Articles Posted in Real Estate Law

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There seem to be more and more frequent commercials advertising services to protect homeowners from “home title fraud”. These commercials are not talking about fraudulent applications for mortgages, although that probably happens frequently. Instead, they are talking about someone who forges a deed to themselves and then tries to borrow money against the property or resell the property to a third party. Despite the frantic tone of the commercials, one has to wonder just how common home title theft is.

The FBI reported that in 2017, 9600 people lost a total of $56 million through wire fraud involving real estate. However, that is an extremely broad category and the FBI has not published statistics so far that delineate how much of this is “home title fraud”. In my experience, in Texas it is not very common. I looked for statistics regarding this kind of fraud nationally but numbers just aren’t available.

There are a number of things to know about this kind of fraud. First, in Texas, keep in mind that this kind of fraud is enabled if an unsuspecting buyer purchases property from someone without going through a title company. The title company closing process includes protections designed to prevent this kind of fraud.

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The Texas Supreme Court decided an interesting case last week regarding easements. The case was Copano Energy LLC et al. v. Stanley D. Bujnoch, Life Estate, et al. One of the interesting aspects of this case was the part that emails played in the transaction.

The plaintiffs, who were the landowners, owned land in Lavaca and DeWitt counties. The landowners had previously agreed to a 30 foot wide easement to Copano for a 24 inch oil and gas pipeline. That pipeline was installed. In 2012, Copano asked the landowners for second easement to construct a 24 inch pipeline on the landowners’ property. The landman for Copano and an attorney representing the landowners exchanged a number of emails in the course of negotiating the terms of the proposed easement. In one email, the landman agreed to pay the landowners a specific price and agreed to remedy damage to the landowners’ property caused during the construction of the original pipeline. The attorney replied “In reliance on this representation we accept your offer and will tell our client you are authorized to proceed with the survey on their property.” Later emails from Copano transmitted amendments to the original easement and an amended plat. Some of these later emails offered a lower price per foot for the easement. A still later email from the secretary of the landowners’ attorney transmitted revisions to the original easement agreement pertaining to some, but not all, of the landowners’ property to the landman. A still later email from the landman stated that: “I am fine with these changes”. Finally, the project manager for Copano then sent a “compensation proposal letter” to the landowners’ attorney with completely different compensation terms. There was no written acceptance of these terms.

The second pipeline was never built. The plaintiffs claimed that the series of emails, taken as a whole, created an enforceable written contract that satisfied the Texas Statute of Frauds and sued Copano for breach of contract.

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In 2017, the Texas Legislature passed House Bill 1217, which allows Texas notaries to do remote notarization. Beginning July 1, 2018, commissioned notaries can apply to be commissioned as an Online Notary Public. In August 2017, the Texas Secretary of State published the revised administrative rules that govern the new process.

The new rules require that you first be a licensed notary, and obtain a digital certificate furnished by a third party provider and an electronic seal. In addition, an online notary must maintain an electronic record of the online notarization, including a recording and backup of the audio-visual conference, and must use a third party to perform identify proofing and credential analysis in order to identify the person for whom you are performing the notarization. Further details are available at the Texas Secretary of State website here.

This new process will certainly facilitate online transactions like real estate purchases and oil and gas leases. However, as with all things digital, there is going to be the capacity for fraud. It will be interesting to see how this new process weathers over time.

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How the Texas courts construe and interpret unambiguous deeds follows a specific set of rules. In construing an unambiguous deed, the court’s main focus is to ascertain the parties’ true intent regarding the conveyance of real property by the deed. The court reviews the entirety of the deed, which is sometimes referred to as analyzing “the four corners” of the deed, meaning that the court will look to what is written in the deed, and not to outside sources. There are well established rules concerning the interpretation and construction of a real property deed.edge-1563789

For an unambiguous deed, the court will determine the grantor’s intent from the specific language that is used in the deed, and will not make presumptions that are not overtly made clear by the language of the deed. When there is even the slightest doubt about the intent of the grantor, the terms of a deed are often construed in favor of the grantee. This is consistent with Texas contract law, which strongly favors the presumption that contracts, such as deeds, say exactly what they mean.

Does A Grantor’s Failure to Designate Capacity Fatally Flaw A Conveyance?

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In the recent case of Tarr v. Timberwood Park Owners Association Inc. the Texas Supreme Court considered whether a deed restriction that limited use of homes “solely for residential purposes” prevented a homeowner from using his home for short-term rentals. Based on the language of the restrictive covenant, the Court decided that renting the home — even for short time periods — was not a “business purpose.” The rentals were considered to be a “residential purpose” and so the homeowner did not violate the deed restriction. In addition, the Court refused to conflate two restrictions into a ban on use of the home for multi-family units and also held that when a restrictive covenant unambiguously fails to address some particular property use — such as use for short-term rental — Texas courts must not to read such covenants into the deeds.

