Documents Needed When Creating or Updating Your Will

Whether you’re having a first Will drafted or updating an older one, you can help speed up the process by bringing copies of specific documents to your appointment. If possible, try to bring copies that you can leave behind for an extended period of time.

It’s also useful if you can readily explain the special circumstances involved with any beneficiaries you’ll be naming in your Will. For example, be sure to tell us if someone is still a minor, has a major disability – or may be difficult to contact due to unique job or living arrangements. Finally, keep in mind that all major life events can require future Will updates.

We hope the information we’ve shared below will help you locate the documents we’ll need when first meeting with you regarding your current estate planning needs. Many assets may be transferred either by contract or under a Will, so letting us know of any existing contractual beneficiaries aids in your overall estate planning. Our goal is to create a comprehensive estate plan that allows you to provide testamentary gifts to all of your chosen beneficiaries.

Documents/Information That Helps Attorneys Analyze Your Assets & Desired Gifts

  • A thorough list of all real property you own/co-own (or are currently purchasing). We will need copies of all property deeds that state your ownership rights – and all related mortgage documents.
  • Copies of your most recent checking and savings account statements, together with any designation of beneficiaries.
  • A list of all automobiles you own – including all other motorized vehicles titled in your name (and information stating how much you owe on each one of them).
  • Copies of all personal life insurance policies, together with any designation of beneficiaries.
  • Documents describing all structured settlements that name you as a beneficiary.
  • Your most recent certificate of deposit and brokerage firm statements, together with any designation of beneficiaries.
  • Copies of your most current 401(k), IRA, Roth, Keogh, pension, or other retirement account statements, together with any designation of beneficiaries.
  • A comprehensive list of all monthly rents and other payments owed to you personally – or to your business.
  • A complete list of all of your current stocks and bonds, together with any designation of beneficiaries.
  • A comprehensive list of all of your most valuable personal property, including: jewelry, artwork, household furniture, antiques, and other similar possessions.
  • A thorough list of all outstanding credit card debts owing – as well as any other lines of credit you’re trying to pay off.
  • Documents indicating any type of monthly support or inheritance you currently receive. This might include spousal support payments or trust account payments. You may also want to tell us about any testamentary gifts you expect to receive in the near future.
  • Any important information concerning your pets, such as veterinarian, special diet, person to care for your pets.
  • A list of any other major assets (or debts) that you haven’t already named above. Also, please be prepared to tell us about any bankruptcy filings you’ve made – either business or personal ones – during the past 10 years. Be sure to bring copies of any paperwork documenting those filings.

Information to Designate Persons to Carry Out Your Wishes

  • Full legal names, birthdates, addresses and phone numbers for:
    • Executor and two alternates;
    • Trustee and two alternates;
    • Guardian and two alternates;
    • Medical Power of Attorney and two alternates;
    • Financial Power of Attorney and two alternates;
    • Medical Provider.

Common Circumstances that Can Trigger the Immediate Need to Update Your Will

  • You get married – or divorced.
  • You adopt a child or have one born to you or your spouse/partner.
  • When one or more of your beneficiaries pass away. Depending upon the type of gifts you left to these individuals – and how they were structured – you may or may not need to update your Will. Please always call and check with us upon such deaths.
  • You gain or lose a business partner – please contact us so we can be sure your Will fully protects all of your rights regarding this type of change. Likewise, please get in touch if you change the legal structure of your business enterprise – e.g., you change it from a solo-proprietorship to a partnership – or corporation.
  • A family member’s health has significantly declined. Also, please be sure to tell us if a beneficiary has started receiving social security disability payments so we can properly structure all gifts or funds you’re providing to this individual. If you fail to do this, it can threaten this person’s ongoing eligibility to receive such government payments.
  • Whenever you purchase or inherit a new home, new land, or other real estate.
  • You significantly add to – or diminish – the number of insurance policies you’re keeping current.
  • When you personally become seriously ill. This will let us check to be sure your current medical insurance and insurance policies will fully cover all of your needs.
  • Please let us know when you’ve changed your legal home or business residence. There may be new tax consequences that should be reviewed. Likewise, let us know if you decide to change the nature of your current citizenship.
  • You inherit a very large sum of money. Likewise, please inform us if you’d like to start giving large sums of money to one or more charities.
  • One of your current beneficiaries can no longer manage his or her financial affairs. This can occur due to general physical or mental health issues – as well as due to various accidents or addictions.
  • There are major changes in your earnings or investments. This will allow us to properly adjust the size and types of gifts you may want to give to different individuals.
  • You hear about major state or federal tax changes that could affect your estate. Rest assured, we normally contact all of our clients under such circumstances. However, we’re always here to answer any questions you may have.

