I have a real estate agent representing me in selling my property…do I need a lawyer?

Posted on August 1, 2011 by Brooke J. Daves

I often come across clients, as well as real estate agents, that think that as long as a real estate agent is involved in a real estate transaction, there’s no need for a lawyer. In fact, on more than one occassion I have heard real estate agents claim, when they hear that the client wants to hire a lawyer, that lawyers always just “kill the deal.” However, both a real estate agent and real estate attorney should have the common goal of closing a deal that is the most beneficial to his or her client, while at the same time, advising a client against a purchase that is a money pit or legal nightmare waiting to happen.

Even so, the need for a lawyer arises due to the fact that the real estate agent, although trained on the basic real estate laws in Texas so as not to lead his or her clients astray, is not qualified or permitted to give legal advice. In fact, the TREC form contract states specifically: “No representation is made as to the legal validity or adequacy of any provision in any specific transactions. It is not intended for complex transactions.”

Nevertheless, throughout the process of buying or selling property, a client often has the need for legal advice, and I have found that very few real estate transactions are not complex. For example, a buyer needs to know whether any of the matters that show up on the title commitment or survey are worth objecting to, or possibly even concerning enough to warrant terminating the transaction. In addition, both a buyer and seller need to be able to interpret the contract, if the other party defaults in some of its obligations. Finally, it is very common that the standard Texas Real Estate Commission form is not sufficient for a particular transaction on its own, and the parties want to add additional provisions.  These provisions can range from very simple, such as whether the refrigerator will remain with the house, to very complex, such as restrictive covenants that the seller wants to impose, complex financing arrangements or contingencies for terminating the contract. Moreover, when commercial property is involved, a number of other items need to be addressed in the real estate contract, such as the status of leases. In order for such provisions to be legally sound, an attorney needs to be involved in the drafting.

Therefore, while a real estate agent serves a useful role in any real estate transaction, he cannot replace the advice and guidance which only a Texas lawyer with experience and knowledge in real estate transactions can provide.

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I want to sell my property, and I’ve found a buyer…what do we need to do now?

Posted on July 23, 2011 by Brooke J. Daves

In order to sell property in Texas, you need a written contract.  A title company will not even consider handling a closing until they have a written contract in hand signed by both the seller and buyer, and including the essential terms of the sale.

There are a number of essential terms that must be included in a contract for sale under Texas law in order to be enforceable.  For each transaction, which terms are essential will vary somewhat depending on what is important to the buyer and the seller. However, in almost every transaction, you need to make sure that the following terms are included:

  • Names of the parties (buyer and seller)
  • Legal description of the property
  • Purchase price
  • Condition of property, and whether any repairs have to be made prior to closing
  • Any contingencies, such as a financing contingency
  • Terms for review of title and survey, and deadlines for objecting
  • Statement of closing expenses and who will be paying which expenses
  • Closing and possession dates

(This list is not an exhaustive list, but is simply a list of some of the terms that often need to be included.)

While there are a number of “form” contracts available for buyers and sellers to use,
I have found that clients often get confused when they try to fill in the necessary blanks on their own.  For example, the item that I find buyers and sellers most often make a mistake on is the legal description.  The legal description of a property is not simply the address or the block and lot number, but it must include the entire legal description from the deed,
including the metes and bounds and lot and block number, as applicable, as well as the county and state.

Many form contracts state that the legal description will be attached as Exhibit A, but then no one ever attaches the Exhibit A. Under such circumstances (unless there is somewhere else in the contract sufficiently identifying the property), the entire contract is not enforceable due to this omission.  Even if the seller only owns one piece of real property, under Texas law a real estate contract without an adequate legal description is not enforceable. Therefore, either the seller or buyer could terminate the contract at
any time.

Accordingly, it is best if a Texas-licensed attorney is involved in the drafting of the real estate sales contract in order to ensure that the essential terms are included and the contract is enforceable.

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Does title insurance insure me against any encroachments onto my property, like a neighbor’s fence or shed?

Posted on July 21, 2011 by Brooke J. Daves

When you get title insurance for property you are purchasing, one of the many exceptions included in the title policy (that is, one of the things the title insurance is saying they will not insure you against) is “any discrepancies, conflicts or shortages in area or boundary lines, or any encroachments or protrusions, or any overlapping of improvements.”

However, if you provide the title company with a current survey that meets their requirements and if you pay a premium (usually 15% of the price of the owner’s policy), they will amend that exception to read only “shortages in area.”  Accordingly, the title policy will then protect you against any discrepancies, conflicts, shortages in boundary lines, any encroachments or protrusions, or any overlapping of improvements.

Many times I find that clients are either unaware of this option or do not even realize that title insurance does not already cover such issues without the buyer having to pay extra.  For example, I had a client come to me once whom I had not represented previously when he purchased his property, and who had not paid the extra premium for the survey amendment to the title policy. However, after purchasing the property, he realized that the neighbor’s fence encroached on his property so significantly that it made his 3.0 acre tract now closer to a 2.5 acre tract. Understandably, he was bothered by this problem, and the neighbor was unwilling to move his fence.

My client did have a title policy, but he had not purchased the survey amendment. If he had, the title insurance would have handled the matter, as well as any potential lawsuit with the neighbor to get him to move his fence. Instead, my client had to hire me to handle the situation with his neighbor. Eventually, we got the neighbor to move his fence, but my client would have been saved a lot of headache and money if he had simply paid the approximate $150 extra for the amendment to the title policy when he purchased the property.

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What does it mean when there are “exceptions” listed on my title policy or deed, and should these worry me?

Posted on July 20, 2011 by Brooke J. Daves

When you purchase property, the property is conveyed to you by a Warranty Deed (either special or general). In the deed, the seller is warranting and agreeing to defend the title.  And in most cases, you pay for a title policy from a title insurance company, insuring your title to the property.

However, both the deed and the title policy can, and most often do, include “exceptions.”  For example, an easement on the property may show up when the title company runs the title on the property.  The title company would then include this as an exception to their insurance, meaning that they will not defend you against any issues that arise due to that easement.

In addition, depending on the language in the real estate sales contract you executed with the seller, the deed will either include general exception language, or the specific exceptions identified by the title company.  Either way, by listing those items as exceptions to the seller’s warranty, the seller is relieved from defending you against any claims related to those matters.

Upon receiving the commitment from the title company identifying these “exceptions” that will be listed on both the title policy and possibly the deed, it is very important to review those items individually.  For example, they could include a number of restrictions that could affect you and your plans for the property, such as an easement preventing you from building any improvements in the exact location you plan to build a shed, an easement to other persons giving them the right to cross your property to access their property, or a deed restriction preventing you from ever operating a grocery store, when such use was exactly the use you anticipated and for which you purchased the property.

Because of the great significance that these “exceptions” have to your title to the property, the Texas Real Estate Commission One to Four Family Residential Contract includes this notice to buyers:

Broker advises Buyer to have an abstract of title covering the Property examined by an attorney of Buyer’s selection, or Buyer should be furnished with or obtain a Title Policy. If a Title Policy is furnished, the Commitment should be promptly reviewed by an attorney of Buyer’s choice due to the time limitations on Buyer’s right to object.

In fact, under most real estate sales contracts, a buyer has the right to terminate the contract and get a refund of his earnest money if he objects to any of the matters which show up on the Commitment, so long as the buyer objects within the time frames and in the manner provided in the Contract.  Accordingly, not only is it advisable to have an attorney involved prior to execution of the Contract to adequately assist you with negotiating the terms of the contract, but also at the time of receipt of the Commitment, so that he or she can review the Exceptions and the Exception Documents in time for you to object if necessary and terminate the Contract if the issues cannot be resolved.

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I am buying/selling property in Texas…should we use a general warranty deed, special warranty deed, or quitclaim deed?

