Monetary Damages in Texas Eviction Suits

In Texas, if you ask for too much in your eviction suit, then you could end up with nothing. Landlords typically ask the Court to evict the tenant and award money damages to the landlord for all amounts owed by the tenant. In addition to delinquent rent, landlords often ask the Court to award penalties, late fees, parking fees, unauthorized pet fees, fines for community rule violations, and even monetary damages for unrelated causes of action. The landlord typically feels entitled to all of this money and does not understand that, by pleading for too much, the landlord could lose all of it.1

In Texas, your local Justice of the Peace Court (“JP court” or “justice court”) has exclusive jurisdiction over 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. So, the JP courts also function as small claims courts.

Even if you wanted to file your eviction suit in county or district court, you cannot do so. There are, however, other causes of action that are possessory in nature, which can be filed in a county or district court (usually district court for jurisdictional reasons).2 Trespass to try title, for example, is 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).

Because the Texas Rules of Civil Procedure and the Texas Rules of Evidence do not apply in justice court,3 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.

Most landlords filing these cases do not know two critical rules: (1) if you ask for more than $10,000.00 in back rent, or if the Court thinks that more than $10,000.00 in back rent is actually owed, then the JP court will refuse to award anything at all for back rent, and (2) the landlord can only ask for back rent, nothing else—no late fees, no penalties, no fines for unauthorized pets or parking in the wrong spot, etcetera, just back rent, except that, in some instances, amounts owed that are not quite rent may be recoverable if they are “within the nature of rent.”4 Courts differ on what constitutes “within the nature of rent,” and so, in some JP courts, late fees or unauthorized pet fines may be recoverable, but for the most part, those types of monetary obligations are probably not recoverable. Now, on appeal, the rules change and you can amend your pleadings to ask the Court for any damages relating to possession of the property during the pendency of the appeal, and those damages may exceed $10,000.00, but the damages must arise between the date of the JP court judgment and the county court trial date in order to be recoverable in excess of $10,000.00.

Under Tex. R. Civ. P. 510.3(d), an eviction suit can include a claim for back rent, but only if the claim is “within the justice court’s jurisdiction.” Because justice courts have small claims jurisdiction, the justice court has no jurisdiction over suits where the amount in controversy is over $10,000.00. Tex. Gov’t Code § 26.042(a). Hence, back rent claims can be no more than $10,000.00. Also, Tex. R. Civ. P. 500.3(d) makes clear that “A claim for rent may be joined with an eviction case if the amount of rent due and unpaid is not more than $10,000.00, excluding statutory interest and court costs, but including attorney’s fees, if any.”

Whoever loses the JP court eviction suit can appeal to the county court. 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, 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.

Now, the county courts normally have jurisdiction up to $200,000.00,5 unless the Texas Government Code provides something different for that particular county. Under Tex. R. Civ. P. 510.11, the landlord can seek damages in a county court eviction appeal for anything “suffered for withholding or defending possession of the premises during the pendency of the appeal.” Courts have construed this broadly to allow damages that are in any way related to maintaining and obtaining possession of the subject property during the pendency of the appeal. See Serrano v. Ramos, 2015 Tex. App. LEXIS 6139, *7-9 (Tex. App. Corpus Christi June 18, 2015); Hanks v. Lake Towne Apartments, 812 S.W.2d 625, 626 (Tex. App.—Dallas 1991, writ denied); Krull v. Somoza, 879 S.W.2d 320, 322 (Tex. App.—Houston [14th Dist.] 1994, writ denied).

At the end of the day, the rule for monetary damages in an eviction suit in Texas is that the landlord can get back rent from the justice court as long as less than $10,000.00 is owed at the time of the filing of the petition. If additional rent coming due before trial brings the total rent owed to more than $10,000.00, then the justice court does not lose jurisdiction because the damages for additional rent accrued “because of the passage of time.”6 For liquidated claims, the plaintiff cannot arbitrarily reduce the amount of the claim to bring it within the jurisdictional limits of the court.7 For unliquidated claims, the plaintiff can reduce the damages to an amount within the court’s jurisdictional limit if the plaintiff pleads in good faith.8 Rent is most likely going to be considered a “liquidated” claim, and consequently, the landlord probably cannot arbitrarily lower the amount of rent due in order to avoid filing a separate suit in county or district court for the rent owed.

