Archives for category: Real Estate Law

Premises Liability

Of prime importance to property owners and occupiers (tenants) is liability for damages to persons or property which occur on the owner’s or occupier’s property. Ownership or control of the premises upon which the damages occurred by itself will not create liability for the owner or occupier.  There also must exist a duty from the owner or occupier to the damaged person or property.  Also, control may be established through a showing of actual control or a right to control the area in which the damage occurred.  The control must relate to the activity that caused the injury complained of before a duty will exist.  Areas beyond the limits of an owner’s or occupier’s control will not establish such a duty.

Chapter 95 of the Texas Civil Practices & Remedies Code governs damage claims accruing on or after September 1, 1996, arising from negligent construction activities. A thorough discussion of that Chapter is well beyond the scope of this article.

In addition to control, an owner’s or occupier’s duty to a party will be determined by the legal status of that party. A party may be considered a trespasser, licensee or invitee.  A “trespasser” is someone who has no legal right to be on the property.  A “licensee” is a person who is present on the property with the permission of the owner or occupier, but for whom the owner or occupier has no business relationship.  A licensee is present on the property for his or her benefit only, and not that of the owner or occupier.  On the other hand, an “invitee” has a present business relationship with the owner or occupier and is present on the property for the mutual benefit of both parties.  A licensee or invitee may become a trespasser if his or her occupancy exceeds the scope of the rights granted to them.

Typically, owners and occupiers owe trespassers no duties other than to not injure them willfully, wantonly or through gross negligence. This has been the common law rule in Texas for many years, and has been codified in Section 75.007(b) of the Texas Civil Practices & Remedies Code.  For licensees, owners and occupiers owe the same duties that are owed to trespassers, and the additional duty to use ordinary care to make reasonably safe and adequately warn of dangerous conditions of which the owner or occupier is aware, but the licensee is not.  Actual instead of constructive knowledge of the dangerous condition by the owner or occupier is required.  Owners and occupiers are additionally responsible to invitees for their active negligence.  With respect to agricultural or recreational activities, Chapter 75 of the Texas Civil Practices & Remedies Code provides special protections to land owners engaged in such activities.

Texas courts have divided invitees into 2 categories: “public invitees” and “business visitors”. Public invitees are people who enter premises which are generally open to the public, such as governmental facilities and parks.  A business or merchant impliedly is “inviting” the public into its place of business.  Contractors, employees, and public servants are distinct categories of invitees.  By way of the invitation to the public, all entrants into those premises expect to be in a safe environment.  As such, owners and occupiers owe invitees the duty to exercise ordinary care to keep the premises reasonably safe, including the duty to inspect and discover latent defects, make safe any defects, or warn the invitees of the same.  For invitees, an owner or occupier is charged with any actual or constructive knowledge of the condition of the premises (i.e., conditions that the owner or occupier should have known of regardless of actual knowledge), and has a duty to make sure their invitees are reasonably safe from any such dangerous conditions or adequately warn the invitee of such conditions.

Even where a duty exists on an owner or occupier to provide a safe premises, liability will only occur where the breach of such duty proximately causes damages to the third party. Proximate cause is made up of two separate elements.  The first being “cause in fact”, which means that the negligent act or omission was a substantial reason that the injury occurred and without which, the injury would not have occurred.  The second element is “foreseeability”, which means that an ordinary and reasonably prudent person (which my first year contract law professor described as “Ward Cleaver”—Baby Boomers and Gen-Xers will understand) should have anticipated that such act or omission would result in such damage or injury.  These rules are general in nature, and several special situations have modified versions of these rules.  For example, premises liability relating to children, disabled persons, elevators and escalators, sporting events, and animals, each have modified rules relating to liability to the premises owner or occupier.

Under certain circumstances, an owner or occupier may be responsible for acts of third parties. The same rules as above apply for a third party act as for the owner’s or occupier’s direct negligence.  There must be a duty, a breach of that duty, and such breach proximately caused the injured party’s damages.  Most premises liability situations involving third parties are determined by proximate cause.  However, a third party’s act or omission may be a superseding act, breaking the chain of causation between the premises owner’s or occupier’s conduct.  A “superseding act” is an outside force that intervenes in a chain of events to cause an outcome that otherwise would not have occurred.  A superseding act can relieve an owner or occupier from liability relating to that act.

