Proposal for New Eviction Rules Regarding Notices to Vacate and Title Issues

Notice to Vacate:

The notice to vacate in Texas tends to become the most pernicious part of eviction litigation for no good reason. Courts have found that defect in notice to vacate should cause a landlord to lose an eviction suit. Geters v. Baytown Hous. Auth., 430 S.W.3d 578, 586 (Tex. App.—Houston [14th Dist.] 2014); Onabajo v. Household Fin. Corp. III, No. 03-15-00251-CV, 2016 Tex. App. LEXIS 7454, at *14 (App.—Austin July 14, 2016). Tenant’s attorneys know this and often make minor, technical, immaterial defects in the notice to vacate their case-in-chief. The litigants, including the tenants, usually have no comprehension of why this matters so much, and especially why minor issues related to the notice to vacate can affect the end result of an eviction suit.

Worse yet, the tenant can blindside the landlord with trivial complaints regarding a notice to vacate only at the de novo trial held by the county court at law after a case has been appealed from the justice court. Eviction cases, in Texas, are designed to be handled primarily through the small claims process, typically without the involvement of attorneys. Accordingly, when an attorney handles a county court at law appeal of a justice court eviction, the attorney cannot go back and fix any issues with the prior notice to vacate.

This issue furthers the image that the general public has of lawyers and judges divorcing themselves from reality and operating in a world of their own where the merits of the case do not matter, where justice is a tertiary issue, and where the focus is on unimportant and unnecessary procedural details rather than the resolution of the dispute at hand. To remedy the situation, the rules should be fixed.

One simple way to fix the problem would be to pass legislation that would (1) require defendants in an eviction suit to raise complaints regarding the form, substance, or timeliness of a notice to vacate in an eviction suit by affirmative defense, (2) require that the affirmative defense state, with specificity, the defect in form, substance, or timeliness complained of, and (3) afford the landlord an opportunity to cure any defect complained of by the tenant prior to de novo trial in the county court at law. The details of this new law could be handled in various ways. The important object to accomplish would be to ensure that the landlord can cure any technical defect in the notice to vacate without losing his or her case in the county court at law, only to start all over again back at the justice court, where the case will inevitably be appealed a second time, only to be back in the county court again three or four months later on identical issues, thus, wasting everyone’s time and wasting judicial resources. Cases where the landlord loses in the county court at law on appeal due to issues with the notice to vacate only delay the inevitable and this delay causes substantial and unnecessary cost, attorney’s fees, and time. Justice and the reasonably prompt resolution of disputes are frustrated when these issues result in dismissal of suit, rather than some sort of cure opportunity being provided to the landlord.

No eviction suit tried de novo in the county court at law on appeal from the justice court should result in a judgment in favor of the tenant where the only grounds for the tenant to prevail are that some defect exists in the notice to vacate. By the time that the case goes to trial in the county court at law on appeal, the tenant has been occupying the property for several months after the notice to vacate was sent, thus, clearly getting far more three day’s notice that they need to vacate the premises. Also, at this point, the tenant clearly has notice that the landlord wants the tenant to vacate the premises because the parties have been litigating that exact issue all the way to an appeal. Instead of dismissal or judgment for the tenant, the landlord should be given an opportunity to cure any defect identified by the tenant in the tenant’s pleadings, and the case should be reset for trial after the cure period has ended. Furthermore, the tenant should be obligated to raise specifically the defect complained of, and not be able to blindside the landlord with the issue at the county court at law after failing to raise the issue in the justice court or in the pleadings.

The law on this should be similar to DTPA (“Deceptive Trade Practices Act”) notices where the remedy is to abate the case while the notice defect is cured. The remedy should not be dismissal of the case or judgment for the tenant. Neither of those results bears any proportionality whatsoever to the harm of a deficient notice to vacate. If a notice to vacate is deficient, then the landlord should have to cure the defect and the tenant should get a few extra days in the property while the defect is cured. The remedy of making the landlord and tenant start the entire eviction lawsuit process all over again from scratch is just nonsensical.

Title Issues:

When the question of entitlement to immediate possession of the premises depends on resolution of a title dispute, the justice of the peace courts (and county courts at law on appeal from those justice courts) lack jurisdiction. When the justice court lacks jurisdiction, the case gets moved to another court, typically a District Court. See our blog article on “Overview of the Eviction Suit Process in Texas” for more information.

When justice court eviction suit is moved to a district court due to a title issue, the parties should not be deprived of their right to a speedy determination on the right to immediate possession. In district court, a non-paying occupant with a barely non-frivolous title claim, or sometimes even an utterly frivolous title claim, can occupy the property for several years while the suit slowly awaits a trial setting that will just be continued multiple times before the trial finally occurs. In the meantime, the property condition deteriorates, the property taxes go unpaid, the property becomes uninsured and subject to loss due to fire or other casualty, the property gets condemned by the City, the non-occupying owners fail to maintain the property, etcetera. When a non-paying occupant knows that he will lose the property at trial, he fails to care for the property, which leads to irreparable damage. The non-paying occupant is invariably judgment-proof or he would be paying for use of the property. Instead, the District Court should have authority to make a speedy determination as to the right to immediate possession and enforce it by appropriate pre-trial orders. In the event that a justice court cannot issue a determination on the issue of possession, then the party whose request for possession has been moved to district court should be able to set a pre-trial motion for interlocutory relief on the issue of possession, and at such hearing, the district court should also have authority to enter appropriate rent orders. For example, if a co-tenant owning 50% of the subject property seeks either possession or pro rata rent due to an ouster, then a justice court will likely refuse to hear the matter because the ouster is arguably a matter of title. When the non-occupying co-tenant re-files that possessory suit in district court, he should be able to set a motion for interlocutory relief on the issue of possession. The district court should set the matter for hearing within sixty (60) days of the filing of the motion, unless the filing party consents to a continuance. At the hearing, if the district court does not award possession to the party filing the motion, then the district court should have the authority to compel the party occupying the property to pay pro rata rent into the court’s registry, or to the party not in possession, pending final trial and authority to compel the occupant to pay the property taxes, keep the property insured, and adequately maintain the property pending trial. The current situation where occupants can use a frivolous or barely non-frivolous title dispute as an excuse to live rent-free in property for years at a time is inappropriate.

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.

Amending Pleadings in the County Court at Law on Appeal from Small Claims Court

When a small claims case is appealed from the Justice Court (aka the Small Claims Court) to the County Court at Law, the parties tend to get serious about the litigation. Often, attorneys do not get involved until the case has been appealed to the County Court at Law from the Small Claims Court. The attorney who takes on a small claims appeal often finds that the pro se pleadings have numerous errors or deficiencies, most of which may be harmless in small claims court where the rules of evidence and procedure do not technically apply, but which may cause serious problems in the County Court at Law where the procedural rules can win or lose a case. There are, however, serious limits on what the attorney can do, on appeal, to fix these issues.

Generally, the pleadings can be amended on appeal, but new grounds for recovery cannot be added. Lost Creek Ventures, LLC v. Pilgrim, No. 01-15-00375-CV, 2016 Tex. App. LEXIS 6974, at *21-23 (App.—Dallas June 30, 2016); Richard v. Taylor, 886 S.W.2d 848, 851 (Tex. App.—Beaumont 1994); Carnegie Homes & Constr. LLC v. Turk, No. 14-16-00260-CV, 2017 Tex. App. LEXIS 8607, at *7-8 (App.—Houston [14th Dist.] Sep. 7, 2017). The rule has been stated as “new matters may be plead, but no new grounds of recovery may be added.” Merrikh v. Hernandez, NO. 01-98-00111-CV, 1999 Tex. App. LEXIS 9153, at *6-7 (App.—Houston [1st Dist.] Dec. 9, 1999). The boundaries of this general rule are somewhat unclear right now because the rule used to be found in Tex. R. Civ. P. 574a, which was repealed in 2013. How the law will change, if at all, based on the repeal of Tex. R. Civ. P. 574a, remains unclear. Generally, the county court’s appellate jurisdiction is confined to the limits of the justice court’s jurisdiction. Kendziorski v. Saunders, 191 S.W.3d 395, 406 (Tex. App.—Austin 2006, no pet.). However, this jurisdictional limit does not apply to amounts “sustained as a result of the passage of time.” Id. at 409.

Where the general rule is violated and a litigant brings claims in the county court at law that go beyond the limits of the small claims court, the proper remedy is not to dismiss the claims, but rather to sever them. Richard v. Taylor, 886 S.W.2d 848, 851 (Tex. App.—Beaumont 1994). If a party was not a party in the justice court, then the party is not a proper party to the appeal in the county court and claims involving such party should be severed from the justice court appeal. Merrikh v. Hernandez, NO. 01-98-00111-CV, 1999 Tex. App. LEXIS 9153, at *6-7 (App.—Houston [1st Dist.] Dec. 9, 1999).

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.

Pitfalls of Buying Occupied Property

The more savvy real estate investors tend to have a hard rule against buying occupied property unless the occupant signed a written lease agreement, the seller had a detailed payment ledger, and there is a transferable security deposit. Even then, best practice would be to also personally ask the tenant whether the tenant claims any interest in the property other than a leasehold. The buyer should also possibly put the request in writing or get the tenant to sign a waiver or release of any title claims. Real estate wholesalers often think that they can get a steal of a deal by offering to evict a non-paying occupant for a beleaguered seller. However, this road often leads to problems bigger than the buyer anticipates.

