose information in violation of Section 17.46(b)(24); or

(3)  an unconscionable action or course of action that cannot be characterized as advice, judgment, or opinion.