CASE LAW UPDATE Presented by DAVID A. WEATHERBIE Carrie, Cramer & Weatherbie, L.L.P. Dallas, Texas 17TH ANNUAL ROBERT C. SNEED TEXAS LAND TITLE INSTITUTE DECEMBER 6 & 7, 2007 SAN ANTONIO, TEXAS DAVID A. WEATHERBIE CARRIE, CRAMER & WEATHERBIE, L.L.P. EDUCATION: M B.A., Southern Methodist University - 1971 M Juris Doctor, cum laude, Southern Methodist University - 1976 M Order of the Coif M Research Editor, Southwestern Law Journal PROFESSIONAL ACTIVITIES: M Licensed to practice in the State of Texas M Partner - Carrie, Cramer & Weatherbie, L.L.P., Dallas, Texas ACADEMIC APPOINTMENTS, PROFESSIONAL ACTIVITIES, AND HONORS M Adjunct Professor of Law, Southern Methodist University School of Law / Real Estate Transactions - 1986 to 1995 M Former Council Member, Real Estate, Probate & Trust Section, State Bar of Texas M Member, American College of Real Estate Lawyers M Listed as 2003, 2004, 2005, and 2006 Texas Monthly “Super Lawyer” M Listed in Best Lawyers in America LAW RELATED PUBLICATIONS AND PRESENTATIONS: M Author B Weatherbie=s Texas Real Estate Law Digest (James Publishing, 1999) M Course Director for the State Bar of Texas, Advanced Real Estate Law Course – 1995 M Course Director for the University of Texas at Austin - Mortgage Lending Institute – 2002 and 2007 M Author/Speaker for the State Bar of Texas, Advanced Real Estate Law Course - 1987 to present M Author/Speaker for the University of Texas at Austin - Mortgage Lending Institute - 1992 to present M Author/Speaker for Texas Land Title Institute - 1992 to present M Author/Speaker for Southern Methodist University - Leases in Depth - 1992 to 2000 M Author/Speaker for Southern Methodist University - Transactions in Depth - 1992 to 2000 M Author/Speaker for the State Bar of Texas, Advanced Real Estate Drafting Course M Panel Member for State Bar of Texas, Advanced Real Estate Transactions Course B 1997 M Author of “Annual Survey of Texas Law -- Real Estate,” 51 SMU L. Rev. 1321 (1998) and 52 SMU L. Rev. 1393 (1999) M Author/Speaker for the Houston Real Estate Law Council for 1998 to present CASE LAW UPDATE DAVID A. WEATHERBIE CARRIE, CRAMER & WEATHERBIE, L.L.P. DALLAS, TEXAS The case selection for this episode of Case Law Update, like all of them in the past, is very arbitrary. If a case is not mentioned, it is completely the author’s fault. The cases end with the first advance sheets from 233 S.W.3d. In an effort to streamline the case discussions, various statutory and other references have been reduced to a more convenient shorthand. The following is an index of the more commonly used abbreviations. “Bankruptcy Code” – The Federal Bankruptcy Code, 11 U.S.C.A. §§ 101 et seq. “DTPA” – The Texas Deceptive Trade Practices Act, Texas Business and Commerce Code, Chapter 17. “UCC” – The Texas Uniform Commercial Code, Texas Business and Commerce Code, Chapters 1 through 9. “Prudential” – Prudential Insurance Co. of America v. Jefferson Associates, 896 S.W.2d 156 (Tex.1995), the leading case regarding “as-is” provisions in Texas. The Texas Property Code and the other various Texas Codes are referred to by their respective names. The references to various statutes and codes used throughout this presentation are based upon the cases in which they arise. You should refer to the case, rather than to my summary, and to the statute or code in question, to determine whether there have been any amendments that might affect the outcome of any issue. TABLE OF CONTENTS PART I MORTGAGES AND FORECLOSURES........................................................................ 1 PART II HOME EQUITY LOANS............................................................................................... 2 PART III PROMISSORY NOTES, LOAN COMMITMENTS, LOAN AGREEMENTS.......... 4 PART IV GUARANTIES............................................................................................................... 7 PART V USURY.......................................................................................................................... 10 PART VI DEEDS AND CONVEYANCE DOCUMENTS ......................................................... 10 PART VII LEASES ...................................................................................................................... 12 PART VIII VENDOR AND PURCHASER................................................................................. 18 PART IX BROKERS................................................................................................................... 28 PART X TITLE INSURANCE AND ESCROW AGENTS ....................................................... 28 PART XI ADVERSE POSSESSION .......................................................................................... 