Overview of the Bankruptcy Process for Landlords

Bankruptcy law is federal and bankruptcies are filed and litigated in federal court. Texas landlords who are accustomed to waltzing down to their local justice of the peace court to evict their tenants can be shocked and intimidated by the complexity and difficulty of dealing with a tenant who files for federal bankruptcy protection. As soon as that federal bankruptcy petition is filed, the Texas state courts no longer have jurisdiction to hear an eviction suit until either the bankruptcy stay is lifted or the bankruptcy case is dismissed. Many landlords handle simple evictions in Texas without an attorney, but generally no landlord should try to handle a bankruptcy case, or perform any collections activities against a tenant in bankruptcy, without an attorney.

Generally No Automatic Stay if Eviction Judgment Obtained Before Bankruptcy Filing Date. Generally, if the landlord obtains the eviction judgment, on residential property, before the bankruptcy filing date, then the eviction can proceed. 11 U.S.C. 362(b)(22) and (l). In Texas, the tenant cannot file a non-bankruptcy cure certificate under 11 U.S.C. 632(l), and so, the bankruptcy stay should not apply if the eviction judgment occurred before the filing of the bankruptcy petition.

Property endangerment or illegal use of controlled substances. Under 11 U.S.C. 362(b)(23), the landlord can file a certification that the tenant has endangered the property or used controlled substances on the property and the stay does not apply fifteen (15) days after the date that the certification is filed. 11 U.S.C. 362(b)(23), (m). If the debtor files an objection to the certification, then the stay does apply, but the Court must set the objection for hearing within ten (10) days from the tenant’s objection. 11 U.S.C. 362(m)(2)(B).

My Tenant Filed Bankruptcy, Now What? If none of the above rules apply, then the landlord needs to find out whether the tenant will assume or reject the lease. Outside of Chapter 7 (liquidation bankruptcy), the tenant can choose to assume or reject the lease up till the plan confirmation date. 11 U.S.C. § 365(d)(2). In Chapter 7, residential leases are deemed rejected after sixty (60) days of the filing of the bankruptcy petition. 11 U.S.C. § 365(d)(1). For nonresidential property, the deadline is the earlier of the confirmation date or 120 days from the bankruptcy filing date. 11 U.S.C. § 365(d)(4). If the tenant wants to assume the lease, then the tenant can do so regardless of ipso facto clauses, which attempt to draft around the bankruptcy rules. 11 U.S.C. § 365(b)(2). The tenant who wants to assume the lease must cure any default, other than unenforceable ipso facto defaults. 11 U.S.C. 365(b). The tenant may also need to compensate the landlord for any losses due to the default and provide adequate assurance that the lease will be performed in the future. Id. The tenant’s cure must be “prompt.” 11 U.S.C. § 365(b)(1)(A). The landlord’s idea of “prompt” and the bankruptcy court’s idea of “prompt” are probably different. In re Yokley, 99 B.R. 394 (Bankr. M.D. Tenn. 1989) (cure of pre-petition default on residential lease in Chapter 13 bankruptcy plan over a two-year period was not “prompt” when debtor failed to show any special circumstances that would justify a two-year cure period); In re Flugel, 197 B.R. 92, 97 (Bankr. S.D. Cal. 1996) (summarized caselaw on what length of time can be considered “prompt”). In at least one case “prompt” cure meant an immediate payment. In re Lafayette Radio Electronics Corp., 9 B.R. 993 (Bkrtcy.E.D.N.Y.1981); also see In re Urbanco, Inc., 122 B.R. 513, 519 (Bankr. W.D. Mich. 1991) (commencing monthly payments towards pre-petition arrearage six months later held not prompt enough). The landlord can file a motion to compel assumption or rejection of contract. See 1-15 Collier Consumer Bankruptcy Practice Guide p. 15.03 for more information.

Post-Petition Rent. The tenant is required to pay post-petition rent under 11 U.S.C. § 365(d)(3). If the tenant fails to pay post-petition rent, then the landlord should file a motion to lift stay or a motion to compel rejection of the lease. Section 365(d)(2) of the Bankruptcy Code allows the court, on the request of any party to the lease, to request that the lease be assumed or rejected within a “specified period of time,” probably ten (10) days from the date of the court’s order on the motion. On a motion to compel rejection of lease, the landlord should show breach (either pre-petition or post-petition, preferably both), undue delay by debtor in deciding to assume or reject, and prejudice to landlord caused by the delay. In re Physician Health Corp., 262 B.R. 290, 295 (Bankr. D. Del. 2001).

The Landlord Can Ask the Court to Give the Trustee a Deadline to Assume or Reject the Lease. “In a case under chapter 9, 11, 12, or 13 of this title, the trustee may assume or reject an executory contract or unexpired lease of residential real property or of personal property of the debtor at any time before the confirmation of a plan but the court, on the request of any party to such contract or lease, may order the trustee to determine within a specified period of time whether to assume or reject such contract or lease.” 11 U.S.C. § 365(d)(2).

