Articles Posted in Real Estate Law

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Earlier this week, the Texas Senate State Affairs Committee approved the draft of a new statute entitled the Texas Real Property Transfer on Death Act (Senate Bill 462). You can review a draft of the bill here. This bill would create a procedure for a non-testamentary transfer of real property. In this case, non-testamentary means that it passes outside of someone’s will and avoids the entire probate process.

We don’t yet know if the bill will end up as a statute. If it does, it will go into effect on September 1, 2015. The potential statute contains a number of traps for the unwary. For example, the specialized deed authorized by the bill applies only to a person who owns real property as a joint tenant with right of survivorship. As currently written, the bill does not apply to an owner who is a tenant in common or an owner of community property with or without a right of survivorship. As currently written, Section 114.055 of the bill has some very specific requirements that must be complied with if this specialized deed is to be effective. It will also be important to be aware of the conditions that will revoke the deed, described in Section 114.057 of the bill. Interestingly, a contrary provision in a will does not revoke or supersede a transfer on death deed.

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The United States Supreme Court recently issued an opinion that effects many Texas property and mineral owners. Specifically, the Court decided the case of Marvin M. Brandt Revocable Trust v. United States in an 8 to 1 decision. The Court determined that certain rights-of-way for railroads revert to private property owners following the railroad’s abandonment of the right-of-way easement. The ownership of the easement may carry with it ownership of the mineral estate. Where it does, and when the easement covers many acres, the mineral interests could be very valuable.

This case is significant for Texans because there are many railroads and railroad rights-of-way throughout Texas. The decision, written by Chief Justice John Roberts, addressed this central question: what happens to the ownership of the right-of-way easement when a railroad abandons its right-of way. In this case, the right-of-way was granted to the railroad under the General Railroad Right-of-Way Act of 1875. This Act gives railroads the right-of-way through public lands in the United States. The land at issue in this case was a ten-mile strip in Wyoming, upon which the right-of-way was created in 1908. Subsequently, in 1976, the federal government conveyed the land to Marvin and Lulu Brandt. The railroad later abandoned the right-of-way, and by 2004 all the track had been removed. In 2006, the U.S. government requested a judicial declaration of their title. The Brandts’ deed (which was a land patent) didn’t specify what would happen if the railroad gave up the right-of-way. Mr. Brandt argued that the right-of-way had been an easement, and that once it was abandoned, it was terminated and the easement area belonged to him. The U.S. government argued that after abandonment, title to the right-of-way land reverts back to the government. The U.S. District Court awarded title to the U.S. government and the Tenth Circuit Court of Appeals affirmed.
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Chief Justice Roberts reversed the lower courts’ rulings. The Supreme Court’s majority opinion found that the right-of-way was terminated at the time of the abandonment, and that the Brandts owned the property. The Court found that the language, legislative history, and subsequent administrative interpretation of the 1875 Act supported this decision. The Court cited Great Northern Railway Co. v. United States, decided in 1942, in support of its decision. In that case, also decided that under the 1875 Act, the U.S. government granted the railroad only an easement, not fee simple title in the easement property, and therefore, the easement disappeared once it was abandoned. The Court found that in the Brandts’ case that the railroad abandoned the easement in 2004 and the government did not have any interest in the land after. Title to the easement property reverted to the Brandt Revocable Trust as the current owners of the land.

Justice Sonia Sotomayor was the only dissenting justice in the case. She stated that there is a judicial precedent for the concept that when Congress granted land to railroad companies, they did not intend to have these land grants end up in private hands. Justice Sotomayor would have decided that, even if this was an easement under the 1875 General Railroad Right-of-Way Act, it was not an ordinary easement and it should have been determined in favor of the United States. Luckily for property owners who have abandoned railroad rights-of-way on their land, Justice Sotomayor’s view did not prevail.