The criminal act of a third party is a common type of superseding act which may prevent the owner or occupier from becoming liable for an injury occurring on the premises. However, there are situations where an owner or occupier has been held responsible even where the criminal acts of a third party were involved.  In situations where such conduct is foreseeable and unreasonable, courts have imposed liability on the premises owner or occupier.

Employers have a duty to provide a safe workplace for its employees. Owners and occupiers have a duty to follow laws and ordinances which relate to safety of the premises, and the failure to follow such laws and ordinances may be considered to be per-se negligence.  Where an area or place has had so much criminal activity that has resulted in damage or injury to persons in and around such area, a premises owner or occupier may have a duty to protect its invitees against such dangers.  Note, however, that employers typically do not have a duty to warn an employee of conditions that are commonly known or already appreciated by the employee.  Of course, such duties will necessarily be affected by whether Worker’s Compensation insurance exists or not.

The principles underlying premises liability are in most instances purely fact driven. The analysis can be complicated, particularly when there may be more than one cause of the damage or injury or a superseding act.  Owners and occupiers of real property should always take advantage of liability insurance which will cover any negligence found against such owner or occupier, as well as provide the owner or occupier with a defense (attorney) against the prosecution of such claims.

Scott Alagood is board certified in Commercial and Residential Real Estate Law by the Texas Board of Legal Specialization and can be reached at alagood@dentonlaw.com or http://www.dentonlaw.com.

 

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The Texas Timeshare Act

Timeshares have been and continue to be a popular method to secure affordable vacation destinations. For timeshare properties located in or offered for sale in Texas, Texas Property Code Chapter 221, also known as the “Texas Timeshare Act” (“Act”), governs and regulates  timeshare interests.  “Timeshare interests” are comprised of “estates”, “properties”, and “uses”.

A “timeshare estate” is any arrangement under which the purchaser receives a right to occupy a timeshare property along with an interest in real property. A “timeshare property” is one or more accommodations and any related amenities that are subject to the same timeshare instrument, and any other property rights that may co-exist.  An “accommodation” includes apartments, condominiums, cooperative units, hotel or motel rooms, cabins, lodges, or other private or commercial dwellings attached to real property.  An “amenity” includes any common areas, recreational facilities, or other common components of timeshare property.  A “timeshare use” is any arrangement which allows the purchaser the right to use timeshare property, but does not grant any other interest in such property.

It must be noted that any timeshare interest located outside of Texas is not subject to the Act’s provisions relating to the creation of the timeshare regime (subchapter B) and the rules relating to a timeshare owners’ association (subchapter I). So long as out-of-state timeshare interests are offered for sale in Texas, then the provisions of the Act relating to registration (subchapter C), disclosures and advertisements (subchapter D), cancellation and rescission rights (subchapter E), exchange programs (subchapter F), escrow deposits (subchapter G), deceptive trade practices (subchapter H), and the transfer or termination of timeshare interests (subchapter J), will apply.

Only timeshare properties in existence on or after August 26, 1985, are subject to the Act. There are also certain types of offerings and dispositions which are exempt from the Act.

If a timeshare property is subject to the Act, a person may not offer or dispose of a timeshare interest unless a timeshare plan is registered with the Texas Real Estate Commission. “Offer” means any advertisement, inducement, solicitation, or encouragement to attempt to cause a  purchase of a timeshare interest.  “Dispose” means a voluntary transfer of any legal or equitable timeshare interest.  Offering or disposing of a timeshare interest which has not been registered is a Class A misdemeanor.  However, it is permissible for a developer to accept a reservation and deposit from a prospective purchaser on an unregistered property and place the deposit in a segregated escrow account with an independent escrow agent, so long as such deposit is fully refundable upon request by the purchaser.

Any advertisement or promotion related to a timeshare interest offering must comply with the Contest and Gift Giveaway Act (Chapter 621 of the Texas Business & Commerce Code). Any advertisement must make it clear that it is soliciting purchasers of timeshare interests and anyone whose name is obtained during a promotion may be solicited, and must set forth the developer’s name and the name and address of any marketing company involved in the promotion, unless affiliated with the developer.  A developer must also provide a timeshare disclosure statement to any prospective purchaser before entering into a purchase agreement.  The required contents of a timeshare disclosure statement can be found in Section 221.032(b) of the Act.

