“As Is” in Texas Residential Transactions

Introduction

Property condition is a central concern for both sellers and buyers. This article addresses the law applicable to seller disclosure as well as practical steps that buyers and sellers can take to maximize their best interests.

PART ONE: BUYERS AND SELLERS

CONCERNS OF THE BUYERS

Buyers Want Full and Ongoing Disclosure

A buyer’s strategy should not only be to negotiate a good sales price but also to assure full disclosure from the seller as to all known defects or adverse conditions affecting the property, whether directly present on the property or not. (Consider the example of a seller who is aware that a cell tower is scheduled to be constructed on an empty lot next door.) The buyer should want to know whatever the seller knows when it comes to material facts—and know these fact before expiration of the option period.

The buyer should not seek to impose additional responsibilities or duties upon the seller (a duty to investigate, for instance). The goal is to make the seller and his broker aware of the existing legal obligation to disclose any known defect, condition, or circumstance that could reasonably affect the buyer’s decision to buy or not buy-and to get the seller—and then get the seller to acknowledge and reaffirm that obligation. The earlier this is accomplished, the better.

Affirming the Seller’s Disclosure Duty

Why is it important to remind sellers of their existing legal responsibilities? Because there is a widely-held misconception among sellers (and even among some agents and brokers) that conveying a property “as is” relieves the seller of the duty to disclose known material facts relating to property condition. Lawyers sometimes call this hiding the ball; the seller is effectively saying to the buyer “I’m not telling you anything about the condition of the property. It’s up to you to do your due diligence and find what you can.” While this strategy may occasionally work in commercial transactions, it is contrary to Texas law when it comes to the sale of residential property—so it is prudent for the buyer to address this incorrect mindset from the very beginning of the transaction. All participants in the transaction (parties and agents) should be on the same page when it comes to the requirement of full and ongoing seller disclosure.

“In the context of a [residential] real estate transaction, a seller is under a duty to disclose material facts that would not be discoverable by the exercise of ordinary care and diligence by the purchaser, or that a reasonable investigation and inquiry would not uncover. But a seller has no duty to disclose facts he does not know. Similarly, a seller is not liable for failing to disclose what he only should have known.” Myre v. Meletio, 307 S.W.3d 839, 843-44 (Tex. App.—Dallas 2010, pet. denied).

An “as is” clause (no matter how comprehensive) will be insufficient protect a seller of residential property if there is willful concealment or if the seller engages knowingly in fraudulent inducement. Ritchy v. Pinnell, 357 S.W.3d 410 (Tex.App.—Texarkana 2012, no pet.).

CONCERNS OF THE SELLER

Seller Steps to Achieve “As Is”

Sellers want to convey a property without responsibility for repairs (a leaky roof), post-closing liability for difficult-to-detect conditions (mold), or external adverse circumstances (future widening of the street by the city). The solution for the seller is to control the drafting of both the sales contract and the warranty deed to insure that the property is conveyed “as is,” in its present condition, with all faults, and without representations or warranties, express or implied (except for warranties of title), and with oral statements excluded.

Concrete steps that a seller can take include:

(1) Check the Box at 7D(1) of the TREC 1-4 Family Contract

A seller of residential real estate who seeks to convey the property in “as is” condition should undertake four necessary steps to protect the seller’s interest. This provision states:

D. ACCEPTANCE OF PROPERTY CONDITION: “As Is” means the present condition of the Property with any and all defects and without warranty except for the warranties of title and the warranties in this contract. Buyer’s agreement to accept the Property As Is under Paragraph 7D(1) or (2) does not preclude Buyer from inspecting the Property under Paragraph 7A, from negotiating repairs or treatments in a subsequent amendment, or from terminating this contract during the Option Period, if any.

(Check one box only)

_ X_ (1) Buyer accepts the Property As Is.
____ (2) Buyer accepts the Property As Is provided Seller, at Seller’s expense, shall complete the following specific repairs and treatments: ______________

Agents and brokers are now checking paragraph 7D(1) as a standard default. This appears to be driven more by the structure of the form and the blanks that need to be completed rather than by a conscious intention to choose “as is” as specific strategy.