While the information shared above is fairly comprehensive, we believe it’s important for our clients to fully understand all aspects of the estate planning process.  In light of that goal, we’ll now also note some of the unusual events that can prevent a named beneficiary from receiving your designated gifts. If you’ll stay in close contact with us, we can usually prevent this from occurring.

Reasons a Named Beneficiary May Not Receive All Indicated Gifts

  • We cannot locate a beneficiary. Of course, your executor has a legal and fiduciary duty to hire all necessary personnel to locate all named beneficiaries. It’s always a good idea to provide our office with any new addresses for your beneficiaries, especially when they move out of the country.
  • A later divorce takes place. In an effort to protect testators who forget to update their wills after divorcing, many states have passed laws that prevent former spouses from receiving property the testators would not have wanted to give them had they updated their Wills. Of course, it’s always best to immediately contact us whenever you divorce or remarry.
  • A gift has abated. When you pass away, your estate may not be large enough to cover all of your taxes and expenses. In some cases, we may still be able to provide some gifts on a pro-rated basis, in keeping with the terms of your Will.
  • Your Will conflicts with the legal requirements of a governing community property state (like Texas) in which you live. This is one of the reasons why it’s always wise to allow our firm to carefully review any Will you already have that was drafted by another estate planning attorney. While such errors are rare, they can invalidate all or part of your Will – if it fails to honor the division of marital property required by this (or another) community property state.
  • A court later declares your Will to be void for legal reasons. This is extremely rare and would usually only occur if certain types of fraud (or mistakes) were involved.
  • A gift causa mortis has been made. While this is rare, it simply means that if a person’s death is imminent – and he/she makes a specific gift to someone (often a person right there in his/her presence), the prior named beneficiary may not receive it. Courts will naturally need to investigate this type of situation to be sure undue influence wasn’t involved or any type of fraud.

We hope this general overview of information has proved useful. However, please know that our attorneys are always available to answer any questions you may have concerning your estate planning needs.

The Texas Margin Tax – H.B. 500

In 2013 the Texas Legislature enacted H.B. 500 which provided for a temporary margin tax rate reduction, a new minimum deduction, expanded deductions, new credits for certain taxpayers, and customer-based sourcing for Internet hosting receipts. The law went into effect January 1, 2014.

A franchise tax (or margin tax) is imposed on all taxable entities. Under H.B. 500 a “taxable entity” means a partnership, limited liability partnership, corporation, banking corporation, savings and loan association, limited liability company, business trust, professional association, business association, joint venture, joint stock company, holding company, or other legal entity. The term includes a combined group. A joint venture does not include joint operating or co-ownership arrangements meeting the requirements of Treasury Regulation Section 1.761-2(a)(3) that elect out of federal partnership treatment as provided by Section 761(a), Internal Revenue Code.

For all taxable entities under this legislation, the revised tax base is the taxable entity’s margin defined as the lowest of the following:

  1. Total revenue less cost of goods sold;
  2. Total revenue less compensation; or
  3. Total revenue times 70%.

The margin tax is imposed at 0.5% on retail and wholesale trade businesses and 1% on all other taxpayers. The rate could be reduced provided the probable revenue estimates as certified by the Comptroller are calculated to offset any revenue lost by the rate reduction. In that event, H.B. 500 establishes temporary rate reductions as follows:

  1. 2014 – 0.4875% for retailers or wholesalers, and 0.975% for other taxpayers.
  2. 2015 – 0.4750% for retailers or wholesalers, and 0.950% for other taxpayers.

The rate for reports due in 2014 was actually reduced as indicated above. It is estimated by the Comptroller that probable revenue for the fiscal period applicable to 2015 will be sufficient to also allow for the rate reduction for 2015.

A taxable entity is primarily engaged in retail or wholesale trade if: (1) the total revenue from its activities in retail or wholesale trade is greater than the total revenue from its activities in trades other than the retail and wholesale trade; and (2) less than 50% of the total revenue from activities in retail or wholesale trade comes from the sale of products it produces or products produced by an entity that is part of an affiliated group to which the taxable entity also belongs, except for those businesses under Major Group 58 (eating and drinking establishments); and (3) the taxable entity does not provide retail or wholesale utilities, including telecommunication services, electricity, or gas.

Under H.B. 500, the retail or wholesale trade definition was expanded to include automotive repair shops, equipment rent-to-own transactions, and rental or leasing of tools, party and event supplies, furniture, or heavy construction equipment.