The problems arise from claims that the occupant may have to the property. If you look at Schedule B to your owner’s title policy from your title insurance company of choice, then you will probably find language similar to the following: “We do not cover loss, costs, attorney’s fees and expenses resulting from . . . [t]he following matters and all terms of the documents creating or offering evidence of the matters (we must insert matters or delete this exception): . . . Rights of parties in possession.” So, your title company will not cover any claims raised by anyone who is in possession of the property at the time that you purchase the property. Bet you wish you knew that when you bought your title insurance? But alas, most people do not read their policy, would not understand it even if they did read it, and their escrow officer or title agent probably put little to no effort into explaining what the policy does and does not cover. Knowledge is power and if you know what types of title disputes you cannot insure against, then you can take steps to protect yourself from those types of disputes.

To understand what you need to do to protect yourself since your title company will not protect you, the best case to review is Madison v. Gordon, 39 S.W.3d 604, 606 (Tex. 2001): “One purchasing land may be charged with constructive notice of an occupant’s claims. This implied-notice doctrine applies if a court determines that the purchaser has a duty to ascertain the rights of a third-party possessor. See Collum v. Sanger Bros., 98 Tex. 162, 82 S.W. 459, 460 (Tex. 1904); American Surety Co., 82 S.W.2d at 183. When this duty arises, the purchaser is charged with notice of all the occupant’s claims the purchaser might have reasonably discovered on proper inquiry. Dixon v. Cargill, 104 S.W.2d 101, 102 (Tex. Civ. App.–Eastland 1937, writ ref’d); see also Flack, 226 S.W.2d at 632. The duty arises, however, only if the possession is visible, open, exclusive, and unequivocal.” Madison, 39 S.W.3d 604. The form of constructive notice described here is known as “inquiry notice,” which is notice of claims that one could discover through reasonable inquiry made to the occupant of the property.

Generally, a bona fide purchaser of real property for value (“BFP”) will acquire the property free of any unrecorded claims. Texas has codified BFP doctrine at Tex. Prop. Code § 13.001.

Madison is a fascinating case in the Texas Supreme Court where the Court of Appeals found that the occupancy of a guy who “resided on the property, had possession of the premises, and collected rents on the property before and after [the BFP’s] purchase” of the property defeated the BFP’s claim to the property due to his occupancy. Gordon v. Madison, 9 S.W.3d 476, 480 (Tex. App.—Houston [1st Dist.] 2000). The Court of Appeals found that “even minimal inquiry by [the BFP] would have made her aware of Gordon’s claim, either by Gordon himself or the tenants who were paying rent. A purchaser who fails to make reasonable inquiry is charged with notice of all claims and facts that the inquiry would have disclosed . . . . Gordon’s residence on the property, his possession of the premises, and his past and continuing collection of rents established constructive notice to [the BFP] as a matter of law. We therefore conclude that Gordon disproved [the BFP’s] affirmative defense of good faith purchaser status as a matter of law . . . .” Id. Amazingly, the Texas Supreme Court reversed the Court of Appeals because the Supreme Court found that Gordon’s possession of the property was not exclusive or unequivocal. Madison v. Gordon, 39 S.W.3d 604, 607 (Tex. 2001). In reversing the Court of Appeals and rendering judgment in favor of the BFP, the Supreme Court seemed to assign great weight to the fact that the property was a multi-unit rental property. Accordingly, Gordon’s occupancy was “compatible with [the record title holder’s] assurances of ownership” because “[a]s a rental property, one would expect occupants on the property.” Id. Seemingly, the mere fact that a property is a rental property is enough to defeat an occupant’s inquiry notice claim, even where the occupant is residing in the property and collecting rents from the other occupants. In Madison, the occupant’s possession was “‘ambiguous or equivocal possession which may [have] appeared subservient or attributable to’ [the owner of record].” Id.; Strong v. Strong, 128 Tex. 470, 479, 98 S.W.2d 346, 350 (1936).

Equitable Title. Counter-intuitively, the State of Texas gives buyers under an executory contract for purchase of real property an ownership interest in the property called “equitable title.” See Johnson v. Wood, 138 Tex. 106, 157 S.W.2d 146 (1941). So, in Texas, if you sign a contract as a buyer, or even just an option agreement, or a lease-option, then you arguably have “equitable title,” which you can convert to official, legal title by suing on the contract within the limitations period (generally four years from contract execution date). See New York & T. Land Co. v. Hyland, 8 Tex. Civ. App. 601, 604 (Tex. Civ. App. Austin 1894). So, non-real estate attorneys might assume that anyone without a deed to property cannot be the owner of that property.  Life would be easier if that were true.

In conclusion, the primary concerns for the buyer of occupied property are whether the occupant has an option to purchase the property; an executory contract to purchase the property, i.e., a contract to buy the property that remains open because the deadlines have not passed yet or payments remain to be made, or for whatever reason, the right to purchase the property may possibly still exist; or any other unrecorded claim of ownership to or interest in the subject property. The savy buyer needs to worry about every potential claim of an occupant, regardless of whether the claim is valid or not. Even an occupant who has clearly defaulted on an executory contract can claim equitable title through “substantial performance” (See 18-270 Dorsaneo, Texas Litigation Guide § 270.22 (2017); O.W. Grun Roofing & Constr. Co. v. Cope, 529 S.W.2d 258, 261–262 (Tex. Civ. App.—San Antonio 1975, no writ) or through application of the contract-for-deed regulations (see Subchapter D, Chapter 5 of the Texas Property Code).

The reason that the buyer needs to worry about invalid claims as well as valid claims is that the presence of any claim, whether valid or not, can deprive the Justice of the Peace Courts of jurisdiction over an eviction suit. See Espinoza v. Lopez, 468 S.W.3d 692, 696-97 (Tex. App.—Houston [14th Dist.] 2015, no pet.). An eviction, from start to finish, in a Texas Justice of the Peace Court (“JP Court”) can end in under sixty days, easily. The owner of property seeking to evict an occupant in JP Court generally does not even need the help of an attorney. If, however, a title dispute exists, even a title dispute where the occupant has little chance of success on the merits, then the JP Court lacks jurisdiction and will dismiss the eviction suit.

At this point, the owner of the property will need to turn to higher courts to have the occupant evicted. In those higher courts, either a county court at law or a district court, the case will probably have a Level Two Discovery Control Plan (See Tex. R. Civ. P. 190.3), which means that there will be a nine (9) month long discovery period followed by a trial that may be reset multiple times. The owner will be lucky to have the occupant evicted within a year. In the meantime, the judgment-proof, deadbeat occupant will simply occupy the property for free unless the record owner can get the occupant evicted before trial through an injunction. Pre-trial injunctions, however, are very hard to get and are not granted easily. Most importantly, the time and effort, from an attorney’s fees standpoint, between getting an occupant evicted in a district court versus a JP Court is vast. Many attorneys will handle JP Court evictions for a relatively small flat fee or the record owner can handle the JP Court eviction themselves. In a district court, however, the owner definitely needs an attorney to ensure compliance with the Texas Rules of Evidence and Procedure and the attorney will probably demand a substantial retainer with an hourly billing arrangement because quoting a flat fee for a district court lawsuit is extremely difficult due to the extreme open-endedness of district court litigation where the parties can bring all manner of counter and cross-claims and argue over nearly every bit of minutia. Also, predicting the amount of pre-trial hearings, depositions, discovery, legal research, briefing, factual research, mediation, and other time-consuming matters in district court is nigh impossible in most instances.

The prudent buyer will take every possible step to avoid getting into a situation where an occupant in the property to be purchased may have any sort of claim against the property. This means making adequate inquiry and obtaining adequate assurances from the seller that the seller has good and marketable title that is superior to and consistent with any of the occupant’s claims.


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.

How to Deal With a Lender That Does not Provide a Payoff Quote or Lien Release

Dealing with lenders that are slow or unresponsive to requests for payoff quotes and lien releases can be one of the most frustrating and obnoxious parts of a real estate transaction. Borrowers have several laws to rely upon to induce and incentivize their lenders to provide payoff statements and lien releases in a timely and reasonable manner.

Texas State Law. Under Section 349.003 of the Texas Finance Code, a person who fails to perform a requirement imposed upon that person by Subtitle B of Title 4 of the Texas Finance Code “is liable to the obligor for an amount that does not exceed an amount computed under one, but not both, of the following:

(1)  three times the actual economic loss to the obligor that results from the violation; or

(2)  if the violation was material and the violation induced the obligor to enter into a transaction that the obligor would not have entered if the violation had not occurred, twice the interest or time price differential contracted for, charged, or received, not to exceed:

(A)  $2,000 in a transaction in which the amount financed does not exceed $5,000; or

(B)  $4,000 in a transaction in which the amount financed exceeds $5,000.”

Also, anyone liable under this statute is liable for “reasonable attorney’s fees set by the court.” Tex. Fin. Code § 349.003(b).

Section 343.106 of the Texas Finance Code provides that the Texas Finance Commission shall promulgate rules related to payoff statement requests. The Texas Finance Commission promulgated such rules in Chapter 155 of Part 8 of Title 7 of the Texas Administrative Code.