Facts of Case

 Tarr involved a homeowner’s use of his home for short-term rentals in San Antonio’s Timberwood Park subdivision. Two years after Mr. Tarr bought his home, his employer transferred him to Houston. Thereafter, he began advertising the home for rent on websites such as Vacation Rentals by Owner. Tarr also formed a limited-liability company to manage the rental of the home. Between June and October of 2014, Tarr entered into 31 short-term rental agreements, ranging from one to seven days each. He rented his home to various-sized rental parties up to 10 people. For example, nearly one quarter of the rentals were to two adults accompanied by as many as six children.

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The Houston Court of Appeals in Bauder v. Alegria  issued a decision that a text message can be used to establish the last known address of a borrower for the purposes of delivering a foreclosure notice when it is unclear if the address on the deed of trust is the borrower’s last known address.

In the Bauder case, a woman named Sara Alegria purchased a home at 1825 Neuman Street in La Marque, Texas in 2010 from Gerald Bauder. When Alegria signed a promissory note and the deed of trust, she indicated that her mailing address was 704 Roosevelt Street in La Marque. Over time as Alegria made payments to Bauder, sometimes she delivered her mortgage payments to Bauder, other times Bauder’s son (who was authorized to act for Bauder) would come to the property on Neuman Street to pick up the payments, and sometimes Bauder’s son would pick up the payments from the Roosevelt Street address.

In 2013, the loan was in default due to nonpayment of taxes and failure to maintain insurance, and a notice to cure was sent to the Roosevelt address. The notice indicated that a failure to cure would result in an acceleration of the payments due on the promissory note.

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A Texarkana Court of Appeals case, Petrohawk Properties, L.P. v. Jones offers some insight into how changes to an oil and gas agreement are analyzed in terms of the statute of frauds. Material changes to the agreement require documentation in writing, but what constitutes a material change to the initial agreement will depend on the circumstances and the specific language used in the agreement. Contracting parties who are concerned about the impact that a modification to a contract can have should take precautions to ensure that the modification of the contract is well documented.

In this case, the Jones family owned some land in Harrison County in East Texas and the family was approached in 2008 by Petrohawk Properties about leasing the oil and gas mineral interests for their property. The parties entered into an agreement that if the Jones could deliver their interests to Petrohawk Properties free and clear of title defects by a closing date of August 15, 2008, the Jones family would be entitled to a leasing bonus of $23,500 per acre. The agreement also provided that Petrohawk would be released from the Agreement if the Jones’s were unable to provide free and clear title to enough acreage to warrant payment of ten million dollars worth of leasing bonuses, which Petrohawk was holding in escrow.

Due to unforeseen delays in preparing the title work, the parties agreed to delay the closing date of the Agreement to August 27, 2008, then to September 17, 2008, then to October 9, 2008, and then to November 6, 2008. Coincidentally, the fall of 2008 was also the time of the United States financial crisis, which prompted Petrohawk to refuse to pay bonus on any acreage supported by title work that was produced by the Jones family more than thirty days after an August 29th closing date on some of the Jones family properties, and terminated the contract. The Jones sued for breach of contract.

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The recent case of Hardaway v. Nixon, decided by the San Antonio Court of Appeals, provides an example of the doctrine of adverse possession as it relates to co-tenants. The trial court granted summary judgment in favor of the landowners claiming adverse possession. The Court of Appeals reversed and held that a presumption of ouster could not be affirmed on summary judgment merely on proof of long-continued possession — 75 years — even in the absence of a claim of ownership by the non-possessory co-tenants. According to the Court, no evidence was presented in the summary judgment record that the owners undertook “unequivocal, unmistakable, and hostile acts” and mere possession and lack of a claim of ownership by non-possessory co-tenants was not sufficient to “disseize” the non-possessory co-tenants.

Texas Property Law: Adverse Possession Against a Cotenant

Under Texas law, adverse possession with respect to a co-tenant requires proof of “ouster” or “repudiation” of the co-tenant’s claim to ownership. Ouster/repudiation is generally shown by various “unequivocal, unmistakable, and hostile acts” taken by the tenant in possession to oust or disseize the non-possessory co-tenant, but can also be shown by long continued possession. Aside from actually fencing, locking, and taking other “hostile” acts to repudiate a co-tenant, there are two other circumstances in which Texas courts have recognized ouster/repudiation and notice:

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Under Texas law, the Statute of Frauds requires that contracts regarding the sale of lands be in writing. There are some exceptions to this “in writing” requirement, particularly if the buyer has partially performed under the contract. The case of Zaragoza v. Jessen  provides a good reminder of the principles underlying the Statute of Frauds and the partial performance exception.

Statute of Frauds

The Statute of Frauds is codified at Tex. Bus. & Comm. Code § 26.01(a) & (b) which states, in pertinent part:

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In a recent case, FP Stores Inc. v. Tramontina US, Inc., the Houston Court of Appeals provided guidance, for the first time, on what constitutes “bad faith” by a commercial landlord that fails or refuses to return a security deposit.

Facts of the Case

The FP Stores case involved a sublease for commercial premises located in Sugar Land, Texas. The original lease was signed in 2010 for the entire premises. Thereafter, several subleases were signed for various portions of the premises. In this case, the relevant sublessor was FP Stores, the sublessee was Tramontina US, Inc. and the master lessor was ProLogis Texas II, LLC.