Why the Texas Deceptive Trade Practices Act Usually Doesn't Apply to Claims Against Brokers

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

One of the favored and most-powerful weapons in the arsenal of Plaintiff's lawyers is the Texas Deceptive Trade Practices Act ("DTPA"). This statute is modeled on similar ones adopted by other states, and provides valuable protections to consumers against all manner of false, misleading and/or deceptive practices and acts.

In addition to serving as an independent cause of action, the DTPA also implicates categories of damages that can result in significant damages awards against defendants who are found to have acted "knowingly" or "intentionally." Specifically, Section 17.50(b) of the DTPA provides:

(b) In a suit filed under this section, each consumer who prevails may obtain:

(1) the amount of economic damages found by the trier of fact. If the trier of fact finds that the conduct of the defendant was committed knowingly, the consumer may also recover damages for mental anguish, as found by the trier of fact, and the trier of fact may award not more than three times the amount of economic damages; or if the trier of fact finds the conduct was committed intentionally, the consumer may recover damages for mental anguish, as found by the trier of fact, and the trier of fact may award not more than three times the amount of damages for mental anguish and economic damages;

Obviously, given the types of damages provided in Section 17.50(b), plenty of demand letters and Petitions contain allegations that the DTPA has been violated. In fact, it seems like many lawyers use the same "boilerplate" language to implicate the statute's Draconian damages provisions or otherwise make a standard tort or contract case "fit" within the scope of the DTPA.

In our San Antonio real estate law practice, we frequently defend and prosecute real estate professionals who have allegedly violated ethical or legal standards. In those instances where our client is a real estate broker or salesperson in a suit or claim advanced against them, we limit the scope of a Plaintiff's claim by forcing that Plaintiff to demonstrate that he or she is entitled (based on the law and/or facts) to pursue each of the causes of action brought against our client. Where the DTPA is concerned, a Plaintiff is usually limited by Section 17.49(i), of the DTPA, which provides:

(i) Nothing in this subchapter shall apply to a claim against a person licensed as a broker or salesperson under Chapter 1101, Occupations Code, arising from an act or omission by the person while acting as a broker or salesperson. This exemption does not apply to:

(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.

This section serves to exempt from the DTPA virtually all activities of a real estate professional who renders advice, exercises judgment, or offers and opinion the course and scope of his or her activities as a broker or salesperson. Notably, this exemption does not apply where the real estate professional engages in intentional or other unconscionable behaviors or actual fraud. Likewise, a real estate professional who acts as a principal may not be exempted.

San Antonio Court of Appeals Decision Limits Shifting of Costs for Damages to Rental Units

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

As real estate lawyers in San Antonio, Texas, we frequently receive calls relating to disputes between landlords and tenants over which party has responsibility to pay for damage to a rental property or its contents (usually the tenant's personal property).  Liability is frequently determined by reviewing the express terms of the lease and a simple assessment of which party caused or permitted the damages.  

Sometimes, however, it is unclear who (if anybody) caused the damages. On other occasions, it is clear that neither the landlord nor the tenant caused the damages (think criminal acts of uninvited third parties, Acts of God, etc.).  In these cases, Chapter 92 of the Texas Property Code and the lease's specific damages provisions are closely scrutinized, as both speak to assigning liability. However, as recently articulated by the Fourth Court of Appeals, there do exist limits on the rights of parties to contract (by lease) for liability for damages.

In Philadelphia Indem. Ins. Co. v. White, 421 SW 3d 252 (Tex. App. -- San Antonio, 2013), the Fourth Court was confronted with a lease that expressly imposed contractual liability on the tenant for all damages not caused by the landlord. During the term of this lease, a tenant-owned dryer malfunctioned, causing a fire in the tenant's rental unit and several neighboring units.  The landlord's insurance carrier paid for damages, and then filed suit against the tenant on a subrogation claim. A jury determined that the tenant was not negligent in causing the fire, but that she had breached the lease when she failed to pay the landlord for damages upon demand.  In essence, the jury determined that the tenant had not negligently caused the fire, but, nevertheless, was bound to pay the landlord for damages because the landlord was not responsible for causing the fire, either.  The trial court disagreed with the jury, and entered Judgment NOV.

On appeal, the Fourth Court affirmed the trial court based upon its finding that the lease was void as against public policy, because all it required to impose liability on a tenant was a showing that the damage was not caused by the landlord. Specifically, the Court stated: 

We believe the public policy of Texas, as expressed in the Property Code, is that tenants may be held responsible for damages they, their cotenants, or their guests cause, and a landlord and tenant have the freedom to contractually agree a tenant will pay for specific kinds of repair without a showing that the tenant caused the damage. See Churchill Forge, 61 S.W.3d at 370-73. Absent from this legislatively-expressed public policy is the imposition of contractual liability on a tenant for any and all damages to the apartment complex whenever the damages are not caused by the landlord. 