Unfortunately for sellers, the “as is” language of paragraph 7D(1) is minimally adequate at best. It is better than nothing although not by much since it raises almost as many questions as it answers. It is not just the existence of an “as is” clause that matters, but its quality and strength.

Better “as is” provisions are usually longer and stronger than the one provided in 7D(1). When writing a good “as is” clause, brevity is not a virtue. A good “as is” clause should recite that the property is being conveyed in its present condition, with all faults, while also excluding seller representations and warranties, express or implied, except warranties of title that may be contained in the deed. Oral statements by the parties and their agents should be disclaimed as well. The TREC contract does not make this more fulsome wording available within the four corners of the contract or any of the promulgated addenda.

It is often said that “as is” is only for commercial deals. Is this true? No. One only sees more “as is” provisions in commercial contracts because such transactions have traditionally involved more money—but is that the case today with homes selling in the millions? Given the value of many residential transactions, and the clear legal vulnerability of sellers at the courthouse, is there a valid reason for giving residential sellers second-class treatment? Why is it more important to give the seller of a $500,000 commercial warehouse better “as is” protection than the seller of a $3,000,000 residence?

(2) Include a Custom Special Provisions Addendum to the Contract

If a seller wants to maximize the “as is” nature of the conveyance then a more extensive “as is” provision must be included (and agreed to) at the contract phase of the transaction. Since the “as is” clause in the TREC is so very minimalistic (no real estate lawyer would ever be satisfied with it) a custom special provisions addendum should be added. This addendum (sometimes called an “as is” addendum) need not be lengthy or complex. Since it is not an officially promulgated form, the addendum must be prepared by an attorney as it involves the practice of law.

The addendum should include two “as is” clauses: one applicable to the contract stipulating that the property is offered for sale “as is;” and a second clause, to be included in the warranty deed at closing, indicating that the property will be conveyed and accepted “as is.” These two clauses are conceptually different and are designed to be inserted at two different points in the transaction—one at the beginning (the contract) and the other at the end (the closing). This bookend technique is the optimum way to construct an “as is” transaction.

Unless specific “as is” language is agreed to in advance, the title company attorney (the usual preparer of the seller’s deed) will be under no obligation or incentive to include such a clause—or, for that matter, any other custom clause desired by the parties. Arguing about the inclusion or content of an “as is” clause has caused many, many transactions to fail. It is far better to get agreement on the exact wording early in the process.

Note that merely checking paragraph 7D(1) does not entitle the seller to demand inclusion of a custom “as is” clause in the deed. Inclusion of any custom clause in the closing legal documents requires an express special provision. Unless custom clauses are agreed to in advance in writing, the title company attorney will produce a plain vanilla document. Nothing more.

(3) Overcome the Bias against Using an Attorney in Residential Transactions

If an agent or broker says a special provisions addendum is unnecessary, one might respond by asking “Then why is the courthouse clogged with seller non-disclosure cases?” Real estate lawyers will tell you that they receive at least a couple of inquires a week from residential buyers who want to sue their sellers for failing to disclose a serious defect or condition.

Just as it is necessary in our health-care system for patients to actively advocate for their best interests, it is often necessary for sellers and buyers in our real estate “system” to do the same. The professionals with whom residential sellers and buyers work often have a heavy bias against any deviation from what is considered standard (by them) or anything that requires more than minimal effort. This includes a bias against involving attorneys in residential transactions. The reason is clear: adding a custom addendum to a residential contract not only pushes them out of their comfort zone but could jeopardize their commission. When a seller raises the possibility of including an “as is” addendum to the contract, there should be no surprise when the agent or broker immediately pushes back. There is no remedy for this situation other than for the seller to simply insist.

(4) Use the Seller’s Disclosure Notice to Disclose Everything

Disclosure is less a separate step in the process and more a consistent theme that should be woven throughout. Disclose, disclose, disclose. Sellers are best advised to go beyond the seller’s disclosure form if it is useful to do so in order to provide additional clarity and detail. Do not be a minimalist. Include repair estimates and photos if they are available. Provide supplemental disclosures to the buyer if appropriate. And never rely on oral promises or assurances (or texts or emails) when it comes to property condition.

