Charles J. Jacobus

TEXAS REAL ESTATE LAW 11E

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Chapter 20

Regulation of Real Estate

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Regulation of Real Estate

• In the United States the government has four chief methods for controlling land use:

1. Eminent domain.2. Taxation.3. Escheat.4. Police power.

• Eminent domain and escheat were discussed in Chapter 11 and taxation is discussed in Chapter 21.

• The scope of this chapter is to dwell on police power.

• It is by police power that government regulates and enforces laws and regulations that pertain to land-use control.

• We will highlight some of the more important legislative efforts at the federal, state, county, municipal, and local level.

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Federal Land-Use Control

• We will discuss each federal agency under which land use is controlled

• The agencies to be covered are the:1. Securities and Exchange Commission (SEC), 2. Department of Housing and Urban Development (HUD), 3. Federal Trade Commission (FTC), and 4. Environmental Protection Agency (EPA).

• Every time a new restrictive regulatory law is passed, some investors will stop investing in the type of project being regulated, forcing their funds into other areas, and ultimately changing land-use patterns.

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Securities and Exchange Commission (SEC)

• Regulates land use which involve securities, investment contracts, or sale of equity interests.

• SEC has been regulating real estate investment trusts, real estate syndications, and certain types of condominium offerings that involve investments, interstate sales promotions, and sales made with a promise of profit or a high rate of return.

• There are only two exempt real estate investment transactions:1. Offerings made only to close friends, business associates, family, and other “close” offerings not made to the public in general.2. Offerings that do not go interstate.

• If any real estate offering has even the possibility of being considered a security, and the exemption may be in question, the real estate broker should work very closely with a lawyer well qualified in the area of real estate and securities laws.

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The Department of Housing and Urban Development (HUD)

• Agencies under HUD include:

• The Office of Interstate Land Sales Registration administers the Interstate Land Sales Full Disclosure Act.

• Federal Housing Administration insures loans to low and moderate income borrowers and improves housing standards.

• Government National Mortgage Association establishes standards for buying and selling loans and securities in the secondary market.

• Federal National Mortgage Association buys and sells loans in the secondary market to provide liquidity to the primary market.

• Federal Home Loan Mortgage Corporation serves a function similar to Fannie Mae.

• The Federal Insurance Administration provides for federal flood insurance under the National Flood Insurance Act.

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The Federal Trade Commission (FTC)

• The FTC has expanded its scope from financial areas to those of consumer protection and credit.

• Some of the primary functions are enforcement of the Federal Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, and the Home Mortgage Disclosure Act.

• FTC also regulates real estate brokerage through antitrust statutes, as discussed in Chapter 7.

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The Environmental Protection Agency (EPA)

• The EPA has passed voluminous regulations to control the use of real property if such use is considered a source of environmental pollution.

• EPA has made an effort to control every area of air, water, and industrial pollution, and many of its regs have resulted in extreme controversy.

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Clean Air and Clean Water

• The EPA administers the Clean Air Act to maintain air quality.

• The EPA administers the Federal Water Pollution Control Act.

• Many of its attempts at regulating land-use control through these laws have been substantially altered or struck down altogether.

• The EPA is taking very strong positions in the areas of hazardous waste disposal, asbestos, and regulation of waste facilities.

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Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA)

• This statute puts liability for cleanup of the site on: (1) the owner and operator of the facility. (2) the person who operates the facility. (3) the person who arranges for disposal or the transportation of materials to that facility.

• Requires the hiring of an environmental professional who must develop opinions and conclusions about releases or threatened releases of hazardous substances concerning the subject property.

• The professional’s research seeks to reveal present and historical uses of hazardous substances at the subject and neighboring properties.

• Searches for environmental clean up liens, government records, visual inspections, and interviews with past and present owners.

• Both EPA and OSHA now exercise certain regulations by promoting standards for asbestos insulation.

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Wetlands and Endangered Species

• The Corps of Engineers issues permits for the discharge of dredged or material and prohibits discharges of pollutants into navigable waters.

• The Corps of Engineers and the EPA have defined “wetlands” by regulation, which is determined by the hydrology, soils, and vegetation in the field they are evaluating.

• Wetlands come under specific federal jurisdiction.

• Along the Texas Gulf Coast almost any development requires a Corps permit and the EPA can veto a Corps decision.

• The Federal Endangered Species Act creates a federal list of species that must be protected.

• Critical habitats may be designated and prohibits a developer from harassing animals and disturbing their environment so they won’t want to live there.