Under 7 T.A.C. § 155.2, payoff statement requests should be in writing, in accordance with lender designations, and should include, at a minimum, the name of the mortgagor, the physical address of the collateral, and the proposed closing date of the loan. Upon receipt of a proper payoff request, the mortgage servicer must deliver a payoff statement by the “eighth business day after the date the request is received unless federal law requires a shorter response time.” 7 T.A.C. § 155.3.

Actual damages for failure to provide a payoff statement need to be proven up by something more than mere speculation or conjucture and must be arrived at “by reference to some fairly definite standard, established experience, or direct inference from known facts.” Household Fin. Corp. III v. DTND Sierra Invs., LLC, No. 04-13-00033-CV, 2013 Tex. App. LEXIS 13649, at *20 (App.—San Antonio Nov. 6, 2013). This can be a tricky part of getting damages for a wrongful refusal to provide a payoff statement. The owner of property can testify to the value of the owner’s property, but must explain the basis for the owner’s valuation and the basis cannot be speculative or conjectural. Id. at *31.

A mortgagee’s refusal to provide a payoff quote is not an affirmative misrepresentation of the amount of the debt under Section 392.304(a)(8) or (19) of the Texas Finance Code, i.e., the Texas Fair Debt Collection Practices Act. Verdin v. Fannie Mae, 540 Fed. Appx. 253, 2013 U.S. App. LEXIS 16982 (5th Cir. Tex. 2013, no pet. h.).

Federal Law. Under 15 U.S.C. § 1639g, “A creditor or servicer of a home loan shall send an accurate payoff balance within a reasonable time, but in no case more than 7 business days, after the receipt of a written request for such balance from or on behalf of the borrower.” The aggrieved borrower under 15 U.S.C. § 1639g can get damages under 15 U.S.C. § 1640(a)(1)–(3), but not (a)(4). So, actual damages plus statutory damages in the range, and attorney’s fees and court costs, but not “an amount equal to the sum of all finance charges and fees paid by the consumer.”

Title Company Affidavit as Release of Lien. Under Section 12.017 of the Texas Property Code, a title company can, in accord with the statute, file an affidavit as a release of lien if the mortgagee fails to provide a timely release of lien following the provision of a payoff statement that was complied with.

Criminal Law. Under 15 U.S.C. § 1611, anyone who willingly and knowingly fails to provide information that is required to be disclosed “shall be fined not more than $5,000.00 or imprisoned not more than one year, or both.” This is a criminal statute. Getting a federal law enforcement official or prosecutor interested in this is probably not very easy unless the circumstances are extremely egregious.

Under Tex. Penal Code § 32.49, the refusal to release a fraudulent lien, as described by Tex. Gov’t Code § 51.901(c), upon request can be a Class A misdemeanor. Also see Bowles v. State, No. 01-04-00801-CV, 2006 Tex. App. LEXIS 7341, at *2 (App.—Houston [1st Dist.] Aug. 17, 2006).

A fraudulent lien can give rise to civil liability of the greater of $10,000.00 or actual damages, plus court costs, attorney’s fees, and exemplary damages, but refusal or failure to provide a lien release following a payoff may not qualify as a fraudulent lien for purposes of Tex. Civ. Prac. & Rem. Code § 12.002 because the lien was not fraudulent when filed. However, the statute does prohibit making, presenting or “use” of a document with knowledge that the document is a fraudulent lien or claim, so there may be scenarios where the statute could be applicable to the refusal or failure to provide a lien release. Tex. Civ. Prac. & Rem. Code § 12.002.

Refusing to release a lien can also be considered slander of title. Tarrant Bank v. Miller, 833 S.W.2d 666, 667 (Tex. App.—Eastland 1992).

The lender’s failure to provide the payoff statement or release of lien is also going to be a plain old breach of contract claim. The wrongful lien also clouds title, so the borrower could file a suit to quiet title under the declaratory judgment statute and get attorney’s fees for prosecution of a declaratory judgments action.

Suit to Remove Cloud on Title in the Form of Unreleased Lien Not a Trespass to Try Title Suit. Attorney’s fees are not generally available in a trespass to try title case. Trespass to try title cases involve possession of property. Skalak v. Book, No. 03-11-00595-CV, 2012 Tex. App. LEXIS 8226, at *22 (App.—Austin Sep. 26, 2012). Non-possessory suits, like a suit to remove a cloud upon title caused by an unreleased lien, would accordingly likely qualify for recovery of attorney’s fees under the Texas Uniform Declaratory Judgments Act.

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.

Foreclosures in Texas

Texas allows nonjudicial foreclosure under a power of sale granted by a deed of trust for most real estate loans. Nonjudicial foreclosure is not available in Texas for certain loan types, like home equity loans and property tax loans. When nonjudicial foreclosure is unavailable, the foreclosure must be done through either judicial foreclosure or an Expedited Foreclosure Proceeding under Texas Rule of Civil Procedure 736. In a judicial foreclosure, a lawsuit must be filed, and the plaintiff’s petition in the lawsuit must ask the Court to grant an order for foreclosure. This is the slowest and most cumbersome method of foreclosure because the case will likely not go to trial for several months or years.

To expedite the process, some loans, like home equity loans under Article XVI Section 50(a)(6) of the Texas Constitution, or reverse mortgages under Article XVI Section 50(a)(7), can be foreclosed in an Expedited Foreclosure Proceeding under Rules 735 and 736 of the Texas Rules of Civil Procedure. The Expedited Foreclosure Proceeding is also known as a Quasi-Judicial Foreclosure because the proceeding bears little resemblance to an actual lawsuit. For example, personal service on the respondent is not required. Instead, all the petitioner needs to do under Rule 736 is mail the application for foreclosure to “each party who, according to the records of the holder of the debt is obligated to pay the debt.” Tex. R. Civ. P. 736(2)(A). Also, no discovery is allowed, the issues that can be raised are strictly limited, and the Court must hold a final hearing on the application within ten business days after a request for hearing by either party. Tex. R. Civ. P. 736(6), (7).

The nonjudicial foreclosure process is governed by Section 51.002 of the Texas Property Code entitled “Sale of Real Property Under Contract Lien.” Generally, the process involves filing a notice of sale with the county clerk’s office and posting it at the courthouse door. Then, on the first Tuesday of the following month, the property is sold at a live auction on the courthouse steps. The trustee conducting the sale will typically open the bidding with a credit bid on behalf of the noteholder. While the trustee may credit bid for the mortgagee, the “trustee is only responsible to the mortgagee in the mortgagee’s capacity as a creditor interested in satisfying the debt out of the proceeds of the sale; he is not responsible to the mortgagee in the capacity as a purchaser seeking to purchase the property for less than its fair value in opposition to the mortgagor’s interest.” Bonilla v. Roberson, 918 S.W.2d 17, 22 (Tex. App.—Corpus Christi 1996). The noteholder’s bid is referred to as a “credit bid” because the noteholder does not actually need to pay for the bid. The noteholder can bid up to the amount owed to the noteholder without needing to pay out-of-pocket since the funds would go to itself. If the credit bid wins the auction, then the creditor becomes the owner of the property. The buyer at the sale should be prepared to pay in certified funds on the spot. The purchaser at the sale acquires the property “as is,” without warranties, and at the purchaser’s own risk. Tex. Prop. Code § 51.009. Also, the purchaser cannot be considered a “consumer” for purposes of consumer-protection laws like the Texas Deceptive Trade Practices Act. Tex. Prop. Code § 51.009.

Grounds for a Wrongful Foreclosure Suit. Failure to send notice of sale as per Tex. Prop. Code § 51.002 is sufficient reason for a trial court to set aside a foreclosure sale and hold the sale to be void. Shearer v. Allied Live Oak Bank, 758 S.W.2d 940, 942 (Tex. App.—Corpus Christi 1988); Houston First American Sav. v. Musick, 650 S.W.2d 764, 768 (Tex. 1983); WTFO, Inc. v. Braithwaite, 899 S.W.2d 709, 720–721 (Tex. App.—Dallas 1995, no writ). Junior lienholders are generally not entitled to receive notice of non-judicial foreclosure sale in Texas. Elbar Invs., Inc. v. Wilkinson, No. 14-99-00297-CV, 2003 Tex. App. LEXIS 8182, at *6 (App.—Houston [14th Dist.] Sep. 23, 2003). Some mistakes, like sending foreclosure notices to the wrong address, can be grounds for undoing the foreclosure sale. Mills v. Haggard, 58 S.W.3d 164, 166 (Tex. App.—Waco 2001) (foreclosure sale set aside because loan servicing company had debtor’s new address, yet notices went to debtor’s old address and debtor did not receive them). The foreclosure notices must go to the debtor’s last known address. Tex. Prop. Code § 51.002(e); Tex. Prop. Code § 51.0001(2) (defining “last known address”). Other mistakes, like calculating the amounts due incorrectly, may be insufficient grounds for rescinding the foreclosure sale. Powell v. Stacy, 117 S.W.3d 70, 75–76 (Tex. App.—Fort Worth 2003, no pet.). The terms of the deed of trust must be strictly followed in the conduct of the sale and notices in connection with the sale. Univ. Sav. Asso. v. Springwoods Shopping Ctr., 644 S.W.2d 705, 706 (Tex. 1982).

