Real Estate Commission Disputes Frequently Turn on Sufficiency of Written Agreements

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

As a real estate lawyer in San Antonio, Texas who frequently represents Buyers, Sellers, Brokers and Agents involved in real estate transactions, disputes over commissions are commonly encountered in my practice.  Almost always, the outcome of these commission disputes turn on the existence and sufficiency of a written agreement for the payment (or split) of commissions.

Perhaps the most unfortunate of commission dispute cases arise when a broker or agent has, on behalf of a Seller, located and secured a Buyer who closes (i.e. the Broker is the "procuring cause" of the sale) but that broker has never entered into a formal, written commission agreement with the Seller. In those cases, the Seller has willingly accepted, and benefitted from the broker's services; yet, despite this performance, the Seller refuses to pay a commission based upon the absence (or deficiency) of a written agreement. These cases are unfortunate because the unappreciative Seller very likely might get away without paying the broker for his services.

Chapter 1101 of the Texas Occupations Code (the "RELA") speaks directly to the enforceability of commission agreements, and mandates that a "person may not maintain an action in this state to recover a commission for the sale or purchase of real estate unless the promise or agreement on which the action is based, or a memorandum, is in writing and signed by the party against whom the action is brought or by a person authorized by that party to sign the document." Tex. Occ. Code Ann. § 1101.806(c). To comply with this provision, the memorandum or agreement must: 

"(1) be in writing and must be signed by the person to be charged with the commission; 

(2) promise that a definite commission will be paid, or must refer to a written commission schedule; (3) state the name of the broker to whom the commission is to be paid; and 

(4) either itself or by reference to some other existing writing, identify with reasonable certainty the land to be conveyed."

Lathem v. Kruse, 290 S.W.3d 922, 925 (Tex. App.-Dallas 2009, no pet.). Moreover, the Texas Supreme Court has cautioned that the statutory requirements are "clear and unequivocal" and that courts should construe them strictly. Trammel Crow Co. No. 60 v. Harkinson, 944 S.W.2d 631, 636-37 (Tex. 1997) (construing predecessor statute that was nearly identically worded and warning that if broker proceeds without written agreements, he "does so at his or her own peril"). 

San Antonio's Fourth Court of Appeals has been even more succinct in its interpretation:  "Strict compliance with RELA is required; the agreement to pay a real estate commission must be in writing or it is not enforceable." Brice v. Eastin, 691 S.W.2d 54, 57 (Tex.App.-San Antonio 1985, no writ). But a writing, alone, is generally not sufficient if such writing fails to meet ALL of the RELA's criteria. 

When RELA applies and its requirements are not met, courts have also denied recovery under other, related causes of action, including fraud, conspiracy, deceit, quantum meruit, and breach of contract. McKellar v. Marsac, 778 S.W.2d 573, 575 (Tex.App.-Houston [1st Dist.] 1989, no writ). 

When RELA applies and its requirements are not met, courts have denied recovery for companion claims for fraud, conspiracy, deceit, quantum meruit, and breach of contract. McKellar v. Marsac, 778 S.W.2d 573, 575 (Tex.App.-Houston [1st Dist.] 1989, no writ). Similarly, in Trammell Crow Co. No. 60 v. Harkinson, 944 S.W.2d 631, 634 (Tex.1997) a broker's claim against lessors for tortious interference with an exclusive representation agreement with lessees, was rejected as "wholly derivative of [broker's] unenforceable oral commission agreement" and "translates only into the loss of the expectancy of receiving a commission at the end of the lease negotiations"). A broker "cannot do indirectly what the law says he cannot do directly." 

However, some exceptions have been recognized, but only where a signed, written commission agreement exists and contains only minimal defects.  For example, the Dallas Court of Appeals applied the "partial performance doctrine" in a RELA statute of frauds case where the broker's written commission agreement lacked only a precise identification of the property. After reviewing the "well-recognized" partial performance exception to the general statute of frauds, that Court observed, "When one party fully performs a contract, the Statute of Frauds may be unavailable to the other party if he knowingly accepts the benefits and partly performs." Id. at 40. However, the Court was careful to limit its decision to the holding that under the doctrine of partial performance a written real estate commission agreement that failed to describe the property with precision may be enforced by the broker notwithstanding RELA's statute of frauds when: (1) the broker has fully performed; (2) the other party has knowingly accepted the broker's services by completing the transaction arranged by the broker and receiving benefits from that transaction; (3) the other party has acknowledged in writing his obligation for a commission; and (4) documentary evidence establishes the amount of the commission due. Id. at 41-42; see Collins v. Beste, 840 S.W.2d 788, 792 (Tex.App.-Fort Worth 1992, writ denied). 

