Untitled Texas Attorney General Opinion ( 1987 )

TEE ATTORNEY GENERAL
OF TEXAS
Dacaber 14, 1987
Mr. Earl Hale Opinion No. JM-834
Deputy Commissioner
Texas Savings and Loan Re: Applicability of open
Department beach disclosure reguire-
3601 North Lamar, Suite 201 ments, section 61.025 of
Austin, Texas 78705 the Natural Resources
Code, to certain activi-
ties of savings and loan
associations (RQ-1092)
Dear Deputy Commissioner Hale:
Section 61.025 of the Natural Resources Code was
enacted in 1985 and provides that a person who sells or
conveys an interest, other than a mineral, leasehold, or
security interest, in real property located essentially
seaward of the Gulf Intracoastal Waterway must provide a
specified notice to the purchaser stating, inter alia,
that any structure erected seaward of the vegetation line
(or that subsequently becomes seaward of the vegetation
line) is subject to a lawsuit by the state to remove the
structure. YOU ask six questions regarding the
applicability and scope of section 61.025 of the Natural
Resources Code. We will answer each of your questions in
turn.
You first ask:
Does the Disclosure Requirement apply to
non-judicial foreclosure sales whereby the
mortgaged properties are acquired by: (i)
the mortgagee: or (ii) an unrelated third
party?
The disclosure requirements to which you refer are
set forth in section 61.025 of the Natural Resources Code,
which provides the following:
(a) A person who sells or convevs an
interest. other than a mineral. leasehold,
or securitv interest. in real oronerty
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Mr. Earl Hale - Page 2 (JM-834)
located seaward of the Gulf Intracoastal
Waterway to its southernmost point and then
seaward of the longitudinal line also hOWlI
as 97 degrees, 12', 19" which runs southerly
to the international boundary from the
intersection of the centerline of the Gulf
Intracoastal Waterway and the Brownsville
Ship Channel must include in anv executorv
contract for convevance the following
.
statement.
The real property described in this
contract is located seaward of the Gulf
Intracoastal Waterway to its southermost
point and then seaward of the longitudinal
line also known as 97 degrees, 12*, 19"
which runs southerly to the. international
boundary from the intersection of the cen-
terline of the Gulf Intracoastal Waterway
and the Brownsville Ship Channel. If the
property is in close proximity to a beach
fronting the Gulf of Mexico, the purchaser
is hereby advised that the public has
acquired a right of use or easement to or
over the area of any public beach by
preqxiption, dedication, or presumption, or
has retained a right by virtue of continuous
right in the public since time immemorial,
as recognized in law and custom.
The extreme seaward boundary of natural
vegetation that spreads continuously inland
customarily marks the landward boundary of
the public easement. If there is no clearly
marked natural vegetation line, the landward
boundary of the easement is as provided by
Sections 61.016 and 61.017, ,Natural
Resources Code.
State law prohibits any obstruction,
barrier, restraint, or interference with the
use of the public easement, including the
placement of structures seaward of the land-
ward boundary of the easement. STRUCTURES
ERECTED SEAWARD OF THE VEGETATION LINE (OR -\
OTHER APPLICABLE EASEMENT BOUNDARY) OR THAT
BECOME SEAWARD OF THE VEGETATION LINE AS A
RESULT OF NATURAL PROCESSES ARE SUBJECT TO A
LAWSUIT BY THE STATE OF TEXAS TO REMOVE THE
STRUCTURES. ?
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Mr. Earl Hale - Page 3 CM-834)
The purchaser is hereby notified that the
purchaser should seek the advice of an
attorney or other qualified person before
executing this contract or instrument of
conveyance as to the relevance of these
statutes and facts to the value of the
property the purchaser is hereby purchasing
or contracting to purchase.
(b) If there is no executory contract for
conveyance, the statement must be delivered
to, and receipt thereof acknowledged by, the
purchaser prior to closing the transaction.
(c) Failure to include the statement in
an executory contract for conveyance shall
be grounds for the purchaser to terminate
such contract, and upon termination any
earnest money shall be returned to the party
making the deposit.