Effect of Grossly Inadequate Price on Wrongful Foreclosure Suit. Failure to send the required residential notice to cure invalidates a subsequent notice of sale, particularly when the property is sold for a grossly inadequate price. Mills v. Haggard, 58 S.W.3d 164, 167 (Tex. App.—Waco 2001). “[T]he rule is well established that mere inadequacy of consideration is not grounds for setting aside a trustee’s sale if the sale was legally and fairly made. Tarrant Savings Association v. Lucky Homes, Inc., 390 S.W.2d 473 (Tex. 1965). There must be evidence of irregularity, though slight, which irregularity must have caused or contributed to cause the property to be sold for a grossly inadequate price. Sparkman v. McWhirter, 263 S.W.2d 832, 837 (Tex. Civ. App.—Dallas 1953, writ ref’d).” Am. Sav. & Loan Ass’n v. Musick, 531 S.W.2d 581, 587 (Tex. 1975); Also see Diversified Developers, Inc. v. Tex. First Mortg. Reit, 592 S.W.2d 43, 45 (Tex. Civ. App.—Beaumont 1979). For example, when properties were sold in bulk instead of individually and the individual sale may have resulted in repayment of the debt, the bulk sale constituted an irregularity that could have caused a grossly inadequate price and the foreclosure sale was void. Stanglin v. Keda Dev. Corp., 713 S.W.2d 94, 95 (Tex. 1986).

Acceleration of the Underlying Indebtedness on the Promissory Note. Many creditors do not fully understand the importance of the acceleration clause in the note and deed of trust. A typical promissory note provides for installment payments over time. Those payments are not due until the payment obligation matures by the passing of the payment due date. When a promissory note is accelerated, all of the remaining payments mature immediately. Unless a note has accelerated or matured, the creditor cannot demand payment for the full remaining principal balance due on the note. Instead, the creditor can only demand payment for the installments that have matured. The statute of limitations on the debt begins to run upon each installment as the installment matures. Tex. Civ. Prac. & Rem. Code § 16.035(a), (b). The statute of limitations does not run on the remaining balance of the note until the note matures or is accelerated. Hammann v. H.J. McMullen & Co., 122 Tex. 476, 62 S.W.2d 59, 61 (1933); Burney v. Citigroup Global Markets Realty Corp., 244 S.W.3d 900, 903–04 (Tex. App.—Dallas 2007, no pet.); Tex. Civ. Prac. & Rem. Code § 16.035(e) (limitations, in Texas, do not start running until acceleration or final maturity of the note). The creditor can, however, abandon or rescind acceleration any time, unilaterally, by notice. Tex. Civ. Prac. & Rem. Code § 16.038. Until Tex. Civ. Prac. & Rem. Code § 16.038 was enacted in 2015, there was some confusion about whether the statute of limitations could be reset by unilateral action of the creditor. Leonard v. Ocwen Loan Servicing, L.L.C., 616 F. App’x 677, 678 (5th Cir. 2015); Callan v. Deutsche Bank, 93 F. Supp. 3d 725, 727 (S.D. Tex. 2015). In the context of foreclosures, acceleration is eminently important because every creditor wants to credit bid at the foreclosure auction. If the loan is not matured or accelerated, then the creditor is, at least arguably (depending on the terms of the note and deed of trust, conduct of the parties, and other circumstances), barred from credit bidding the full remaining balance due on the note at the foreclosure auction. Accordingly, best practice for creditors is to always treat the acceleration process as a very important prerequisite to foreclosure.

Accepting the Arrearage to Cure Default Before Foreclosure. Many creditors are willing to accept the arrearage rather than the accelerated balance, plus attorney’s fees, before the foreclosure sale to reinstate the loan. Some Government-Sponsored Enterprises (GSEs) loan documents require the creditor to give various cure options to the borrowers. While the creditor, upon acceleration, may foreclose unless the entire note is paid off in full, the creditor can also waive acceleration and reinstate the loan. Lots of caselaw exists regarding waiver of acceleration or loan workouts and other negotiations with the borrowers. Best practice would be to put any agreements with or offers to the borrower in writing and to make those offers or agreements as clear as possible. If, for example, the borrower raises half of the funds necessary to cure the arrearage and promises to raise the remaining funds within thirty (30) days, and the lender is willing to accept the arrearage in lieu of the accelerated balance, but is willing to delay the foreclosure sale by only one month, then an agreement to delay the sale by one month in exchange for half of the arrearage now and to accept the remaining arrearage to cure default if paid within thirty (30) days, without waiving acceleration, should be put into writing to avoid any confusion. In a wrongful foreclosure lawsuit, clarity and simplicity tend to help the lender. Confusion and complexity open the door for the debtor to make all manner of equitable arguments regarding waiver or estoppel or other legal theories for avoiding the terms of the promissory note, deed of trust, and acceleration notices. When negotiating, the creditor should make clear to the debtor that the negotiations do not result in waiver of acceleration. Still, the creditor should work with the borrower. The creditor should not ignore the borrower or refuse to negotiate solely because the creditor is worried about miscommunications or equitable arguments subsequently raised by the borrower. The creditor who refuses to negotiate a default cure option with the borrower puts itself at greater risk of lawsuits than the creditor who negotiates default cure in good faith.

The Twenty (20) Day Cure Letter. Section 51.002(d) of the Texas Property Code states that “Notwithstanding any agreement to the contrary, the mortgage servicer of the debt shall serve a debtor in default under a deed of trust or other contract lien on real property used as the debtor’s residence with written notice by certified mail stating that the debtor is in default under the deed of trust or other contract lien and giving the debtor at least 20 days to cure the default before notice of sale can be given under Subsection (b).” The Subsection (b) notice is the public notice of sale that must be posted at the courthouse door and filed in the county clerk’s office. The twenty-day cure letter is a requirement that is separate and apart from any requirement to give notice of intent to accelerate and notice of acceleration. The twenty-day cure letter can, however, be combined with the acceleration notices.

Doing Acceleration the Right Way. Notice of intent to accelerate must be unequivocal, and even stating that failure to cure breach “may result in acceleration” is insufficient. Ogden v. Gibraltar Sav. Ass’n, 640 S.W.2d 232, 234 (Tex. 1982). The notices must not only state that the account is in default, but also demand payment for the delinquent installments. Tamplen v. Bryeans, 640 S.W.2d 421, 422 (Tex. App.—Waco 1982, writ ref’d n.r.e.). A proper acceleration notice should contain language tantamount to advising the debtor that the “entire debt [is] immediately due and payable.” EMC Mortg. Corp. v. Window Box Ass’n, 264 S.W.3d 331, 337 (Tex. App.—Waco 2008). While the creditor’s best practice is always to give written notices, oral notice can still be effective. Dillard v. Freeland, 714 S.W.2d 378, 380 (Tex. App.—Corpus Christi 1986). Also, acceleration can be accomplished without written notice of acceleration if the creditor takes “some unequivocal action, such as filing suit, which indicates the entire debt is due.” Burney v. Citigroup Global Mkts. Realty Corp., 244 S.W.3d 900, 903 (Tex. App.—Dallas 2008). Even a notice of a trustee’s sale may be sufficient to constitute notice of acceleration if preceded by the required notice of intent to accelerate. Id. at 904.

Waiver of Acceleration Notice Clauses Not Always Effective. “The exercise of the power of acceleration is a harsh remedy and deserves close scrutiny.” Vaughan v. Crown Plumbing & Sewer Serv., Inc., 523 S.W.2d 72, 75 (Tex. Civ. App.—Houston [1st Dist.] 1975). In a case where the deed of trust provided that the entire indebtedness may, upon default, “be immediately matured and become due and payable without demand or notice of any character,” the Court held that the creditor still needed to give notice of intent to accelerate. Bodiford v. Parker, 651 S.W.2d 338, 339 (Tex. App.—Fort Worth 1983). In Shumway v. Horizon Credit Corp., 801 S.W.2d 890 (Tex. 1991), the Texas Supreme Court reached a similar result, holding that when indebtedness could be accelerated “without prior notice or demand,” notice of acceleration was waived, but notice of intent to accelerate was not waived. “Where the holder of a promissory note has the option to accelerate maturity of the note upon the maker’s default, equity demands notice be given of the intent to exercise the option.” Ogden v. Gibraltar Sav. Asso., 640 S.W.2d 232, 233 (Tex. 1982). Best practice for creditors is to always give notice of intent to accelerate and notice of acceleration regardless of what the deed of trust or other instruments say. Giving the debtor an opportunity to cure default before acceleration is particularly important. Abraham v. Ryland Mortg. Co., 995 S.W.2d 890, 894 (Tex. App.—El Paso 1999); Allen Sales & Servicenter, Inc. v. Ryan, 525 S.W.2d 863, 866 (Tex. 1975).

Issues Arising in Wrongful Foreclosure Suits. In a wrongful foreclosure suit, the debtor can elect one or the other, but not both, of the following remedies: “(1) set aside the void trustee’s deed; or (2) recover damages in the amount of the value of the property less indebtedness.” Diversified, Inc. v. Gibraltar Sav. Asso., 762 S.W.2d 620, 623 (Tex. App.—Houston [14th Dist.] 1988). If the debtor elects to recover monetary damages, then the debtor can only do so if “(1) title to the property has passed to a third party; or (2) the property has been appropriated to the use and benefit of the mortgagee.” Peterson v. Black, 980 S.W.2d 818, 823 (Tex. App.—San Antonio 1998); John Hancock Mut. Life Ins. Co. v. Howard, 85 S.W.2d 986, 988 (Tex. Civ. App.—Waco 1935). If the debtor does not leave the premises, then the debtor has not suffered any compensable damages. Id. If a foreclosure sale is void, then the purchaser bid “at his peril” and may not recover damages for lost profits. Id.