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There was an interesting decision issued last fall by the US Supreme Court regarding government land use control and regulation, an issue that is always significant in Texas. The case is Koontz v. St. Johns River Water Management District, and the opinion illustrates some important limitations on government land use regulations. The five to four decision, with the majority opinion written by Justice Samuel Alito, holds that in land use regulation, the government must show a nexus and proportionality between what the government demands of the landowner and the effects of the landowner’s proposed new use of the land. The decision underscores a landowner’s rights to challenge government decisions regarding land use on a constitutional basis.

In this case, Mr. Koontz bought 14.9 acres of undeveloped land in Florida in 1972. Later in 1972, Florida passed a law called the Water Resources Act which required landowners to obtain a permit and commit that what they want to build would not damage water resources. Then in 1984, Florida passed the Henderson Wetlands Protection Act which required that landowners obtain still additional government permits. Mr. Koontz wanted to develop part of his land in the 1990s. He wanted to fill part of the land to make a storm water pond, and offered to offset the environmental impact of this fill by creating a conservation easement on the rest of his land. His plan was rejected by the St. John’s River Management District, so Mr. Koontz turned to the court system and sued for monetary damages for an unconstitutional taking.

The Florida District Court and Court of Appeals held that Florida had overreached due to the nexus and proportionality requirements. Their decision was based on two prior US Supreme Court cases, Nollan v. California Coastal Commission and Dolan v. City of Tigard, both of which used the “nexus” and “rough proportionality” standards. The Florida Supreme Court reversed the two lower court decisions, and indicated that the Nollan and Dolan principles didn’t apply to Mr. Koontz’s case.

people-on-beach-enjoying-sunset-1406478-m.jpg Justice Alito’s decision for the US Supreme Court reversed and remanded the Florida Supreme Court’s decision, holding that the nexus and proportionality tests from Nollan and Dolan must be satisfied when the government denies a permit request and when the government requires payment of money for approval of the permit. This part of the decision was unanimous. As to compensation for a taking under Fifth Amendment, the US Supreme Court held that issue must be determined by state law.

This decision by the US Supreme Court will certainly be relevant to state and federal permitting in Texas.

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For mineral owners in the northern Texas Panhandle, there is an exciting new development: Apache Corporation is planning to conduct a seismic survey in the Pennsylvania Canyon Wash formation to see if it is suitable for horizontal drilling. At present, there are parts of the Panhandle that not been fully explored for oil. Apache intends to drill down for the 3D survey. At 9,200 feet deep, the company believes that Canyon Wash would be well suited to the type of drilling that it wants to do.

Apache, headquartered in Houston, Texas, has grown beyond its humble beginnings in Minnesota to become a successful multinational oil and gas company. oil_pumpjack.jpg Today, Apache has $30 billion in capital and offices in the United States, Canada, Australia, Argentina, Egypt, and the United Kingdom. Yet since the company moved its headquarters to Houston in 1992, it has kept an active interest in Texas projects.

Currently, Apache holds a 75% interest in 122,000 fields south of shallow production in the Panhandle field. The area remains mostly pristine, with just 23 penetrations. Apache hopes to start a multi-rig program in 2012 in the area known as the Cimarron Arch. The company’s Bivins Ranch acreage is situated in Oldham, Potter, and Hartley counties. Apache’s partner in the acreage, Gun Oil Company, already completed a vertical Canyon Wash discovery well in Oldham County in March 2010. The well produced 42,000 bbl within the first nine months. Apache officials believe that the latest exploration will lead to wells that could recover up to 343,000 bbl/well — or 87% oil. Each well would have an estimated price tag of $3 million. Apache may achieve up to 100 drillable locations from 2012 through 2015.

This is welcome news not only for mineral owners in the Texas Panhandle, but also for anyone who cares about energy that is easy to access and affordable. Owners of land rich with minerals could be in a position to lease to the Apache Corporation and other energy companies that come along to explore, thus helping the local economy. The news is also welcome because it means that companies are finally starting to tap additional areas in the United States ripe for oil extraction. Oil and gas interests have been firm in their belief that energy independence begins at home — but too often, federal regulators and environmentalists have put a stop to meaningful exploration. Meanwhile, some of the sources that are already tapped in the U.S. may be vulnerable to natural disasters (such as hurricanes in the Gulf of Mexico) or to regulators’ overreaction (such as the Obama administration’s decision first to stop, and then the slow walk deep water oil drilling permits following the Deepwater Horizon tragedy). The result is skyrocketing gasoline prices at the pump.