If the Judge finds the amount in controversy to be in excess of $10,000.00, then the proper remedy is to sever the forcible detainer cause of action and dismiss the cause of action for rent. It’s the Berrys, LLC v. Edom Corner, LLC, 271 S.W.3d 765, 772 (Tex. App. Amarillo 2008). In other words, if more than $10,000.00 in back rent is owed when the eviction suit is filed, then the landlord gets zero monetary damages. But, pursuant to Tex. R. Civ. P. 510.3(e), any claims not asserted because they cannot be brought “can be brought in a separate suit in a court of proper jurisdiction.” In other words, rent arises out of the same transaction, or subject matter, as possession of the premises and so, normally, a landlord who sued for possession only would be barred by res judicata from bringing a separate suit for the unpaid rent.9 However, if back rent owed is more than $10,000.00 at the time of the filing of the eviction suit or if the court finds that it lacks jurisdiction over the rent, then the landlord must bring a separate suit for the rent. So, the landlord would have one suit in justice court for possession of the property and another, separate suit in county or district court for rent.

No one in their right mind who is not a lawyer would guess that the law requires two separate lawsuits for a simple eviction suit when back rent exceeds $10,000.00, making this a stupid and counter-intuitive law. The two separate suits are highly impractical because the results can differ, the legal work must be duplicated and, at the end of day, the issues are far too simple to justify two separate lawsuits, even if one of them is in JP court, particularly given that the JP side of the suit will eventually wind up in county court on appeal. At least in 2007, the amount in controversy was raised from $5,000.00 to $10,000.00 to provide some alleviation for this problem, but it is still a ridiculous situation.

To sum up, the back rent owed at the time of the eviction suit filing in justice court cannot be more than $10,000.00, excluding statutory interest and court costs, but including attorney’s fees. Attorney’s fees and any damages accruing after the justice court suit is appealed; like property taxes, unauthorized pet fees, parking fees, damages done to the property by the tenant, etcetera; can be recovered in the county court on appeal, even if they cause the amount in controversy to exceed $10,000.00, but only if the damages accrued while the appeal was pending.

Frankly, the rules governing evictions are unbelievably complex, considering that the Texas legislature enacted the 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, evictions can be fairly expedient and can be fairly simple, on occasion, but the rules governing evictions are not simple at all,10 and a lot can get in the way of simplicity and expediency.

1Technically, the landlord who asks for too much does not lose his or her entitlement to monetary damages altogether, but rather is forced to accept zero monetary damages in the eviction suit, and then must bring a separate lawsuit in district or county court for all monetary damages owed. See Bybee v. Fireman’s Fund Ins. Co., 160 Tex. 429, 331 S.W.2d 910, 913 (1960) (If the petition shows that part of the damages, such as a claim for attorney’s fees, is not allowed by law, that part of the claim is disregarded for jurisdictional purposes); It’s the Berrys, LLC v. Edom Corner, LLC, 271 S.W.3d 765, 772 (Tex. App. Amarillo 2008) (If the Judge finds the amount in controversy to be in excess of $10,000.00, then the proper remedy is to sever the forcible detainer cause of action and dismiss the cause of action for rent). Most landlords are so frustrated by the eviction process that they have no interest in prosecuting an entirely separate lawsuit against their tenant for the sole purpose of recovering a monetary judgment against the tenant. So, the landlord who fails to obtain a money judgment against his or her tenant in the eviction suit typically fails to obtain a money judgment at all.
2 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).
3 Tex. R. Civ. P. 500.3(e).
4 Carlson’s Hill Country Bev., L.C. v. Westinghouse Rd. Joint Venture, 957 S.W.2d 951, 955 (Tex. App. Austin 1997).
5 Tex. Gov’t Code § 25.0003.
6 Continental Coffee Prods. Co. v. Cazarez, 937 S.W.2d 444, 449 (Tex. 1996).
7 Failing v. Equity Management Corp., 674 S.W.2d 906, 909 (Tex. App. Houston 1st Dist. 1984).
8 French v. Moore, 169 S.W.3d 1, 8 (Tex. App. Houston 1st Dist. 2004).
9 See Barr v. Resolution Trust Corp., 837 S.W.2d 627, 631 (Tex. 1992) (claims arising out of the same transaction or subject matter as claims previously litigated are barred by res judicata; Texas has adopted the “transactional” approach to res judicata law).
10 For example, the eviction rules are found in a strange combination of Chapter 24 of the Texas Property Code and Rule 510 of the Texas Rules of Civil Procedure. There are a few important eviction rules that everyone should learn and that are fairly well developed by the caselaw, many of which are explained by this blog post. However, there are many more eviction rules that rarely, if ever, come up and are hardly understood at all by the litigants, including the attorneys and judges.

