Archives for the month of: January, 2013

With a hopefully improving economy, our State and local community should see an increase in new housing development.  If our past history is a good indicator of the future, then the increase in new construction will necessarily increase the number of construction defect claims between the Buyers of these new homes and the Contractors who constructed them.  This article will briefly discuss the history of residential construction claims in Texas and set forth the current legal framework for home owners and builders who may soon find themselves on one side or the other of a residential construction defect claim.


Prior to 1999, residential construction disputes in Texas were primarily dealt with through general contract principles and consumer protection statutes.  As a result of a real or perceived increase in the number of claims brought by owners against builders and the large damage claims potentially available under certain State consumer protection statutes, the Texas legislature enacted the Texas Residential Construction Liability Act in Chapter 27 of the Texas Property Code (“RCLA”).  RCLA framed construction defect claims into specific procedural and damage limitation considerations.  However, it seemingly did little to reduce the number of suits and arbitrations or to reduce the large damage claims sought by home owners against builders.  In response to a very powerful Texas builders’ lobby (with input from a somewhat less influential consumers’ lobby), the Texas legislature enacted the Texas Residential Construction Commission Act (“TRCCA”) in 2003.  The general purpose of TRCCA was to 1) provide a builder registration program, 2) provide a mandatory administrative state-sponsored inspection and dispute resolution process for construction defects, and 3) set forth minimum building standards and warranties for residential construction.  Without getting into the details of TRCCA, it should be noted that an owner’s failure to follow the mandatory state-sponsored inspection and dispute resolution process could result in the owner losing the ability to prosecute a claim in court or through arbitration.

The mandatory and harsh effects of TRCCA when combined with the economic downturn effectively resulted in litigated and arbitrated construction defect claims virtually ceasing to exist between 2003 and 2009 in Texas.  However, TRCCA was subject to the sunset laws governing administrative agencies, and as part of the sunset process TRCCA was repealed in 2009.  Now that TRCCA has been repealed, owners and builders face going “back to the future” when dealing with construction defect claims under traditional contract principles, consumer protection statutes, and the Residential Construction Liability Act.

Implied Warranties

When TRCCA was dissolved in 2009, one of the consequences was the removal of the minimum building standards and warranties for residential construction.  With TRCCA out of the way, the common law of Texas which existed at the time of TRCCA reappeared.  Through several former Texas Supreme Court decisions, two common law implied warranties once again set the standard for residential construction defects in Texas.

The first implied warranty is the” warranty of good and workmanlike manner”.  This warranty requires a Contractor to construct a residence in the same manner as would a generally proficient Contractor engaged in similar work and performing under similar circumstances.  Any express warranty must equal or exceed the performance required by the implied warranty of good and workmanlike manner, and it cannot completely disclaim the implied warranty by providing performance standards which do not meet or exceed those required by the residential construction industry.

The second implied warranty is the warranty that the home is suitable for human habitation and only extends to defects that render the home unsuitable for its intended use as a home.  This warranty is only applicable to latent defects, that is, those defects that are not disclosed or clearly known to the Buyer of the home.  This warranty may not be generally disclaimed.  If fully disclosed by a builder to a Buyer, those defects which are knowingly and voluntarily accepted will not be subject to the implied warranty of habitability.

Deceptive Trade Practices: the Home Owner’s Sword

The Deceptive Trade Practices – Consumer Protection Act (Section 17.41 et. seq. of the Texas Business and Commerce Code, herein “DTPA”) applies to the sale of homes.  The DTPA expressly allows a consumer to maintain an action where the breach of an express or implied warranty produces economic damages or damages for mental anguish.  Where a builder has not built the home in “a good and workmanlike manner” or to be “habitable”, such builder has breached either or both of the two warranties implied by law on a new residence, thus making such “breach” actionable under the DTPA.

The benefits that the DTPA provides over general contract principles are primarily two-fold.  First, the claimant only has to show that its damages were “produced”, rather than “proximately caused”, by the builder’s breach of the implied warranty.  This means that the claimant need not prove that any resulting damages were reasonably foreseeable.  Any damages, no matter how remote, may be proven by the claimant, so long as they result from the builder’s breach of the implied warranty.  Secondly where the claimant can prove that the builder intentionally or knowingly “breached” the implied warranty, the claimant may also be awarded mental anguish damages and up to three times the claimant’s actual or economic damages.

Residential Construction Liability Act: the Builder’s Shield

Since the expiration of TRCCA, RCLA continues to provide builders with a statutory filter through which construction defect claims must navigate.  While RCLA does not in and of itself provide the home owner with a separate cause of action against a builder, failure to comply with the Act has consequences for both the home owner and the builder.

First, RCLA makes it clear that to the extent of any conflict between RCLA and the DTPA, the provisions of RCLA will control.  Second, RCLA limits the liability of a Contractor for defects caused by several statutory acts which are deemed to be outside of the Contractor’s control.  Third, RCLA requires that the home owner give the Contractor at least sixty (60) days prior written notice by certified mail of the specific construction defects that are the subject of the complaint prior to filing suit or invoking arbitration proceedings.  Fourth, RCLA allows the Contractor during the first thirty-five (35) days following receipt of the home owner’s RCLA notice to inspect the home and construction defects by supplying the home owner with a written request for inspection.

Second, RCLA allows the Contractor to provide a written offer of settlement to the home owner by certified mail that may include an agreement by the Contractor to repair or have repaired  any of the applicable construction defects and may describe the kind of repairs to be made.  Additionally, under certain specific circumstances, the Contractor may also make an offer to repurchase the home.  Any offered repairs must be made not later than forty-five (45) days after the Contractor’s receipt of the home owner’s written acceptance of the Contractor’s offer, unless delayed by the home owner or by other events beyond the Contractor’s control.

Third, if the home owner believes that the Contractor’s initial offer of settlement is not reasonable, then the home owner must advise the Contractor in writing of such fact and provide details why within twenty-five (25) days of receipt of the Contractor’s initial offer.  In such instance, the Contractor has an additional ten (10) days from receipt of such notice from the home owner to make a supplemental written offer of settlement to the home owner.

Fourth, if the home owner rejects a reasonable offer from the Contractor or fails to permit the Contractor to perform under such offer after acceptance, the home owner’s damages are limited to the greater of the value of the Contractor’s repair offer, or monetary settlement offer; and the home owner’s reasonable and necessary attorney’s fees incurred before the offer was rejected.  Where a Contractor fails to make a timely reasonable offer, the immediately preceding damage limitations do not apply.  Regardless, the current version of RCLA seems to prohibit a home owner from recovering any damages other than the following reasonable and necessary damages which are proximately caused (must be “foreseeable”) by a construction defect: cost of repairs; cost for the replacement or repair of goods damaged in the residence; engineering and consulting fees; expenses for temporary housing; reduction in fair market value related to any structural failure; and attorney’s fees.  Note that the heightened causation standard of “proximate cause” is reintroduced, and the limitations on damages supplied by RCLA appear to completely remove the statutory mental anguish and multiplication of damages which would otherwise be allowed by the DTPA.

Finally, under RCLA, either the home owner or the Contractor may force the construction defect disputes to be mediated.


As you can see, construction defect claims can be extremely complicated for both the home owner and the builder.  Failure to follow the statutory requirements of RCLA may have serious consequences for either or both parties.  Therefore, if you find yourself in such a situation, it is always advisable to seek the advice of a competent attorney who regularly deals with construction defect cases.

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 and

<a href=””>Google</a&gt;

An extremely high percentage of real estate sales and financing transactions involve the issuance of a policy of title insurance of some type.  In dealing with clients in residential or commercial transactions, I have found that most consumers of title insurance products do not fully understand what title insurance is, why they acquire it, and what benefits are conferred upon the insured in the event of a title defect.  This article will address some common misconceptions about title insurance and explain what it is and what it isn’t.