H.B. 500 adds certain deductions from margin tax apportioned to operations in Texas, including deductions for cost of solar energy devices, cost of clean coal projects, and relocation costs by certain taxable entities. H.B. 500 also provides for certain exclusions from revenue and amends the calculation of cost of goods as it applies to pipeline companies under certain circumstances, and as it applies to movie theaters. There is also a $1 million deduction from total revenue for small businesses.

The new sales sourcing rule for internet hosting companies provides that, for reports due on or after January 1, 2014, receipts are considered derived in Texas only if the consumer of the service is located in Texas.

The enactment of H.B. 500 created many changes to the margin tax and cost of goods rule, most of which are favorable to certain businesses. As a result of the more complicated margin tax and cost of goods sold calculations under this legislation, affected taxpayers should review these matters for previously filed returns, audits and future returns for potential refund claims and/or tax savings.

Too Many Working Women Still Plagued By Sexual Harassment

Although record numbers of American women have joined the workforce during the past fifty years, far too many of them are still being sexually harassed. In fact, roughly 7,200 new charges of sexual harassment are filed each year (only 17% of which are filed by males).

All of these victims are entitled to justice and most hope their cases will help curb this epidemic. During recent years, it’s been estimated that about one-fourth of all women have been sexually harassed at work. Far too many have also been assaulted on the job – and some even partially blamed for the horrific offenses committed against them.

This creates a terrible burden on women who must not only birth all children – they must also often join the full-time workforce — because so many American couples cannot afford to live on just one spouse’s paycheck, especially when children are involved.

Equal Employment Opportunity Commission (EEOC) Definition of Sexual Harassment  

Everyone seeking to file a federal lawsuit alleging sexual harassment (under Title VII of the Civil Rights Act of 1964) must first file an EEOC claim. However, the time period in which to file an EEOC claim is extremely short. If one misses the deadline, all further claims are barred.Therefore, it’s important to review how this agency defines this type of abuse. The EEOC says, “It is unlawful to harass a person (an applicant or employee) because of that person’s sex. Harassment can include ‘sexual harassment’ or unwelcome sexual advances, requests for sexual favors, and other verbal or physical harassment of a sexual nature.”

Critical Facts, Theories, and Statistics: Sexual Harassment of Women in the Workplace

  • Identity of the harasser. This can be your own supervisor, one from a different area, an employer’s agent, a co-worker – or even a non-employee;
  • Legally forbidden behaviors. This can include being asked for sexual favors, being physically touched in an unwanted (sexual) way, or other types of unsolicited sexual advances;
  • Hostile or offensive work environment. If you are forced to endure any of these types of behaviors and they “unreasonably interfere with your work performance or create an intimidating, hostile or offensive work environment, then . . . [they may constitute] sexual harassment;”
  • Lower-wage females especially vulnerable. The less a woman earns on the job, the more likely she is supervised in a way that may weaken her opportunities to report or file a successful EEOC claim for sexual harassment;
  • A number of workplace experts see declining judicial support for women who file sexual harassment claims. Some recent U. S. Supreme Court decisions imply that “big business” receives sympathetic help from the courts;
  • Too many employers fail to provide effective training that forbids sexual harassment. Not only does this greatly increase the likelihood of harassment – it also subjects these employers to more successful plaintiff lawsuits. Igonorance is not bliss. In addition to such training, employers need to create “an effective complaint or grievance process and [take] immediate and appropriate action when an employee complains;”
  • Women working in the military – as well as in the fields of high-tech and science. Sadly, these hard-working and highly intelligent women face unusually high incidences of both sexual harassment – and assault — due to their special talents and unique jobs once largely held by men;

How Our Office Helps Women Seeking to File Sexual Harassment Lawsuits

One of our attorneys will meet with you in a free, initial consultation and listen confidentially as you discuss the facts of your case. If necessary, we can help you prepare your EEOC filing, fully investigate your case, and then file your lawsuit in the appropriate federal court.

We always provide our services in as sensitive a manner as possible and understand the type of trauma most women experience regarding sexual harassment. Our firm will also explain to you how different stages of your case will most likely unfold while we prepare your case for trial. You can rest assured that we will do everything we can to succeed on your behalf.

Rule Changes Effective in 2015 Affecting Seller Financing


The Consumer Financial Protection Bureau (CFPB), an independent federal agency, is responsible for protection of consumers involved with financial products and services including mortgages, credit cards and other consumer financial products.  The CFPB was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in 2010, as a response to the financial crisis of 2007-2008.