(d) Failure to provide this statement
prior to closing, either in the executory
,-. contract for conveyance or in a separate
written statement, shall constitute a
deceptive act under Section 17.46, Business
& Commerce Code.
(e) This section, or the failure of a
person to give or receive the notice
required by this section, does not diminish
or modify the beach access and use rights of
the public acquired through statute or under
common law. (Emphasis added.)
Section 2 of the original 1985 act provides: "This Act
applies only to a contract for conveyance or a conveyance
executed on or after October 1, 1986." Acts 1985, 69th
Leg., ch. 350, 52 at 2616.
Essentially, you wish to know whether a nonjudicial
foreclosure sale effects a sale or conveyance for purposes
of subsection (a) of section 61.025 of the Natural
Resources Code. We conclude that it does.
Section 51.002 of the Property Code authorizes a
mortgagee to sell real property pursuant to the powers
granted in a deed of trust. See aenerally Baggett,
"Acceleration and Foreclosure on Texas Real Estate," 14
Tex. Tech L. Rev. 695 (1983); Rant, "ULTA [Uniform Land
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Mr. Earl Hale - Page 4 (JI+834 )
Transactions Act] and Nonjudicial Mortgage Foreclosure in
Texas,I@ 12 St. Mary's L.J. 1104 (1981); Cotellesse,
"Nonjudicial Foreclosure under a Deed of TNSt: Some
Problems of Notice," 49 Tex. L. Rev. 1085 (1971). The
section does not require a lawsuit and entry of a judgment
directing foreclosure: thus, Texas permits what is, in
effect, nonjudicial foreclosure. Seam al
on v. Tucker 615 S.W.2d 881 (Tex. Civ. App. I
Dallas 1981, writ rek'd n.r.e.); menta v. Nusbauq 519
S.W.Zd 673 (Tex. Civ. App. - corpus Christi 1975,' writ
ref'd n.r.e.). The section requires that public sale be
held under certain conditions with notice being posted at
the county courthouse, filed with the county clerk, and
served by certified mail on each debtor who is obligated
to pay the debt.
Section 61.025(a) of the Natural Resources Code
provides that ':[a]person who Sells
9th r th n a mineral. 1 as hold. or securltv interest, in
rea? przperty locatede &thin designated areas] must
include h anv executorv contract for convevance" a
specified statement. Subsection (b) provides: "If there
is no executory contract for conveyance, the statement
must be delivered to, and receipt thereof acknowledged by,
the purchaser prior to closing the transaction." A
mortgage of real property is an executed contract in which
the legal or equitable owner of the property pledges the
title to the property as security for the performance of
an obligation, ordinarily a debt that is evidenced by a
promissory note. porriss v. Pattersqn 261 S.W.2d 75%
(Tex. Civ. App. - Fort Worth 1953, writ ref'd n.r.e.);
Lushe
-First v. 26O.S.W.2d 621 (Tex. Civ.
ADD. - Fort Worth 1953, wri& ref'd n.r.e.). In other
words, a mortgage contract conveys a security interest.
Accordingly, the debtor/mortgagor need not provide a
section 61.025 notice to the creditor/mortgagee. You wish
to know, however, whether such a notice must be provided
by a trustee in a nonjudicial foreclosure sale when the
purchaser is either the mortgagee or a non-related third
pa*y. The answer to your question is determined by the
nature of the interest conveyed by the nonjudicial fore-
closure sale.
A purchaser at a foreclosure sale obtains only, such
title as the trustee has authority to convey. First
So
u ther v. V 0 e, 533 S.W.2d 339 (Tex.
1976); Slauahter V. ualls; 162 S.W.2d 671 (Tex. 1942).
If the interest conveyed is "an interest, other than a
mineral, leasehold, or security interest, in real
property," then a section 61.025 notice must be provided
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Mr. Earl Hale - Page 5 (m-834 )
by the trustee to the purchaser, regardless of whether the
purchaser is the mortgagee/creditor or an unrelated third
p---W.