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.

Global Mutual Liability Releases

Sometimes, at the end of a lawsuit, in the final draft of a settlement agreement that has been months or years in the making, one of the parties will casually throw in a global mutual liability release that is not limited to the transactions or occurrences that are the subject of the litigation. Sometimes, this clause is non-negotiable and sometimes, the party inserting the clause waits until the last possible moment to add the clause to the draft, knowing that the other side will probably sign it rather than throw away months or years of negotiations. The clause is inserted when the settlement momentum is at its peak.

When so much work has been done to reach a resolution and the end is in sight, a firm desire arises to simply sign to the clause now and litigate over it later if it becomes a problem. Since the released claims are often unknown or speculative, it is easy to assume that you cannot possibly release something that you do not know about regardless of what the settlement paperwork says.

In California, at least, this is true. You cannot settle claims that a “creditor does not know or suspect to exist in his or her favor at the time of executing the release.” Cal. Civ. Code § 1542. California courts have, however, held that Civil Code Section 1542 is waivable, which sort of defeats the purpose of the statute. Mundy v. Lenc, 203 Cal. App. 4th 1401, 1405 (Cal. App. 2d Dist. 2012); Perez v. Uline, Inc. 157 Cal App 4th 953 (2007, 4th Dist.).

At least in some states, you may not be able to prospectively release liability. “[P]rovisions for release from liability for personal injury which may be caused by future acts of negligence are prohibited ‘universally.’” Hiett v. Lake Barcroft Community Ass’n, 244 Va. 191, 195 (Va. 1992).

A release of a negligence claim can be contested on the grounds of fraud, ambiguity, mistake, or fair notice (“express negligence” and conspicuousness). Newman v. Tropical Visions, Inc., 891 S.W.2d 713, 720 (Tex. App. San Antonio 1994). The express negligence doctrine states that a party seeking indemnity from the consequences of that party’s own negligence must express that intent in specific terms within the four corners of the contract. Dresser Indus. v. Page Petroleum, 853 S.W.2d 505, 508 (Tex. 1993).

A release of gross negligence or intentional misconduct is probably unenforceable on public policy grounds. See Restatement (Second) of Contracts § 195 (1979) (“A term exempting a party from tort liability for harm caused intentionally or recklessly is unenforceable on grounds of public policy.”); but see Newman v. Tropical Visions, Inc., 891 S.W.2d 713, 721 (Tex. App. San Antonio 1994) (gross negligence sometimes is not separable from regular negligence such that a waiver of regular negligence, in some cases, may also waive gross negligence).

It also bears mentioning that, in Texas, waivers of Deceptive Trade Practices Act claims are enforceable only if the consumer is not in a significantly disparate bargaining position, is represented by legal counsel, and waived rights under an express provision signed by both consumer and consumer’s attorney. Tex. Bus. & Comm. Code Ann. § 17.42(a).

Escaping a liability release based on unilateral mistake is tough. In Texas, you must show four factors: “(1) the mistake is of so great a consequence that to enforce the contract would be unconscionable; (2) the mistake relates to a material feature of the contract; (3) the mistake occurred despite ordinary care; and (4) the parties can be placed in status quo, i.e., the rescission must not prejudice the other party except for the loss of the bargain.” In re Green Tree Servicing LLC, 275 S.W.3d 592, 599 (Tex. App.—Texarkana 2008).