The Texas Panhandle is out of the reach of hurricane weather. Let us hope that that Apache and other energy companies active in the Panhandle are successful in their exploration. As a country, we won’t ever be weaned from Middle Eastern oil until we are producing more ourselves.

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One of the largest offshore oil spills in history occurred when the massive Deepwater Horizon semi-submersible oil drilling platform suffered a drilling-related explosion, was engulfed in flames, and sank. The economic and environmental effects of this event are still not fully understood, so studies are ongoing to determine the impact that it has had on the Gulf region. One such study, entitled “The Gulf Oil Spill and Its Impact on Coastal Property Value Using The Before-and-After Procedure” was completed several months ago by the University of South Alabama on the effect that the spill has had on Alabama coastal property values.

718977_big_oli_rig.jpgIn order to determine the amount of decline in value on affected coastal properties, the study made use of the before and after procedure (BAAP) that is based upon market prices preceding the Deepwater Horizon incident and data indicating the impacted value of those same properties after the accident occurred. The study seeks to determine if a stigma has attached to these properties, which amounts to the perceived blemishes on those properties that have arisen as a result of the spill. The study focused on evaluating properties located directly on the waterfront, multiple types of residential properties, and both developed and undeveloped land. It relied upon sales transaction records in the area for the year prior to the spill as a comparison basis to help determine the possible drop in value attributable to the spill.

The research showed that the possible effect on the studied areas was significant, and vacant residential properties on the waterfront suffered the greatest decrease in values after the spill, as they dropped over 42 percent in value from April 20, 2010, to August 15, 2010. Single-family waterfront residences saw a half-percent drop during the same period, and condominiums saw a 3.5 percent drop. However, much of the decrease in value was likely due to a downturn in prevailing economic conditions. A control group of properties located in Florida (not affected by the spill) was also tracked, and similarly situated properties also saw condo and vacant waterfront land prices drop by over 20 percent during the same time period, though single family residences saw a jump in value of over 30 percent. As such, the numbers indicate that only the drop in undeveloped property prices may have been caused by the oil spill.

While the study rendered a somewhat surprising result for many – that there was not a stigma attached to waterfront properties in the Gulf region of Alabama that caused a decline in property values – it also noted that there are some limitations to the analysis. The BAAP method is best served by having real-time property sales price information for continued evaluation to render more accurate results. Additionally, the BAAP does not factor in a decline in potential buyers in the market, and instead only focuses on sales prices properties during the study’s time period. In order to formulate a more full analysis of the Gulf Oil Spill’s effect on real estate values in the region, an adjustment process for the decline in buying activity is needed.

With the passage of time, we have seen that the long term effects of the Deepwater Horizon incident have been much smaller than expected. If a study were done today, I suspect it would reveal no lingering effect on any property values along the Gulf.

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texas_flag.jpgAccording to the American Land Title Association, the first reported private transfer fee covenant was created to pay money to the Sierra Club and the National Audubon Society in order to fund an open space preserve. Since then, developers and homeowners’ associations alike have borrowed the mechanism to generate a form of income that was previously unavailable. Over the past decade, private transfer fee covenants have been heavily used in California and Texas, prompting lawmakers to consider banning the provisions altogether.

In 2007, the Texas Legislature addressed private transfer fees in Section 5.017 of the Texas Property Code. The provision provides that a deed restriction on residential property that requires the buyer to pay a third party a fee in connection with his purchase of the property is unenforceable. However, the statute’s broad prohibition of private transfer fee covenants has a few major exceptions. Texas’ private transfer fee prohibition does not apply to 1) property owners’ associations, 2) certain not-profit organizations, and 3) governmental entities.

