Staying Connected

Dave Roedel and Dick Wellborn

25% of real estate purchasers are investors leasing rental property

A. When the investor buys the property is the old lease still in place and can the new owner force the tenant to pay the rent under the old lease?

It depends upon how the investor comes into title. Generally speaking, if the one investor buys a property from another, the property transfers to subject to whatever leases, obligations and other contracts are already in place. A new investor does not get any rights to cancel any of the contracts, including old leases. The new owner or management company should give notice to the tenant that they are start paying the new owner or management company. If they do not it is a defense in an eviction action and the JP will dismiss the action.

However, when there is a foreclosure and the investor buys the property at the foreclosure sale, the leases that were entered into after the lien being foreclosed was entered into are terminable at the new owner’s will. Protecting Tenants at Foreclosure Act of 2009 gives the tenant who had a lease in place before the foreclosure entitled to 90 days’ notice before having to move out.

However, the foreclosure leases that were entered into before the lien or mortgage being foreclosed attach to the property survive the foreclosure and the buyer does not have a right to cancel those leases.

B. Who is liable to send the tenant the security deposit at the end of the lease?

The rules regarding security deposits are different between residential and commercial tenancies. Under 92.101, Subchapter and Security Deposits applies to all residential leases. The statutes provide that a person who no longer owns an interest in the rental premises as the landlord still remains liable for security deposit received while that person was the owner, unless and until new owner delivers to the tenant a signed statement acknowledging that the new owner has received and is responsible for the tenant’s security deposit, and specifying the exact amount of deposit.

Keep in mind this obligation does not apply to a lienholder who acquires title by foreclosure. Also, the landlord is not obligated to return a tenant’s security deposit but give a description of the damages or charges until the tenant gives the landlord written statement of the tenant’s forwarding address for purposes of refunding the security deposit.

Regarding commercial tenancies, Section 93.007 provides that upon the sale assignment or other transfer of the commercial property, the new owner is liable for the return of the security deposit from the date title to the premises is acquired, regardless of whether acknowledgment is given to the tenant or not. The statute goes on to say that the Seller remains liable for the security deposit that he received while he was the owner until the new owner delivers to the tenant a signed statement acknowledging the new owner is responsible for the security deposit. As a result in commercial transfers we always have assignment of the leases and acknowledgment from the new owner that terminates the old owner’s continuing liability for the security deposit.

C. Should there be an Assignment of the Lease from the old owner to the new owner and does the new owner need to give the tenant notice?
There should be an assignment of a lease from the old owner to the new owner and the old owner should give the tenant notice to start paying his rent to the new owner. It’s always the best practice and I wish it always happens. If they do not, the new owner steps into the shoes of the landlord and is subject to all of the landlord’s obligations

D. In commercial leases there is an Attornment Clause under which the tenant agrees to remain liable to the new owner under the lease. Does that apply in residential leases?

An attornment clause a clause that provides the tenant will “attorn” to any new owner (usually the lender in a foreclosure or after a foreclosure) and it’s a normal common clause in commercial leases. You rarely see it in a residential lease. Keep in mind, however, that TREC does not promulgate any commercial leases and commercial lease forms vary from landlord to landlord with a great amount of pride. Commercial leases should always be reviewed by a lawyer representing the tenant.

E. MCB will draft an assignment of lease agreement to new owner – Look at TAR Residential Lease regarding lease assignment

A copy of the TAR Residential Lease is attached.

2. What happens when an owner dies without a will – How does Probate work – When and how do heirs get title?

Texas law provides that property is always owned by someone. There are no periods when property is not owned. Upon the death of a person their property vests in their heirs subject to the probate of the will. That is to say, immediately upon death, the heirs at law whether that’s the wife, children or siblings are at the property and own the property, however, it is subject to being changed when their will is probated. Probate is the tendering of the will to the court in proving up of the death the qualifying of a representative of the estate and then the wrapping up of the estate. Basically the representative gathers together all of the assets, gathers together all of the debts, pays the debts and then distributes what’s left according to the terms of the will.