Mutual mistake, meanwhile, is easier. However, “[u]nilateral mistake by one party, and knowledge of that mistake by the other party, is equivalent to mutual mistake.” Givens v. Ward, 272 S.W.3d 63, 71 (Tex. App.–Waco 2008). “The question of mutual mistake is determined not by self-serving subjective statements of the parties’ intent, which would necessitate trial to a jury in all such cases, but rather solely by objective circumstances surrounding execution of the release, such as the knowledge of the parties at the time of signing concerning the injury, the amount of consideration paid, the extent of negotiations and discussions as to personal injuries, and the haste or lack thereof in obtaining the release. See Restatement (Second) of Torts § 152 comment f (1981).” Williams v. Glash, 789 S.W.2d 261, 264 (Tex. 1990). In Texas, under certain circumstances parties may release future personal injury claims. See, e.g., Williams v. Glash, 789 S.W.2d 261, 264 (Tex. 1990); Ortiz v. Jones, 917 S.W.2d 770, 772 (Tex. 1996). If causes of action are never discussed by the parties in the mediation or settlement process, then the lack of discussion constitutes some evidence that the parties may not have intended those claims to be released. Bolle, Inc. v. Am. Greetings Corp., 109 S.W.3d 827, 834 (Tex. App. Dallas 2003). In any situation where a cause of action is not specifically released, the aggrieved party should consider raising mutual mistake allegations and providing evidence of whether the parties “mutually agreed to a release agreement which differed from the one which was ultimately reduced to writing.” Matlock v. National Union Fire Ins. Co., 925 F. Supp. 468, 475 (E.D. Tex. 1996). “If it can be established that a release sets out a bargain that was never made, it will be invalidated.” Williams v. Glash, 789 S.W.2d 261, 265 (Tex. 1990). “Pursuant to the doctrine of mutual mistake, when parties to an agreement have contracted under a misconception or ignorance of a material fact, the agreement will be voided.” Holmes v. Graham Mortg. Corp., 449 S.W.3d 257, 265 (Tex. App. Dallas 2014). “Even if certain claims exist when the release is executed, claims not clearly within the subject matter of the release are not discharged.” City of Brownsville v. AEP Tex. Cent. Co., 348 S.W.3d 348, 354 (Tex. App. Dallas 2011). “This court has held that a trial court may properly refuse to enforce an [Mediated Settlement Agreement (MSA)] that otherwise complies with the statute if a party procures the agreement by intentionally failing to disclose material information, and other courts have held that a trial court need not enforce an MSA that is illegal or that was obtained through fraud, duress, coercion or other dishonest methods. Additionally, the Dallas Court of Appeals has appeared to recognize that the absence of a meeting of the minds would justify a trial court’s rejection of an MSA, which is logical, given that a meeting of the minds is a required element of a valid contract.” Milner v. Milner, 360 S.W.3d 519, 523-524 (Tex. App. Fort Worth 2010).

To avoid a release based on unconscionability and adhesion, there must be a showing of both procedural and substantive unconscionability. Doing so is difficult. See Ramirez v. 24 Hour Fitness United States, Inc., 2013 U.S. Dist. LEXIS 69451, *15 (S.D. Tex. May 16, 2013).

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.

Due-on-Sale Clauses

Most attorneys are shocked and appalled when they find out that their clients have been doing business, sometimes for several decades, as sole proprietors. The attorney typically pleads with the client to register a corporate entity to do business under, typically a limited liability company or LLC.

As many clients are real estate investors or entrepreneurs, merely opening an LLC is not enough. Whatever assets are owned must then be placed into the LLC by deeding the property from the individual or sole proprietorship to the LLC. The clients are generally surprised, however, to find that they cannot also transfer their homestead and any property with FHA or conventional loans into the LLC. Instead, those properties are generally going to be put into a family trust, though there are other options to look at depending on the circumstances.

The reason that the client cannot simply transfer all properties into an LLC or LLCs is what is called the “due-on-sale clause.” This is a clause typically found in most mortgage agreements. An example of a due-on-sale clause is the following:

“If all or any part of the Property or any Interest in the Property is sold or transferred (or if Borrower is not a natural person and a beneficial interest in Borrower is sold or transferred) without Lender’s prior written consent, Lender may require immediate payment in full of all sums secured by this Security Instrument. However, this option shall not be exercised by Lender if such exercise is prohibited by Applicable Law.”

Given that lenders freely assign their mortgages to and from each other, and also sever the ownership of the note from the servicing rights, making it difficult for borrowers to keep track of or even know who their noteholder is, the fact that borrowers do not enjoy a similar ability to freely assign their ownership rights in the house seems unfair, particularly given that the lien would follow any assignment AND the borrower would remain personally liable for repayment of the debt. Regardless, due-on-sale clauses are generally enforceable. Fidelity Fed. Sav. & Loan Ass’n v. De la Cuesta, 458 U.S. 141, 159, 167, 102 S. Ct. 3014, 73 L. Ed. 2d 664 (1982).

Even if you cannot transfer your properties to your LLC without violating or potentially violating the due-on-sale clause, there exists a federal law that preempts all state laws, which allows you to transfer your property to a “inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupany in the property” without triggering the due-on-sale clause. 12 USCS § 1701j-3.