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Residential Lead-Based Paint Hazard Reduction Act of 1992

• Applying to housing that is owned, subsidized, or the subject of mortgage guarantees by the federal government.

• HUD to issued regulations for the disclosure of lead-based paint in any housing constructed prior to 1978, except housing for the elderly or persons with disabilities, unless any child under six resides or is expected to reside in such housing, or any zero bedroom dwelling.

• The regulations require that every contract for sale contain a Lead Warning Statement, has received a lead hazard pamphlet, and has had a 10-day opportunity to conduct a risk assessment for lead-based paint.

• Penalties for violation include fines up to $11,000 per violation.

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Historic Preservation

• The National Historic Preservation Act requires consultation between federal agencies and the Advisory Council on Historic Preservation.

• The consultation can be a lengthy process and must be completed prior to the approval of any action by a federal agency.

• In some cases it is necessary to have an archaeologist do a survey of the property, even if it is raw land.

• Texas also has similar protection under the Texas Antiquities Code

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State Land-Use Control

• The State of Texas has the Texas Highway Commission, the General Land Office, the Texas Water Development Board, the Texas Commission on Environmental Quality, the Texas Parks and Wildlife Department, and several other state agencies.

• Land management is accomplished through regional planning commissions such as the Houston-Galveston Area Council, the Coastal Zone Management Commission, and other regional authorities.

• The legislature has created special districts have been established such as special levee districts, water districts, water improvement districts, utility districts, navigation districts, water conservation districts, soil conservation districts, and subsidence districts.

• Regulation of natural resources has been the primary responsibility of the Texas Oil and Gas Commission.

• The General Land Office has authority over certain resources offshore.

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County Regulations

• Texas has traditionally not provided for county land-use control except for areas of road construction and maintenance.

• In counties with a population of more than 2.2 million, or in counties contiguous to them, the county can require platting of subdivisions for street widths, the boundaries of lots, as well as construction of roads, and adequate drainage.

Only Dallas and Harris counties have more

than 2.2 million people according to the 2010

Census.

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Municipal Land-Use Control

• Cities do not have lawmaking powers unless granted by the state.

• The state has passed certain enabling acts that grant cities the authority to regulate land use.

• Typical examples are zoning, municipal land-use controls, enforcement of deed restrictions, and certain powers of annexation.

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Zoning

• The most extensive method of regulating land use in cities.

• Zoning is for the purpose of promoting health, safety, and morals; for the protection of places of historical and cultural importance; and for the general welfare of the community.

• The municipality has the authority to regulate the height, number of stories, and size of buildings and other structures; the percentage of a lot that may be occupied; the size of the yards, courts, and other open space; the density of population; and the location and use of buildings, structures, and land for trade, industry, residence, or other purposes.

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• Zoning regs must be made in accordance with a comprehensive plan

• There is no particular comprehensive plan format or criteria.

• The regulations must be designed to accomplish the following:1. To lessen congestion in the streets.2. To secure safety from fire, panic, and other danger.3. To promote health and the general welfare.4. To provide adequate light and air.5. To prevent the overcrowding of land.6. To avoid undue concentration of population.7. To facilitate adequate provision for transportation, water, sewage, schools, parks, and other public requirements.

Zoning

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Zoning

• The city divides the municipality into districts as to carry out the purposes of the ordinance.

• Zoning regs cannot become effective until the legislative body holds a public hearing at which all parties can have an opportunity to be heard.

• At least 15 days’ notice of the time and place shall be published.

• If any proposed regulations are protested by the owners of 20% of the area of the lots covered by the proposed change, a three-fourths vote of the legislative body is necessary to enact the amendment or change.

• The ultimate decision as to how an area is going to be zoned depends on the legislative body of the municipality.

• If the applicant feels he has been unjustly treated, he may appeal his case to another appointed body, the board of adjustment.

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Zoning

• A special exception is a use that is permitted in a certain zone, but subject to control by the municipal authorities.

• A variance is permitted to stand because otherwise an unnecessary hardship would be created for the owner of the property.

• Any appeal beyond the board of adjustment has to be taken to court.

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Zoning Issues – Taking

• There is an argument that zoning a property for a particular use is a “taking” because the property owner can no longer determine its highest and best use and perhaps cannot even build for a profit.

• The courts have consistently held that this is a legal regulation of land use and not “taking.”

• There is no requirement for just compensation as would be the case in an eminent domain proceeding.