Under the Truth in Lending Act (TILA) (Regulation Z) and the Real Estate Settlement Procedures Act (RESPA) (Regulation X), the CFPB is authorized to issue rules to protect consumers when applying for and closing on a mortgage loan.  The CFPB has finalized a rule known as the TILA-RESPA Rule establishing new integrated disclosure requirements and forms along with substantial compliance guidance.  This rule will take effect on August 1, 2015.  The TILA-RESPA Rule will apply to transactions for which the creditor or mortgage broker receives an application on or after that date.  This rule will affect transactions for most closed-end consumer credit transactions secured by real property.  It will not apply to home equity lines of credit, reverse mortgages, or mortgages secured by a mobile home or by a dwelling that is not attached to real property.  The rule also does not apply to persons or entities that make five or fewer mortgages per year as they are not considered “creditors”.

The purpose of the new mortgage forms required to replace current overlapping forms including terms and costs of mortgage loans is an effort to eliminate consumer confusion and help them make the decision that is best for them with no surprises at closing.

An understanding of compliance obligations under the TILA-RESPA Rule is essential for entities originating closed-end residential mortgage loans, settlement service providers, secondary market participants, software providers, and other companies that serve as business partners to creditors.

The TILA-RESPA rule combines four disclosures into two forms, a Loan Estimate, and a Closing Disclosure.

Loan Estimate Disclosure General Requirements

Generally, the creditor must use Form H-24 prescribed by the FCPB. This disclosure is defined as a good faith estimate of the credit costs and transaction terms for the transaction.  This new form is referred to as the Loan Estimate and integrates and replaces the current RESPA GFE and the initial TIL.  This form is required to be provided within three business days of receipt of the consumer’s loan application.

The Loan Estimate:

  1. Must contain a good faith estimate of credit costs and transaction terms.
  2. Must be in writing and contain information required by §1026.37 (Form H-24).
  3. Must satisfy delivery timing and method requirements.
  4. May only be revised or corrected when specific requirements are met.
  5. May be provided by either the creditor or the mortgage broker when the mortgage broker receives a consumer’s application.

 Specific Information Required on Form H-24

  1. General information, loan terms, projected payments, and costs at closing.
  2. Closing cost details.
  3. Additional information about the loan such as contact information, comparisons table, other considerations table, and signature statement for consumer to acknowledge receipt.

Closing Disclosure General Requirements

Generally, the creditor must use Form H-25 prescribed by the FCPB.  Creditors must provide a new final disclosure referred to as the Closing Disclosure for loans requiring a Loan Estimate that proceed to closing.  This new form combines the current HUD-1 and final TIL disclosures.  This disclosure must be received by the consumer no later than three business days before consummation of the loan.

The Closing Disclosure:

  1. Must contain the actual terms and costs of the transaction.
  2. Must be in writing and contain the information prescribed in § 1026.38 (Form H-25).
  3. Must be replaced by a corrected disclosure if the actual terms or costs of the transaction change prior to consummation of the loan
  4. Requires an additional three-day waiting period if a corrected disclosure is provided.

Specific Information Required on Form H-25

  1. General information, loan terms, projected payments, and costs at closing.
  2. Loan costs and other costs.
  3. Calculating cash to close, summaries of transactions, and alternatives for transactions without a seller.
  4. Additional information about this loan (Assumption, Security Interest, Escrow, etc.).
  5. Loan calculations, other disclosures and contact information.

It is advisable that creditors dealing with transactions for closed-end consumer credit transactions secured by real property become familiar with the compliance requirements for these new disclosures well before the effective date of August 1, 2015.  The CFPB link below contains many helpful resources including a Compliance Guide, Guide to Forms, Disclosure Timeline, Forms & Samples, Videos, and additional information to help you in dealing with the new TILA-RESPA requirements.

Construction Insurance: Challenges Posed by the Texas Anti-Indemnity Act

Prior to the passage of the Texas Anti-Indemnity Act back in 2011, the parties most active in the state’s construction industry could still readily determine the degree of insurance coverage and indemnity they were securing regarding various projects. However, since that law went into effect on January 1, 2012, significant confusion over such issues has been introduced into the field of Texas construction law — and it’s unlikely to dissipate anytime soon.

Balancing Constitutional Rights Against Insurance Industry Concerns

Today, many in the Texas construction industry might argue that this law has had a chilling effect on their constitutional right to contract with others.  As one scholar has put it, referencing a long-standing legal principle cited in numerous U.S. Supreme Court cases, “Parties should be allowed to create contracts however they wish, as long as they do not violate the State’s police power or public policy.” Unfortunately, the Texas Anti-Indemnity Act “binds parties’ hands and prevents them from contracting as they wish.”