(5) Include an Effective “As Is” Clause in the Warranty Deed and Require that the Buyer Sign and Acknowledge the Deed

In this context, there are two items of note: first is the express wording of the “as is” clause in the deed; and second, the requirement that the buyer sign and acknowledge the instrument in order to confirm acceptance “as is.” The notary box for the buyer can also be modified to indicate express assent to the “as is” clause. The purpose is to nail shut any post-closing condition complaints from the buyer.

“As is” should be addressed in a special provisions addendum at the contract stage, before the contract is signed. Why? Because attempts to add terms after the contract is signed usually fail. Adding an “as is” clause after the fact requires a formal contract amendment— and a buyer may be reluctant to consent to a new provision that is not clearly in his best interest. There is no penalty if the buyer simply refuses to agree to an amendment.

Why not just rely solely on the brief “as is” wording of paragraph 7D(1) of the TREC contract? And why is it necessary to get a second “as is” clause in the warranty deed at closing? First, because the TREC clause is at best of meager quality; and second, pursuant to the doctrine of merger, the final closing documents (the deed, note, and deed of trust) supersede the contract going forward from closing. Prior agreements of the parties (including the contract) merge into the final closing documents which are then considered primary going forward.

“When a deed is delivered and accepted as performance of a contract to convey, the contract is merged in the deed. Though the terms of the deed may vary from those contained in the contract, still the deed must be looked to alone to determine the rights of the parties.” Alvarado v. Bolton, 749 S.W.2d 47 (1988).

Lastly, why ask the buyer to sign and acknowledge the deed? Because the instrument then becomes both a conveyance and a contract. Acceptance by the buyer is no longer assumed or implied. It is an express agreement for consideration. Much, much better for the seller and a much higher level of legal work by his attorney.

Remember, however, that inclusion of an “as is” clause in the contract and warranty deed does not relieve a residential seller of the obligation to disclose material facts, conditions, and circumstances concerning property condition. There is no clause, provision, or waiver that can be added to a real estate contract (or any other document) that eliminates this duty or that would facilitate actual fraud.

Among the best advice that can be given to all sellers, and to investor-sellers in particular, is to disclose, disclose, disclose. There is no penalty for over disclosure.

(4) Include Repairs as Part of the “As Is” Clause

If the seller performs repairs and treatments prior to closing (as paragraph 7D(2) may require) then the “as is” clause should specifically include these repairs within its scope. The buyer is thus prevented from later claiming that pre-closing repairs were impliedly warrantied by the seller. The TREC form offers no easy way to do this, so (again) a seller must rely on a custom special provisions addendum.

PART TWO: APPLICABLE LAW
TEXAS PROPERTY CODE

Required Seller’s Disclosure Notice

Property Code Section 5.008 requires that a seller of improved residential property provide the prospective buyer with a seller’s disclosure of property condition:

5.008(a) A seller of residential real property comprising not more than one dwelling unit located in this state shall give to the purchaser of the property a written notice as prescribed by this section or a written notice substantially similar to the notice prescribed by this section which contains, at a minimum, all of the items in the notice prescribed by this section.

Section 5.008(7)(d) states that the disclosure notice “shall be completed to the best of seller’s belief and knowledge as of the date the notice is completed and signed by the seller.” A seller’s disclosure notice is not required in the following instances (see Section 5.008(e)):

(1) pursuant to a court order or foreclosure sale;
(2) by a trustee in bankruptcy;
(3) to a mortgagee by a mortgagor or successor in interest or to a beneficiary of a deed of trust by a trustor or successor in interest (which would include deeds in lieu of foreclosure).
(4) by a lienholder who has either purchased at a foreclosure sale or a
sale pursuant to a court order or accepted a deed in lieu of
foreclosure;
(5) by a fiduciary in the course of an administration of a decedent’s estate, guardianship, conservatorship, or trust;
(6) from one co-owner to one or more other co-owners;
(7) made to a spouse or to a person or persons in the lineal line of consanguinity of one or more of the transferors;
(8) between spouses incident to divorce, legal separation or a property
settlement agreement;
(9) to or from a governmental entity;
(10) a new residence of not more than one dwelling unit that has not been occupied for residential purposes;
(11) of real property where the value of any dwelling does not exceed 5% of the value of the property.