Title insurance is an American idea.  It is a contract of indemnity which is predominantly used in the U.S. to insure a property owner or lender from defects in title which may affect the owner’s or lender’s interest in a particular parcel of real estate.  There are two primary components of title insurance.  First, it provides the insured an attorney (and other costs of “defense”) to represent the insured and the insured’s interest in the property which may be under legal attack.  Secondly, in the event that the insured actually sustains a covered loss, title insurance will either remedy the problem, reinsure the risk, or compensate the insured for any damages sustained therefrom.

Prior to title insurance being readily available, Owners, potential Buyers, and Lenders had to rely upon title abstracts in order to know or understand what interest they had  (or were acquiring) in a particular parcel of real estate.  An abstract of title was simply a summary of the relevant documents which had been filed of record through the date of inquiry and which may have some effect on the dtitle to the subject property.  Most of the time an abstract would include or reference the particular documents affecting title and the recording information of the documents.  It was up to the Owner, potential Buyer, or Lender to review the abstract and determine for itself whether the interest conveyed or to be conveyed  was acceptable.  However, a title abstract in and of itself provided the intended user with little or no remedy in the event it was not correct.  Sellers, Buyers, and Lenders had to allocate the responsibility for any undisclosed title defects through the warranties contained in the Deed or the security agreements.

Title insurance typically insures fee simple ownership in real property or the priority of the lender’s lien with respect to the property secured by such lien.  However, other incidents of real estate ownership may be insured, such as easements, leases, or life estates.  With the proliferation of oil and gas production in urban areas over the past 20 years, newer title insurance policies typically will not insure title to the mineral estate of real property.  However, there are certain endorsements that may be obtained to insure certain types of surface improvements against interference from the mineral estate.

There are two basic types of title insurance policies.  One type of policy insures the Owner of the real property against certain title defects (“Owner’s Policy”).  The other type of policy insures a lender’s interest in real property which is securing the repayment of a loan (“Mortgagee’s Policy”).  Most Lenders require the Owner/Borrower to purchase the Mortgagee’s Policy of Title Insurance  for the Lender as a condition of making any loan secured by real property.  However, the acquisition of an Owner’s Policy of Title Insurance is simply a matter of choice on the part of the Owner or potential Buyer of real property.  While some folks believe that it is customary for the Seller to pay for the Owner’s Policy premium, the payment of the Owner’s Policy is subject to negotiation in the Sales Contract and is typically a function of the price being paid for the property.  Other good news for the Owner/Buyer/Borrower is that the issuance of a Texas Mortgagee’s Policy in connection with the issuance of a Texas Owner’s Policy only costs an additional $100.00.

The Texas Department of Insurance is authorized to regulate title insurance in Texas as codified in the Texas Title Insurance Act (Tex. Ins. Code Section 2501.001 et seq.).  The Texas State Board of Insurance approves insuring forms, premium rate rules, and procedural rules for the title insurance industry in Texas.  Texas title insurance is different than the overwhelming majority of jurisdictions in the United States in this fashion.  Most other jurisdictions have adopted the forms and rules promulgated by the American Land Title Association (“ALTA”), which is a national trade association of title insurance underwriters and agents.  The primary state trade association in Texas is the Texas Land Title Association (“TLTA”).  While the TLTA is a private organization and has no legislative authority, the recommendations and input from TLTA are given great weight in the regulation of title insurance in Texas.

So, how does title insurance differ from an abstract of title?  For one, the sole purpose of an abstract of title is to conduct a diligent and thorough search of the applicable public records and to examine the state of title to a particular parcel of real estate based upon such inquiry.  The duties and liabilities of the abstractor depend on conducting such search and examination in accordance with certain industry standards and in a non-negligent manner.  To the contrary, a title insurance company is not a title abstractor and owes no duty to examine title.  Its sole purpose is to provide the contractual indemnities and legal defense to insure against certain promulgated and/or express title defects.  While examination of title is implicit in the business of issuing a sound title insurance policy, such policy does not guarantee that the state of title as reflected in the policy is correct.  Rather, if the insured finds itself facing possible litigation or has been damaged as a result of a defect which is insured under the policy, then the issuer of such policy becomes liable thereunder to provide the insured with a defense and either resolve the defect, reinsure the risk, or pay for any damages resulting therefrom.  Title insurance effectively takes the place of the Owner, Buyer or Lender having to prosecute a legal claim on its own and at its sole cost and expense under the contractual warranties contained in the Deed or security documents.  By acquiring a policy of insurance, certain risks associated with a property’s title may be shifted to the title insurance carrier from the Owner or Lender.