White, 421 SW 3d at 258. In discussion leading to this conclusion, the Court cited TEX. PROP.CODE § 92.006, but recognized that the statute applied only to specifically enumerated  kinds of repairs that the parties can, by contract, shift the duty to pay for from the landlord to the tenant. Ostensibly, leases that purport to shift other (or all ) liability to the tenant may be void.

When drafting or negotiating a residential lease agreement, it is incumbent on the parties to recognize the limitations that Chapter 92 of the Texas Property Code imposes on the ability of parties to freely contract regarding (among other things) liability for general damages to the rental unit. 

San Antonio Lawyers Name the "Best" of their Peers

S.A. Scene Magazine has issued its annual list of the Best Lawyers in San Antonio, as named and voted on by their Colleagues.  I was proud to find out that I had been named as the top vote recipient in 3 categories:

• Real Estate Transactions

• Environmental & Land Use; and 

• Environmental Litigation

In past years, I have been recognized as one of the best lawyers in Real Estate Litigation, and was a little surprised (disappointed) to have not earned that distinction this year.  But, I'll take that as a challenge for next year!

I am especially proud of being named in this list because it is not influenced by advertising dollars spent in the magazine (I don;t have any), and being named is based upon polling of other practicing lawyers in and around San Antonio. It is humbling to be recognized by your peers as being good at what you do!  I appreciate the recognition by my colleagues, and congratulate the other lawyers whose names appear on the list.

Legal vs. Equitable Title to Real Estate -- The Deed Doesn't Always Dictate Ownership

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

In the area of real estate law in Texas, ownership of property isn't always black and white. In fact, many a real estate lawsuit has been fought over divided, fractured and disputed ownership interests in a single property. In some instances, the "owner of record," or "title owner" (i.e. the party whose name appears on the deed) is not the only (or even the superior) possessor of an ownership interest in real estate.

In fact, there are two components to ownership of real estate in Texas -- "legal title" and "equitable title." While both components are usually vested in the same owner, sometimes they can be vested in different parties, and that's where disputes frequently arise. 

Legal title arises from the appearance of a patty's name on a deed, which evidences his ownership.  Thus, "legal title" to property evidences apparent ownership (ownership "on paper"). Yet, legal title "does not necessarily signify full and complete title or a beneficial interest." Longoria v. Lasater, 292 S.W.3d 156, 165 (Tex. App.-San Antonio 2009, pet. denied). In fact, standing alone, legal title is sometimes unimportant because equitable title is superior to legal title. 

As one court of appeals stated, it is "[o]wnership of the equitable estate [that] is the real ownership, and the legal estate is no more than the `shadow following the equitable estate,' which is the substance. . . ." Neeley v. Intercity Mgmt. Corp., 623 S.W.2d 942, 951 (Tex. App.-Houston [1st Dist.] 1981, no writ) (quoting Patty v. Middleton, 17 S.W. 909, 912 (Tex. 1891)). 

This is because "equitable title" indicates a beneficial interest in property and "gives the holder the right to acquire formal legal title." Longoria, 292 S.W.3d at 165. Equitable title arises by operation of law and exists independent of the execution of a deed; the recording of the deed is not essential to an effective conveyance of title. Gaona v. Gonzales, 997 S.W.2d 784, 787 (Tex. App.-Austin 1999, no pet.). Further, a party holds equitable title when it possesses "the present right to [compel] legal title." Harris County Appraisal Dist. v. Southeast Texas Hous. Fin. Corp., 991 S.W.2d 18, 23 (Tex.App.-Amarillo 1998, no pet.); see also Comerica Acceptance Corp. v. Dallas Cent. Appraisal Dist., 52 S.W.3d 495, 497-98 (Tex.App.-Dallas 2001, pet. denied).

Equitable title is vested in the purchaser from the date of the contract to convey real property or from the date he takes possession of the property. See Cadle Co., 46 S.W.3d at 287 (citing Leeson v. City of Houston, 243 S.W. 485, 488-90 (Tex. Comm'n App. 1922, judgm't adopted)). That is, a purchaser receives equitable title in property when he pays the purchase price and fully satisfies the obligations under the contract of sale (or a "contract for deed"). See Johnson v. Wood, 157 S.W.2d 146, 148 (Tex. 1941); Cadle Co. v. Harvey, 46 S.W.3d 282, 287-88 (Tex. App.-Fort Worth 2001, pet. denied); see also Yarto v. Gilliland, 287 S.W.3d 83, 89-90 (Tex. App.-Corpus Christi 2009, no pet.). 