The purpose of the seller’s disclosure is to make clear what appliances, equipment, and features exist on the property; whether or not these items are working; if the seller knows of any defects or malfunctions in critical systems; if certain red-flag events like termite treatment, previous fires, or flooding have occurred; the need for repairs; and the existence of unpermitted additions, unpaid HOA fees, violations of deed restrictions, lawsuits, or conditions that “materially affect the health or safety of an individual.”

“I’m just an investor. I’ve never lived on the property!”

Exceptions to the seller’s disclosure requirement do not include “I have never lived on the property,” a common excuse used by investors and flippers to avoid providing a seller’s disclosure. Unless otherwise expressly exempted by the statute, a seller’s disclosure must still be provided by non-resident investor-sellers.

Also: just because a seller’s disclosure is not required in a particular case should not deter a buyer from attempting to get one or, alternatively, using a custom special provisions addendum to declare that full seller disclosure of known material facts is included as a contract term. For a buyer interested in knowing all material facts relating to property condition, achieving and assuring full and ongoing seller disclosure should be a vital goal of negotiating the contract.

Seller Disclosure Relating to Unimproved Property

The above discussion refers to residential homes. Property Code Section 5.013 states a separate seller disclosure requirement for sales of unimproved property intended to be used for residential purposes. However, a “seller is not required to give the [unimproved property disclosure] notice if: (1) the seller is obligated under an earnest money contract to furnish a title insurance commitment to the buyer prior to closing; and (2) the buyer is entitled to terminate the contract if the buyer’s objections to title as permitted by the contract are not cured by the seller prior to closing.”

Gaps in the Property Code and Promulgated Forms

Unfortunately for Texas consumers, the Property Code falls short of clearly stating that a residential seller has a legal duty of full and ongoing disclosure as to all known defects and material facts. Worse, neither TREC nor Texas Realtors’ contracts state this legal duty in plain language. Even the statutory form of the seller’s disclosure notice fails to expressly state that a seller has a legal duty of full and ongoing disclosure of all known material facts, conditions, and circumstances.

This is astonishing, really, and a significant failure of public policy given the abundance of litigation against non-disclosing residential sellers. Seller non-disclosure is literally the number one cause of residential real estate lawsuits. Visit the courthouse and see for yourself.

DECEPTIVE TRADE PRACTICES-CONSUMER PROTECTION ACT

The Deceptive Trade Practices-Consumer Protection Act (Business & Commerce Code Section 17.46 et seq.) is exactly what it says it is: legal protection for consumers who are victims of deception. Cases applying the DTPA consistently declare that residential real estate is a tangible “consumer good” as that term is defined in the statute, and prospective buyers of residential real property are “consumers.” Chastain v. Koonce, 700 S.W.2d 579, 582 (Tex. 1985). Accordingly, misrepresentations or failure by a seller of residential real property to disclose known material defects and adverse conditions are violations of the DTPA.

The DTPA states that “false, misleading, or deceptive acts or practices in the conduct of any trade or business are hereby declared unlawful. . . .” Also expressly stated to be unlawful are misrepresenting the characteristics and uses of a particular item; representing that goods or services are of a particular quality and standard when they are not; advertising with intent not to sell as advertised; and failing to disclose information in an attempt to induce the consumer into buying. Additionally, a consumer may seek relief if the consumer relied to the consumer’s detriment upon a seller’s breach of an express or implied warranty (Sec. 17.50(a)(2)) or if the seller is culpable of “any unconscionable action or course of action. . . .” (Sec. 17.50(a)(3)).

The statutory wording bears repeating: any unconscionable action, which is a broad standard indeed. An “unconscionable action or course of action is defined as an act or practice which, to a consumer’s detriment, takes advantage of the lack of knowledge, ability, experience, or capacity of the consumer to a grossly unfair degree.” Martinez v. Martinez, No. 13-19-00518-CV, 2020 WL 5887587 (Tex.App.—Corpus Christi 2020, no pet.). Is this not an exact description of what a non-disclosing seller is doing when he deceives a buyer?

The Consumer Need Not be an Actual Buyer

A consumer under the DTPA need not have signed a contract with a non-disclosing seller in order to liable for deceptive practices. The DTPA applies even in the absence of contractual privity, meaning that seller liability for misrepresentation or non-disclosure in a proposed residential real estate transaction can arise even prior to execution of an earnest money contract.

“To be actionable under the DTPA, the defendant’s deceptive conduct must occur [only] in connection with [italics added] a consumer transaction.” In other words, a non-disclosing seller can get himself in trouble just be engaging in deception while showing the property. A signed contract is not required. Todd v. Perry Homes, 156 S.W.3d 919 (Tex.App.—Dallas 2005, no pet.). According to the Texas Supreme Court, it is not even required that the harm to a potential buyer be foreseeable by a non-disclosing seller. Helena Chem. Co. v. Wilkins, 47 S.W.3d 486 (Tex. 2001).

Low Threshold for Seller Liability under the DTPA

All that is required is that a seller’s dishonesty be a producing cause of harm, perhaps one of several such causes. Intent to harm is not required. Foreseeability of harm is not required. A reasonable prospect that harm might occur is not required.

The DTPA protects even the ignorant from the consequences of their own ignorance: “An act is false, misleading, or deceptive if it has the capacity to deceive an average or ordinary person, even though that person may [be] ignorant, unthinking, or credulous.” Daugherty v. Jacobs, 187 S.W.3d 607 (Tex.App.—Houston [14th Dist.] 2006, no pet.).

Clearly, the DTPA is very pro-consumer. Section 17.44(a) states that the Act “shall be liberally construed and applied to promote its underlying purposes, which are to protect consumers against false, misleading, and deceptive business practices, unconscionable actions, and breaches of warranty and to provide efficient and economical procedures to secure such protection.” If a seller’s dishonest actions or inactions were a producing cause of loss or detriment to the plaintiff, even if the seller had no intent to harm, and even if the seller could not possibly have foreseen the possibility of harm, then the seller may have significant liability. This is true even if an earnest money contract has not yet been signed.

The key question to keep in mind in evaluating a DTPA claim is this: could the seller’s knowing misrepresentation or failure to disclose have reasonably influenced an ordinary buyer’s decision to buy or not buy? Breaking it down, these are the requirements for seller liability for non-disclosure: “(1) [T]he defendant knew information regarding the goods or services; (2) the information was not disclosed; (3) there was an intent to induce the consumer to enter into the transaction through failure to disclose; and (4) the consumer would not have entered into the transaction on the same terms had the information been disclosed.” Gill v. Boyd Distrib. Ctr., 64 S.W.3d 601 (Tex.App.—Texarkana 2001, pet. denied).

Seller’s Duty Not to Deceive Extends to the Entire Transaction

Note that the DTPA standard does not carve out a specific time segment in the interaction between buyer and seller. It does not (for instance) apply solely in the beginning of a real estate transaction when the seller disclosure notice is first given. Or solely at closing. No such time limitation is stated in the statute or in relevant cases. The only safe way to construe the DTPA is to conclude that its provisions apply during the entire contract-to-closing real estate sales process. Viewed in this context, there is no escaping the existence of an ongoing duty of disclosure from seller under the DTPA that applies for the duration of the transaction.

Expressions of Seller Opinion under the DTPA

Mere puffing or opinion expressed by a seller is exempted. If a seller says “This is the most beautiful house in the neighborhood” then that is probably not an actionable misrepresentation. It is just the seller’s opinion. “Whether a representation is a warranty or merely an expression of [the seller’s] opinion depends in part upon whether the seller asserts a fact of which the buyer is ignorant, or merely states an opinion or judgment on a matter on which the seller has no special knowledge and on which the buyer may be expected to have an opinion and exert his judgment.” Also, a “general statement concerning a future event . . . should be looked at differently than a statement concerning a past or present event or condition.” Humble Nat’l Bank v. DCV, Inc., 933 S.W.2d 224, 230 (Tex.App.—Houston [14th Dist.] 1996, writ denied).

Relief Available to Consumers: The Producing Cause Standard

Section 17.50 spells out relief available to consumers. Basically, a consumer who claims to have suffered economic damages or damages for mental anguish may seek relief if the other party’s action was a producing cause of the damages. That is a liberal standard, especially considering that most events in life and business have multiple causes—and the defendant’s alleged deceptive action is required to be only one of those causes.

Any offense enumerated in the laundry list of Section 17.46 is a basis for a consumer claim so long as the defendant’s actions were “relied on by a consumer to the consumer’s detriment” (Sec.17.50(B)).

The statute of limitations under the DTPA is “two years after the consumer discovered or in the exercise of reasonable diligence should have discovered the occurrence of the false, misleading, or deceptive act or practice” (Sec. 17.565).

Attorneys and Real Estate Brokers are Exempt from the DTPA

So long as they are acting honestly in their professional capacities, attorneys and real estate brokers fall within the professional services exemption of Section 17.49(c) of the DTPA—an exemption that is lost in cases of fraud or misrepresentation. This is a consistent theme in Texas business and property law: edgy practices may be permissible some of the time but if actual fraud occurs then even statutory exemptions will not protect the offender.

STATUTORY FRAUD ACT

The Statutory Fraud Act (Tex. Bus. & Com. Code Sec. 27.01) is another statute that offers consumer recourse against non-disclosing residential sellers:

(a) Fraud in a transaction involving real estate or stock in a corporation or joint stock company consists of a (1) false representation of a past or existing material fact, when the false representation is (A) made to a person for the purpose of inducing that person to enter into a contract; and (B) relied on by that person in entering into that contract; or a (1) false promise to do an act, when the false promise is (A) material; (B) made with the intention of not fulfilling it; (C) made to a person for the purpose of inducing that person to enter into a contract; and (D) relied on by that person in entering into that contract.

Violations of the Statutory Fraud Act can result in actual as well as exemplary damages plus reasonable and necessary attorney’s fees, expert witness fees, deposition costs, and costs of court. Actual awareness of the falsity of the representation or promise is required for the award of exemplary damages but may be inferred by surrounding circumstances. Actions under the Statutory Fraud Act must be brought within four years of the time when the claimant knew or should have known of the harm.

Elements of statutory fraud under Section 27.01(a) are the same as the elements of common law fraud (discussed below) except that Section 27.01(a) does not require proof of knowledge or recklessness as a prerequisite to the recovery of actual damages. Miller v. Argumaniz, 479 S.W.3d 306 (Tex.App.—El Paso 2015, pet. denied). This eases the plaintiff’s burden of proof under the Act considerably, increasing the risk of a judgment against a non-disclosing seller.

Unlike the DTPA, the Statutory Fraud Act “is applicable only when a conveyance of the property has been made or, in the very least, when there is a valid real estate contract. . . .” BLM of Brownwood, Inc. v. Mid-Tex Cellular, Ltd., No. 11-11-00311-CV, 2014 WL 1285765 (Tex.App—Eastland 2014, no pet.).

Tie-in to the DTPA

As to remedies under the Statutory Fraud Act in real estate cases, Section 27.0015(b) ties into the DTPA: “A violation of Section 27.01 [of the Statutory Fraud Act] that relates to the transfer of title to real estate is a false, misleading, or deceptive act or practice” as defined by the DTPA. Accordingly, DTPA remedies are available.

COMMON-LAW FRAUD

Elements of Common Law Fraud

A buyer who believes he has been deceived in a real estate transaction may seek remedies a non-disclosing seller on grounds of common-law fraud. The required elements are: (1) the defendant made a representation to the plaintiff; (2) the representation was material; (3) the representation was false; (4) when the defendant made the representation the defendant knew it was false or made the representation recklessly and without knowledge of its truth; (5) the defendant made the representation with the intent that the plaintiff act on it; (6) the plaintiff relied on the representation; and (7) the representation caused the plaintiff injury. Shandong Yinguang Chem. Indus. Joint Stock Co., Ltd. v. Potter, 607 F.3d 1029, 1032-33 (5th Cir. 2010) (citing Ernst & Young, L.L.P. v. Pacific Mut. Life Ins. Co., 51 S.W.3d 573, 577 (Tex. 2001)).

Fraudulent inducement as a cause of action is a subset of general common-law fraud and relates specifically to a contract between a seller and a buyer. Bohnsack v. Varco, LP, 668 F.3d 262, 277 (5th Cir. 2012). A cause of action for fraudulent inducement requires the existence of an enforceable contract. Zorilla v. Aypco Constr. II, LLC, 58 Tex. Sup. Ct. J. 1140 (Tex. 2015).

The Texas Supreme Court has stated that fraudulent inducement claims are not subject to the usual economic loss rule. Formosa Plastics Corp. United States v. Presidio Eng’Rs & Contractors, 960 S.W.2d 41 (Tex. 1998).

Generally speaking, the plaintiff in a common-law fraud case must prove that the defendant made a material misrepresentation that was false and which was either known to be false when made or which was asserted by the defendant without knowledge of its truth, which was intended to be acted upon, which was relied upon, and which caused damage to the plaintiff. Sears, Roebuck & Co. v. Meadows, 877 S.W.2d 281 (Tex.1994).

Threshold Issue: Does a Duty to Disclose Exist?

Is an actively stated misrepresentation or false promise by the seller required in order to prove fraud at common law? What about failure to disclose? The answer depends on whether or not a duty of disclosure exists. “A misrepresentation may consist of the concealment or nondisclosure of a material fact when there is a duty to disclose. The duty to disclose arises when one party knows that the other party is ignorant of the true facts and does not have an equal opportunity to discover the truth. A fact is material if it would likely affect the conduct of a reasonable person concerning the transaction in question.” Coldwell Banker Whiteside Associates v. Ryan Equity Partners, 181 S.W.3d 879, 888 (Tex. App.—Dallas 2006, no pet.).

Given the broad definition of duty found in the Coldwell Banker case, it can be safely assumed that a seller who otherwise satisfies the elements of fraudulent misrepresentation or fraudulent inducement will not escape liability merely because there was no active misrepresentation—at least so long as a duty of disclosure exists, which is most definitely true in sales of Texas residential real estate.

Exemplary and punitive damages are available to plaintiffs who prevail in a common-law fraud action. Note, however, that various causes of action can be pursued simultaneously (and frequently are) by plaintiffs’ attorneys. This shotgun approach is designed to insure that at least one or more of the causes of action presented will be successful at trial. DTPA and statutory lawsuits are popular because attorney’s fees can easily be recovered as part of the judgment. It is reckless to assume that a seller will be sued only under Property Code Section 5.008 (the requirement of a seller disclosure notice) and not—at the very least—for an unconscionable act or practice under the DTPA.

CONCLUSION

Look to the Law Beyond the Property Code

To understand the totality of the law applicable to seller disclosure we must look beyond the Property Code to other statutes as well as common law and relevant case law. The important point for sellers and their agents to recognize is that even though the full and ongoing disclosure requirement may be missing as an express provision of the Property Code (and from the language of TREC and TXR contracts as well), full and ongoing disclosure of known material facts, conditions, and circumstances is still the law in residential sales.

Post-Closing Litigation Relating to Seller Non-Disclosure

The law applicable to seller disclosure in residential transactions presents an aggrieved buyer with multiple effective avenues when seeking relief against a non-disclosing seller. Even in a rare scenario where no other cause of action applies, a judge or an emotional jury can still look to DTPA Section 17.50(a)(3)’s prohibition against “any unconscionable action or course of action by any person.” This is a legal blunderbuss. It provides more than sufficient means to find a remedy and assess punishment against a seller for withholding known adverse information about property condition. The result is treble damages, attorney’s fees, and costs of court.

Real estate investors in particular should take notice of the fact that jurors often view them as greedy predators. A non-disclosing investor-seller will not win the fairness argument in court. Jurors are likely to see themselves in the shoes of the deceived party.

A Special Provisions Addendum can Advance the Interests of Both Parties

In the context of property condition, the parties’ goals are clear: (1) a seller should resolutely seek to eliminate any possibility that the buyer can be successful in a post-closing lawsuit based on property condition; and (2) a buyer, on the other hand, should insist on full and ongoing disclosure of material facts from the seller all the way through closing. In both cases, a custom lawyer-prepared special provisions addendum is a perfectly reasonable method of achieving these goals.