Real Estate

Co-Owning Property in Texas May Have Unforseen Issues

Posted by on Jul 11, 2014 in Real Estate | 0 comments

sam-moak

“THE LEGAL CORNER”

By Sam A. Moak

Co-Ownership of Property in Texas

The information in this column is not intended as legal advice but to provide a general understanding of the law. Any readers with a legal problem, including those whose questions are addressed here, should consult an attorney for advice on their particular circumstances.

 Occasionally I run into situations between unmarried individuals owning property together. This can be a result of two or more people purchasing property together, but more often it is a result of two or more people inheriting property from a deceased individual.

Attorneys often face co-ownership issues when advising on inheritance and probate avoidance. Inheritance in such cases may be determined by express language in a deed or a last will and testament, or in the absence of either, by intestacy provisions of the Estates Code. In some circumstances a co-owner may have no survivorship rights at all.

Texas real estate may be owned individually or jointly. Joint owners are called co-owners or cotenants, and the

relationship is known as a cotenancy. Texas law recognizes three forms of cotenancy: community property, joint tenants with the right of survivorship (JTWS), and tenants in common (TIC). In this article I will focus on TIC.

Co-ownership, regardless of the type, gives each cotenant the right to use, occupy and possess each part of the property, but not exclusively. Cotenants may not exclude other cotenants from possessing, using or occupying the same part or parcel. This undivided right of possession forms the basis of the cotenancy relationship. Cotenants may terminate the cotenancy at any time by

partitioning, which changes co-ownership to sole ownership. Partitioning divides the property according to value, not area, and may occur voluntarily or judicially. Voluntary partitioning requires an agreement among the cotenants to divide the property in a certain manner. After

exchanging deeds, each former cotenant owns a certain parcel outright.

 Judicial partitioning, on the other hand, is done by the court. If the court finds the property cannot be divided fairly and

equally, it orders the property to be sold with the proceeds divided among the owners according to their undivided interests. Judicial partitioning is a time-consuming, expensive process. Cotenants have the right to transfer their undivided interests to a third party without the other cotenants’ consent.

 Although co-owners share the nonexclusive right to use and possess the property, the legal relationship ends there. No cotenant is a legal partner or agent of the other. Except in limited circumstances, no cotenant has the authority to bind another cotenant to an agreement or a debt. No fiduciary duty exists among the cotenants unless an express agreement exists. However, cotenants do share some responsibilities.

This is often where problems arise between cotenants.

 Individually and collectively, cotenants have a duty to protect and preserve the property. A cotenant who expends funds

for this purpose is entitled to reimbursement from the others for their proportional share. Equity gives the cotenant making the expenditures a lien on the property to enforce repayment.

 Similarly, cotenants have a duty to preserve and protect the property from waste. Waste constitutes the unauthorized or wrongful destruction or severance of improvements, trees, minerals or other tangible property from the property. Waste does not include ordinary wear and tear. The party committing the waste becomes liable to the others for damages.

 Cotenants are responsible for the payment of a common debt, such as the mortgage and property taxes. A cotenant paying a disproportionate share of these debts may recover the costs from the others. Again, equity holds each cotenant equally liable, and all are bound to contribute proportionately according to their undivided interest. This raises some questions. Assume one cotenant pays all the property taxes for years and the others refuse to reimburse him or her. Rather than sue, the cotenant quits paying the taxes and purchases the property at the tax foreclosure sale. Does this give the cotenant sole title to

the land? The answer is no. Texas law presumes a cotenant purchasing the property at a tax sale does so for the benefit of all the cotenants. The purchaser simply reinstates the cotenancy relationship as it existed before the tax sale.

 Today’s column states just a few examples of the issues that can arise in cotenancy. Therefore, if you find yourself in a cotenancy relationship that is not working out, then you should consult an attorney for assistance.

 Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C. He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas.

www.moakandmoak.com

Read More

CONTRACTS FOR DEED – A BAD OPTION

Posted by on Dec 6, 2013 in Real Estate | 0 comments

“THE LEGAL CORNER”

By Sam A. Moak

 CONTRACTS FOR DEED – A BAD OPTION

 The information in this column is not intended as legal advice but to provide a general understanding of the law.  Any readers with a legal problem, including those whose questions are addressed here, should consult an attorney for advice on their particular circumstances.