Borrower in Wrongful Foreclosure Suit Must Tender Amounts Due and Owing. When a borrower files a wrongful foreclosure lawsuit seeking rescission of the sale, the borrower must tender all amounts due and owing into the Court’s registry, and not merely plead that he will make a tender. Lambert v. First Nat’l Bank of Bowie, 993 S.W.2d 833, 835 (Tex. App.—Fort Worth 1999); French v. May, 484 S.W.2d 420, 426 (Tex. Civ. App.—Corpus Christi 1972) (“A mere offer to pay does not constitute a valid tender; it is required that the tenderer have the money present and ready, and produce and actually offer it to the other party. The tenderer must relinquish control over the funds for sufficient time and under such circumstances as to enable the tenderee without special effort on his part to acquire possession.”). “Tender of whatever sum is owed on the mortgage debt is a condition precedent to the mortgagor’s recovery of title from a mortgagee who is in possession and claims title under a void foreclosure sale.” Fillion v. David Silvers Co., 709 S.W.2d 240, 246 (Tex. App.—Houston [14th Dist.] 1986).

Purchaser’s Liability and Remedies in Wrongful Foreclosure Suit. The foreclosed-upon mortgagor, as a prerequisite to obtaining relief, may need to tender the winning bid to the purchaser at the sale. “A foreclosure sale to a good faith purchaser . . . will only be set aside if the one claiming equitable title tenders the amount of the bid.” Goswami v. Metropolitan Sav. & Loan Ass’n, 713 S.W.2d 127, 130 (Tex. App.—Dallas 1986), rev’d on other grounds, 751 S.W.2d 487 (Tex. 1988); Bracken v. Haid & Kyle, Inc., 589 S.W.2d 501, 502 (Tex. Civ. App.—Dallas 1979), but see Tex. Prop. Code § 51.009(1) (enacted in 2003, effective in 2004); Henke v. First S. Properties, Inc., 586 S.W.2d 617, 620 (Tex. Civ. App.—Waco 1979) (“the doctrine of good faith purchaser for value without notice does not apply to a purchaser at a void foreclosure sale”); Diversified, Inc. v. Walker, 702 S.W.2d 717, 723 (Tex. App.—Houston [1st Dist.] 1985) (“Purchasers of land from a substitute trustee’s sale are not relieved from the necessity of inquiring whether the trustee had been empowered to sell.”). If the foreclosure sale is later deemed void by a Court, then the purchaser does not generally have the benefits of being a good faith purchaser for value because the purchaser bids “at his peril.” Henke, 586 S.W.2d at 620–21; Tex. Prop. Code § 51.009(1). If the sale is declared void, then the purchaser may be subrogated to the debt and lien of the foreclosing mortgagee. In re Niland, 825 F.2d 801, 813 (5th Cir. 1987).

Wraparound Note Foreclosures. When foreclosing a wraparound note, there is an implied covenant obligating the trustee to apply the proceeds to the underlying note. Summers v. Consol. Capital Special Trust, 783 S.W.2d 580, 583 (Tex. 1989).

Deficiency Judgments. If there is a deficiency on the note after the foreclosure sale, then the debtor has a statutory right to a fair market value determination and an offset against the deficiency. Tex. Prop. Code §§ 51.003, 51.004, 51.005. Section 51.003 of the Texas Property Code is, however, waivable in the loan documents. Moayedi v. Interstate 35/Chisam Rd., L.P., 438 S.W.3d 1, 8 (Tex. 2014). There are no deficiency judgments in Texas on home equity loans and the lender cannot get attorney’s fees as a personal judgment against the debtor if the debtor litigates the foreclosure. Erickson v. Wells Fargo Bank NA (In re Erickson), 2012 U.S. Dist. LEXIS 136501, *38-39 (W.D. Tex. Sept. 24, 2012); Tex. Const. Art. XVI, § 50(a)(6)(C) (no recourse for personal liability on home equity loan unless owner obtained credit by actual fraud). Deficiency suits have a two-year statute of limitations, starting on the date of the foreclosure. Tex. Prop. Code § 51.003(a).

The Dodd-Frank/RESPA 120-Day Foreclosure Cooling Period. Under 12 C.F.R. § 1024.41(f)(i), a mortgage loan servicer should not “make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process unless . . . A borrower’s mortgage loan obligation is more than 120 days delinquent.” The Real Estate Settlement Procedures Act (RESPA), represented in Regulation X (Reg X), amended the Dodd-Frank Act to include regulations on mortgage loan servicers. Most of Reg X does not apply to small servicers as defined by 12 C.F.R. 1026.41(e)(4), but according to 12 C.F.R. § 1024.41(j), the foreclosure waiting period still applies to small servicers. This rule only applies to a “mortgage loan that is secured by a property that is the borrower’s principal residence.” Reg X, 12 C.F.R. § 1024.30(c)(2), 1024.31 (excluding open-end lines of credit). The Consumer Financial Protection Bureau (CFPB) relied on Government-Sponsored Enterprises (GSEs) and National Mortgage Settlement rules in enacting this provision, but the CFPB’s reliance on these rules makes little sense for small servicers. 78 FR 10696, 10833. Failure to comply with this rule is probably not grounds for recission of the foreclosure sale, but there is no caselaw in Texas on this that the author could find as of May 2017. This rule is enforceable “pursuant to section 6(f) of RESPA (12 U.S.C. § 2605(f)).” 12 C.F.R. § 1024.41(a). Section 2605(f) provides for actual damages or statutory damages of no more than $2,000 if there is “a pattern or practice of noncompliance with the requirements of this section,” plus attorney’s fees. There is no provision for unwinding of a foreclosure sale conducted in violation of this rule, nor is there a statutory provision allowing for the foreclosure sale to be delayed, stayed, restrained, or abated. Under Comment 41(f), Supplement I to § 1024.41(d), the “first notice or filing” for nonjudicial foreclosure in Texas would be the “earliest document required to be recorded or published to initiate the foreclosure process,” which would be the notice of sale in Tex. Prop. Code § 51.002(b). 78 FR 10696, 10833;; 78 FR 60381; CFPB Agncy/Docket No. DFPB-2013-0018. Reg X only applies to mortgage loans as defined in 12 C.F.R. § 1024.31, which defines mortgage loans as “any federally related” loan as defined in 12 C.F.R. § 1024.2, which defines “federally related” mortgage loans generally as loans by federally-regulated institutions or loans destined for sale to a GSE, but also as loans by a “‘creditor,’ as defined in section 103(g) of the Consumer Credit Protection Act (15 U.S.C. 1602(g)), that makes or invests in residential real estate loans aggregating more than $1,000,000 per year.” Consequently, some seller-financed notes would not be subject to this rule. 79 FR 74176, 74245. Most of the time, the acceleration process does not start until the borrower is sixty (60) days delinquent, and consequently, another sixty (60) days will pass while the note is being accelerated, which means that the notice of sale will be filed within the 120-Day Rule guideline regardless of whether Reg X applies or not. In many instances, this rule is pointless and would not result in any actual damages given that the rule exists so that “borrowers will have more time to submit loss mitigation applications before a servicer initiates the foreclosure process.” 78 FR 10696, 10803. Seller-finance noteholders do not have to have, and rarely do have, any particular loss mitigation procedures in place. The regulations never should have been drafted so broad that a “federally related” mortgage could be a seller-finance note because there is nothing federal about seller-finance, but we are stuck with what we have for now in terms of badly-drafted CFPB rules. Small businesses in general are probably extremely underrepresented in the rulemaking process as the CFPB tends to summarily dismiss their concerns. Because they are small creditors, they tend to be represented by trade organizations that are not organized or incentivized as effectively as the advocates for large creditors. The CFPB does not appear to go out of its way to ensure that small creditor’s interests are accounted for regardless of whether they are adequately represented. Ultimately, this hurts the consumers by forcing all creditors into a one-size-fits-all model designed solely for large financial institutions and wholly inappropriate for seller-finance.

Notice of Sale to the Internal Revenue Service (IRS). This is potentially the most important component of a nonjudicial foreclosure sale in Texas, while also being the most easily-overlooked component. IRS tax liens arise under federal law, which means that these federal liens can supersede state lien laws. For example, “Under the Supremacy Clause of the United States Constitution, the IRS may obtain a valid federal tax lien and enforce its lien against a Texas homestead.” Benchmark Bank v. Crowder, 919 S.W.2d 657, 660 (Tex. 1996); U.S. Const. art. VI, cl. 2. However, federal IRS liens can be discharged by foreclosure if proper notice of the foreclosure sale is given to the IRS. 26 U.S.C. § 7425 (April 2017); 26 C.F.R. § 301.7425-3 (April 2017); 26 C.F.R. § 400.4-1(a) (April 2017); IRS Publication 786, with IRS Form 14497. The notice should be in writing, to the correct place, and not less than twenty-five (25) calendar days prior to the sale. Id. The lien notice is generally required when the Notice of Federal Tax Lien has been filed more than thirty (30) days prior to the sale. Id. If the property is sold with the IRS lien, then the seller may consider rescinding the sale, if possible (see Tex. Prop. Code § 51.016), and redoing it, or looking at IRS Publication 783, which is an application to discharge the IRS lien.