30 PART XII EASEMENTS ............................................................................................................ 31 PART XIII RESTRICTIVE COVENANTS, SUBDIVISIONS, AND CONDOMINIUMS ....... 35 PART XIV HOMESTEAD........................................................................................................... 37 PART XV CONSTRUCTION AND MECHANICS’ LIENS...................................................... 42 PART XVI AD VALOREM TAXATION.................................................................................. 47 PART XVII CONDEMNATION ................................................................................................ 47 CASE UPDATE DAVID WEATHERBIE CARRIE, CRAMER & WEATHERBIE, L.L.P. DALLAS, TEXAS August and the sale in September, contrary to PART I the specific dates permitted in the bankruptcy MORTGAGES AND FORECLOSURES court's order, the foreclosure sale violated the automatic stay and the sale was void. Stephens v. Hemyari, 216 S.W.3d 526 (Tex.App.—Dallas 2007, pet. denied). Before An action taken in violation of the its properties could be foreclosed on, two limited automatic stay is void, not merely voidable. A partnerships filed bankruptcy. The noteholder foreclosure sale that occurs during the automatic moved to lift the automatic stay. The stay is void and passes no title. The terms of an bankruptcy court granted a conditional order to order modifying the automatic stay must be lift the stay to permit posting and foreclosure if a strictly construed. (But see In re Jones, 63 F.3d $700,000 payment was not timely made. 411 (5th Cir. 1995) which says that a foreclosure sale in violation of the automatic stay is Under the bankruptcy court's order, the “voidable,” not void.) debtor had to pay $50,000 by noon on June 12 and $650,000 on or before August 1. If the Hemyari's argued that the sale did not debtor timely made the first payment, then the violate the automatic stay because the case In re noteholder could post the property for Matheson, 84 B.R. 435 (Bankr. N.D.Tex.1987), foreclosure in July for sale on August 1. If the held that a foreclosure under similar debtor failed to make the $650,000 payment on circumstances did not violate the automatic stay. or before August 1, then the noteholder and the In Matheson, a bank filed a motion for relief trustee could proceed with the foreclosure sale from the automatic stay to permit the foreclosure on August 1 or record a Deed in Lieu of on Matheson's property. The bankruptcy court's Foreclosure, at their option. The debtor made the order granted the motion for relief from stay 'in June 12 $50,000 payment, but August 1 came all respects' and specifically permitted a May and went without his paying the $650,000. On foreclosure. The foreclosure sale then took August 15, the substitute trustee posted the place in June. Matheson argued the sale was property for foreclosure. On September 5, the improper because the court order permitted only substitute trustee conducted the foreclosure sale, a May foreclosure. The bankruptcy court held at which appellants' attorney was present, and that by granting the relief in all respects as sold the property to Hemyari. prayed for in the motion, the lifting of the stay was not limited to a May foreclosure. Afterward, the debtor sued Hemyari seeking to have the foreclosure sale set aside, the In this case, the bankruptcy court's order substitute trustee's deed canceled, and the cloud did not grant relief "in all respects," as the on the partnerships' title to the property Matheson court order did, but conditionally removed. They alleged the foreclosure sale and lifted the stay to allow foreclosure on a specific the substitute trustee's deed were void because date. The order stated, "the trustee may proceed the sale violated the bankruptcy automatic stay. with the foreclosure sale on August 1...." Strictly They argued that the bankruptcy court's order construing the order did not permit the court to conditionally lifting the automatic stay interpret it as allowing foreclosure after August authorized posting for foreclosure in July 2001 1. and foreclosure sale "on August 1, 2001. They argued that because the posting occurred in Herrington v. Sandcastle Condomin- 1 ium Association, 222 S.W.3d 99 (Tex.App.— moved for summary judgment seeking to quiet Houston [14th Dist.] 2006, no pet.). When title and a “declaratory judgment for judicial Herrington failed to pay assessments to the foreclosure” “taking all right, title, interest, and condo association, the association sent her a possession of the Property pursuant to paragraph notice that said: “Demand is hereby made that 22 of the Deed of Trust.” In support of its you pay $4907.23, plus accrued interest and motion, Countrywide submitted a self- $150.00 in attorney's fee[s] on or before authenticated