Consequently, the properties that you own outright or through non-FHA or conventional financing can go into your LLC while the rest should generally go into a family trust.

Please note that this article only contains rules of thumb. Every person’s situation is different and you should not take any action based on this blog post before consulting with a licensed attorney in your state with whom you have shared all relevant details of your assets, liabilities, and other factors.

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.

Texas Tools for Recovering Assets on Behalf of Defrauded Investors

Financial Record Requests/Subpoenas:

In my experience, the financial record request is one of the most powerful tools for finding assets on behalf of defrauded investors. Section 30.007 of the Texas Civil Practice and Remedies Code provides that these requests are governed by Section 59.006 of the Texas Finance Code. In Texas Finance Code Section 59.006, you can find many rules regarding how the process works, but the key feature of this statute, in my opinion, is the burden placement. The statute places the burden on the party resisting discovery to obtain relief from the Court. That typically means filing a motion, drafting an affidavit, setting it for hearing, filing notice of hearing, dealing with scheduling conflicts, waiting through a long docket call, arguing the motion, possibly offering testimony, and finally obtaining a ruling. That is a lot of work. Consequently, the party resisting the discovery rarely puts up as much of a fight as they will when they are simply resisting discovery responses.

Resisting traditional discovery, like a Request for Production under Tex. R. Civ. P. 196, is much easier. For the most part, your attorney will simply pick one of the innumerable form objections that exist, write it down, state what is being produced and what is not being produced, and send it to opposing counsel. Then, the burden is on opposing counsel to file a Motion to Compel Discovery Responses, set it for hearing, deal with scheduling conflicts, wait through a long docket call, argue the motion, and obtain an order. Then, once the order has been obtained, there is the inevitable subsequent battle over the scope of the order. Again, the burden is on the one wanting the discovery to prosecute this. The bank, however, does not have a dog in the fight, so to speak, so the bank will typically produce more or less exactly what the bank has been asked to produce without raising countless objections and necessitating potentially expensive and time-consuming pre-trial hearings over the matter.

I am planning on adding more sections to this post in the future. Reading an article on these tools can be helpful, but using them to achieve your goals takes some finesse.

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.

Applying the Rule of Capture to Residential Subdivions in the DFW Area

Applying current Texas Oil and Gas Law to micro-tract owners in urban areas ripe for horizontal drilling is often like attempting to put a square peg into a round hole. The Law was written with vertical drills and large and small, but not micro-sized, rural tracts in mind. Inside large metropolitan areas where tracts often consist of a mere tenth of an acre, application of current law may result in a taking of private property even if only in small amounts.

With modern horizontal drilling and hydraulic fracturing techniques for natural gas extraction, a single pad site located in an urban area can be used to drill ten or more lateral wells miles beneath the surface each extending for thousands of feet in different directions. In the Barnett Shale, in an area like Fort Worth, Texas, hundreds of houses often lie on top of the surface of the drilling area.

The Texas Supreme Court held in Coastal Oil and Gas Corp. v. Garza[1] that ­subsurface fracking of unleased property does not constitute trespass and further than no compensation for taken minerals must be given when four conditions exist. Each of these conditions serves to ensure that the property rights of the unleased landowner are adequately protected.

In urban areas, often only one of the four conditions exists, and even then, the last remaining condition likely only offers partial protection. This partial protection may result in a taking of property.

The four conditions are as follows: (1) if the unleased landowner can drill his own well, then his only remedy for drainage is to do so (this is the basic Rule of Capture), (2) if the landowner leased and his lessee negligently fails to drill an offset well, then the landowner can sue the lessee for damages, (3) the Railroad Commission can regulate production to prevent drainage, and (4) if none of the other remedies are available, then the aggrieved landowner can use the Mineral Interest Pooling Act (“MIPA”) to force pool her interest. For the urban landowner on less than an acre with a house taking up much of the surface area, drilling an offset well is both legally and practically impossible, which cancels out the first two conditions. The third condition offers no relief because regardless of how production is regulated, the unleased landowner will be subjected to uncompensated drainage. The fourth condition does potentially offer relief, but even if the micro-tract urban landowner can clear all of MIPA’s hurdles, relief is almost certainly not available as of the date that drainage began.