Rescission of Nonjudicial Foreclosure Sales. Texas House Bill 2066 (84th Leg. (R) effective Sept. 1, 2015) (codified in Tex. Prop. Code § 51.016) created procedures for a foreclosure trustee to rescind foreclosure sales in certain situations. The rules generally allow the trustee to rescind the sale up to sixty (60) days after the date of sale if the statutory requirements of sale were not met, the default leading to the sale was cured before the sale, or for various other reasons. Before the 2015 law, the foreclosure trustee’s authority ended with the sale and the trustee could not rescind the sale without the mortgagor’s agreement. Bonilla v. Roberson, 918 S.W.2d 17, 22 (Tex. App.—Corpus Christi 1996).

Lawsuit Protections for Foreclosure Trustees. Under Section 51.007 of the Texas Property Code, a foreclosure trustee can be dismissed as a party from a wrongful foreclosure suit if “the trustee was named as a party solely in the capacity as a trustee under a deed of trust.” The trustee must file a verified denial. Id. The other parties must file a verified response within thirty (30) days of the trustee’s verified denial. Id. If a trustee is dismissed pursuant to this section of the property code, however, the dismissal is without prejudice. Id. at (c). Also, a foreclosure trustee may not be “held to the obligations of a fiduciary of the mortgagor or mortgagee” and may not be “assigned a duty . . . other than to exercise the power of sale in accordance with the terms of the security instrument.” Tex. Prop. Code § 51.0074. Issues arising under Tex. Prop. Code § 51.007 tend to be litigated in context of disputes regarding federal diversity jurisdiction because the trustee is going to be a resident of the same state as the plaintiff in a wrongful foreclosure suit.

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.

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.

Overview of the Eviction Suit Process in Texas

Eviction suits in Texas are governed by Rule 510 of the Texas Rules of Civil Procedure and by Chapter 24 of the Texas Property Code. Most of the important laws governing eviction suits exist in either Tex. R. Civ. P. 510 or Tex. Prop. Code § 24.001 to 24.011. The Texas legislature enacted these rules “to provide a speedy and inexpensive remedy for the determination of who is entitled to possession of property.” Johnson v. Fellowship Baptist Church, 627 S.W.2d 203, 204 (Tex. App. Corpus Christi 1981).

In Texas, your local Justice of the Peace Court (frequently known as “JP court,” “justice court,” the “people’s court,” or “small claims court”) has exclusive jurisdiction over eviction suits, known in Texas as forcible entry and detainer suits. In layman’s terms, this means that Texans must file their eviction suits at the local JP court. Usually, the district and county courts will all be located downtown at the largest city in your county, while there will be several justice court subcourthouses spread throughout the county, often sharing office space with your local city hall or the local branch of the tax collector’s office. In 2013, the Texas legislature abolished small claims courts and gave jurisdiction over small claims cases to the JP courts. See Act of June 29, 2011, 82nd Leg., 1st C.S., ch. 3, § 5.07 (repealing former Tex. Gov’t Code ch. 28, governing small claims courts, effective May 1, 2013); Act of April 2, 2013, 83rd Leg., R.S., ch. 2, § 2 (delaying abolition of small claims courts from May 1, 2013 to August 31, 2013); see Misc. Docket No. 13-9049 (Tex. April 15, 2013), ¶ 1. So, the JP courts also function as small claims courts in Texas for claims of under $10,000.00 in monetary damages.

Because the Texas Rules of Civil Procedure and the Texas Rules of Evidence do not apply in justice court (See Tex. R. Civ. P. 500.3(e)), Texans are supposed to be capable of adequately representing themselves without the help of a licensed attorney in justice court and they frequently do so. Consequently, many, if not most, eviction suits are filed at the local JP court subcourthouse without the help of an attorney.

Eviction suits in Texas are called forcible entry and detainer suits, or “forcible detainer” for short, probably because the tenant to be evicted is detaining themselves in the property after the lease expired, or their lender foreclosed on the property, and the owner wants court permission to enter the property by force to stop the unlawful detainer of the tenant. “The sole issue in a forcible detainer suit is who has the right to immediate possession of the premises.” Aguilar v. Weber, 72 S.W.3d 729, 732 (Tex. App.—Waco 2002). “To prevail in a forcible detainer action, a plaintiff is not required to prove title, but is only required to show sufficient evidence of ownership to demonstrate a superior right to immediate possession.” Id. So, most disputes over the right to possession of real estate in Texas happen in the local JP subcourthouse for the constable precinct that the property is located in. There are, however, other causes of action (lawsuits) over the right to possession of real estate, which can be filed in a county or district court (usually district court for jurisdictional reasons).

Other Possessory Causes of Action and Where to File Them. Trespass to Try Title is an example of a possessory cause of action that must be brought in district court rather than justice court. It’s the Berrys, LLC v. Edom Corner, LLC, 271 S.W.3d 765, 770 (Tex. App. Amarillo 2008). Title suits generally need to be filed in a Texas district court, and not a county court or JP court. Escobar v. Garcia, 2014 Tex. App. LEXIS 5157, *9 (Tex. App. Corpus Christi—May 15, 2014) (county courts generally have no subject matter jurisdiction over title disputes); but see Tex. Gov’t Code § 25.0592 (county courts in Dallas County have concurrent jurisdiction with the district court in civil cases regardless of the amount in controversy and subject matter jurisdictional problems can be cured by retroactive assignment to district court).

Genuine Title Disputes Deprive the Justice of the Peace Courts of Jurisdiction. A title dispute between the landlord and tenant can deprive the JP court of jurisdiction over the eviction case. For a title dispute to deprive the justice of the peace court of jurisdiction, the title dispute must be “genuine.” Padilla v. NCJ Dev., Inc., 218 S.W.3d 811, 815 (Tex. App.—El Paso 2007) (receipt without material elements of transaction and unsigned sales contract not enough to raise a genuine title dispute). A genuine title dispute requires “specific evidence of a title dispute.” Id. Moreover, “A justice court is not deprived of jurisdiction merely by the existence of a title dispute; it is deprived of jurisdiction only if resolution of a title dispute is a prerequisite to determination of the right to immediate possession.” Espinoza v. Lopez, 468 S.W.3d 692, 695 (Tex. App.—Houston [14th Dist.] 2015). “To prevail in a forcible detainer action, the plaintiff must present sufficient evidence of ownership to demonstrate a superior right to immediate possession. Ordinarily, a forcible detainer action requires proof of a landlord-tenant relationship. Although such a relationship is not a prerequisite to jurisdiction, the lack of such a relationship indicates that the case may present a title issue. Id. at 695-96.

Even if you wanted to file your eviction suit in county or district court, you cannot do so. Aguilar v. Weber, 72 S.W.3d 729, 731 (Tex. App.—Waco 2002) (“Jurisdiction of forcible detainer actions is expressly given to the justice court of the precinct where the property is located and, on appeal, to county courts for a trial de novo.”); It’s the Berrys, LLC v. Edom Corner, LLC, 271 S.W.3d 765, 769–772 (Tex. App.—Amarillo 2008, no pet.) (justice court has exclusive jurisdiction over the issue of the right to immediate possession). Also, “The appellate jurisdiction of a statutory county court is confined to the jurisdictional limits of the justice court, and the county court has no jurisdiction over an appeal unless the justice court had jurisdiction.” Aguilar at 731. So, even if your county court at law is one of the few in the State of Texas that shares jurisdiction with the district courts over title disputes, then that county court still lacks jurisdiction over the title dispute if the county court is hearing the case on appeal from a justice of the peace court.

Notice to Vacate. A three-day Notice to Vacate must be sent to the tenant before the eviction suit is filed, unless the parties contracted for a shorter or longer notice period in writing. Tex. Prop. Code § 24.005. The notice period is calculated from the day on which the notice is delivered. Id. If the eviction suit is against a holdover tenant after a rental term expired, then the landlord also needs to comply with the tenancy termination requirements of Tex. Prop. Code § 91.001. Id. Generally, the landlord must give one-month notice of termination in order to terminate a month-to-month tenancy. Tex. Prop. Code § 91.001. If the landlord wants attorney’s fees from the tenant, then the landlord should send a ten-day Notice to Vacate, unless a written lease entitles the landlord to attorney’s fees, and the notice should state “that if the tenant does not vacate the premises before the 11th day after the date of receipt of the notice and if the landlord files suit, the landlord may recover attorney’s fees.” Tex. Prop. Code § 24.006. Some Justice Courts and County Courts at Law in Texas apply the “mailbox rule” of Tex. R. Civ. P. 21a to notices to vacate. If the Court applies the mailbox rule, then the notice is presumed to be delivered within three days from the date that it was deposited in the mail. Onabajo v. Household Fin. Corp. III, No. 03-15-00251-CV, 2016 Tex. App. LEXIS 7454, at *13-14 (App.—Austin July 14, 2016); Tex. R. Civ. P. 21a(e). Under Tex. R. Civ. P. 21a(c), when mail is used as a delivery method, “three days shall be added to the prescribed period,” whatever period that might be. Accordingly, the best practice for landlords is to always consider the notice to vacate to be a six-day notice to vacate rather than a three-day notice to vacate, when mail is used to deliver the notice.