While title insurance is a very cost effective manner of shifting title risk, it certainly doesn’t cover all risks of ownership or lending associated with real estate.  First, the amount of insurance is limited to the face amount of the policy.  Typically, the face amount of the policy will be limited to the purchase price, fair market value of the property (and any improvements) at the time the policy was issued (or if later improved, at such date), or for a Mortgagee’s Policy, the loan amount.   Also, title insurance underwriters are in business to make a profit.  As such, the underwriters take extreme precaution to ensure that the risks they insure against are limited to those mandated by State law, and are sometimes reluctant to insure beyond what is minimally required by law or regulation.  Similarly, all title insurance policies in Texas do not insure against certain predetermined risks.  These risks which are set out in the policy are better known as exclusions.  Additionally, following the title examination of the particular parcel of real estate, the policy will include specific exceptions to coverage which are either found of record or otherwise allowed by the Texas title insurance regulations.

In order for coverage to exist, the particular type of title defect encountered must fall within the policy’s terms (and not be excluded) and not have been expressly “excepted” to in a policy Schedule.  In certain situations, policy exception deletions or insuring around endorsements (sometimes known in ALTA States as “express insurance”) may be obtained by paying an additional premium to remove all or part of an exception or to have a specific endorsement to the policy issued regardless of the exception.  Examples of some commonly used insuring policy exception deletions and insuring around endorsements are the survey exception deletion (Schedule B, Item 2), rights of parties in possession deletion, T-23 Access Endorsement, and the series of T-19 Restriction, Encroachment, and Mineral Endorsements.  Depending on the type of property being insured, the goals of the insured, and the cost vs. potential  benefit being afforded to the insured, an Owner, potential Buyer, or Lender will have several choices of particular policy exception deletions and insuring around endorsements to consider when acquiring a Texas title insurance policy.

In short, Texas title insurance is not a guarantee of title to the insured.  It is a contractual agreement between the insured (Owner or Lender) and the title insurance policy issuer to cover stated title risks associated with the ownership and financing of real property.  In this respect, title insurance is more like your automobile or home owners’ insurance policies, rather than a guarantee of title.  That’s not to say that a review of the precursor document to the issuance of a title insurance policy shouldn’t be performed by the Owner, Buyer or Lender prior to paying the applicable premium.  To the contrary, it is extremely important that the “commitment” for issuance of a title insurance policy be reviewed in addition to any documents which will constitute exceptions from coverage once the policy is issued.  If possible, both the title insurance commitment and exception documents should be examined along with a current survey.  The commitment should provide a good snapshot of the exceptions contained in the public records, while the survey will show the location of such exceptions on the ground and any other exceptions which are not found in the public records, but which are visibly apparent from an inspection of the property.

In conclusion, title insurance plays a very important role in Texas real estate transactions.  However, if you do not work with title insurance on a regular basis it can be somewhat confusing to know exactly what you are purchasing and what options may be available.  So, if you ever find yourself in a situation where you want to know your title insurance options, you should feel free to consult with and ask questions of your title insurance agent.  Most are extremely helpful and knowledgeable about their products.  If you still find yourself uncertain about title insurance or the associated transaction, it’s usually well worth the time and expense to consult with a qualified legal professional.

R. Scott Alagood is a licensed Texas attorney and Board Certified by the Texas Board of Legal Specialization in both Residential and Commercial Real Estate Law and may be contacted by email or

<a href=””>Google</a&gt;