Archives for posts with tag: residential real estate

Image 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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Foreclosure Rates

Buying Property at Foreclosure Sales: a Deal or a Dud?

If you ever watch late night television, then you have seen those infomercials touting the ability to make you an overnight millionaire by purchasing financially distressed real estate.  There are many individuals and companies who have built successful lives and businesses through the acquisition of financially distressed real estate.  However, unless the process is fully understood and the risks are knowingly accepted, the purchase of financially distressed property at a foreclosure sale is not necessarily for the cash rich novice.  The following legal and practical issues should be considered prior to acquiring property at a non-judicial foreclosure sale held under a Texas deed of trust.[1]

A deed of trust is the document that a borrower gives to a lender to secure the repayment of a loan with real estate.  In a typical Texas mortgage, the parties involved are the borrower, the lender, the trustee, and the owner of the real estate pledged as collateral (“mortgagor”).  The borrower is the party responsible for the repayment of the loan.  The lender is the party who funded the loan and is the beneficiary of the pledged real estate.  In Texas, a trustee performs the duties and responsibilities contained in the deed of trust when the borrower defaults on the loan.  The mortgagor is the party pledging the property as collateral for the loan.[2]

It should be noted that non-judicial foreclosures in Texas are generally governed by (i) Chapter 51 of the Texas Property Code, and (ii) the documented agreements between the lender and borrower [3] contained within the loan documents.  Certain publicly filed documents which should be reviewed are the deed of trust, renewals/ extensions of the deed of trust, Notice of Trustee’s/Substitute Trustee’s Sale, and any other document affecting title to a mortgaged property (such as easements, leases, liens, restrictions, covenants, estates, and mineral interests, just to mention a few).  Unless a purchaser is adept at researching property titles, it is advisable to purchase an abstractor’s certificate from a title company.

There may be other issues which will affect title to the property being foreclosed which do not appear in the public real property records.  Some of these issues include encroachments, protrusions, overlapping improvements, set-backs, zoning, platting, building ordinances, flood zones, drainage, utilities, bankruptcy filings, lawsuits, and probate records.  Issues which are located on the ground can be addressed by ordering a current survey of the property.  However, permission from the current owner must be obtained before legally entering the property to conduct a survey.  This can be very difficult, if not impossible.  Other issues may be addressed through inquiries of public officials and employees.   While information obtained through governmental offices can be valuable, such information may not be completely reliable, and the persons supplying it are typically not liable for inaccuracies.

Except for warranties of title contained in the foreclosure Deed (from the mortgagor not the Trustee/Substitute Trustee), property purchased at a foreclosure sale is sold “AS IS” without any other warranties and at the purchaser’s own risk.  The purchaser will acquire the property subject to all physical and title conditions which exist on the date of the foreclosure.  Any tenants or occupants of the property on the date of the foreclosure sale may also have rights as parties in possession of the property.  Even if the purchaser acquires a meaningful warranty in the foreclosure Deed, enforcing such warranty may be impractical since the mortgagor is usually in dire financial straits.

A foreclosure sale may be set aside for various reasons within four years of the date of the sale under state law and within two years under federal bankruptcy law.  Any title insurance policy acquired by the purchaser will usually exclude any defects associated with the foreclosure process and any liens or encumbrances which were not removed by the foreclosure sale.  A purchaser at a foreclosure sale is also not a “consumer” relating to the protections afforded by the Texas Deceptive Trade Practices – Consumer Protection Act.

A purchaser should identify these issues, determine acceptability or cost to resolve, and calculate a  purchase price accordingly.  Resolving an unidentified issue post-purchase may cost tens of thousands of dollars.[4]

Purchasing distressed property at foreclosure typically requires a high degree of risk tolerance.  Anyone willing to accept those risks may also want to consider going to Vegas.  At least in Vegas, the drinks are free.


[1] As opposed to foreclosure sales by Court order or for unpaid ad valorem taxes which may have different considerations.

[2] While the borrower and the mortgagor are typically the same party, it is not necessary that they are the same.

[3] The third-party mortgagor’s agreements should also be considered, where the borrower and mortgagor are not the same.

[4] Legal fees necessary to clear up a contested title matter can sometimes exceed $100,000.00.

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

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As stated previously, the law of adverse possession is founded on notice.  Thus, a claimant must make an actual, visible, appropriation of the land in dispute.  Tex. Civ. Prac. & Rem. Code Section 16.021(1).  The requirement of an open, notorious, and visible claim is based on the policy that existing rights in land should not be lost without giving the owner an opportunity to take preventive action by taking prompt action to dispute the claim.

The notice provided to the record owner need not be actual, express notice.  Instead, constructive notice may be presumed from the nature and extent of the acts of adverse possession.  However, if no expressed claim is presented to the record owner, the adverse possession must be so open and notorious, and manifested by such open or visible acts, that knowledge on the part of the title holder may be presumed.  Visible appropriation is typically a fact issue.

The claimant’s appropriation of the land must wholly exclude the record owner.  Mowing the grass, planting flowers, or maintaining the hedge does not constitute a type of appropriation sufficient to give notice of exclusive and adverse possession by the claimant.  However, planting a hedge to establish a boundary line and barrier between the property claimed and the adjacent property may constitute a type of action which will support the basis for adverse possession.

Allowing cattle to graze on another’s land is insufficient, by itself, to establish title by adverse possession.  However, grazing combined with the construction of sturdy enclosures, such as a boundary line fence, may rise to such level.

Fencing of land is one form of visible appropriation.  However, a fence which exists before the claimant takes possession of the land is considered a casual fence that does not support a claim for adverse possession unless the claimant can show the purpose why the fence was erected.  Maintaining or repairing a casual fence generally does not transform a casual fence into a designed enclosure.  Where a casual fence is substantially modified to give the record owner notice that it’s character has changed (such as removing a barbed wire fence and constructing a chain link fence), such may constitute a basis for adverse possession.

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

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