If the timeshare interest includes an exchange program, the party making the offer must also provide an exchange program disclosure statement. The details of the exchange program disclosure statement can be found at Section 221.033(d) of the Act.  An “exchange program” is any method, arrangement, or procedure for the voluntary exchange of timeshare interests between owners.  Typically the company administering an exchange program is not responsible for misrepresentations of the developer or for the denial of any exchange privileges.  So long as the developer’s contracts and sale documents have been approved by the Texas Real Estate Commission or a licensed Texas attorney, the developer may charge a reasonable fee for completing such forms, including the disclosure statements, purchase agreement, and closing documents.

Section 221.043(c) of the Act sets out the requirements for the timeshare purchase contract. The contract must advise the purchaser of his or her right to cancel the contract without penalty.  This right to cancel extends through the 5th day following the purchaser’s execution and receipt of the contract or the purchaser’s receipt of the timeshare disclosure statement, whichever is later.  The cancellation right cannot be waived.

Enforcement of the Act may be accomplished through the filing of an administrative complaint with the Texas Real Estate Commission or by private enforcement through the Courts. Several violations of the Act also constitute violations of the Texas Deceptive Trade Practices – Consumer Protection Act (Texas Business & Commerce Code Section 17.41 et. seq.).  Upon a finding of a material violation of the Act, the Texas Real Estate Commission may suspend or revoke a developer’s registration, place it on probation, issue a reprimand, impose an administrative penalty of up to $10,000.00, or take any other disciplinary action authorized by the Act.

Scott Alagood is Board Certified by the Texas Board of Legal Specialization in both Commercial and Residential Real Estate Law and may be reached at alagood@dentonlaw.com and www.dentonlaw.com.

 

 

Locally, there has been a lot of attention given to the proposal to ban fracking in the City of Denton. This past Tuesday, Denton’s citizens voted to enact a ban on all fracking ban. Almost immediately, lawsuits were filed challenging the ban. The fracking ban has brought significant attention to whether the ban would constitute a taking of private property that violates the United States and Texas Constitutions.   Both the United States and Texas Constitutions prohibit the government from taking private property without just compensation. Most of the time, the application of this protection is straight forward. For instance, when a city physically enters a person’s property for a public purpose and does not pay for the property, the government violates both Constitutions. As the recent debate over the fracking ban suggests, in certain circumstances government regulation can result in a taking of private property without just compensation. However, determining when a regulation has gone too far is considerably more difficult than determining whether a physical taking has occurred.

Whether a regulatory taking has occurred is a legal question that usually involves a complicated and fact intensive evaluation of a particular regulation, the use being regulated, and the land being regulated. That said, there are two basic types of regulatory takings claims property owners can bring against the government when they believe regulation has gone too far. The first is generally called a Lucas or a total takings claim. The second is generally referred to as Penn-Central or partial takings claim.

Total Takings

Under the Lucas rule, a taking occurs when a regulation destroys all economically beneficial use of an owner’s private property. Locally, within the context of the fracking ban, the private property in question is primarily natural gas. Those who own the mineral under their land and those who have leased those mineral will argue that a ban on fracking destroys the economic value of their natural gas deposits. This is because most of these deposits are located in shale formations, and fracking is required to recover the natural gas from this type of rock formation. However, even when a regulation destroys the economic value of private property, in limited circumstances the regulation may still not be a taking.   Applying the Lucas rule, the regulation will not constitute a taking if a neighboring property owner could have stopped the use being regulated under the state’s established property law. For example, if a neighboring property owner could have prevented fracking on the property because the well in the proposed location violated a subdivision’s deed restrictions, the fracking ban would likely still not be considered a taking even though the ban also prevents the minerals from being developed.

Partial Takings

If a total taking has not occurred, a property owner may still bring a partial takings claim under the Penn Central ruling. This type of claim requires the court to consider essentially ad hoc factual inquiries, such as whether the governmental regulation has decreased the value of an owner’s land or otherwise interfered with the property owners “distinct investment-backed expectations.” In the context of the fracking ban, “distinct investment-back expectations” basically means that the gas companies will have to prove that when they entered into an oil and gas lease within Denton’s city limits they had a reasonable expectation they would be allowed to drill and frack gas wells to produce the minerals they had leased.

Now that the frack ban passes, it appears certain that the courts will be asked to decide both total takings and partial takings cases. The issues raised will ultimately require the courts to examine the claims of those on both sides the debate. Does fracking create a special threat to water quality, air quality, or public safety? If so, are those concerns raised on the specific properties where the gas wells would have been drilled? And, what are the impacts of fracking on the property values of surrounding property owners?