 Occasionally I am still asked to prepare a Contract for Deed in order to facilitate the sale of some property.  This week I had the opportunity to review a transaction that involved a Contract for Deed.  Therefore, this week I wanted to revisit this topic and explain why this is a strongly disfavored method of transferring property. 

 In the past, a common method of seller financing was through a Contract for Deed.  In this transaction the seller and purchaser enter into an agreement that the purchaser will make payments over time and once a certain amount is paid the seller will  deed the property to the purchaser.  If you have previously or will be selling or purchasing property under a Contract for Deed, then you should be aware that the law regarding such transactions changed in September 2001 and recently there was another important change in how to proceed when there is a default under a Contract for Deed.

 First I will discuss the 2001 change. Effective September 1, 2001, Senate Bill 198 amended the Texas Property Code regarding Contracts for Deed.  This amendment applies to all contracts regardless of when they were entered into.  Again, if you are currently in a contract for deed, the following changes apply.

 Under the current law sellers now have to provide purchasers under a contract for deed a tax certificate from the tax assessor collector, proof of insurance coverage, and a current survey of the property. 

 Further, the law  now requires that a Seller’s Disclosure Notice be provided.  Such notice must inform the purchaser of the following:

 1)            Whether or not the property is in a recorded subdivision ;

2)            Whether or not the property has sewer service;

3)            Whether or not the property has water service;

4)            Whether the property has been approved for a septic system by the appropriate authority;

5)            Whether the property has electric service;

6)            Whether the property is in a floodplain;

7)            Who maintains the roads;

8)            Whether anyone else has an interest in the property;

9)            Whether any individual or entity has a lien filed against the property;

10)          The purchaser has the right to obtain a title abstract or title commitment to the property; and,

11)          The purchaser has the right to purchase a title policy to the property.

 Another important change is that the law now requires the seller to disclose to the purchaser, BEFORE the contract is signed, in a written statement, the price, interest rate, total amount of principal and interest that will be paid and the amount of any late charge. 

 Failure of the seller to provide any of the notices mentioned would be a violation of the Deceptive Trade Practices Act.  This could nullify the contract, subject the seller to penalties of up to $500 per day, and subject the seller to treble (triple) damages and attorneys fees for the violation. 

 Another important change affects the cancellation of the contract in the event of default.  In the past the law required written notice be by either mail or personal delivery to the purchaser.  The law now requires the seller to give written notice by certified or registered mail, return receipt requested.

 Under the old law, the amount of time a purchaser had to cure the default varied depending upon what percentage of the purchase price had been paid.  This ranged from 15 days to 60 days.  The law now provides that purchasers have 60 days to cure the default. 

 Perhaps a more significant development is related to what court has jurisdiction when there is a default under a Contract for Deed or a Lease with Option to Purchase.  Historically, these matters were handled in the Justice Courts (i.e., by the Justice of the Peace) as a forcible entry and detainer suit.  However, in Ward v. Malone, 115 S.W.3d 267 (Tex.App.-Corpus Christi-Edinburg 2003, pet. denied), the court held that in order to determine the right to possession, issues of title would have to be resolved; the Justice Court lacked jurisdiction to proceed with forcible entry and detainer actions because such actions involve the issue of tenants at sufferance; and, determining who has the right to possession and issues of title.  Thus, suits involving Contracts for Deed, and possibly Leases with Option to Purchase,  must be filed in District Court. 

 It seems obvious that our legislature and courts want to discourage the use of contracts for deed and to protect purchasers under such instruments.  This legislation and case law places a huge burden on the seller under a contract for deed with some very substantial penalties for non-compliance. These actions may very well do away with the use of contracts for deed.   

 If you have sold or purchased property under a contract for deed, then you should consult an attorney to see how these changes may have affected your rights and duties.   

 Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C.  He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas.

 

www.moakandmoak.com

 

Read More

THE IMPORTANCE OF THE “AS IS” CLAUSE IN EARNEST MONEY CONTRACTS

Posted by on Apr 26, 2013 in Real Estate | 0 comments

“THE LEGAL CORNER”

By Sam A. Moak

THE IMPORTANCE OF THE “AS IS” CLAUSE IN EARNEST MONEY CONTRACTS

The information in this column is not intended as legal advice but to provide a general understanding of the law.  Any readers with a legal problem, including those whose questions are addressed here, should consult an attorney for advice on their particular circumstances.

Unless you are in the practice of buying and selling real estate often, many of you may not be too familiar with the Earnest Money Contract.  An Earnest Money Contract is used in Texas when buying and selling property.  In such a contract both the buyer and the seller obligate themselves to buy and sell the property at some time in the future.  In order for the contract to be enforceable, it must be in writing and signed by all parties.

One of the more important sections of the Earnest Money Contract, Section 7, deals with the condition of the property and inspections of the property prior to closing.  It also deals with disclosures by the seller of the property’s condition, usually with an attached Property Condition Addendum.

In 1995 the Texas Supreme Court heard Prudential Insurance Company of America vs. Jefferson Associates Ltd.  This case has been the “gold standard” and gives real estate practitioners a set of rules to work with in resolving “as is” issues.

An “as is” issue deals specifically with the buyer’s acceptance of the property in a particular condition.  Many disputes have arisen over what was meant when the buyer signed a contract to accept the property “as is.”  The disputes usually revolve around the buyer discovering a defect in the property after they have signed the contract or sometimes concluded the purchase.  Based on the defect the buyer either wants out of the contract or wants the  seller to repair the defect.  The seller will argue that the buyer purchased the property “as is” and therefore refuse to cancel the contract or repair the defect.

What the courts call the “Prudential Rule” sets out the following conditions as prerequisites for an effective “as is” sale.  They are:

The Seller must disclose all known defects.  The “as is” clause would be ineffective and unenforceable if the purchaser is induced by the fraudulent misrepresentation or concealment of information.

The Seller cannot obstruct the buyer’s ability to inspect the property.

The “as is” clause must be an important basis of the bargain.  It cannot be an incidental provision or a part of the “boiler plate” of the provision.

The Purchaser and Seller must have relatively equal bargaining positions.

It is important to note that the “as is” clause protects real estate brokers. If a home owner has knowledge of a problem which should be disclosed, that knowledge is not imputed to the broker.  Additionally, the cases involving “as is” clause disputes are intensely fact driven.

If you are selling real estate, then it is imperative you disclose any defects you are aware of.  Failure to do so could result in lawsuit.

If you are buying real estate, then do not simply rely on the “as is” clause.  Have the property inspected by a professional.

If the buyer contracts to take property “as is” after inspection, they get what they bought if they had the opportunity to inspect, even if they did not find the problem.  This highlights the importance of having a professional inspector.  If you perform the inspection yourself, there are many items you may not catch, while a professional inspector will.

When selling or buying property you should make sure your agreement is in writing and that both parties understand  the “as is” clause.  Securing the services of an attorney to help prepare or review your Earnest Money Contract can help you understand the rights and duties of the seller.

Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C.  He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas.

www.moakandmoak.com

Read More

IS THERE A REASON I SHOULDN’T GIFT MY HOME?

Posted by on Feb 21, 2013 in Articles, Estate Planning, Real Estate | 0 comments

“THE LEGAL CORNER”

By Sam A. Moak

IS THERE A REASON I SHOULDN’T GIFT MY HOME?

The information in this column is not intended as legal advice but to provide a general understanding of the law.  Any readers with a legal problem, including those whose questions are addressed here, should consult an attorney for advice on their particular circumstances.

I recently had a phone conversation with a client asking if he really needed a Will. He explained that his mother had transferred her home to him many years before she died.  When she died, probate wasn’t necessary.  “Is there a reason why I shouldn’t do that?” he asked.

Our conversation brought to mind a story I read about a 98 year old woman who had been sent an eviction notice by one of her sons.  Mary Kantorowski has lived in her home since 1953, and intended to live there for the rest of her life.  But her son, to whom she had deeded the property, believed she was too old to live alone.  He wanted her to move into a nursing home or to live with him, something she didn’t want to do.

To force her hand, he sent her an eviction notice.  Mrs. Kantorowski was devastated.  She says she’s in good health and a judge has ruled her competent.  The son, who was trying to evict her, lives just 20 minutes away but had not seen her in 8 months.

Like the gentleman who contacted me, Mrs. Kantorowski likely had the best intentions.  Rather than having a Will drafted to pass the property after she died, she likely believed transferring her property during her lifetime would be less burdensome to her children. Unfortunately, by transferring the property to him, she relinquished control of it and exposed herself to some risk.

Besides giving up control of your property, below are a few more reasons why transferring property to your children during your life is not a good idea:

●             There may be gift tax consequences as a result of the transfer.

●             The transfer could prevent you from immediately qualifying for Medicaid for nursing home care if you transferred the property within five years of the date you apply for such benefits.