The Supreme Court of the United States has held that even slight physical occupation of property is a taking “to the extent of the occupation.”[2] Consequently, MIPA cases involving unleased urban micro-tract owners subject to Rule 37 spacing exceptions could result in a confiscation claim for (a) drainage occurring between the time that drainage began and entry of the Railroad Commission’s interim escrow order, or (b) for drainage that goes uncompensated due to inadequate protection under Texas’s anachronistic forced-pooling act.

In the current environment where the rights of unleased, urban, micro-tract owners are unclear, offers are generally made to lease and sometimes to participate as a working interest owner. Often, however, no significant competitive market exists once an operator has filed a courthouse unit, and been designated as operator of the urban unit. Offers are sometimes made with take-or-leave-it, adhesion-basis terms possibly because the urban, micro-tract landowners are thought to lack the sophistication and leverage to bargain for their rights, unlike their rural, small-tract counterparts who have grown savvy over many decades of rural development.

[1] Coastal Oil & Gas Corp. v. Garza Energy Trust, 268 S.W.3d 1 (2008).

[2] Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 434–35 (1982).

Read a Full-Length Article About This Topic Here

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.

HB 2066 and 2067: New Changes to Texas Foreclosure Laws

Two fairly major changes to Texas foreclosure law occurred recently. House Bill 2066 modifies Chapter 51 of the Texas Property Code to make it easier to rescind nonjudicial foreclosure sales and House Bill 2067 amends Chapter 16 of the Texas Civil Practice and Remedies Code to make it easier to rescind acceleration of promissory notes.

HB 2067 supposedly prevents debtors from obtaining windfalls in the form of having their mortgage debt extinguished because the bank took too long to foreclose. The bill allows banks to unilaterally reset the statute of limitations on foreclosure whenever they want to do so, without consulting the debtor. According to legislative records, banks complained that the Dodd-Frank Act causes them to delay foreclosure, often more than the four-year limitations period, and that it is not fair to lose their note due to Dodd-Frank compliance. While it is hard to comprehend why these debtors deserve such a windfall, this Act is likely to have unintended consequences. For example, many debtors attempt to make payments while the note is accelerated, only to have those payments returned. By the time the banks rescind acceleration, the banks typically add on tens of thousands of dollars in attorney’s fees, late fees, and other charges. Some banks likely even compound the interest while refusing to accept payments. The foregoing practices cause any equity that the debtor had to rapidly evaporate. In some cases, debtors may qualify for relief under loan modification programs, but in many cases, it is likely that this law will cause forfeiture of substantial equity built up over years of timely payments. Personally, I think that this bill gives too much power to the banks. Without reasonable limitations on the bank’s ability to tack on additional fees and interest, this bill likely removes windfalls from debtors while awarding windfalls to the banks.

The bill, furthermore, will contribute to urban blight by allowing foreclosure processes to drag on infinitely. Where I live, houses tend to have foundation problems that are expensive to treat. If those problems are not nipped in the bud early, then they can cause permanent, unfixable structural damage. If a foreclosure drags on for eight years and foundation problems are not addressed during those eight years because the owners believe that they will eventually lose their house to foreclosure, then the damage will be irreparable. Furthermore, we have all seen the houses on our streets that have been left vacant for years. Many of these houses are falling into disrepair. The owners have long gone, but the banks still have not foreclosed and taken possession of the property. In some cases the banks mow the lawns and perform the bare minimum maintenance to avoid municipal liens, but do little else, and the house deteriorates. Dodd-Frank or no Dodd-Frank, these foreclosures need to occur in a timely manner. We already have tolling laws to account for bankruptcies and the like. Allowing the foreclosure process to go on for an infinite period of time seems, to me, like it will contribute to more problems than it solves.

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.

Before You Lease Your Minerals, Check the Facts

Before you lease your mineral rights, make sure that you know what you have so that you understand what you are giving up. Contrary to popular opinion, not all mineral rights are the same. The value of your rights depends on the location of your land, the location of nearby wells, the production of nearby wells, the presence or absence of immediate drilling plans, the status of the title history to your neighbor’s lots, the stage of regulatory approvals that your drilling unit is in, the type of regulatory approvals that have been requested, the way that the drilling unit lines have been drawn in your area, the ability of the operator who intends to develop the unit, and most importantly the unique history of title to your particular piece of land.

There are two serious consequences of failing to check the facts. First, you could sign a bad lease. You may be able to easily negotiate better terms if you know how much leverage you have. Second, your minerals could be drained without any compensation to you. Yes, you heard that right. Under the Rule of Capture, which is followed in Texas, your minerals can be taken without paying you anything. When Daniel Day-Lewis talks about drinking someone else’s milkshake in the movie There Will Be Blood, he is talking about the Rule of Capture. It is a real law and it can affect you.