Regardless of whether the courts ultimately decide fracking ban is a taking, the lawsuits should clearly address (and hopefully further define) the scope of the legitimate exercise of government power and the limits of that power. I have often wished when watching a political debate that we could put the candidates under oath before starting the debate and have a Judge present who would make the candidates actually answer the questions they are asked. At least as to the fracking ban, my wish may be partially granted. No matter how the fracking ban lawsuits end, local property owners should take this opportunity to become more informed about the constitutional limits on land use regulation and when those regulations should be challenged.

Samuel B. Burke is board certified in Civil Trial Law by the Texas Board of Legal Specialization and can be reached at sburke@dentonlaw.com or www.dentonlaw.com.

Sellers Disclosures

With the economy beginning to pick up, new housing starts and sales of existing homes seem to be on the upswing as well.  It is important to know what duties the seller has in disclosing the physical condition of a home, and to what extent a buyer may rely upon such disclosures in purchasing real property.  Depending on the type of property being sold, commercial, residential, farm & ranch, unimproved, etc…., the required disclosures vary to some extent.  This article will solely focus on the required disclosures involved in the sale of residential real estate.

“Residential real estate” is defined as a single dwelling unit of residential real property located in Texas.  Section 5.008 of the Texas Property Code governs a seller’s duty to disclose the condition of residential real estate.  You may review the promulgated disclosure form on the Contract Forms tab of the Texas Real Estate Commissioner’s website found at http://www.trec.state.tx.us.

The disclosures required by Section 5.008, include (1) the presence and condition of equipment, fixtures and improvements; (2) the presence or absence of working smoke detectors; (3) defects in walls, foundations, plumbing, electrical, or other major components of the property, including “structural” components; (4) potential problems with termite damage, flooding, aluminum wiring, asbestos, or lead-based paint; (5) whether any item, equipment, or system is in need of repair; and (6) other items affecting the property such as alterations or repairs made without permits or non-compliance with codes, deed restrictions, common areas, and lawsuits.

For “lawsuits”, Section 5.008 only requires the disclosure of “pending” lawsuits at the time the disclosure is made, and does not require disclosure of previous suits which have been dismissed, settled, or completed through final judgment.

Disclosure of “structural” repairs includes any repairs performed to the load-bearing portion of a residence, and includes the foundation, walls, and roof. Repairs to cabinets, sinks, bathroom fixtures, and drywall not caused by a failure in the structural portion of the residence are not required to be disclosed as “structural” repairs.  Other areas of Section 5.008 may require the disclosure of repairs for those items.

A seller is not required to disclose to a potential buyer any deaths on the property that are unrelated to a physical condition associated with the property, or AIDS or HIV-related health problems of previous occupants.

The seller’s disclosure notice must be completed to the best of the seller’s knowledge and belief as of the date of completion and signature.  If there are items, components, or repairs which are not known by the seller on that date and time, the seller must indicate that fact.  There is no legal obligation of a seller to conduct an investigation into matters of which the seller has no knowledge nor any continuing obligation to disclose matters that are later discovered.  Also, a seller’s disclosure notice is not a warranty or guarantee by the seller of the physical condition of the property or dwelling.

However, particular attention should be paid to the form of the disclosure notice being used.  Some residential real estate sales contracts promulgated by real estate trade associations may include disclosures which go beyond those required by Section 5.008.  It is important to read each form of disclosure closely and make sure that each response is true and correct at the time and date such is being made.  Although not required by law, supporting documentation of any disclosed defect or repair may assist the seller in later defending against allegations of misrepresentation or deceptive trade practices.

Also, unless the real estate agent or broker has actual knowledge of a misrepresentation contained in the seller’s disclosure notice and fails to bring such to the attention of the buyer or the buyer’s agent, a seller’s real estate agent or broker is not legally responsible for any misrepresentations made by the seller in its disclosure notice.

Certain types of residential real estate sales transactions are exempted from providing a disclosure notice.  These include (1) court ordered sales; (2) transfers by a bankruptcy trustee; (3) deeds in lieu of foreclosure; (4) judicial and non-judicial foreclosure sales; (5) sales by a fiduciary or administrator of a decedent’s estate, guardianship, conservatorship, or trust; (6) transfers between co-owners; (7) transfers to a spouse or heir; (8) transfers incident to a divorce; (9) transfers to or from a governmental entity; (10) new residences which have not been previously occupied; and (11) where the value of the dwelling does not exceed five percent of the value of the property.