Being a community property state, if a person dies without a will, only their half of the community passes and the surviving spouse keeps the half of the community they already have. When all of the children of the decedent are children of the surviving spouse, the spouse inherits all of the decedent’s community property. However, when the decedent has children that are not children of the surviving spouse, the decedent’s half interest in the community property goes to all of his or her children, share and share alike. Separate different rules apply to where someone’s separate property is inherited without a will.

3. Explain the difference between a Quit Claim Deed and a. General Warranty Deed, Fee Simple Title, Estate in land

GENERAL WARRANTY deed contains the covenant of seizen and the covenant against encumbrances. A GWD therefore contains a warranty from the grantor that if there is any claim made against the property that is not revealed on the face of the deed that the seller will come back and make good on the warranty and protect and defend the buyer and reimburse him any loss stemming from the warranty title. Whether the claim arises from the beginning of time until the day that the seller sold the property.

In a SPECIAL WARRANTY DEED the same amount of title is conveyed but the scope of the warranty is limited so that the grantor or seller agrees only to make good on the warranty if the claim arises from an event occurred during the time of the seller’s ownership.

FEE SIMPLE TITLE is the greatest estate in land you can own. It includes the right to immediate possession of the property, the right to lease out the property, the right to sell the property to anyone you want and the right to leave the property to anyone you desire. If you take away these “sticks of ownership” you are left with less than fee title.

QUIT CLAIM DEEDS are greatly misunderstood in Texas. In a warranty deed, seller represents that he owns the property and has the right to sell the property to the buyer and that no liens or claims are against the property except those that are expressed on the face of the deed. However, in a quit claim deed the seller makes none of these warranties. A quick claim deed basically is a statement from the seller saying:

“I am not saying that I own the property and I am not saying to you that I have a right to deed you any property. I am just saying that if I own something described below then you are getting whatever amount I owned.

So if I give you a deed to the bridge over the ship channel or to the moon, and you find out later I don’t own it, I’ve made no misrepresentation if I give a quick claim deed. I have made misrepresentations if I give a warranty deed.

4. Regarding a dispute for real estate commission between two brokers, what controls who gets the commission? Bonus TSA – Brokers Information Sheet is not part of sales contract

The commission dispute is to be resolved according to the law and the facts. Are there written agreements someone is promised to pay a commission? Are there emails or written agreements between the two brokers? The individual facts of each of these cases is going to control the outcome. If the brokers cannot agree, they can agree to arbitrating with TAR or mediate it and hope to resolve it with alternative dispute resolution. Lastly, of course, they can always go to court.

A. Brokers Information Sheet – identifies all commissions to be paid – MLS identifies which broker gets what

If the broker’s information sheet has no place on it to identify the commissions to be paid. The purpose of the broker information sheet is to alert the consumer that the person they are talking to either represent someone else or may represent someone else. The broker information sheet is created to satisfy the requirement that “brokers make it clear on the first substantial contract who they represent in the transaction”.

B. TAR Contract – does TAR provide the arbitrators?

Yes they have a referral program of arbitrators generally need to be paid by the parties.

5. A. With a buyer’s rep, what is my real obligation if a client wants to see a hot property and I cannot see in the next day or so due to existing commitments?

When you are an agent under a buyer’s representation agreement, you owe a duty to do a good reasonable job making yourself available at reasonable times to reasonably accommodate your client’s needs. If you are out of town and work with another client, it’s reasonable that client calling you at that moment will have to wait. If you have existing commitments you do not break any duties to your client. You tend to them first. If however you are so busy that you cannot give your client good service you are failing in your obligation as his agent and you should have him find another agent or make time available for him.

B. A client calls me after 7pm or on a day off to put an offer in – am I legally obligated to jump on it and work late if I know other offers are probably coming in?

You are not legally obligated to do anything after 7 pm, although you are always required to act reasonably during the circumstances. If for example you are actively engaged in negotiating last minute changes before the inspection period runs then it would make sense that you work pass 7 pm. On the other hand, if you have a sudden fire drill that is caused only by the buyer’s nervousness, again you are only obligated to act in a reasonable manner.