At the eviction hearing, the Judge will ask for proof that the Notice to Vacate was given.  Many, if not most, landowners send the Notice to Vacate by mail or by affixing it to the front door of the property. Surprisingly, both of these methods are wrong or potentially ineffective, despite being the most common methods. Even if the Notice to Vacate is sent by certified and regular mail, the tenant can claim not to have received it and, unless the landowner has the signed green return card, the Judge may or may not agree that the notice was effective.  Gore v. Homecomings Fin. Network, No. 05-06-01701-CV, 2008 Tex. App. LEXIS 640, at *6, 2008 WL 256830 (App.—Dallas Jan. 31, 2008) (mem. op., not designed for publication) (Notice to Vacate sent by regular and certified mail, but both envelopes had notations indicating that they were returned unclaimed—court ruled in favor of the tenant on the grounds that the evidence did not establish that the tenant received the notice); Brittingham v. Fed. Home Loan Mortg. Corp., No. 02-12-00416-CV, 2013 Tex. App. LEXIS 10624, at *6, 2013 WL 4506787 (App.—Fort Worth Aug. 22, 2013) (court ruled in favor of landowner even though the main distinctions from the Gore case were that there was a business records affidavit to go along with the regular and certified letters and that only the certified letter was marked unclaimed). The Notice to Vacate does not have to be received by any particular person, but rather must be sent “to the premises.” Trimble v. Fannie Mae, No. 01-15-00921-CV, 2016 Tex. App. LEXIS 13482, at *13 (App.—Houston [1st Dist.] Dec. 20, 2016). “When a letter containing notice is properly addressed and mailed with prepaid postage, a presumption exists that the notice was received by the addressee. Thomas v. Ray, 889 S.W.2d 237, 238 (Tex. 1994).” Id. at *11. Addressing the notice to “all occupants” and mailing it is sufficient to raise the presumption that the notice was delivered to the property. Id. In at least one case, the court held that whether the tenant “received the notice is not determinative of whether notice was given.” U.S. Bank, N.A. v. Khan, No. 05-14-00903-CV, 2015 Tex. App. LEXIS 8388, at *6, 2015 WL 4736839 (App.—Dallas Aug. 11, 2015). If the tenant testifies that the tenant did not receive the notice, then the court is not required to accept the tenant’s testimony. Kaldis v. U.S. Bank Nat’l Ass’n, 2012 Tex. App. LEXIS 6609, 2012 WL 3229135, at *3 (Tex. App.—Houston [14th Dist.] Aug. 9, 2012, pet. dism’d w.o.j.) (mem. op.).

To be fair regarding Notices to Vacate, most of the time, regular or certified mail works just fine and the landlord does not lose the case due to the tenant claiming not to have received the Notice to Vacate. However, going through a JP court eviction trial and then a county court de novo trial on appeal, just to find out that the landlord’s suit is dismissed due to insufficient evidence of tenant’s receipt of a notice that is no more than a technicality since the tenant clearly knows that the tenant has been sued for eviction and has been litigating the issue for several months is kind of ridiculous. To make it worse, since most landlords handle the JP eviction suit without an attorney, the attorney who gets involved at the county court appeal level is not able to go back and correct any deficiencies in the manner of delivery of the notice to vacate. Clearly, there should be an opportunity to cure any defects in the notice to vacate before the county court appeal trial occurs, but there is not. Under Tex. Prop. Code § 24.005, the Notice to Vacate can be affixed to the “inside of the main entry door.” This has to be one of the worst laws on the books. No sane landlord who is involved in a dispute with a tenant, or even a squatter, wants to open the resident’s front door and risk getting shot. Texas has “castle doctrine,” which means that if someone enters your habitation, then you can, generally and subject to some exceptions, use deadly force against them. Tex. Penal Code § 9.31–.32. This requirement to post notice to vacate on the inside of the main entry door is horribly unsafe and should be repealed immediately. There is a procedure in Tex. Prop. Code § 24.005(f-1) that is an alternative to posting notice on the inside of the front door if the “landlord reasonably believes that harm to any person would result from . . . affixing the notice to the inside of the main entry door,” but the procedure is rarely used, probably because it is so complex that no one seems to understand the procedure or be capable of performing it correctly, primarily because the vast majority of evictions are handled without the assistance of an attorney.

Appeal of Eviction Suit. Whoever loses the JP court eviction suit can appeal to the county court at law. Because JP courts do not employ court reporters to keep a record of their proceedings and because the Texas rules of procedure and evidence do not apply (See Tex. R. Civ. P. 500.3(e)), no record exists for the county court to review on appeal. Consequently, the county court conducts a trial de novo, which means a brand new trial. Whatever evidence the landlord or tenant offered in the JP court case is gone and irrelevant. The judge of the county court, in fact, will know nothing about what happened in the JP court other than the outcome as expressed in the final order signed by the JP court judge, but the county court judge must decide the new case based solely on the new trial, and so most, if not all, county court judges could not care less about what happened in the JP court. In county court at law, the landlord/plaintiff generally does need an attorney because the rules of evidence and procedure apply in full regardless of whether the landlord knows and understands them. The landlord/plaintiff who wins in JP court can easily lose in county court on some technicality that the landlord did not understand. Also, if the landlord is a corporation, then the landlord’s suit will be dismissed if the landlord appears for the county court appeal trial without a licensed attorney. See Wuxi Taihu Tractor Co. v. York Grp., Inc., No. 01-13-00016-CV, 2014 Tex. App. LEXIS 12888, at *21, 2014 WL 6792019 (App.—Houston [1st Dist.] Dec. 2, 2014).

Equitable Title. A claim of equitable title can prevent the justice court from having jurisdiction over an eviction suit. “Upon payment of the purchase price and full performance of a contract for sale of real property, a party becomes vested with an equitable title in the land sufficient to enable him to maintain an action for trespass to try title.” Brown v. Davila, 807 S.W.2d 12, 14 (Tex. App.—Corpus Christi 1991, no writ); Also see Johnson v. Wood, 138 Tex. 106, 110, 157 S.W.2d 146, 148 (1941) (performance of a contract for conveyance of title grants equitable title upon the performer). Even an allegation of oral contract for conveyance of property can defeat the jurisdiction of the JP court if an exception the statute of frauds is satisfactorily alleged.  Jennifer Yarto & DTRJ Invs., L.P. v. Gilliland, 287 S.W.3d 83, 94 (Tex. App.—Corpus Christi 2009). The Statute of Frauds is a rule that, in general, requires contracts for conveyance of real estate to be in writing. Tex. Bus. & Com. Code § 26.01(b)(4).

Wrongful Foreclosure Generally Not a Defense to Eviction. Claiming that a foreclosure was wrongful due to defects in the foreclosure process, regardless of whether those claims are filed in a separate district court lawsuit, generally does not constitute a sufficient defense to a post-foreclosure eviction suit. Pinnacle Premier Props. v. Breton, 447 S.W.3d 558, 565 (Tex. App.—Houston [14th Dist.] 2014); Home Sav. Asso. v. Ramirez, 600 S.W.2d 911, 914 (Tex. Civ. App.—Corpus Christi 1980). Generally, a claim of wrongful foreclosure, and a request to rescind the foreclosure sale and restore ownership of the property to the borrower, may be considered to be a title dispute, but it is not a title dispute that deprives the justice court of jurisdiction because the issue of immediate right to possession of the premises is not dependent on the outcome of the title dispute. Id. If the deed of trust and substitute trustee’s deed do not contain a tenancy-at-sufferance clause and there is no other basis for a landlord-tenant relationship, then a wrongful foreclosure suit claim may constitute a title dispute sufficient to deprive the justice court of jurisdiction over the eviction. Chinyere v. Wells Fargo Bank, N.A., 440 S.W.3d 80, 85 (Tex. App.—Houston [1st Dist.] 2012); Rice v. Pinney, 51 S.W.3d 705, 712 (Tex. App.—Dallas 2001, no pet.) (arguably interpreting the Texas Supreme Court’s decision in Scott v. Hewitt, 127 Tex. 31, 35, 90 S.W.2d 816, 819 (1936) as providing that a justice court is never deprived of jurisdiction over an eviction due to a wrongful foreclosure allegation); Diffley v. Fed. Nat. Mortg. Ass’n, 02-13-00403-CV, 2014 WL 6790043, at *2 (Tex. App.—Fort Worth Nov. 26, 2014, no pet.). In a situation, like the Chinyere case, where the justice court lacks jurisdiction over the eviction, the foreclosure sale purchaser would need to file suit in district court and either obtain a trial setting as soon as possible (which will probably be at least five times longer than it would take to get a trial setting in JP court) or set an injunction hearing, prove an imminent, irreparable injury; for which no adequate remedy at law exists (i.e., monetary damages are inadequate); a probable right of recovery and likelihood of success on the merits; and post an injunction bond.

