SA Appeals Court Reverses Real Estate Fraud/DTPA Judgment Favoring Buyer of Apartment Complex

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

On January 8, 2014, San Antonio's Fourth Court of Appeals reversed a $400,000+ verdict rendered in favor of the purchaser of the Woodlake Village Apartments against the seller of that real property.

The underlying verdict, entered by the Bexar County District Court in a 2007 lawsuit, found that the prior owner/Seller of the complex had engaged in statutory fraud in a real estate transaction, and had violated the Texas Deceptive Trade Practices Act ("DTPA") by making misrepresentation's about the condition of the complex' roof.

On appeal, the Fourth Court determined that the DTPA's express disclaimer of applicability to transactions where the consumer paid more than $500K for real estate other than their residence barred recovery on the DTPA claim. In reversing any recovery on the Buyer's DTPA claim, the Court cited evidence in the record demonstrating that  (i) the Buyer purchased a apartment complex (as opposed to his home); (ii) for a purchase price of $1.85 million. Author's Note:  TEX. BUS. & COMM. CODE ANN. § 17.49(f)) provides: “Nothing in this subchapter shall apply to a cause of action arising from a transaction . . . involving total consideration by the consumer of more than $500,000, other than a cause of action involving a consumer’s residence.” 

The court next considered the Seller's appellate claim that there existed no evidence that the Buyer, in consummating the purchase, relied upon any representation by the Seller concerning the roof. In his suit, the Buyer alleged that the Seller had committed statutory fraud under Texas Business and Commerce Code section 27.01. That statute provides: 

(a) Fraud in a transaction involving real estate . . . consists of a
(1) false representation of a past or existing material fact, when the false representation is
(A)made to the 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 . . . 

TEX. BUS. & COM. CODE. ANN. § 27.01(a). “Fraud under section 27.01 requires evidence that the defendant made a false representation to the plaintiff that induced the plaintiff to enter into a real estate contract to his or her detriment.” Martin v. New Century Mortg. Co., 377 S.W.3d 79, 86 (Tex. App.—Houston [1st Dist.] 2012, no pet.); see TEX. BUS.&COM. CODE. ANN. § 27.01(a). Reliance is an essential element of a statutory fraud claim. TEX. BUS.&COMM.CODE § 27.01(a); see Van Marcontell v. Jacoby, 260 S.W.3d 686, 691 (Tex. App.—Dallas 2008, no pet.). 

The Court cited the following facts/evidence in determining that there existed no/insufficient evidence that the Buyer had relied on any false representation of the Seller in connection with the roof:

•  Prior to closing, the Seller delivered expense reports to the Buyer's real estate agent that di not contain entries for roof repairs;
• The Seller admitted to patching the roof himself;
• The Buyer personally saw the condition of the roof prior to closing
• The Buyer obtained a property inspection report prior to closing that identified issues and problems with the roof;
• The purchase/sale contract entered by the parties contained a "present condition clause" (also referred to as an "AS IS clause"); and
• The purchase price of the property was reduced by a contract amendment after the Buyer performed his walk-through.

The court characterized this evidence as conclusively establishing "the opposite of a vital fact (reliance)," and found that there was no-evidence to support the trial court's finding of statutory fraud.  Thus, the trial court's decision was reversed, and the case was remanded for consideration of the amount of attorneys' fees to be awarded to the Seller under the parties' contract, which provided for an award of fees to the periling party in litigation.

In reaching its conclusion, the Court cited Regal Finance Co., 355 S.W.3d at 603 (citing City of Keller, 168 S.W.3d at 815–16); see also Lesieur v. Fryar, 325 S.W.3d 242, 249 (Tex. App.—San Antonio 2010, pet. denied) (holding recovery for fraud was precluded when plaintiff obtained a pre-purchase inspection that detailed the same foundation problems they alleged defendants misrepresented in sale of home). 

The Fourth Court's full Opinion is available here.

Sued by Buyer for Failure to Disclose Alleged Property Defect? Their Pre-Sale Inspection May Save You

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

Sometimes buyers discover issues, problems or defects in real property after closing a purchase/sale. When these problems prove serious or costly to repair (or when good ole' Buyer's Remorse rears its head) buyers frequently file suit against the seller/former property owner.  

The usual allegations are that the Seller is liable for damages based on "failure to disclose," "misrepresentation by non-disclosure," fraud, breach of contract and/or violation of the Texas Deceptive Trade Practices Act ("DTPA").  Suits are most common when the Seller's written disclosure does not identify the alleged property defect.

However, in many instances, a Buyer's pre-closing inspection (preformed by a third-party inspector) may absolve the Seller from liability.  This is particularly true when the third party inspector is retained by the Seller, conducts a thorough inspection, and has a reasonable opportunity to discover the alleged defect.  Whether or not the defect is actually discovered is often immaterial.

The law requires a Buyer seeking to recover from a Seller's non-disclosure to prove that he or she relied on a misrepresentation (including by failure to disclose) of the Seller in consummating the purchase. Eagle Props., Ltd. v. Scharbauer, 807 S.W.2d 714, 723 (Tex. 1990).  However, a line of court cases establishes that, in the eyes of the law,  a buyer's inspection of a house's condition may constitute a new and independent basis for the purchase of the property, which intervened and superseded the seller's alleged misrepresentation. "The common thread of the decisions reaching this conclusion is that, regardless of the result of his investigation, the buyer's decision to undertake such an investigation indicates that he or she is not relying on the seller's  representations about the property." Bartlett v. Schmidt, 33 S.W.3d 35, 38 (Tex. App.-Corpus Christi 2000, pet. denied).

Texas courts have held that -- even when false and fraudulent representations are made concerning the subject matter of a contract -- when the person to whom they are made conducts an independent investigation into the matters covered by the representations before closing, it is presumed that reliance is placed on the information acquired by such investigation and not on the representations made to him.  Marcus v. Kinabrew, 438 S.W.2d 431, 432 (Tex. Civ. App.-Tyler 1969, no writ); see also Kolb v. Tex. Emprs' Ins. Ass'n, 585 S.W.2d 870, 872 (Tex. Civ. App.-Texarkana 1979, writ ref'd n.r.e.); Lone Star Mach. Corp. v. Frankel, 564 S.W.2d 135, 138 (Tex. Civ. App.-Beaumont 1978, no writ); M.L. Mayfield Petroleum Corp. v. Kelly, 450 S.W.2d 104, 109-10 (Tex. Civ. App.-Tyler 1970, writ ref'd n.r.e.).   

Thus, when faced with a claim for failure to disclose a condition of real property formerly owned by them, a prudent response is to seek out the Buyer's property inspection and call an experienced real estate lawyer.  With a little luck and a well-presented defense, many times a pre-sale inspection may save you from liability.