• Should a city take property by eminent domain, it is not bound by its own zoning ordinance.

• When a property has been zoned so that it no longer has an economic use, it is a taking.

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Zoning Issues – Spot Zoning

• The process of singling out a parcel of land for use that is inconsistent with the surrounding zoned areas.

• Zoning of this type is normally to the benefit of the lot owner, but to the detriment of the surrounding area.

• An example of this would be to allow a townhouse zoning use in the middle of a single-family residential area.

• Spot zoning is illegal and prohibited in Texas.

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Zoning Issues – Contract Zoning

• An agreement by a city to enact a change in land-use classification in exchange for certain concessions to be granted by the developer or applicant.

• This has been held to be invalid as an improper “bargaining away” of the city’s police power.

• This should be distinguished from conditional zoning, wherein the city unilaterally requires a property owner to subject his land to certain restrictions without a prior commitment to rezone.

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Zoning Issues – Nonconforming Use

• Maintaining the previous use of an area, a use that does not properly fit into the new zoning classification.

• The nonconforming property cannot be materially changed, altered, improved without conforming to the new zoning classification.

• The owner is allowed to repair the existing improvement.

• The nonconforming uses are supposed to cease to function eventually.

I’M GRANDFATHERED!

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Zoning Issues – Exclusionary Land-Use Control

• There has been considerable litigation in recent years over what rights the city has to zone properties to exclude certain uses.

• This practice is referred to as exclusionary zoning.

• For example, zoning is used to limit construction to homes on two-acre lots, and the city contains no apartments, no middle-income housing, or no low-income housing, that city may be determined to be using an exclusionary zoning technique, which would be illegal.

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Annexation – Extraterritorial Jurisdiction

• Texas has given cities certain annexation powers within its ETJ.

• An ETJ is the unincorporated area, not a part of any other city, that is contiguous with the corporate limits of any city.

• The size of the ETJ depends on the number of inhabitants in that city.

• The city may extend all the city’s rules and regulations governing plats and subdivision of land within it’s ETJ.

• The city may also annex the area after holding required public hearings.

• Consent of the people whose property is being annexed is not required.

• A city may not annex noncontiguous land.

• Citizens of an annexed area have the right to petition for disannexation if the proper level of services is not provided by the city.

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Indirect Municipal Land-Use Controls

• Cities may regulate through indirect methods such as building codes.

• The city has additional power through the control of utility extensions and capacities for those utilities as they are extended.

• Maintenance and construction of city streets also have an impact.

• Subdivision regulations may check proposed development due to the capacity of existing utilities and traffic -control problems.

• Unzoned areas require plats to be filed before any new development.

• Cities are given certain powers to enforce federal legislation such as the Clean Air Act and the Clean Water Act.

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Deed Restrictions – Creation

• The primary method of private land-use control, basically control by contractual agreement.

• Developers realized that they could control the quality of their developments by establishing deed restrictions on entire subdivisions.

• The restrictions are binding to all future purchasers and creditors as covenants running with the land.

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Deed Restrictions – Control

• Deed restrictions can include more than just the health, safety, and welfare of the community.

• The only prohibitions of deed restrictions are those in violation of the U.S. Constitution and Texas statute.

• Statutes exist which invalidates deed restrictions based on race, color, religion, or national origin, and which makes deed restrictions requiring wood shingles invalid.

• A property owner cannot be prohibited from composting vegetation, installing rain barrels or other similar types of conservation efforts.

• Only a party who gets a benefit from these deed restrictions (i.e., the other property owners in the subdivision) can maintain a cause of action to enforce those restrictions.

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Deed Restrictions – General Enforcement

• When there is ambiguity, the covenants will be construed in favor of the less restrictive use of the property and against the restriction.

• There is at least some authority that the covenants can run perpetually, but they are usually restricted by their own terms for a number of years.

• Changes to deed restrictions are also controlled by the restrictions’ own terms but in the absence of a specific procedure for change, it normally takes a vote of 100% of the people affected.

• Deed restrictions in highly populated cities or counties can be changed by a petition of the residents signed by 75% of the owners.

• Restrictions for single-family dwellings cannot prohibit the erection of a satellite dish in a reasonable manner.

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Deed Restrictions – Enforcement Remedies

• When a deed restriction is breached there are generally two remedies: (1) injunctive relief to stop the violator. (2) damages to compensate those hurt as a result of the violation.

• Bizarre and unrealistic remedies are generally not upheld, such as the removal of a home because of a small violations.