Second, you ask:
If the Disclosure Requirement is found to
be applicable, must the disclosures be set
forth in the TNStee’S or Substitute TNSt-
ee's Deed or in a separate document?
Section 61.025(a) of the Natural Resources Code
requires that the specified notice be included "in any
executory contract for conveyance.I0 Subsection (b)
provides: "If there is no executory contract for
conveyance, the statement must be delivered to, and
receipt thereof acknowledged by, the purchaser prior to
closing the transaction." You ask whether the notice must
be set forth in the TNStee’S or Substitute Trustee's Deed
or in a separate document.
An "executed contract" refers to a completed
cont~ract,i.e., one in which the object of the contract is
,- performed. B. L. Nelson & Associates. Inc. iv
Arovle, 535 S.W.2d 906 (Tex. Civ. App. - Fort W&t: t197Ef
writ ref'd n.r.e.); General Electric Credit Corn. v. Firs&
National Bank of Dumas, 432 S.W.Zd 737 (Tex. Civ. App. -
Amarillo 1968, no writ). It has also been said that,
despite any doubts that may once have existed on the
matter, it is now well settled that an executed contract
also exists where the contract has been wholly performed
on one side regardless of whether or not it has been
performed on the other side. Guaenheim v. Hancock, 231
S.W.2d 935 (Tex. Civ. App. - Amarillo 1950, writ ref'd
n.r.e.); Lammers v. Wolfertz, 164 S.W. 1102 (Tex. Civ.
APP. - San Antonio 1914, writ ref'd). An "executory
contract," on the other hand, is one that is still
unperformed by both parties or one with respect to which
something still remains to be done on both sides. Id.
For example, a contract for the sale of land is still
executory where the deed conveying the property has not
been delivered and accepted. &cCall v. Whalev, 115 S.W.
658 (Tex. Civ. App. 1908, no writ).
A deed is an instrument in writing that conveys title
to real estate. &S Lockridae v. Mccommon, 38 S.W. 33
(Tex. 1896): Wilson v. Beck, 286 S.W. 315 (Tex. CiV. APP.
- Dallas 1926, writ ref'd). The terms t'deed,'l"convey-
ance," and "deed of conveyance" are frequently used
interchangeably to denote an instrument in writing whereby
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Mr. Earl Hale - Page 6 (JM-834)
a grantor conveys to a grantee some right, title, or
interest in or to real property. Texas Electric Railway
Co. v. Neale, 244 S.W.2d 329 (Tex. Civ. App. - Waco 1951),
ev'd on other armu 252 S.W.2d 451 (Tex. 1952). An
instrument that fails t& operate as a present conveyance
may be COnStNed as a contract to convey. Hanrick v.
Gurley, 54 S.W. 347 (Tex. 1899), on, 55 S.W. 119
(Tex. 1900)! mod. on other arounds 56 S.W.330 (Tex.
1900); un . Texas Co, 89 S.W.Zd'260 (Tex. Civ. APP.
- Fort Worth lz35, writ dism#d by agreement). The words
t'soldand conveyed" and words of a similar meaning are
presumptively words of a present conveyance. Snow v.
Prince, 13 S;W.2d 342 (Tex.-Comm'n App. 1929); Continental
Bpvaltv Co. v. Marshall 239 S.W.2d 837 (Tex. Civ. App. -
Texarkana 1951. no wriC1. If it is manifest from the
whole instrument, however, that further acts or
conveyances are contemplated by the parties, the writing
will be deemed an agreement to convey rather than a
conveyance. L For example, a deed conveying real
property and reserving a lien for the unpaid purchase
money is an executory contract that will ripen into title
in the purchaser when the purchaser has performed the
obligation to pay the purchase price. Baker V. Marable,
396 S.W.2d 222 (Tex. Civ. App. - El Paso 1965, writ ref'd
n.r.e.); Bailey v. Burkitt, 201 S.W. 725 (Tex. Civ. App. -
Galveston 1918, no writ).