These exceptions are not universally recognized. See Harkinson, 944 S.W.2d at 636 ("We consistently have refused to erode [RELA's statute of fraud provision] with the same exceptions as may render oral contracts within the general statute of frauds enforceable."); Boyert v. Tauber, 834 S.W.2d 60, 63-64 (Tex.1992) ("Allowing a broker to recover on the ground of his performance alone would permit enforcement of any commission agreement fully performed by the broker whether or not it complies with [RELA].")

Commission disputes can be (and usually are) highly emotional and  volatile. The outcome of these disputes can be decided on subtle nuances in written documents. 

When confronted with a dispute over who should be paid a commission, and in what amount, a Seller, Buyer, Broker and/or Agent would be well advised to contact a real estate lawyer who is experienced with the RELA, the statutes of fraud, and general real estate litigation.

What is the Duty of a Texas Seller and/or Seller's Agent to Disclose Death in a Property? As Usual, the Answer Isn't Simple

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

Halloween is always an interesting time of year. The television networks are airing all of the cheesy horror flicks (which seem to be less edited for TV audiences than in years past), a chill is in the air, and the people of south Texas are dusting off their best costumes and ghost stories.

With all of the gore and killing going on in Hollywood, perhaps a whole new market of available properties is being created with each fatal slash, neck bite and supernatural abduction? After all, the Amityville Horror House (or at least the property that plays it on TV) has sold in recent years.

What better time to consider the responsibilities of Texas Sellers and their real estate professionals to disclose a death occurring upon a property?

This topic is one whose answer is so important that the Texas Legislature provided guidance in 2 separate statutes -- Section 5.008(C) of the Texas Property Code (pertaining to Sellers and Seller's agents) and  1101.556 of the Texas Occupations Code (pertaining to Texas real estate license holders). 

Those statutes, which are surprisingly consistent, provide part of the answer, as follows:

Sec. 5.008 
(c) A seller or seller's agent shall have no duty to make a disclosure or release information related to whether a death by natural causes, suicide, or accident unrelated to the condition of the property occurred on the property or whether a previous occupant had, may have had, has, or may have AIDS, HIV related illnesses, or HIV infection.
Sec. 1101.556. DISCLOSURE OF CERTAIN INFORMATION RELATING TO OCCUPANTS. Notwithstanding other law, a license holder is not required to inquire about, disclose, or release information relating to whether:

(1)  a previous or current occupant of real property had, may have had, has, or may have AIDS, an HIV-related illness, or an HIV infection as defined by the Centers for Disease Control and Prevention of the United States Public Health Service;  or

(2)  a death occurred on a property by natural causes, suicide, or accident unrelated to the condition of the property.

Given this statutory language, it might seem logical to conclude that the answer is simple: "State law doesn't require disclosure, and the superstitious, religious, paternalistic obligation of reporting death in a property has been abrogated by the Lege."  That logic, however, is overly-simplistic and fatally flawed, because the statutes don't tell the whole story, for at least a few reasons.

First, the word "homicide" does not appear in either statute. This leaves open for debate (and possibly litigation) the issue of whether a Seller and her broker have an obligation to disclose that a murder has occurred on the property. 

Second, there is no mention in the statutes of lawful, but intentional death/killing. What if the property owner/Seller legally shot and killed an intruder in self-defense under the Castle Doctrine, or a police officer fatally shoots an occupant during a domestic disturbance call?  These situations are not covered by the statutes -- even under a liberal reading.

Third, there has been some debate, and even some case law, related to whether the general requirement of disclosing "material defects" in the property's condition mandates disclosure of a death therein.  Even the TREC-promulgated Seller's Disclosure Form (OP-H) could be construed by a crafty lawyer to create enough of a fact issue that it could lead to years of litigation. See Question 6, inquiring as to a Seller's knowledge of "Any condition on the Property which materially affects the physical health or safety of an individual."

Fourth, the statutes expressly exclude death caused by and/or "related to" the property's condition.  This language is vague.  While some circumstances -- falling into a well in the backyard and dying -- seem like a good "fit" with the exclusion language, other situations are less clear. What about a toddler falling into a pool that is not enclosed and drowning?  Is this accidental? Does it relate to a condition of the property?

Given the limitations and vagaries of the statutes, the better part of caution would be to err on the side of disclosure. While the stigma of death may cause some prospective Buyers to "GET OUT" rather quickly (see Eddie Murphy video below), many will not be bothered by it, or at least not bothered enough to pass-up the right property at the right price. 

While I don't typically give advice by blog, I am comfortable stating that Texas brokers and salespersons should not  advise your own Seller-clients that Texas law allows for non-disclosure of death in a property.  At best, this is a case-by-case analysis that should be evaluated carefully, given the facts and circumstances of a particular death. 

