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**) 

Texas Real Estate Commission to Make Changes to Promulgated Forms

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

The TREC has been busy. They have proposed (and published for public comment) numerous changes to their forms, including those related to Professional Agreements and Contracts.  In total, TREC has proposed to adopt six revised contract forms, two revised addenda, and one new addendum for use by Texas real estate licensees. Once adopted, these changes will appear in Chapter 537 of Title 22 of the Texas Administrative Code.

The Comment Deadline is OCTOBER 1, 2013.

Here are some of the more important proposed changes:

Standard Contract Form TREC No. 20-11, One to Four Family Residential Contract (Resale). The proposed amendments are as follows. 

The definition of “Property” is moved from the end of Paragraph 2 to the beginning of the paragraph. 

Paragraph 6.A.(8) is amended to provide that, at buyers’ expense, the exception shall be amended to read “shortages in area” unless the buyer instructs the title company otherwise. The third sentence in 

Paragraph 6.B regarding delivery of Commitment and Exception Documents is amended to read “...the time for delivery will be automatically extended up to 15 days or 3 days before the Closing Date, whichever is earlier” to foreclose the delivery of such documents at closing. 

Paragraph 7.D is amended to define “As Is” as “the present condition of the Property with any and all defects and without warranty except for the warranties of title and the warranties in this contract.” The notice after paragraph 7.D is moved to the body of the paragraph after the definition of “As Is” and the defined term “As Is” is added to that sentence and subparagraphs (1) and (2) to replace “in its present condition.” The parenthetical at the end of paragraph 7.D is changed to add “and treatments” at the end of the sentence. 

The second sentence in Paragraph 7.F is amended to clarify that, if no license is required by law to perform a repair or treatment, all repairs and treatments must be performed by persons “who

are commercially engaged in the trade of providing such repairs or treatments” rather than “authorized by law to provide such repairs or treatments.” Paragraph 7.F is amended to change the number of days in the last sentence from 15 to 5 days regarding the Buyer’s option to extent the Closing Date if Seller fails to complete agreed repairs and treatments prior to closing. Paragraph 9 is amended by adding a new 

Paragraph 9.B regarding leases wherein the Seller (1) agrees not to execute any lease or convey any interest in the Property after the effective date without the Buyer’s written consent, and (2) incorporates existing Paragraph 9.B(5) and renumbers existing Paragraph 9B to 9C to contain 9B(1)-(4). 

Paragraph 14 is amended to add the clause “or cause to be restored” in the first sentence. Paragraph 16 is amended to remove the mediation check boxes to require mediation to resolve disputes between Buyer and Seller related to the contract. Paragraph 23 is amended to provide that the Seller or Listing Broker must receive the option fee within 3 days after the effective date of the contract rather than Buyer paying Seller the option fee within two days after the effective date of the contract to make it clear that it is not enough that the Buyer puts the option fee in the mail within 2 days after the effective date; the Seller or Listing Broker must receive the option fee within 3 days after the effective date. The last page is amended to clarify that the agents should not sign on the blank lines, they should insert their names only.

Standard Contract Form TREC No. 9- 10, Unimproved Property Contract. The proposed revisions are the same as those proposed for TREC Form No. 20-9 except as follows. 

The definition of “Property” in Paragraph 2 is not changed. 

Paragraph 7.E(1) is amended to be the same as Paragraph 7.H(1) in Form 25-10, Farm and Ranch Contract. 

Paragraph 7.E(3) regarding environmental hazards is amended to change “any environmental hazards or conditions affecting” to “any environmental hazards that materially and adversely affect” the property.

A complete list of the proposed changes is available from TREC on their "Forms" page.

3 reasons to get a written Representation Agreement -- from the TAR Members Blog

San Antonio Texas Real Estate Attorney Trey Wilson wrote:  

The Texas Association of Realtors Members Blog has a wise post today, called 3 reasons why you should get representation agreements in writing

This is sage advice I constantly give to my broker clients. Maybe they'll heed TAR's post more than my mantra!

TAR Commercial Sale/Purchase Agreement Forms Prohibit Assignment/Conveyance of Verbal Leases

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

A broker client of mine recently inquired about the legality and/or feasibility of a Seller attempting to convey certain unimproved real property to one of the broker's Buyer-clients.  Turns out that the "unimproved" property being sold was actually occupied by third-parties living in mobile homes that were situated on the property under some non-specific verbal authorization from the Seller.  The Seller, apparently, desired to consummate the sale to the Buyer, even though the terms of  the various mobile home residents' tenancy was largely unknown, and certainly not reduced to writing (i.e. no written lease agreements existed).   

In addition to the obvious title issues that could be created by such an arrangement (including, at a minimum, (i) implied or constructive notice to the Buyer that the parties in possession (the "verbal tenants") might claim ownership interests; and (ii) exclusion under standard title insurance policies for "parties in possession"), standard Texas Association of Realtors ("TAR") Contract forms prohibit the assignment by a Seller to a Buyer of verbal leases.

Where unimproved commercial property is concerned, TAR Form 1802 is the applicable purchase/sale contract document.  Section 8 of Form 1802 pertains to "Leases" and contains specific requirements for "each written lease Seller is to assign to Buyer."  See TAR Form 1802 at Section 8(A).  Notably, Section 8 contains no reference, whatsoever, to verbal leases. Likewise, the "Property Information" that a Seller is required to deliver to a Buyer under Section 7(D) (information to be used by the Buyer in connection with the due diligence investigation) is silent with regard to verbal lease agreements.  Thus, when these two sections are read in conjunction, it appears that there exist no special requirements of the Seller with respect to disclosing the specifics of verbal lease agreements existing at the time of sale.

However, it is Section 10 (related to Closing) that requires the Seller to convey the property (at the time of Closing) "with no persons in possession of any part of the Property as lessees, tenants at sufferance or  trespassers, except tenants under the written leases assigned to Buyer under this contract."  See TAR Form 1802 at Section 10(C)(3).  The unequivocal language of this section expressly prohibits any transfer of an occupied property, unless the occupants are parties to a written lease agreement that is being assigned to the Buyer at the time of closing. 

The provisions of TAR Form 1801 (Commercial Contract - Improved Property) are virtually identical, and Section 10(C)(3) of forms 1802 and 1801 are identical.  Thus, where improved commercial properties are being sold, verbal leases are also prohibited.

By contrast, TAR Form 1701 (Farm and Ranch Contract) expressly provides for disclosure of oral surface leases. See TAR Form 1701 at Section 6(F). 

Reasonable Buyers and Sellers of Texas real estate will ensure that the rights and liabilities of tenants, occupants or parties in possession of a part of the property to be sold are reduced to a solid writing, that provides a clear understanding of the relations between Buyer, Seller and Tenant.