The Property Code does not set forth specific
language that must be contained in a Trustee's
Substitute TNstee*s Deed. If the deed fairly can ::
construed as an executory contract, then, by the terms of
subsection (a) of section 61.025 of the Natural Resources
Code, the notice must be contained therein. If, however,
the deed is not executory in nature, subsection (b)
requires that notice must be delivered in a separate
document.
Your third question is:
If the Disclosure Requirement is found to
be applicable, must disclosure be provided
to the mortgagee (which has the potential to
acquire any or all of the properties posted
for non-judicial foreclosure sale) for each
individual foreclosure or may the Disclosure
Requirement be satisfied by either (i) one
'master disclosure8 whereby the mortgagee
acknowledges that the properties located in
certain designated counties are subject to
the Disclosure Requirement; or (ii) by a
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Mr. Earl Hale - Page 7 (JM-834)
monthly 'master disclosure' whereby the
mortgagee, on a monthly basis, acknowledges
that certain designated properties are
subject to the Disclosure Requirement?
You ask about a situation in which a mortgagee purchases
the security at a nonjudicial foreclosure sale. Section
61.025 of the Natural Resources Code evidences the
apparent legislative intent that notice must be provided
for & individual foreclosure. The statute specifically
provides that the person who sells or conveys the real
property interest must include the statutory notice *Iin
a executory contract for conveyance." The required
notice itself begins: "The real property described in
this contract . . .(a (emphasis added). We think that the
legislature intended that the sale of each parcel subject
to foreclosure must be accompanied by a notice.
Our conclusion that notice must be provided for each
foreclosure is strengthened by the fact that Texas courts,
in the absence of contractual provisions permitting
acceleration and foreclosure, have permitted partition and
,- foreclosure:
If the security is susceptible to sale in
parcels, the Court should, with respect to
each deed of trust separately, order a sale
of as much of the security as may be
necessary to satisfy the on
the note secured thereby plus the expenses
of sale and one-third of the court costs.
Motor h Industria1 Finance Corn. v. Huahes, 302 S.W.2d
386, 395 (Tex. 1957), affirming W arren v. Harrold, 49 S.W.
364 (Tex. 1899). (Emphasis added.) If the deed of trust
so provides, the trustee can sell the'security in its
entirety, subject to a lien retained by the mortgagee, for
the unmatured portion of the debt, or reserve the power to
make additional partial foreclosures in the future. See
Dorah v. Younq, 129 S.W.2d 782, 784 (Tex. Civ. App. - San
Antonio 1939, writ ref'd) (sale in entirety); Todd v.
&p&, 127 S.W.2d 340, 342-43 (Tex. Civ. App. - El Paso
1939, writ ref'd) (reserved power). If we were to
P conclude that notice is not required for each foreclosure,
the.evident legislative intention to provide notice to
each purchaser would be thwarted.
We are required to give effect to the evident intent
of the legislature when it enacts a provision. Minton v.
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Mr. Earl Hale - Page 8 (JM-834)
-,
p&, 545 S.W.2d 442 (Tex. 1976); Calvert v. Texa PiDe
Line Co. 517 S.W.2d 777 (Tex. 1974). We concludz that
section il.025 of the Natural Resources Code requires a -Y
notice for each parcel upon which there'is a foreclosure.
Your fourth question is:
On a related matter, in the event such
disclosures are provided to the mortgagee
and the property is actually purchased by an
unrelated third party either before the
non-judicial foreclosure sale or at the
non-judicial foreclosure sale, is the act of
giving such a notice to the non-purchasing
mortgagee a deceptive act under the Texas
Deceptive Trade Practices-Consumer
Protection Act, Tex. Bus. & Corn.Code Ann.