Finally, where a seller fails to provide a disclosure notice to a buyer, the buyer’s sole remedy is to terminate the contract for any reason within seven days from buyer’s receipt of the notice.

R. Scott Alagood is board certified by the Texas Board of Legal Specialization in both Commercial and Residential Real Estate Law and may be reached at alagood@dentonlaw.com or www.dentonlaw.com.

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Texas allows lenders to make “reverse mortgages” which are secured by a borrower’s homestead.  A reverse mortgage is an instrument that allows a borrower to borrow money against the equity in his or her home in a single installment, in annuity-like installments, or a line-of-credit available on demand.  Like home equity loans, reverse mortgages are subject to a litany of state constitutional restrictions.

A reverse mortgage may only be created voluntarily by the borrower through a written contract.  Each owner and each owner’s spouse must join and consent to the reverse mortgage.  A reverse mortgage may not be made unless the borrower or borrower’s spouse is at least 62 years of age at the time the loan is made.

If the reverse mortgage provides for the annuity-like string of payments, those payments must be made at regularly scheduled intervals.  However, the lender may also make advances on the borrower’s behalf where the borrower fails to pay taxes and assessments, insurance, repairs to the secured dwelling, or any lien with priority over the reverse mortgage.  The proceeds received from a reverse mortgage may be used for anything.  A reverse mortgage will accrue interest at either a fixed or variable rate of interest which may be compounded during the term of the loan.  Most reverse mortgages will accrue interest at a variable rate.  Interest on interest is permitted, and will typically compound monthly.  However, during the term of the loan, there are no monthly repayment requirements.  The principal balance and accrued interest do not become due and payable until one of the following occur:

  • All borrowers have died;
  • The property securing the loan is sold or transferred;
  • All borrowers cease occupying the secured property for longer than 12 consecutive months without prior written approval of the lender;
  • The borrower defaults on an obligation specified in the loan documents to repair and maintain the secured property, pay taxes and assessments, or insure the secured property;
  • The borrower commits actual fraud in connection with the loan; or
  • The borrower fails to maintain the priority of the reverse mortgage after receiving notice from the lender and an opportunity to cure.

Unless voluntarily repaid, when the note becomes due the lender may only satisfy the outstanding balance of principal and accrued interest from foreclosure of the secured property.  Reverse mortgages may only be foreclosed through a lawsuit for judicial foreclosure or an expedited legal proceeding allowing foreclosure under the deed of trust.  Neither the note nor any deficiency occurring from the foreclosure sale may be satisfied from the borrower’s estate.  Said another way, the borrower is not personally liable for the repayment of the loan.

A reverse mortgage may not be made unless the borrower and each owner receive counseling regarding the advisability and availability of reverse mortgages and other financial alternatives.  The borrower and each owner must attest in writing that they each received the required counseling.  If the lender fails to make any required loan advances after receiving notice from the borrower, then the lender forfeits all principal and interest on the reverse mortgage.

Reverse mortgages are not for everyone.  Since the loan will not be typically repaid until after the death of the borrower or the sale of the home, family and heirs should be consulted before entering into the loan.  Life insurance may be an available option to use to pay off the reverse mortgage upon the borrower’s death.  Reverse mortgages may include high closing costs.  Because of a life expectancy factor in the loan repayment formula, less money will be available from the loan for younger borrowers.  Also, if a reverse mortgage is obtained, seniors may be prohibited from receiving available deferrals of ad valorem taxes.

Available alternative options to a reverse mortgage may include:

  • Cashing out whole or variable life insurance policies on the borrower;
  • Obtaining a home equity loan;
  • Selling or leasing the property; or
  • Applying for tax credits and tax abatements for seniors.

While no one plans to run out of money during retirement, the longer folks live, the harder it becomes to sustain the necessary income to provide for living expenses.  A reverse mortgage is one option that may be considered for seniors needing addition income.  However, care should be taken to make sure that all of the resulting consequences have been considered before entering into a reverse mortgage.

Amendments to the Texas Constitution concerning reverse mortgages are currently scheduled for approval during the November 5, 2013, general election.  If approval, these amendments will become effective upon proclamation by Governor Perry.

R. Scott Alagood is board certified in Residential and Commercial Real Estate Law by the Texas Board of Legal Specialization.  Scott may be contacted at alagood@dentonlaw.com and http://www.dentonlaw.com.

 

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