• It has been generally held that the enforcement of the deed restrictions may be refused on either of two theories.

• The first is a general change in the restricted and surrounding area.

• The second is a waiver of the right to enforce by landowners who have violated or permitted violations of the restrictions.

• To establish a waiver the nonconforming user must prove that the violations are so great as to lead the “average man” to conclude that the restriction in question has been abandoned.

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HOA Foreclosures

• The Texas Residential Property Owners Protection Act has a number of consumer protections for homeowners:

(1) the POA must record a management certificate. (2) the POA must make all books and records available. (3) a POA can suspend an owner’s right to use a common area only through court action.

• The POA may conduct nonjudicial foreclosures but the attorney’s fees are limited to the greater of one-third of actual costs or $2,500.

• The POA may not foreclose solely for fines or related attorney’s fees.

• Owner has the right to redeem within 180 days after foreclosure.

• Lien holders may redeem for the owner for 90 days after foreclosure if the lot owner has not exercised their right of redemption.

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Release of HOA Judgment Liens

• A property owner whose property is subject to a recorded property owner’s assessment lien may file an affidavit as a release of lien.

• If the affidavit is improperly filed, or the lien has not been paid, the property owner’s association can file a contradicting affidavit.

• Anybody who knowingly causes an affidavit with false information to be recorded is liable for criminal penalties!

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HOA Foreclosures

• May not foreclose on active military unless POA obtains a court order for expedited foreclosure under the rules of the Texas Supreme Court.

• The expedited foreclosure is not required if the owner agrees in writing at the time the foreclosure is sought to waive the expedited foreclosure.

• A provision granting the right to foreclosure a lien on real property for unpaid amounts due to a property owners association may be removed from a dedicatory instrument if it is approved by at least 67 percent of the total votes of property owners!

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Open Records Act

• POA books and records must be available and copies made upon request within 10 days.

• POA must adopt a records production and copying policy.

• Board meetings must be open to owners with few exceptions.

• Notice must be given of any board meetings at least 72 hours prior.

• Any vote cast must be in writing and signed by the member.

• All homeowners have the right to vote and to run for the board, regardless of dedicatory instruments.

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Notice of Membership in a Property Owners Association

• Must contain language that informs the owner that they are entitled to receive copies of any documents that govern the establishment, maintenance, and operation of the subdivision, including the restrictions, by-laws, rules and regulations, and resale certificates.

• That portion of the disclosure must be in bold print and underlined.

• Purchaser is required to pay for issuance of the resale certificate, unless it is otherwise agreed to by the parties.

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Website Access and Fee Payments

• If the property owners association has a website or its management company has a publicly accessible website, the website must contain all dedicatory instruments which have been filed in the county records.

• A POA composed of more than 14 lots must adopt reasonable guidelines to establish an alternative payment schedule by which an owner may make partial payments for amounts owed without penalties.

• The minimum term for a payment plan can be no less than 3 months, nor more than 18 months.

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Private Transfer Fees

• An amount of money payable on the transfer of real property.

• A private transfer fee created after 9-1-11 is not binding or enforceable.

• The restriction does not prohibit such fees for POAs, and some charitable organizations.

• A private transfer fee created before 9-1-11 must file have a “Notice of Private Transfer Fee Obligation” filed in order to continue collecting it.

• The notice must be at least 14 point bold type, state the amount of the fee, the purpose for which the money will be used, and state the legal description of the property.

• The Notice must be re-filed every three (3) years.

• Disclosures of the exiting transfer fee is also required in the contract for sale.

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Prohibited Restrictions

• A POA may not prohibit, unreasonably restrict the display of a flag of the United States of America, the flag of the State of Texas, or an official or replica flag of any branch of the United States armed forces.

• A POA also may not enforce a provision that prohibits or restricts a property owner from installing a solar energy device unless it threatens the public health or safety or violates a federal or state law.

• POA may not enforce a restrictive covenant that prohibits a property owner from displaying religious items.

• The association can put in a speed feedback sign so long as the association receives the consent of governing body of the local subdivision and the association pays for the installation of the sign.

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Questions for Discussion

1. Under the government’s police power (the right of government to pass laws, rules, and regulations to protect the health, safety, morals, and welfare of the public) there are innumerable government agencies and quasi-government agencies. List as many as you can.

2. There are also numerous statutes controlling land use in this country. List as many of these as you can.

3. What is the purpose of zoning?

4. What is the power of zoning?

5. Define, is as few words as possible, the following zoning related terms: