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Legal Update

Legal Update. Revised November 2009. Course Objectives. Forms Legislative Changes Hot Topics Case Studies. FORMS. Forms – Addendum for Oil Gas & Other Minerals (44-0). Adopted in response to transactions over Barnett Shale (DFW and surrounding counties)

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Legal Update

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  1. Legal Update Revised November 2009

  2. Course Objectives • Forms • Legislative Changes • Hot Topics • Case Studies

  3. FORMS

  4. Forms – Addendum for Oil Gas & Other Minerals (44-0) • Adopted in response to transactions over Barnett Shale (DFW and surrounding counties) • Historically, minerals were not at issue in urban and suburban areas • Deals only with fundamental Mineral Issues – May need assistance of counsel • Defines minerals; calls for a reservation by seller; has simple waiver of surface rights

  5. Forms - Short Sale Addendum • Adopted in response to demand for short sales • Mirrors provisions in Addendum for Back-Ups • Upon execution, buyer must deposit earnest money and pay option fee • All other performance is suspended until lienholder gives approval • Extends option until after the lienholder gives approval • Designed to protect Seller & Buyer until lienholder consents

  6. Forms – Notice of Termination • Amended in 2008 to merge 2 prior forms that dealt with termination rights under Financing Addendum and Option • Added other common reasons why buyer might terminate

  7. Forms – T-47 Affidavit • Text of Form is promulgated by TDI • Survey Paragraph (6C(1)) calls for delivery of the survey AND the affidavit at the same time; BOTH should be delivered • Affidavit identifies if any changes have occurred in survey • Question for Buyer is to decide if new survey is wise • Buyer may want to delete the boundary exception to protect buyer

  8. Forms – Water District Notices • Common in MUDs and other Water Districts • Chap. 49 of Water Code requires delivery of the notice at time of contract; otherwise buyer has termination rights • A second notice will be given at closing as well • Problems: • Must be signed before notary • Which of the 3 forms to give (must check with District) • Best to have District complete the Notice

  9. CASES – Related to Forms

  10. Nguyen v. Woodley • Contract signed; TREC Financing Addendum used • Buyer was approved for financing but the lender required repairs • Buyer wrote seller stating, “we cannot obtain financing approval by now.” Asked to extend closing. Notice given within time required by Financing Addendum. • Buyer was able to secure approval about 4 days after the scheduled closing date • Seller then wanted new contract with increased sales price and non-refundable earnest money

  11. Nguyen v. Woodley (cont.) • Buyer sued for specific performance • Summary Judgment awarded to Seller • Appellate court held Buyer could not sue for specific performance because buyer’s notice that he could not obtain financing (although still trying) terminated the contract • Qst: What about Financing Approval v. Loan Approval?

  12. Rich v. Olah • Buyer sued Seller after closing for foundation defects • Seller disclosed that there had been prior foundation repairs • Buyer had inspections noting prior repairs • Buyer claimed that foundation needed additional repairs & Seller did not disclose this need • Court held that undisputed facts were that Buyer was aware of some problems and proceeded to close & that Buyer could not rely on the Seller’s alleged failure to disclose • Seller was able to recover attorney fees because of attorney fee provision in contract form

  13. Sierra Group v Bryan Hardeman • Buyer sued seller and seller’s broker • Alleged that seller failed to disclose restrictions • Trial court granted summary judgment to Seller and Broker & gave them attorney’s fees against Buyer • Buyer appealed that Seller and broker not entitled to attorney fees because allegations were not related to the contract • Court held the attorney fee provision is clear and entitled seller and broker to attorney fees

  14. ERA v Advocates for Children • Broker sued buyer (client) for breach of buyer rep. agreement • Client did not buy but leased property • Rep. Agrmnt. provided for 6% commission if client bought property; but blanks were not filled in for payment in event of a lease • Court held for Client because broker did not strictly complete form and construed it against them since it was their form

  15. ERA v Advocates for Children (cont) • The parties agree that Broker will receive a commission calculated as follows: (1) % of the gross sales price if Client agrees to purchase property in the market area; and (2) if Client agrees to lease property in the market a fee equal to (check only one box): q ____% of one month’s rent or q ____% of all rents to be paid over the term of the lease.

  16. Fawcett v Idaho Northern R&R • Seller agreed to sell a ranch & used TREC form • Parties were not sure of exact size of ranch • Form contains a variance clause that allows either party to terminate if the actual size varies by more than 10% after survey is complete • 5,000 acres was used in initial contract as the size • Survey showed that size was 5,531 acres; and seller terminated

  17. Fawcett (cont.) • There was a dispute on what was to be included (as there were 14 different tracts) • Buyer alleged that tracts for which seller did not have marketable title should not be included • But court said that this was a Paragraph 6 objection and not a determination of the size of the property the parties agreed to buy and sell • Therefore, seller had right to terminate

  18. Chapter 2 – Legislative Changes

  19. HB 3502 – Seller’s Disclosure Notice • Clarifies amendments made in 5.008, Property Code in 2007 regarding smoke detectors • Added an explanation of provisions in Chapter 766, Health & Safety Code (see Page 15); specifically sets out when a buyer may have seller install a hearing impaired smoke detector • Eliminated provision that required buyer to acknowledge that property complies with Chapter 766 and waives any rights under 766

  20. SB 862 andthe Real Estate Recovery Fund • SB 862 = TREC Housekeeping bill • If consumer seeks payment from recovery fund and licensee is in bankruptcy; the consumer can file a verified statement that he has made good faith effort to obtain a discharge & then can seek payment

  21. Legislation concerning ARB Protests • Pilot Appellate Program to start under SOAH • may appeal ARB order determining market value • SOAH will hear appeal with ALJ • For properties with value in excess of $1 million

  22. ARB Protest Legislation (cont.) • Chief Appraiser cannot increase value in year after a successful tax protest unless supported by substantial evidence (Burden of proof lies with appraiser) • A sale is not comparable unless occurred in last 24 months • Appraiser cannot exclude sales as a result of foreclosures or because of declining economy • Value of a residence is determined by value as a homestead (not highest and best use)

  23. Tax Exemption – Disabled Vet • Disabled Vet who receives 100% disability compensation due to service-related disability is entitled to an exemption of total value.

  24. Title Insurance Legislation • Title agts. were required to maintain residence in TX; now may have residence in adjoining state if with an office in TX • Title Agents (like insurers could) may now file an affidavit that confirms a release of lien if it paid the lien and never received the release back from the lender • Applies only to homes & liens under $1.5 million • Must notify mortgagee (who can object)

  25. Title Insurance Legislation (cont.) • Title companies now permitted to charge (separate from premiums) for 3rd party charges incurred with a closing (electronic filing fees, or tax report) • Statute of Limitations at TDI against a title company is 5 years from date of conduct or 2 years when TDI learned of conduct • Commissioner is to provide for expansion of coverage of title insurance to an individual for heirs, divorced spouses, trustees or successor trustees, or beneficiaries of trust on death of insured

  26. Title Insurance Legislation (cont.) • Legislation overhauled solvency issues as a result of failures of out-of-state companies • TDI can conduct audits who it deems impaired • TDI can assess guaranty fee (not more than $5.00) • TDI can limit impaired agents from issuing new policies • TDI can require funds to be held in trust for underwriters • TDI can obtain access to agent’s file to determine financial impairment

  27. Landlord – Tenant Legislation • Expanded rights of tenants who are subject to family violence to terminate residential leases (See Page 18 for discussion of expanded rights) • Expanded Smoke Detector requirements in residential tenancies for hearing-impaired tenants (may request hearing-impaired smoke detectors) • Considered a reasonable accommodation

  28. Landlord – Tenant Legislation (cont.) • If Landlord fails to repair a health and safety repair, then justice court may award damages to tenant (not to exceed $10,000) • Such proceedings are expedited (6 to 10 days after service) • The late fee provisions amended in 2007 were clarified that late fee may be charged if rent is not paid after 1 full day after rent is due

  29. Landlord – Tenant Legislation (cont.) • Guaranty of a residential tenant is limited to original lease term, • unless guarantor agrees to guarantee the renewal • Guaranty of renewal also requires lease to state the last date on which the renewal will renew the obligation of the guarantor • Guaranty of renewal is permissible only if renewal involves the same parties • Guaranty of renewal is permissible only if it does not increase potential financial obligation

  30. Homestead Legislation • Person can convey title to homestead to a “qualifying trust’ and not lose the homestead protection • Prospective only • Statute defines “qualifying trust” • Child Support lien will be treated same as judgment lien for purposes of homestead protection

  31. Foreclosure Legislation • Previously buyer at foreclosure sale was required to tender bid amount • Now trustee can agree to a reasonable time to produce the funds

  32. Mortgage Originator Legislation • HB 10 passed to comply with SAFE (Federal Secure and Fair Enforcement of Mortgage Licensing Act • Originator will be identified in the new Nationwide Mortgage Licensing System • Originator who is employee of depository institution is licensed by the banking agency; Other Originators are governed by their licensing agencies

  33. Mortgage Originators (cont.) • See definition of Originator and exclusions on Page 20 • Picks up Mortgage Bankers • Originators are subject to continuing education and must pay a recovery fund fee • The nationwide identifier will be disclosed on applications and other documents

  34. Condemnation Legislation • Provides for an amendment to the Texas Constitution that states that “public use” does not include taking property that will be transferred to a private entity for economic development or enhancement of tax revenue • Public Use is required for a governmental entity to have the right to exercise eminent domain

  35. Lis Pendens - Legislation • To file a lispendens, notice must be sent to all parties having an interest • Notified parties can move to expunge the lispendens • Requires court to expunge lispendens if pleading: • Does not contain a real property claim; • Fails to establish probable validity to the claim; or • Notices were not properly sent

  36. HOA Legislation • HOAs now required to issue updates to Resale Certificates within 7 days (limited to 180 days of original certificate) • If HOA fails to file management certificate in property records, then property owner is not liable for amounts owed to HOA for amounts before a transfer of the property • HOA that forecloses must give notice to lienholder and lienholder can redeem for the owner after 90 days but not exceeding 180 days after the foreclosure.

  37. TX Res. Construction Commission • TRCC was dissolved (“sunsetted”) in 2009 Legislative Session • As of 9-1-2009, TRCC no longer accepts complaints or requests for inspections • Complaints before 9-1-2009, processed by TRCC as it winds down.

  38. HOT TOPICS

  39. Earnest Money Disputes • If parties cannot agree on disbursement of EM after a contract has been terminated; one party may: • Follow procedures in Para. 18 of contract • Invoke mediation clause • Ask escrow agent to interplead • Seek assistance of counsel (maybe seek injunctive action)

  40. Earnest Money Disputes (cont.) • Para. 18 Procedures • Send written demand to Escrow Agent for EM • Escrow Agent will send copy of demand to other party • Escrow Agent may release EM if other party does not object within 15 days (automatically release Escrow Agent) • Mediation Procedures • Demanding party has to set up mediation • Costs shared equally • May need court to order mediation of other party is not cooperative

  41. Earnest Money Disputes (cont.) • Injunctive Relief or Interpleader • If EM is less than $10,000, may be able to resolve in JP • Prevailing party can recover costs and attorney fees • Probably need to attempt demands under Para. 18 first • May need assistance of counsel • Para. 18 entitles prevailing party to penalty up to 3 times of EM

  42. Failure to Document Amendments • Amendments, even if seemingly insignificant, should be documented • Oral extensions or amendments have been subject to litigation and are difficult to enforce • Relates to broker’s duty to be meticulous

  43. RESPA • New Rules effective 1-16-2009 • Third Party charges by title companies must be separately itemized and cannot exceed actual amounts • Settlement Service Providers can use an “average charge” for amounts billed by 3rd party service providers • Settlement Service Providers can offer combined services if price is lower than the sum of the individual services if use is voluntary (and therefore, not violate required use provisions)

  44. RESPA – Good Faith Estimate • Effective January 1, 2010, new GFE to be used • GFE to be provided with 3 days after application • GFE must be good for 10 days after issued • GFE is subject to tolerances; but origination fees and transfer tax have Zero tolerance • Tolerance apply if lender providers are used; but not if buyer chooses providers • Lender can cure any violation by reimbursement within 30 days

  45. Executory Contracts • Executory Contract (Contract for Deed or Lease/Purchase or Lease/Option) • Involves residence • Closing does not occur for 180 days • Possession by buyer • Additional Disclosures and Notices are Required • Significant Penalties apply to Noncompliance • Seek assistance of Counsel • Do not “warp” TREC or TAR forms for these types of transactions

  46. Unauthorized Practice of Law • TREC Rules set boundaries for brokers when negotiating contracts so as not to move into unauthorized practice of law • Unauthorized practice of law is a criminal act and carries significant penalties

  47. Unauthorized Practice of Law (cont.) • Licensees must use only TREC forms except: • When licensee is a principal • When Gov’t agency requires different form • When no form is promulgated and an attorney has drafted the form for that particular use • When form is prepared by property owner or his attonrney and required by property owner

  48. Unauthorized Practice of Law (cont.) • Licensees may not • Give legal advice (directly or indirectly) • Act as a public conveyancor • Give opinion as to the legal effect of a contract or instrument • Give opinion as to validity of title • Discourage person from seeking a lawyer • Prepare documents defining legal rights of parties

  49. Unauthorized Practice of Law (cont.) • When using standard forms, licensees may: • Fill in blanks • Add factual statements or business details (Para. 11) • If a promulgated addendum exists for a matter, the licensee must use it and not draft otherwise

  50. Unauthorized Practice of Law (cont.) • See Discussion on Page 27 and 28 on Common Issues concerning Standard Forms • Writing in 7D(1), “everything found in the inspection.” • Delivery of Option Fee • Escalation Clauses in Paragraph 11

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