Copyright 2017, Ian Ghrist, All Rights Reserved.

Disclaimer: This blog is for informational purposes only. Do not rely on any part of this blog as legal advice. Instead, seek out the advice of a licensed attorney. Also, this information may be out-of-date.

Probate Court Jurisdiction in Texas (Its a Mess)

Texas probate court jurisdiction is mind-boggling and yet eminently important. You can go all the way through a trial and have the judgment vacated solely because the Court of Appeals finds that the Trial Court did not have jurisdiction. “Subject matter jurisdiction exists by operation of law and cannot be conferred on a court by consent or waiver.” See Dubai Petroleum Co. v. Kazi, 12 S.W.3d 71, 76 (Tex. 2000). Lack of subject matter jurisdiction renders a judgment void rather than merely voidable. Mapco, Inc. v. Forrest, 795 S.W.2d 700, 703 (Tex. 1990).” Jeter v. McGraw, 218 S.W.3d 850, 853 (Tex. App.—Beaumont 2007) (court of appeals vacated the district court’s judgment on a partition lawsuit and dismissed the case because the case should have been brought in the probate court). The last thing that you want to happen is to win a big case in district or county court only to find out that your judgment is invalid because the case should have been tried in the probate court, or vice-versa.

Subject matter jurisdiction in probate and estate administration matters in Texas can be especially confusing and tricky. A major cause for confusion is that, in Texas, jurisdiction over probate and estate administration matters varies from county to county, which means that detailed research into the rules governing the particular county is necessary to determine jurisdictional issues for that county. You should not call the courts or the county clerk for advice. They are not likely to answer your questions. Even if they do answer your questions, you are still ultimately responsible for figuring these issues out on your own and you are not entitled to rely on any legal advice given by the county clerk’s office or any court staff.

Statutory Probate Courts, County Courts at Law Exercising Probate Jurisdiction (aka County Courts at Law with probate jurisdiction), and Constitutional County Courts (aka County Courts). As if the rules were not complicated enough already, the Texas Legislature has even named the probate courts in a highly confusing manner. For example, County Courts at Law are the same thing as Statutory County Courts, but not the same thing as Statutory Probate Courts, and Constitutional County Courts are also called simply County Courts, which means that a County Court is a completely different court from a County Court at Law. Under Tex. Gov’t Code § 25.0003, any statutory county court (aka “county court at law”) has original probate jurisdiction unless otherwise provided. You will want to check Title 2, Subtitle A, Chapter 25, Subchapter C of the Texas Government Code for any potential exceptions to the general rule that county courts at law have original probate jurisdiction. Also, you can generally check Subchapter C, starting at Tex. Gov’t Code § 25.0041, to see if your county has any statutory county courts or not. You can also generally use Subchapter C to find out whether your county has statutory probate courts or not. Every county in Texas has a constitutional county court (aka “county court”). See Tex. Gov’t Code § 21.009(1); Tex. Const. Art. 5 § 15; Tex. Gov’t Code § 26.041 et. seq. Each county has one County Judge who presides over the county court aka constitutional county court as well as the County Commissioners Court and the county itself. Tex. Const. art. 5 §§ 15, 16, 18.

With that out of the way, you can figure out probate jurisdictional issues by looking at whether (1) your county has a statutory probate court, (2) your county has no statutory probate court or county court at law exercising probate jurisdiction, or (3) your county has no statutory probate court, but does have a county court at law exercising probate jurisdiction. As explained above, most county courts at law do have probate jurisdiction, but you still have to check each county for any exceptions to this general rule.

(1) Your County Has a Statutory Probate Court. In this case, the statutory probate court generally has original and exclusive jurisdiction over any probate proceeding, except for the matters listed in Texas Estates Code § 32.007, which the district courts will have concurrent jurisdiction over. Tex. Estates Code § 32.005. The presence of concurrent jurisdiction can result in disputes over whether the statutory probate court or the district court has dominant jurisdiction. In re J.B. Hunt Transp., Inc., 492 S.W.3d 287, 294 (Tex. 2016) (generally the “court in which suit is first filed” has dominant jurisdiction and the other suit should be abated). The dominant jurisdiction rule applies when inherent interrelation of the subject matter exists in two pending lawsuits. Wyatt v. Shaw Plumbing Co., 760 S.W.2d 245, 247 (Tex. 1988). “It is not required that the exact issues and all the parties be included in the first action before the second is filed, provided that the claim in the first suit may be amended to bring in all necessary and proper parties and issues.” Id. In determining whether suits are inherently interrelated, a court should look at the feasibility of joinder (Tex. R. Civ. P. 39) and the compulsory counterclaim rule (Tex. R. Civ. P. 97(a)). Id. If there is a probate proceeding pending, then the district court generally should not interfere despite having coordinate jurisdiction. Hurtado v. De Jesus Gamez, No. 13-11-00354-CV, 2012 Tex. App. LEXIS 4510, at *10 (App.—Corpus Christi June 7, 2012). Matters related to a probate proceeding must be brought in the statutory probate court unless there is concurrent jurisdiction. Tex. Estates Code § 32.005.