Contracts for Deed. Generally, the justice court does not have jurisdiction over a contract for deed case (also known as an executory contract for conveyance governed by the extensive regulations of Subchapter D of Chapter 5 of the Texas Property Code), but if the contract for deed expressly states that it creates a landlord-tenant relationship, then the JP court might have jurisdiction. Ward v. Malone, 115 S.W.3d 267, 271 (Tex. App.—Corpus Christi 2003); Aguilar v. Weber, 72 S.W.3d 729, 735 (Tex. App.—Waco 2002) (justice court lacked jurisdiction over contract for deed, among other reasons, “because no landlord-tenant relationship was set forth in the contract . . . .”). So, based on the caselaw, if there was an express landlord-tenant relationship in the contract, then justice court jurisdiction may exist. However, if there is a contract for deed and the and the purchaser/tenant has paid “40 percent or more of the amount due or the equivalent of 48 monthly payments,” or if the contract is recorded (which is actually required by Tex. Prop. Code § 5.076, though, the damages for violation are only $500.00 per year), then the seller must perform a foreclosure on the property just as if the transaction were a “deed with a vendor’s lien.” Tex. Prop. Code §§ 5.079; 5.066. At the foreclosure sale, the seller must convey fee simple title and warrant that the property is free from any encumbrance. Tex. Prop. Code § 5.066(d). This tends to be a virtually insurmountable problem for contract for deed sellers that violate Tex. Prop. Code § 5.085 (Fee Simple Title Required) by selling property subject to a pre-existing lien. Unfortunately, many if not most, contracts for deed violate Tex. Prop. Code § 5.085 (Fee Simple Title Required) because one of the primary reasons for selling the property on a contract for deed basis was to avoid recording the contract and, thus, alerting the bank holding the first lien that the due-on-sale clause of the lien note has been violated.

Landlord Gets a Mulligan Due to Lack of Res Judicata. If the landlord makes a mistake and fails to win the eviction suit, then the landlord can, for the most part, simply file the suit again and start the process from scratch. Res judicata, which is a doctrine holding that once a case is resolved, the case cannot be re-litigated again for a different result, does not generally apply to eviction suits. Puentes v. Fannie Mae, 350 S.W.3d 732, 738–739 (Tex. App.—El Paso 2011, pet. dism’d); Fed. Home Loan Mortg. Corp. v. Pham, 449 S.W.3d 230, 235–238 (Tex. App.—Houston [14th Dist.] 2014, no pet.). The landlord can even have multiple eviction cases pending against the tenant at the same time since the issue to be determined is the right to possession as of the time of the suit, which may change as time goes on. Id.; In re Victor Enters., 308 S.W.3d 455 (Tex. App.—Dallas 2010).

The Misnomer Rule and Serving the Correct Parties. Because many eviction suits occur in justice of the peace court without an attorney, people involved often fail to recognize the misnomer rule. The misnomer rule provides that misspellings or even incorrect names do not matter as long as the defendant is not mislead regarding who was sued or the intention to sue the defendant who was actually served with citation was apparent from the pleadings and process. Dezso v. Harwood, 926 S.W.2d 371, 374 (Tex. App.—Austin 1996). Eviction suits are generally made out against a particular defendant “and all occupants.” Pinnacle Premier Props. v. Breton, 447 S.W.3d 558, 561 (Tex. App.—Houston [14th Dist.] 2014). Because the Notice to Vacate rules allow for service upon the property itself, the “all occupants” language can effectively evict anyone occupying the property as long as the notice and citation are served pursuant to the rules. Tex. Prop. Code § 24.005. The big exception to the use of “all occupants” language is Tex. R. Civ. P. 510.3(c), which provides that any tenants listed on a written lease must be named and served with citation.

Verification Requirement. Eviction petitions must be “sworn to by the plaintfiff.” Tex. R. Civ. P. 510.3(a). However, an agent or attorney for the plaintiff can verify the petition. Norvelle v. PNC Mortg., 472 S.W.3d 444, 446–449 (Tex. App.—Fort Worth 2015, no pet.).

Further Appeal. Effective January 1st, 2016, the issue of possession is non-appealable, after the county court at law appeal, in commercial property cases. Tex. Prop. Code § 24.007; 2015 Bill Text TX H.B. 3364 (84th Legislature, As Reported by Committee May 1, 2015). The courts of appeal lack jurisdiction over an appeal on the issue of possession on commercial property. Volume Millwork, Inc. v. W. Hous. Airport Corp., 218 S.W.3d 722, 726 (Tex. App.—Houston [1st Dist.] 2006). Accordingly, a writ of possession should issue after county court at law commercial eviction trial regardless of whether a supersedeas bond is posted. If the property is residential, then appeal can be taken from the county court at law, and the supersedeas bond to stop the eviction should take “into consideration the value of rents likely to accrue during appeal, damages which may occur as a result of the stay during appeal, and other damages or amounts as the court may deem appropriate.” Tex. Prop. Code § 24.007. In eviction cases, “A defendant’s indigence does not relieve her of the obligation to file a supersedeas bond.” Brigandi v. Am. Mortgage Inv. Partners Fund I Tr., 02-16-00444-CV, 2017 WL 1428726, at *3 (Tex. App.—Fort Worth Apr. 20, 2017, pet. dism’d) (because Tex. Prop. Code § 24.007 states what the bond should be without reference to indigency rules, the normal indigency rules on supersedeas bonds are generally inapplicable in eviction cases); Also see Tex. R. Civ. P. 510.13; Marshall v. Hous. Auth. of City of San Antonio, 198 S.W.3d 782, 786 (Tex. 2006); In re Invum Three, LLC, 530 S.W.3d 748, 750 (Tex. App.—Houston [14th Dist.] 2017, no pet.); Praise Deliverance Church v. Jelinis, LLC, 536 S.W.3d 849, 852 (Tex. App.—Houston [1st Dist.] 2017, pet. denied); Morse v. Fed. Nat’l Mortgage Ass’n, 05-18-00999-CV, 2018 WL 4784585, at *1–2 (Tex. App.—Dallas Oct. 4, 2018, no pet.).

Post Tax Foreclosure Suit Evictions. Do not bother filing an eviction suit after a delinquent property tax sale. Under Section 33.51 of the Texas Tax Code, the tax sale buyer can simply order a writ of possession from the tax sale court. There is no need to file a separate eviction case.

Payment of Rent During County Court at Law Appeal. The tenant needs to pay rent into the court’s registry during the appeal. The tenant can appeal by filing an appeal bond within five days after the date that the judgment is signed. Tex. R. Civ. P 510.9(a), (b). The tenant can also appeal by filing a pauper’s affidavit within the same time period. Tex. R. Civ. P. 510.9(a), (c)(1), (f); Tex. Prop. Code § 24.0052. The tenant must pay one month of rent into the court’s registry within five days of the filing of the pauper’s affidavit. Tex. Prop. Code § 24.0053(a-2), 24.0054. If the rent is not paid timely, then the landlord can get a writ of possession from the justice court. Tex. Prop. Code § 24.0053(a-2), 24.0054(a), (a-2); Tex. R. Civ. P. 510.9(c)(5)(B)(i). On a sworn motion and hearing, the landlord can get a writ of possession from the county court if the tenant fails to pay rent into the court’s registry during the pendancy of the appeal. Tex. R. Civ. P. 510.9(c)(5)(B)(iv); Tex. Prop. Code § 24.0054(a-4), (b), (c).

Default on Appeal for Failure to File Written Answer. If the defendant does not file a written answer in the justice court, then the tenant must file a written answer within eight days of the transcript being filed in the county court, and if the defendant does not do so, then the plaintiff may take a default judgment. Tex. R. Civ. P. 510.12. A pauper’s affidavit counts as a written answer. Hughes v. Habitat Apartments, 860 S.W.2d 872, 872-73 (Tex. 1993). If the defendant files a pauper’s affidavit, then the pauper’s affidavit constitutes an appearance, which entitles the defendant to receive notice of a default judgment hearing. Hughes v. Habitat Apartments, 860 S.W.2d 872, 873 (Tex. 1993). Accordingly, when the landlord moves for default judgment or for possession due to failure to remit rent payments to the Court’s registry, both of those motions should be set for hearing with notice to the defendant, even if the motions are set for hearing contemporaneously with a trial on the merits set by the Court.

Corporate Party Must Have Attorney on Appeal. A corporation or other business entity must have an attorney to represent it in county court on appeal in an eviction suit. McClane v. New Caney Oaks Apts, 416 S.W.3d 115, 120-21 (Tex. App.–Beaumont 2013, no pet.). There is a statutory exception for sworn motions for dismissal or eviction due to non-payment of rent during appeal. Tex. Prop. Code § 24.0054(e).

No Counterclaims or Third-Party Joinder. The only issue in an eviction suit is the right to immediate possession of the property. Tex. R. Civ. P. 510.3(e). No counterclaims can be raised. Id. No third-parties can be joined. Id. Because of this rule, the compulsory counterclaim rule generally does not apply to eviction suits. Id.

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.

Suit for Accounting in Texas and Appointment of Auditor

When a suit for accounting is filed, the appointment of an auditor under Tex. R. Civ. P. 172 can make the case much easier to handle. The auditor’s report is admissible into evidence under Tex. R. Civ. P. 706. The auditor’s fees should be paid by the parties and are generally taxed as a cost against the losing party. Tex. R. Civ. P. 172, 131, 141. However, the Court has discretion to apportion the cost otherwise if the Court has good cause, stated on the record. Tex. R. Civ. P. 141; Villiers v. Republic Financial Services, Inc., 602 S.W.2d 566, 571 (Tex. Civ. App.—Texarkana 1980, writ ref’d n.r.e.) (Court had discretion to tax one-half of the auditor’s fee to each party when the Court stated appropriate reasons for doing so in the Court’s order). Because the trial judge may choose to accept the auditor’s conclusions as correct as a matter of law, the auditor’s findings and conclusions can carry great weight. See Young v. Gumfory, 322 S.W.3d 731, 738 (Tex. App.—Dallas 2010)


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.