Texas’ approach is not without criticism. First, many argue that the law does not go far enough because it only applies to residential property. Commercial developers are free to include private transfer fee covenants in the deeds of commercial property. Second, private transfer fees are legal and enforceable if made payable to homeowners’ associations. Some find fees payable to homeowners’ associations to be less objectionable than fees payable to the developer. After all, the money goes to improve common property and maintain the premises. On the other hand, homeowners complain that they already pay homeowners’ association monthly dues. What gives the HOA a right to 1% of their home’s purchase price?

Lastly, many lawyers and legal analysts complain that Texas’ private transfer fee law is ambiguous. It’s unclear whether private transfer fees are enforceable if chargeable to the property’s seller. Additionally, the law does not address the tough legal details that arise with private transfer fee covenants. For example, the statute does not give homeowners’ associations any specific remedy for enforcing private transfer fees, nor does it address whether or not a buyer could get out of a contract to buy a home once he discovers that he is obligated to pay a large fee to his homeowners’ association.

The lesson for consumers is clear. Before you enter into a contract to purchase a home or condo, make sure that you know about all of the fees that you are expected to pay at closing and beyond. While you may not be happy about having to pay a private transfer fee to a homeowners’ association, if you know that the fee is expected, you may be able to negotiate with the seller for a lower purchase price. On the flip side, buyers should also know that one day they may want to sell their property. A private transfer fee makes the sale a little more difficult, and gives the buyer some leverage to negotiate for a lower price.

Texas real estate attorney Aimee Hess is available to discuss any deed restriction, including private transfer fee covenants. She can be reached toll free at 1 (888) 818-5880.

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house1.JPGImagine buying your dream house and everything is going swimmingly. The closing date approaches, but you notice something odd in the paperwork. A “reconveyance fee” is listed as a deed restriction and requires all future buyers over the next ninety-nine years to pay one percent of the home’s sales price as a “transfer fee” to a homeowners’ association.

Over the past decade, thousands of Texas home buyers have found these strange “reconveyance fee” and “transfer fee” provisions in their dream home’s deed. Commonly referred to as “private transfer fee covenants,” these types of fees are completely foreign to most home buyers and sellers.

A private transfer fee covenant is a fee payable to a private third party (frequently the property’s developer or the local homeowners’ association) which becomes due every time the property is sold to a new buyer. These fees frequently purport to continue for ninety-nine years, and they are usually recorded in the county records or included as a covenant in the deed for every home in a new subdivision. The transfer fee is usually 1% of the final sales price, and either the home’s buyer or the home’s seller could be required to pay it.

If the fee goes unpaid, the private party who is entitled to the fee can obtain a lien against the property in the amount of the total unpaid fee, plus interest. The lien remains on the property and can create a cloud on the property’s title, which makes the property unmarketable.

If this system sounds crazy to you, you’re not alone. Many states have completely banned private transfer fees, and the federal government is also considering taking action. The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, recently proposed a rule that would prohibit Fannie, Freddie, and all federal home loan banks from investing in mortgages that carry private transfer-fee covenants.
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As a Texas real estate attorney representing buyers, sellers, lenders, developers, and occasionally brokers, in Texas, I have sometimes been accused of sounding like a broken record in advising my clients. My oft-repeated mantra is: “Read the document thoroughly, and then read it again”. Even if the document is one I have prepared for my client, it is essential that the client review the document to make sure it expresses their intentions. After everything is signed, it is often too late to ask questions. A recent Texas Court of Appeals case illustrates the perils of signing a contract without reviewing it thoroughly beforehand.

119662501602cCq5.jpg In the case of ERA Realty Group, Inc. v. Advocates for Children and Families, Inc., the Texas Thirteenth Court of Appeals considered a commission agreement between ERA and a local advocacy group. The agreement was a preprinted form, with blanks filled in by typewriter by an ERA employee. As the Court explains: “The (agreement) contains a commission calculation if Advocates purchases property and also a commission calculation if Advocates leases property. No lease calculation is selected, although the number “6” is typed before the phrase, ‘% of all rents to be paid over the term of the lease.’ Clearly, the instruction to ‘check only one box’ was not followed because no box is checked. The agreement, therefore, can be read in one of two ways: (1) as providing for a lease commission because the number “6” is typed, or (2) as making no provision for a lease commission because no box is checked.” Because ERA had prepared the agreement, the Court construed the commission agreement against ERA and held that the agreement did not provide for a commission for leases.