Posted on July 19, 2011 by Brooke J. Daves

I am often asked the question of what difference there is between the various types of deeds used in Texas, as well as which one my client should use (or request  that the seller use if my client is the buyer). In order to understand which is preferable, a potential buyer or seller of real property inTexas needs to understand  the difference:

General Warranty Deed:

A Texas general warranty deed is the traditional type of deed used in Texas. Most people do not realize that when they execute a deed, they are not simply conveying the property or transferring title to the property to the buyer, but they are also warranting and agreeing to forever defend title to the property. The seller, or grantor, is giving a warranty to the buyer, or grantee, that she has good and marketable title to the property, subject to certain exceptions listed in the deed and any reservations by the seller. Essentially, this means that if the buyer later encounters problems with the title to the property, the seller is obligated to defend the buyer’s title to the property.  More specifically, under a Texas General Warranty Deed, the seller, or grantor, is agreeing to warrant and forever defend all and singular the property to the grantee and the grantee’s heirs, successors, and assigns against every person whomsoever lawfully claiming or to claim the same or any part thereof.

Special Warranty Deed:

Similarly, the seller, or grantor, under a Texas Special Warranty Deed is also agreeing to warrant and forever defend the property to the grantee, or buyer, against every person whomsoever lawfully claiming or to claim the same or any part thereof, however, the warranty under a special warranty deed is limited to only those claims that are made by, through, or under grantor but not otherwise. Basically, if the grantor, or seller, sold the property to someone else, encumbered the property in some way, or took some other action giving rise to someone else’ claim in the property, then he will defend. However, under a Special Warranty Deed, the seller is not obligated to defend title to the property against people whose claim arose through an owner prior to the grantor.

Quitclaim Deed:

Finally, on occasion I have clients who think a quitclaim deed is the most appropriate deed, such as when two owners of property decide that one is going to convey his or her interest in the property to the other. However, I very rarely recommend that such a type of deed be used, as a standard quitclaim deed is really not a deed at all. Instead, it is simply a release by the person that he or she will not claim title to the property. Depending on the wording of the quitclaim, at times it does not even use the word convey or transfer, and it does not warrant title to the property. Accordingly, using a quitclaim deed can often cause problems later when the owner goes to sell the property to a third party who wants to get title insurance on the property. Therefore, the limited situation where I have, at times, recommended a quitclaim deed is when title to the property is not actually in the name of an individual (but possibly in a trust instead), but the buyer is wanting to make sure that none of the beneficiaries to the trust later claim title to the property after the sale by the trust to the buyer. In such a situation, it could be appropriate to have the beneficiaries sign a quitclaim deed.

So which should I use?  The answer of which is preferable depends on whether it is the buyer or seller who is asking.

For the seller, the less he is agreeing to warrant and defend the property, the better. He understandably wants to limit his future liability for any problems with the title, especially if they are problems that are due to actions taken by prior owners and not by him. Therefore, it is very common in commercial transactions in particular, but also in residential transactions involving more savvy sellers, for the seller to agree to only give a special warranty deed.

For the buyer, the greater warranty and protection he can get from the seller, the better. Accordingly, the buyer usually would prefer a general warranty deed, and in many residential transactions, the seller is agreeable to such a deed. Interestingly, the Texas Real Estate Commission form contract for a 1 to 4 family residential property does provide for a general warranty deed, as that is the traditional type of deed used in residential closings.

Can I wait until closing to worry about what kind of deed we will use?

You can, but you won’t be able to do much about it at that point. The type of deed that will be provided is usually specified in the contract that is initially executed by the buyer and seller. Therefore, this is one of many reasons why it is helpful to consult a lawyer before you even execute the purchase contract. While many people believe they do not need a lawyer, if at all, until they go to closing, much of the closing documents are dictated by the terms of the contract. If the buyer or seller has already signed a contract agreeing to terms contrary to what his or her lawyer later advises him or her, there is often very little anyone can do at that point to change the terms, unless both sides are agreeable.

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THIS BLOG AND THE ANSWERS PROVIDED HEREIN ARE FOR EDUCATIONAL PURPOSES ONLY, NOT AS LEGAL ADVICE. IF YOU REQUIRE LEGAL ADVICE FOR A PARTICULAR SITUATION, YOU SHOULD CONSULT AN ATTORNEY.

Posted on July 18, 2011 by Brooke J. Daves
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