Determining the rights of various "owners" of property can have far reaching implications bearing on the right of possession of the property, the right to sell or convey it, and the extent to which liens or judgments placed against the property are enforceable.

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.

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.

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.

Language in Deed Generally Supersedes that of Real Estate Purchase / Sale Contract

San Antonio Texas Real Estate Attorney Trey Wilson wrote:
As a San Antonio lawyer with an active real estate practice, I am frequently questioned about the legal effect of terms contained in a real estate purchase/sale agreement (earnest money contract) that do not appear in the deed. Some of examples of contractual provisions that may be omitted from deeds are:  rights of first refusal on adjacent property of the Seller,  easements or access reserved for the Seller, the right of the Buyer to cross adjacent property retained by the Seller, and the provision of a warranty on the property's condition.  The pattern is usually the same -- the parties negotiated a contract, and included certain "Special Provisions" in their written agreement, but those terms were never incorporated into the Deed recorded by the Seller after closing.

When this occurs, several legal doctrines may be implicated. This post focuses on the legal doctrine of MERGER.

It is the law in Texas that  a purchaser takes title to real property solely through a deed. See Stephens Cnty. Museum, Inc. v. Swenson, 517 S.W.2d 257, 261 (Tex. 1974). An instrument that does not operate as a present conveyance of title to real property is a contract to convey rather than a deed. See TEX. PROP. CODEANN. § 5.002; see also 30 Tex. Jur. 3d Deeds § 9 (2007). A contract to convey real property contemplates further acts leading up to the actual conveyance of title in the deed. See 30 Tex. Jur. 3d Deeds § 9; see also Cont'l Royalty Co. v. Marshall, 239 S.W.2d 837, 840-41 (Tex. Civ. App.-Texarkana 1951, no writ). When a deed is delivered by the Seller and accepted by the Buyer as performance of a contract to convey real estate, the contract is MERGED in the deed.   

Though the terms of the  deed may vary from those contained in the contract, still the deed must be looked to alone to determine the rights of the parties. 2 DEVLIN, LAW OF DEEDS § 850a.  This principle is what Texas courts call "Merger. " See Baker v. Baker, 207 S.W.2d 244 (Tex.Civ.App. —San Antonio 1947, writ ref'd n.r.e.).

The Rule applicable in all contracts, that prior stipulations are merged in the final and formal contract executed by the parties, applies, of course, to a deed based 49upon a contract to convey. When a deed  is delivered and accepted as performance of a contract to convey, the contract is merged in the deed . Though the terms of the deed may vary from those contained in the contract, still the deed  must be looked to alone to determine the rights of the parties. No rule of law is better settled than that where a deed  has been executed and accepted as performance of an executory contract to convey real estate, the contract is functus officio and the rights of the parties rest thereafter solely in the deed .

Id. at 249-50, quoting 2 DEVLIN, LAW OF DEEDS § 850a.

Thus, when a Buyer accepts a deed as performance of an earnest money contract requiring the Seller to convey legal title top real property, it is the general rule that any collateral agreements contained in the contract are extinguished.  

This Rule, as most in the law, has exceptions.  For example, the Texas Supreme Court has held that the doctrine of merger may not be applied to defeat a cause of action under the DTPA for breach of an express warranty made in an earnest money contract and breached by deed.  See Alvarado v. Bolton, 749 S.W.2d 47, 48 (Tex.1988).  Likewise,  the doctrine of merger does not apply when a real estate contract was procured by fraud, accident or mistake in transactions leading up to the deed. ECC Parkway Joint Venture v. Baldwin, 765 S.W.2d 504, 511-12 (Tex.App.-Dallas 1989, writ denied);see also 1464-Eight, Ltd. v. Joppich, 154 S.W.3d 101, 104 n. 1 (Tex.2004) (disapproving court of appeals cursory analysis that based on merger doctrine earnest money contract was superseded by documents executed at closing).

TREC Accepting Applications for 2 Broker Slots on Broker Lawyer Committee

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

The Texas Real Estate Commission (TREC) is currently accepting letters of interest and resumes for open positions on the Broker Lawyer Committee. This volunteer committee periodically reviews and recommends revisions as necessary to the TREC promulgated contract forms. Quarterly meetings are held in person in Austin. The Broker Lawyer Committee is looking for two qualified candidates to serve as broker members for a term of six years. 

TREC is also seeking to fill available positions on the Texas Real Estate Inspector Committee and the Broker Responsibility Working Group.

To be considered for an appointment, individuals should send a cover letter and resume to Loretta DeHay, General Counsel, at the Texas Real Estate Commission, P.O. Box 12188, Austin, TX 78711-2188, by fax to 512-936-3788, or by e-mail to general.counsel@trec.texas.gov. The deadline for applying for all open positions is July 15, 2013.

