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Selling Land in a Subdivision
What is so unique or special about this type of transaction that I should know about? Section 5.012 Notice Requirement by seller-broker (mandatory) Chapter 207 Disclosures by Subdivision (discretionary) Filing the “Affidavit” under Sec. 207
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Do Not Rely Entirely on Promulgated Forms
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Three TREC forms address requirements: 1-to-4 Family Residential Contract (Resale). Paragraph E(2) attempts to give 5.012 Notice Requirement. Optional “Addendum for Property Subject to Mandatory Membership in an Owners’ Association.” This also attempts compliance with Chapter 207. Optional “Subdivision Information” form reproduces Resale Certificate under 207
When is a 5.012 Notice Required?
1) Whenever the owner of the property is “subject to” membership in a POA. 2 And: When the property (Lot) “comprises not more than one dwelling Unit.” (Language taken from Section 5.008 Notice Req.) Query: Does a vacant lot require the notice under either statute?
Section 5.012 (See Handout)
Notice must be given before entering a binding sales contract. Query? But does the contractual language the promulgated form, Paragraphs E(2), meet the statutory requirement? Look closely! (Look at Pages 1 & 3.) Too many things left out…? Notice there are 10 exceptions including the sale of condominiums. First 8 or 9 exceptions same under both sections.
Buyer’s Sole Remedy
If the notice is not given before entering the binding contract, the purchaser may terminate the contract for any reason within 7 days after receiving the notice or prior to closing, whichever occurs first. Possible good exit strategy when needed.
What about Chapter 207 and the (mislabeled) “Addendum”?
Chapter 207 Disclosures apply when the subdivision has a POA “that is entitled to levy regular or special assessments.” However, The Addendum is entitled “Addendum for Property Subject to Mandatory Membership in an Owners’ Association”…WAIT, that is the 5.012 requirement.
“The Addendum”
Designed to meet the Chapter 207 Disclosures, not the 5.012 Notice. It should be labeled, “Property Subject to an Owners’ Association with the Power to Levy Regular or Special Assessments.” The disclosure is called the “Subdivision Information” in the Addendum.
Chapter 207.003 Disclosures
(Subdivision Information)
W/I 10 days after receiving written request from the owner, agent or title company, the subdivision acting through the POA or its agents shall delivery the following three items: A current copy of the restrictions, A current copy of the bylaws and the rules of the POA and A resale certificate.
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What Triggers the Disclosure?
“A Written Request” by the owner, agent or title company. Not a pending sale. POA may charge a “Reasonable Fee.”
An Effective Request and Response?
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Must designate a person or location for delivery. Must be signed and dated by POA’s officer or agent. Note: Both requirements ignored in TREC Form 37-2. Therefore, form invalid in my opinion.
“The Resale Certificate”
Section 207.003 requires the resale certificate to address 15 specific items. (See Handout.) There are legal consequences for omissions and misinformation.
Failure to Delivered within 10 days after receipt of request?
The owner, agent or title company must ask again before any remedies are available. After making second written request and the POA has not responded within 7 days after being mailed, the owner may initiate statutory remedies. Note. First and Second Requests not Mentioned in Promulgated Form. No statutory remedies given buyer, only contractual one provided in addendum.
Buyer’s Remedy
(Contractual Only, None in Statute)
If Subdivision Information (S.I.) is delivered, buyer has right to terminate the contract for any reason within 7 days after it is received or before closing, whichever occurs first. In either case, the buyer gets full refund of the earnest money. (Note. This is a 5.012 remedy only. Not a 207 remedy.) No waivers mentioned in statute but allowed in addendum.
Recommendation?
Give Buyer the option to terminate contract within 7 days after “The Affidavit” is presented to him or her under Section 207(b)(2) of the Texas Property Code whenever the Subdivision Information is not timely provided by the POA. Why would you do this? Stay tuned!!
Seller’s Sole Remedies
The Seller has the right to sue for one or any combination of the following: 1) A court order directing the POA to furnish the required information, 2) A judgment against the POA for not more than $500, 3) A judgment against the POA for court costs and attorney’s fees or 4) A judgment authorizing the owner or its assignee to deduct the amounts awarded under the second and third items mentioned above from future regular or special assessments.
“The Affidavit”
(The Unique Remedy)
In addition to the judicial remedies, the seller may present the buyer (not POA) an affidavit with the following information: “The owner, agent or title company made two written requests to the POA to provide the information required by the Subdivision Information and the POA did not timely respond.” (Section 207[b][2])
Affect of Affidavit
The affidavit releases the owner, agent, lender and title company from liability for: 1) money due and unpaid to the POA on the date the affidavit was prepared and 2) debts to or claims by the POA that accrued before the date the affidavit was prepared. Also, any liens held by the POA against the property shall terminate automatically on the date the affidavit was prepared.
Affect of Timely Delivering the Subdivision Information
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The POA may not deny the validity of any statement contained in the disclosure. Any liens on the property held by the POA to secure amounts undisclosed in the resale certificate terminate automatically. Any existing debt or claim against the property not disclosed in the certificate releases the owner, agent, lender and title company from that debt or claim.
Why Bother?
In no event shall the real estate agent, the title company, the officer or agent of the POA be liable to the buyer for a delay or failure of the POA to deliver the Subdivision Information. Answer? Your fiduciary duty to the seller may be in jeopardy?
Recap
5.012 Notice is mandatory. It is required before entering binding contract whenever: The owner of the property is subject to membership in a POA. The property contains no more than one dwelling unit. 10 exceptions The promulgated form satisfies the requirements except for name of residential community.
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Recap
Chapter 207 applies when the subdivision has a POA “that is entitled to levy regular or special assessment.” Disclosure required only when requested by owner, agent or title company. Two requests and 17 days must elapse before the Seller may pursue any legal remedies. The Affidavit (not mentioned in Form) protects not only the owner, but the agent, lender and title company. (Why no forms for Request or Affidavit?)
Recommendations
Place the name of the residential community under “Special Provisions” if 5.012 Notice Req. Tell Seller how to make effective Request with person or place to deliver. Advise the Seller to put a minimum of 17 days in The Addendum. Require the Seller to prepare and provide the Buyer The Affidavit if S.I. not forthcoming after second written notice given.
Parting Questions
Can the Buyer’s Agent or Buyer make a request for the Subdivision Information? Can you name the other six dwarfs other than Dopey?
The Names of the Dwarfs
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Dopey Doc Sleepy Sneezy Grumpy Happy Bashful