17.41 St sea. (Vernon Supp. 1987)?
Subsection (d) of section 61.025 of the Natural
Resources Code provides: "Failure to provide this
statement prior to closing, either in the executory
contract for conveyance or in a separate written
statement, shall constitute a deceptive act under section
17.46, Business & Commerce Code." You ask whether a
deceptive trade practice is committed in an instance in
which a section 61.025 notice has been provided to a
non-purchasing mortgagee. We have examined section 17.46
of the Business and Commerce Code and the cases and
opinions decided under it. We fail to see in what way the
Deceptive Trade Practices Act can be violated by giving
notice to someone to whom the statute does not require
that notice be given. We assume that you intend to ask
whether the failure to give notice to a purchasing
unrelated third party, even though notice was given to the
non-purchasing mortgagee, constitutes a violation of the
Deceptive Trade Practices Act. Clearly, by the very terms
of subsection (d), it does; the purchaser must be given
notice and failure to do so constitutes a violation of the
act.
Your fifth question is:
With respect .to purchases by unrelated
third parties at non-judicial foreclosure
. . sales, is it sufficient to obtain the
acknowledgment required by the statute at
the time of the sale?
?
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Mr. Earl Hale - Page 9 (JM-834)
Subsection (a) of section 61.025 requires that proper
notice be included in any executory contract for convey-
ante . Subsection (b) provides that, in the event that
there is no executory contract for conveyance, notice must
be delivered to the purchaser (and acknowledged thereby)
prior to closlna the t=wix$&m . Obviously, by the very
terms of section 61.025, providing notice and obtaining
acknowledgment at the time of the nonjudicial foreclosure
sale satisfies the requirements of the section.
Your final question asks:
Will a list of the counties deemed to
'border' the Gulf of Mexico ever be
promulgated and published? In the interim,
or in the event such a list will not be
promulgated and published, is Harris County
considered to 'border' the Gulf of Mexico?
Your request for an opinion was submitted prior to
the adjournment of the 70th Legislature. The originally
enacted version of section 61.025 provided that the notice
requirements applied to Veal property . . . located in a
county that borders the Gulf of Mexico.@' Acts 1985, 69th
Leg., ch. 350, 51, at 2616. The section was amended
during the 70th Legislature to address the concern that
you raise. Now the notice requirements apply to real
property located
seaward of the Gulf Intracoastal Waterway to
its southernmost point and then seaward of
the longitudinal line also known as 97
degrees, 12', 19" which runs southerly to
the international boundary from the
intersection of the centerline of the Gulf
Intracoastal Waterway and the Brownsville
Ship Channel.
Acts 1987, 70th beg., ch. 75, at 370. Though we do not
make findings of fact in the opinion process, we note,
after examination of a map, that Harris County does not
fall within.the ambit of the section's boundaries. For
purposes of section 61.025 of the Natural Resources Code,
then, Harris County does not border the Gulf of Mexico.
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Mr. Earl Hale - Page 10 W-834)
SUMMARY
1. If the interest in real property
conveyed pursuant to nonjudicial
foreclosure sale is man inte:est, other than
a mineral, leasehold, or security interest
in real property," then a statement as
specified by section 61.025 of the Natural
Resources Code must be provided to the
purchaser, regardless of whether the
purchaser is the mortgagee or an unrelated
third party.
2. If the Trustee ts or Substitute
Trustee's Deed fairly can be characterized
as an executory contract for conveyance,
then the section 61.025 statement must be
included therein. If, on the other hand,
the deed is not an executory contract, then
the section 61.025 statement must be
included in a separate document.
3. Section 61.025 of the Natural
Resources Code applies to each individual
nonjudicial foreclosure sale.
4. The act of giving to a non-purchasing
mortgagee a section 61.025 statement does
not constitute a deceptive trade practice in
violation of section 17.46 of the Business
and Commerce Code.
5. With respect to purchases by
unrelated third parties at nonjudicial
foreclosure sales, it is sufficient that the
buyer obtain the acknowledgment required by
the statute at any time prior to closing the
transaction.
6. Section 61.025 of the Natural
Resources Code does not apply to real
property located in Harris County.
JIM M ANT T 0 X
Attorney General of Texas
--.
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Mr. Earl Hale - Page 11 UM-834)
NARYKELLER
Executive Assistant Attorney General
JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General
RICK GILPIN
Chairman, Opinion Committee
Prepared by Jim Moellinger
Assistant Attorney General
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