Understanding the Limitations of the Quitclaim Deed in Texas

With surprising frequency, Texans seeking to transfer title to real estate without the assistance of an experienced real estate lawyer utilize Quitclaim Deeds (sometimes erroneously called "quick claim deeds"). Perhpas this is because of the wide availability of these forms on the internet, and in free databases. However, there are many pitfalls associated with using the Quitclaim Deed, and its limitations are plenty.

The essence of a quitclaim deed is an effort to pass any title, interest or claim of the grantor, but not professing that such title is valid, nor containing any warranty or covenants for title. See Porter v. Wilson, 389 S.W.2d 650, 655-56 (Tex.1965). A quitclaim deed is not a conveyance or a muniment of title. Adamson v. Doornbos, 587 S.W.2d 445, 447-48 (Tex.Civ.App.—Beaumont 1979, no writ).

By itself, a Quitclaim Deed does not establish any title in those holding the deed, but merely passes the interest of the grantor (if any) in the property.

Stated simply, a Quitclaim Deed suffices only to give the grantee whatever title that grantor has. If the Grantor has no title to the property interest in question, then none passes.

Texas Deeds Must Contain Adequate Property Descriptions

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

Texas law reporters are brimming with cases involving failed sales or transfers of land based on vague, confusing or just plain wrong descriptions the real property intended to be conveyed.  Under Texas law, inadequate property descriptions -- particularly those that don't identify the property location -- will render a deed or other conveyance document ineffectual. This is true because location is an essential element of a deed, without which the deed is void. See Wilson v. Fisher, 144 Tex. 53, 188 S.W.2d 150, 152 (1945). 

To be sufficient, a writing conveying title must provide within itself, or by reference to some other existing writing in existence at the time of the deed, the means or information by which the land being conveyed can be identified with reasonable certainty. Williams v. Ellison, 493 S.W.2d 734, 736 (Tex.1973). This has been termed the "nucleus of description" theory. 

"If enough appears in the description so that a party familiar with the locality can identify the premises with reasonable certainty, it will be sufficient." Gates v. Asher, 154 Tex. 538, 541, 280 S.W.2d 247, 248 (1955) (citations omitted).  Likewise, "if there appears in the instrument enough to enable one by pursuing an inquiry based upon the information contained in the deed to identify the particular property to the exclusion of others, the description  will be held sufficient." Templeton v. Dreiss, 961 S.W.2d 645, 658 (Tex.App.-San Antonio 1998, pet. denied). However, "a deed purporting to convey land, which describes it only by quantity and as being part of a larger tract (i.e. "25 acres out of he King Ranch"), with nothing whereby to identify what specific portion of the larger tract is intended to be conveyed, is VOID for uncertainty of description." Smith v. Sorelle, 126 Tex. 353, 358-59, 87 S.W.2d 703, 705 (1935).

San Antonio's Fourth Court of Appeals addressed the "nucleus of description" theory in a real estate case it considered in 2009. In that case, Gaut v. Daniel, 293 S.W.3d 764, 767 (Tex. App. — San Antonio 2009), the Court considered a 1990 deed conveying 28 acres in Duval County. The acreage in question was part of a larger (399.5 acre) tract, but the deed conveying the property, which purported to contain surveyor's notes, failed to identify any discernible location of the 28 acre tract.  The Court's holding:  "Because nothing identifies which 28 acres out of the 399.5 are being conveyed, the deed is void" Gaut, 293 S.W.3d at 770.

With the significant rush to obtain, break and transfer property interests, including deeds and leases, caused by the boom in the Eagle Ford shale and other oil and gas formations in Texas, sufficiency of property descriptions have become of preeminent importance. 

In an interesting case decided by the 5th Circuit appeals court in 2012, Chesapeake Exploration  unsuccessfully attempted to invalidate its agreement to purchase deep rights held by Peak Energy Corporation in certain oil and gas leases    Coe v. Chesapeake Exploration, L.L.C., 695 F.3d 311, 316 (5th Cir. 2012). When the price of natural gas plummeted several months later, Chesapeake refused to honor its commitment. When Peak filed suit, Chesapeake argued that the parties' agreement was unenforceable under the Texas statute of frauds and fatally indefinite based upon the flawed property descriptions. The district court disagreed, rendering judgment in favor of Peak and its principals and awarding them damages in the amount of more $19 million. This judgment was affirmed by the appeals court.

Thus, persons drafting deeds and other conveyance documents, as well as those contemplating the sufficiency of existing deed documents, must be mindful of the nucleus of description theory.