●             Your home could be exposed to your child’s creditors, and sold to satisfy a judgment against your child.

●             If your home has appreciated in value, your children may be exposed to significant capital gains tax when they sell it because they will assume your basis.  In contrast, if the home passes upon your death, your heirs get a stepped-up basis, which means that they will only be responsible for capital gains taxes if the property sells for more than the value on the date of your death.

●             The child to whom you deeded the property could unexpectedly die before you, and your home could be transferred to his or her heirs, who may not want you to live in the home.

Deeding your home to your kids before you die is risky and may result in unintended consequences.  The best way to ensure that your wishes are followed is to have a properly drafted Will or trust.

Estate planning techniques and tax laws are complex.  You should always consult with a qualified attorney and tax expert  to assist you in such matters.

Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C.  He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas.

www.moakandmoak.com

 

Read More

GRAVE CONSEQUENCES: 14th Court Says Graveyard Not Abandoned

Posted by on Aug 10, 2012 in Real Estate | 0 comments

Please click on the link to Texas Lawyer to read about Matt McCormick’s success in the above case!

Texas Lawyer Article 2012

Read More

Posted by on Dec 6, 2011 in Real Estate | 0 comments

“THE LEGAL CORNER”

By Sam A. Moak

Homeowners’ Insurance: The Devil Resides in the Details

The information in this column is not intended as legal advice but to provide a general understanding of the law.  Any readers with a legal problem, including those whose questions are addressed here, should consult an attorney for advice on their particular circumstances.

Reading and understanding all of the language in a homeowner’s insurance policy are not formalities to be skipped over while searching for the signature line.  As with any contract, the fine print can have real and lasting consequences, and its contents will control over any contradictory verbal assurances.  Taking the time to understand the terms of their policies might have headed off bad outcomes for homeowners in two recent cases.

Joan bought property consisting of a home, two barns, and other outbuildings.  She also purchased a homeowners’ insurance policy that excluded coverage for any nondwelling structure that was rented out “unless used solely as a private garage.”  Joan rented the barns to a commercial marina, which used them for storage of customers’ boats.  When one of the barns collapsed due to a storm, Joan submitted a claim for loss of the barn.

The insurer denied coverage, prompting Joan to point out that the rental exclusion should not apply because the marina was using the barn as a “private garage.”  Her point made sense as far as it went, but the insurer won because of a separate exclusion from coverage for any nondwelling “used in whole or in part for business purposes.”  Joan’s main occupation was a financial analyst, and she brought in only a few thousand dollars by renting out the barn.  But all that was necessary for the business purposes exclusion to apply was that the insured regularly engage in the conduct with an intent to profit.

It was significant for the court that, by failing to disclose her conduct, Joan had prevented the insurer from knowing the risks it was insuring.  The purpose of a business pursuits exclusion, after all, is to rule out coverage for a whole set of risks and liabilities flowing from business activity.  It did not matter that the damage to the barn was not caused by the boats that were stored there for profit.

At the heart of another dispute over homeowners’ insurance coverage was what turned out to be an erroneous assumption by the homeowners that “residents of your household” meant any persons living on the same parcel of land, even if in a different house.  In this case Ken and June lived in a home.  Their daughter, son-in-law and 10-year-old grandson lived rent-free in another house that was only 20 feet away and had the same mailing address.  The close-knit family often shared meals and activities, and Ken and June regularly cared for their grandson.

When the grandson accidently shot a playmate with a rifle, Ken and June submitted a claim under their homeowners’ policy, which covered “residents of your household who are your relatives.”  The insurance company succeeded in arguing that it had no obligation to defend the grandson in a suit for his friend’s injuries because he was not a resident of Ken’s and June’s household.

In legal terminology, a “household” is a collection of persons living together as a unit under one roof or within a single “curtilage.”  “Curtilage” is a technical term for the area next to a house that is inside the same enclosure, is used for the intimate activities of the house, and is protected from observation by passers-by.  The house where the grandson lived did not meet any of these criteria so as to make the grandson part of Ken’s and June’s “household.”  The four individuals in this case probably constituted a household in many respects and for many purposes, but not in the context of interpreting the homeowner’s insurance policy.

When entering a contract, particularly one prepared or furnished by another, it is a good idea to review the document carefully.  A better practice would be to have your attorney review the document for you.  Do not put yourself in the position of reviewing your contract after a problem or claim has arisen.  It may be too late.

Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C.  He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas.

www.moakandmoak.com

Read More