(2) Your County Has No Statutory Probate Court or County Court at Law Exercising Probate Jurisdiction. Some small counties do not even have one county court at law, in which case there is probably no statutory probate court either, which leaves only the constitutional county court with probate jurisdiction. See Tex. Estates Code § 32.002. In this situation, the constitutional county court can refer contested cases to the local district court or request assignment of a probate judge under Tex. Gov’t Code § 25.0022, but you still have to first file your case in the constitutional county court before it can be transferred.

(3) Your County Has No Statutory Probate Court, But Does Have a County Court at Law Exercising Probate Jurisdiction. In this case, the county court at law and the county court have concurrent original jurisdiction of probate proceedings, unless otherwise provided by law. Tex. Estates Code § 32.002(b). In these counties, the county court or county court at law also has jurisdiction over the matters related to a probate proceeding listed in Tex. Estates Code § 31.002(b).

Definition of “Probate Proceeding” and “Matters Related to a Probate Proceeding.” The term “probate proceeding” as used in the Texas Estates Code is defined in Section 31.001 of the Code. Matters related to a probate proceeding include the matters listed in Section 31.002 of the Texas Estates Code.

Original Probate Jurisdiction and Jurisdiction Over Matters Related to the Probate Proceeding Rules. All probate proceedings must be filed an heard in a court exercising original probate jurisdiction. Tex. Estates Code § 32.001. The court exercising original probate jurisdiction also has jurisdiction of all matters related to the probate proceeding as specified in Section 31.002 of the Estates Code for that type of court. Id. Also, the court can exercise pendent and ancillary jurisdiction as necessary. Id. Finally, “The administration of the estate of a decedent, from the filing of the application for probate and administration, or for administration, until the decree of final distribution and the discharge of the last personal representative, shall be considered as one proceeding for purposes of jurisdiction” and the “entire proceeding is in rem.” Tex. Estates Code § 32.001(d). The original probate jurisdiction rules are found in Tex. Estates Code § 32.002.

Copyright 2017, Ian Ghrist, All Rights Reserved.

Disclaimer: This blog is for informational purposes only. Do not rely on any part of this blog as legal advice. Instead, seek out the advice of a licensed attorney. Also, this information may be out-of-date.

Memorandum of Contract

When a buyer in a real estate sales contract starts to think that the seller is getting cold feet, the buyer may want to file a “Memorandum of Contract” or “Memorandum of Agreement” in the county deed records to cloud title, put subsequent purchasers on constructive notice of the buyer’s equitable title, and ensure that the seller does not try to sell to another buyer. Tex. Prop. Code § 13.002; 12.001. The buyer can claim equitable title through the contract. See Johnson v. Wood, 138 Tex. 106, 157 S.W.2d 146 (1941). A good memorandum should “contain all of the essential elements of the agreement.” Crowder v. Tri-C Res., 821 S.W.2d 393, 396 (Tex. App.—Houston[1st Dist.] 1991). At a minimum, the memorandum should contain the names of the parties to the contract, a description of the property, the date of the contract, and a clause referring to the contract. Because the goal is to put subsequent buyers on constructive notice, the memorandum should contain as much information as possible, however, most people do not want to record the contract itself due to privacy considerations.

The buyer should file the memorandum of contract at his or her own risk. If the buyer and seller become embroiled in a dispute related to the sales contract and the buyer loses the dispute in Court, then the buyer could be liable for attorney’s fees, double and treble damages under the Texas Deceptive Trade Practices Act (“DTPA”) (if the property is the owner’s home), mental anguish, and any actual damages suffered by the seller. The buyer could also be looking at an Action on Fraudulent Lien or Claim under Chapter 12 of the Texas Civil Practices and Remedies Code and criminal liability if the memorandum is not filed in good faith or is not released in a timely manner when release becomes appropriate. Bowles v. State, 2006 Tex. App. LEXIS 7341, *2-3 (Tex. App.—Houston 1st Dist. Aug. 17, 2006). The buyer could also lose the corporate liability shield by filing a wrongful memorandum of contract because “A corporate agent is personally liable for his own fraudulent or tortious acts. The plain language of the DTPA is in harmony with this rule.” Miller v. Keyser, 90 S.W.3d 712 (Tex. 2002). The DTPA strangely defines “goods” as “tangible chattles or real property purchased or leased,” which makes the DTPA available in residential real estate cases.

Copyright 2017, Ian Ghrist, All Rights Reserved.

Disclaimer: This blog is for informational purposes only. Do not rely on any part of this blog as legal advice. Instead, seek out the advice of a licensed attorney. Also, this information may be out-of-date.