You can obtain most, if not all, of the information that you need from three sources: (1) the Texas Railroad Commission, (2) the Texas Comptroller’s Office, and (3) the county deed records for the county that you are in. You may also need to look at records kept by the city of municipal regulations and regulatory proceedings, as well as information from the county appraisal district. A comprehensive guide to all of these sources of information would be too long to fit in a blog post. In brief, what you want to do is start with the websites for the Railroad Commission and the county. You will find a great deal of the information that you need there. You will also want to get yourself a mapping program. There are many professional programs available for purchase, but for the most part, you should be able to accomplish your goals with a free Google Earth download.

If you need help or have questions, feel free to call our office.

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.

House Bill 2590 (Continuation of Oil and Gas Leases After Foreclosure) Would Reward Wrongful Conduct

Virtually all mortgage loans are drafted to encumber the mineral estate with a lien. Lender consent is generally expressly required to lease the minerals. Despite this requirement, many operators, particularly in urban areas have become lax about obtaining subordination agreements.

To solve the problem, Bill HB 2590 was promoted, which passed the Texas House and Senate in the Eighty-Third (83rd) regular legislative session. Fortunately, the Governor vetoed it. The bill would have forced the foreclosure-sale purchaser into a lease that neither he nor his precedessor-in-interest negotiated. Instead the buyer would be stuck with whatever lease the debtor negotiated in blatant violation of the lender-consent provisions of the mortgage.

This bill’s constitutionality is doubtful. The foreclosure-sale buyer acquires the interest encumbered by the lien, not whatever interest is held by the debtor. The lender never agreed to the lease terms, then when the buyer buys the lender’s interest, this bill would force the buyer into an agreement that he never made, that the owner of the interest purchased never agreed to, and that violated the mortgage contract, probably tortiously.

This bill should not be resubmitted to the Governor because it would interfere with private property rights by forcing landowners to accept terms that no one agreed to except the debtor, who violated the mortgage terms by leasing without obtaining lender consent and who only owned part of the interest sold, and the operator who failed to obtain a subordination agreement with full knowledge of its necessity.

When the mineral lessee executed the lease, the lessee knew that the lease violated the terms of the recorded instruments. The lessee also knew about the risk of foreclosure yet made the voluntary business decision to assume that risk. Now that the risk has materialized, the lessee should not be able to shirk its obligations by pushing that risk off onto the victims. This bill would reward lessees for ignoring mortgage terms, tortiously interfering with the mortgage, willfully disregard the obligation to obtain a subordination agreement, and then be rewarded for the foregoing conduct.

http://governor.state.tx.us/news/veto/18669/

http://www.legis.state.tx.us/tlodocs/83R/billtext/html/HB02590S.htm

http://legiscan.com/TX/text/HB2590/id/774499

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.

When the Statute of Limitations Begins to Run on Installment Loans

The short answer is that with installment loans, the statute of limitations begins to accrue on each installment as it comes due. Once the payments are accelerated, then the statute begins to run on the balance of the debt.

If the loan is on real estate, however, then the limitations period does not begin to run until the “maturity date of the last note, obligation, or installment.” Tex. Civ. Prac. & Rem. Code § 16.035(e). Section 16.035(e), however, does not apply when the note has been accelerated. See 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, 903–904 (Tex. App.—Dallas 2007, no pet.).

In Texas, “‘A cause of action accrues when an installment is due and unpaid.’ See Gabriel v. Alhabbal, 618 S.W.2d 894, 897 (Tex. Civ. App. — Houston [1st Dist.] 1981, writ ref’d n.r.e.); Goldfield v. Kassoff, 470 S.W.2d 216, 217 (Tex. Civ. App. — Houston [14th Dist.] 1971, no writ).” Stille v. Colborn, 740 S.W.2d 42, 44 (Tex. App. San Antonio 1987). The balance of a loan becomes due and unpaid upon acceleration. Id.

If the loan is for real estate, then the statute of limitations is four years and special provisions apply. Tex. Civ. Prac. & Rem. Code § 16.035. For example, “A sale of real property under a power of sale in a mortgage or deed of trust that creates a real property lien must be made not later than four years after the day the cause of action accrues.” Id. § 16.035(b).

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.