6. I receive a contract or document that has a signature with a high probability of that signature being forged by the other agent, as opposed to the party that should have signed it. Since I do not know for sure, do I move ahead with the process or question the agent about the questionable signature?

I believe that you are entitled to rely on every document as though it was not forged unless you have a substantial reason to believe otherwise. If the agent forges a document, he/she will be liable to all the parties for his misconduct. If the seller authorized the agent to sign his name, then the agent had the power and the contract is good. This actually ties into the next question.

7. Can an agent that has a rep agreement ever sign the client’s name on a 1-4 residential contract or associated documents without a power of attorney?

No. Texas recognizes two types of agencies. General agency and special agency. As between you and your sponsoring broker, you are a general agent when you sign for the sponsoring broker you bind your sponsoring broker.

But as to the buyer or seller, you are a special agent. The special agent does not have the power or authority to bind his principals by signing the principals’ name. Although the buyer or seller could give you a power of attorney to sign their name, I would suggest that this is a terrible idea in every case, with little or no upside. If the party giving the power of attorney ever becomes dissatisfied with the deal, they will accuse you of having exceeded your authority for purposes of making commission. If they need to give power of attorney, let them give it to family member or some third party.

8. How to properly deal with inspection reports handed or delivered to me, and we have the listing. What’s next????

If you use the HAR Seller’s Disclosure, it asks you to produce any inspections tendered to the seller during the time the seller owned the property. An inspection report tendered to the seller’s agent has been tendered to the seller so the short answer is you’ll either have to attach it to your seller’s disclosure and give it out to everyone or use a seller’s disclosure form that more matches the Property Code and does not contain the item specifying that your producing whatever inspection reports you received.

9. Someone from Mexico wants to buy a house here. Is there anything I should tell them because they are foreigners

Foreign nationals may buy property here at anytime they wish. There is no requirement for citizenship in order to own property in America. Foreign countries and foreign nationals own a lot of property in America already.

Buying property isn’t a problem. When a foreign national sells property, the Federal FIRPTA legislation requires that a non-US person (that’s a person who does not file a US tax return or have a social security number) as a Seller, the buyer must withhold 30%of the purchase price and send it to the IRS until the seller files appropriate paperwork for the return of the money. This law applies to the sale of residential property over $300,000.00. As for what you should tell them? It’s simple. Tell them to get legal and tax advice that you are not allowed to give either.

10. A Buyer’s agent and a potential buyer look at a property and there is a vacant house or mobile home on the lot or acreage. Since there is an exception in all title policies for things that are on the land that can be seen on inspection, do I have a legal obligation to advise the buyer that he might be buying with a claim of adverse possession since I saw the structure and know about the possibility of adverse possession?


1. Things to do not to get sued:

A. Never answer a question about the condition of a property. Always e-mail the Listing Agent and ask the Listing Agent to ask the owner and e-mail you the answer and put the e-mail in your file so you can prove it was the owner’s representation not yours.

B. Follow the requirements of the 1-4 Unit Residential Sales Contract as to objecting to title problems, terminating the contract etc.

2. The DTPA no longer applies to realtors, but §27.01 of the Bus & Com Code, Statutory Fraud in real estate transactions still applies to realtors along with common law fraud, common law misrepresentation and violations of the Real Estate Licensing Act and the Code of Ethics creates a standard of care that could give rise to a legal duty.

Fraud In a Real Estate Transaction pleading:

A. Plaintiff and defendant were parties to a transaction involving real estate

B. During the transaction, defendant made a false representation of material fact to plaintiff, or during the transaction, defendant made a false promise to plaintiff with the intent not to fulfill it

C. Defendant made the false representation or promise for the purpose of inducing plaintiff to enter into a contract.

D. Plaintiff justifiably relied on defendant’s false representation or promise by entering into the contract, and

E. Defendant’s false representation or promise proximately caused injury to plaintiff, which resulted in the following damages:

§27.01 does not require proof that the defendant knew the statements were false. A false representation can occur by failing to disclose something that is material to deciding on whether to purchase or not. The intent to defraud can be proven by the defendant subsequent acts. This statue has been applied to realtors and allows for punitive damages and is not subject to the proportional responsibility to apportion damages.