As a result, ERA was not only denied it’s request for a commission, it was also ordered to pay $15,000.00 in attorney’s fees to the Defendant advocacy group. Actually, it’s hard to understand why ERA would bring a lawsuit based on this agreement, rather than simply admitting a mistake had been made and resolving to read those form commission agreements more thoroughly next time. The publicity from this suit probably hurt ERA much more than the commission would have benefited them had they won!

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One of the things I love about being a Texas real estate and development lawyer is that Texans are so open to innovative real estate developments. Practicing real estate and development law in Texas is great fun and very satisfying for this reason. A recent real estate development in Texas illustrates the point: co-housing, while not invented in Texas, has come to Texas. As a recent article by Bob Moos in the Dallas Morning News online entitled “Co-Housing Catching On in U.S.” explains, the first elder co-housing development in Texas is being built in Duncanville, Texas, called Wildflower Village.

839408_some_old_men_in_a_place.jpg The members of the Village have been meeting together over the past two years to get to know one another, and to design their community. Some arguments have occurred, but they also meet socially to have fun as well. They like to arrive at decisions by consensus, rather than a “majority rules” vote. The development is limited to adults over 50 years of age. They plan to individually own their own single-story home. However, they will collectively own a common building that will have a gourmet kitchen, dining room, living area, home theater, craft room and two guest bedrooms.

This is an incredible concept and I wish them all the best of luck. They have gotten to know each other before they even hired a builder or an architect, and so have created a community for themselves, meaning “community” in the sense of a village with neighbors and friends, not just buildings. For more information, visit their website.

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I have represented developers and investors in Texas real estate developments for over thirty years. I have been blessed with clients who are fabulous people to work with, and Texas development law is always challenging and interesting. There is one thing that is guaranteed to make both my clients and I tear our hair out however: arbitrary and capricious municipal governments and code enforcement personnel. They are not all that way, by any means: most Texas city government officials and personnel are highly professional. However, if you practice development law in Texas long enough, you will find that the few bad apples cause you more effort than all the others combined.

There is a game some municipal governments play called “Yes, that’s what we promised then, but it’s different now”. The case of Continental Homes of Texas, L.P. v. City of San Antonio, decided recently by the Texas Fourth Court of Civil Appeals in San Antonio, illustrates what I mean. In 2002, the owners of a ranch, (located outside the San Antonio city limits but within its extra-territorial jurisdiction), received a “Vested Rights Permit” in return for giving the City a parcel of land for a gas metering station. The Permit had an effective date of 1991 and basically said that the ranch would be subject only to City ordinances and rules as of 1991, and not any passed thereafter. Importantly, the Permit had no expiration date.

1001814_meadow.jpg In 2003, the City passed a Tree Preservation Ordinance, which required developers to, among other things, request a permit from the City Arborist before cutting trees, and to perform mitigation (i.e., plant new trees) if trees were going to be removed. In 2005, Continental bought part of the original ranch, and submitted a Master Development Plan to the City. The Plan was approved, but in a side letter, the City told Continental that Continental’s Master Tree Stand Delineation was rejected, and further noted that the project will be subject to the City’s Tree Preservation ordinance. In 2006, while Continental was clearing at the site, it was served with a temporary restraining order obtained by the City, stopping all work on the grounds that Continental was violating the Tree Preservation Ordinance.

The City argued that the Vested Rights Permit had become “dormant”! The trial court decided for the City. The Court of Appeals reversed the trial court decision, and quite rightly held that the Vested Rights Permit controlled, and since the City’s tree ordinance was passed after the date of the Vested Rights Permit, the tree ordinance did not apply to this property. Appropriately, the City had to pay Continental’s attorney’s fees. If I were a San Antonio taxpayer, I would be furious that my tax dollars financed a suit like this!