Disclosure deficiency lawsuits abound in Texas.  I can say without reservation that over the years I've never been presented with one (either to defend or prosecute) where the Seller has disclosed too much information. 

___

P.S.   With this topic, I couldn't resist thinking about perhaps the funniest stand-up comedy routine of all-time, and one of my guilty pleasures as a high school student (a group of buddies and a car cassette player in the parking lot of my Catholic school hoping not to get caught listening).  Eddie Murphy's common-sense approach to haunted properties -- while politically incorrect and somewhat vulgar -- makes a lot of sense.  If you enjoy a good laugh, and aren't easily offended, you can watch a relevant  excerpt from Delirious HERE (Warning: ** Video contains explicit language and racially insensitive content**) 

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.

Lis Pendens - A Powerful but Sometimes Abused Tool for Real Estate Lien Placement

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

The term Lis Pendens literally means "a suit pending" in Latin.  In practice, a Lis Pendens is nothing more than a publicly-recorded, written notice that a lawsuit has been filed which concerns the title to certain real estate or some interest in that real property. 

Legal writers have traced the concept / doctrine of the Lis Pendens back to Lord Francis Bacon --  a 1600's Renaissance Man, crown official and British legal scholar. Cases discussing the doctrine appear in common law, and historical decisions of the courts of the US colonies and American federal courts.

In Texas, the Lis Pendens doctrine has been codified, and can now be found in Section 12.007 of the Texas Property Code. Subsection (a) of Section 12.007 outlines the purpose of a lis pendens in Texas, and provides:

(a) After the plaintiff's statement in an eminent domain proceeding is filed or during the pendency of an action involving title to real property, the establishment of an interest in real property, or the enforcement of an encumbrance against real property, a party to the action who is seeking affirmative relief may file for record with the county clerk of each county where a part of the property is located a notice that the action is pending.

Under common law, the lis pendens (or notice of pending action) is filed with the clerk of the court, certified that it has been filed, and then recorded with the County Recorder, who would index the filing. This procedure -- which appears in Texas law at Section 12.007(c) -- gives notice to the defendant who owns real estate that there is a claim on the property, and the recording informs the general public (and particularly anyone interested in buying or financing the property) that there is this potential claim against it. This effect of the Lis Pendens filing is echoed in Texas Property Code Section 13.004  (Yes, Thirteen), which states:

Sec. 13.004. EFFECT OF RECORDING LIS PENDENS. (a) A recorded lis pendens is notice to the world of its contents. The notice is effective from the time it is filed for record and indexed as provided by Section 12.007(c), regardless of whether service has been made on the parties to the proceeding.

The lis pendens then acts as both a notice, and a lien against the affected property, because recording a lis pendens defeats a subsequent purchaser's claim to have purchased encumbered property "innocently," or as a bona fide purchaser who was unaware of the title claim.

In order for a Lis Pendens to have the effect prescribed by Section 13.004, it must contain all information and elements prescribed by Section 12.007(b):

(b)  The party filing a lis pendens or the party's agent or attorney shall sign the lis pendens, which must state:
(1)  the style and number, if any, of the proceeding;
(2)  the court in which the proceeding is pending;
(3)  the names of the parties;
(4)  the kind of proceeding;  and
(5)  a description of the property affected

In addition, the person filing the Lis Pendens in Texas  MUST -- within 3 days after filing the notice with the Clerk -- serve a copy of the notice to each party to the underlying suit "ho has an interest in the real property affected by the notice."  See Tex.Prop.Code Section 12.007(d).

Filing a Lis Pendens is relatively easy in Texas.  As a result, litigants and their lawyers (especially those unfamiliar with real estate law) often file lis pendens notices to encumber real property when title to the property is not affected by a given lawsuit. In these instances, the lis pendens can create an unnecessary burden on real estate that is not implicated by a lawsuit.  Fortunately, this abuse of the lis pendens process can have consequences.

The Texas Property Code sets-out procedures (in two separate statutes) for both canceling, and expunging improper lis pendens filings.  (NOTE:  I intend to write a future entry on this blog about the lis pendens removal process)

In addition, Section 12.002 of the Texas Civil Practices and Remedies Code prescribes harsh penalties, including damages (in the minimum amount of $10,000.00), attorneys' fees and costs for the making or use of a fraudulent lien or claim against real property.  Finally, there may exist a separate cause of action for slander of title, which could lead to the recovery of attorneys' fees and damages from a person improperly liening real property through recording a lis pendens in bad faith. 

Stated simply, just because two parties are warring in the courts, a lis pendens shouldn't be filed unless that war's outcome affects actual title or ownership of the real estate identified in the lis pendens notice. A lis pendens has a specific, defined scope, and should be limited to the instances described in in Section 12.007 (a), above.