While many in the insurance industry pushed hard to pass this legislation, especially since the Act was designed to “protect insurance companies from exposure to liability for claims which they did not agree to underwrite” — major questions remain unanswered. One of the Act’s most glaring deficiencies is its failure to provide clear definitions of critical terms. These could have provided guidance to the courts that are now handling pending lawsuits. Many of these specific deficits are clearly pointed out in a well-researched 2014 article published in St. Mary’s Law Journal.

Types of Questions the Courts Must Now Specifically Address

  • Exactly which types of indemnity (risk-transferring) agreements are strictly forbidden under the Texas Anti-Indemnity Act? Jurists will soon be asking their sharpest law clerks to help them interpret Texas Insurance Code Section 151.101 where this vague statute is located. They will also need to spend considerable time reviewing Title 10 of the same code which addresses property and casualty insurance contracts – among many others;
  • Are most of the standard builder’s risk insurance policies common available now void? For many years, these policies have been among the first negotiated by most parties to construction projects since they help cover losses tied to the damages many new buildings incur while under construction;
  • Are policies which include a “duty to defend” now void under the Act? Strong arguments can be made that this is a very distinct provision apart from the broader duty to indemnify;
  • How can insurance companies legally offset possible losses caused by the Texas Anti-Indemnity Act, without penalizes customers with higher rates? As one scholar has pointed out, “If [insurance] companies interpret the statute broadly, they risk losing business, as they can no longer offer additional insured status or obtain indemnity agreements from other insurance companies;”
  • Which uncontroverted facts support the claim that the Texas AntiIndemnity Act was passed due to the troubling “unequal bargaining positions between owners, general contractors, and subcontractors”? Hasn’t capitalism always encouraged parties with the most money to fully insulate themselves from as much litigation as possible? As the Mary Law Journal article notes, if this was one of the true motives for passing this legislation, why did the legislature completely exclude residential construction from the Act, given the common belief that there is probably more unequal bargaining power within that specific field of construction than most others?
  • Which specific and compelling state rights are being upheld by this Act, at the apparent expense of citizens’ constitutional right to contract with one another as they choose?

Until significant case law is decided regarding the proper scope of this Act, those most active in the Texas construction industry may need to spend far more time conferring with their attorneys about the best possible ways to protect themselves against excessive litigation caused by this questionable law.

Guidance for Sale of a Business

Business owners will all, at some point, face the challenge of selling their business. Whether the change comes as a result of reaching retirement age or the fact that you have grown your business to the extent that a third party chooses to acquire it, the general process remains the same. The business owner may wish to consult with one or more of the following professionals for guidance: business broker, accountant, and/or attorney.

First, most purchasers prefer to buy assets and few, if any, liabilities of your company.  This structure gives the buyer a fresh start, decreases the buyer’s risks because contingent liabilities are excluded, and results in a stepped-up basis in those assets for tax purposes. On the other hand, asset sales typically require obtaining the consent of a number of third parties, such as lessors, lenders, and supply vendors. Almost every contract to which a business owner is a party will contain an anti-assignment clause. Even if the assignment of a contract is permitted, you must obtain the prior written consent of the other party. A due diligence review of all contracts will be necessary to ascertain their assignability. Adding these additional parties to the mix, not only lengthens the time frame to reach closing, but also may place the seller in a weaker bargaining position, if the buyer wants changes made to the contracts. Other drawbacks to the asset purchase structure from the seller’s perspective include: titled assets must each be individually re-titled (e.g., real property, vehicles, and intellectual property such as patents and trademarks); seller’s guarantees must be removed or replaced; and the parties must resolve their conflicting views on how to allocate the purchase price among the assets and the seller’s personal goodwill.

Sellers normally prefer to structure the sale of their business as a direct transfer of some or all of their ownership interests. Since the entity owning the business remains the same, the assignability issue is avoided, unless the contract contains a “change in control” provision. The assets so acquired will have a “carryover” tax basis. Moreover, an ownership interest transfer could potentially require compliance with state and federal securities laws, so the buyer will need to find an exemption to such laws or even obtain a legal opinion that the ownership interests in your business do not constitute a “security.” A “stock” buyer will need to perform a more in depth due diligence review of your business because the buyer will be assuming your liabilities too. A compromise position is for the seller to indemnify the buyer for liabilities associated with actions or inactions that occurred prior to the closing date. To make such a compromise feasible, a portion of the purchase price may have to be escrowed to secure such contingent liabilities or the seller may be forced to personally guarantee those potential liabilities.

Once the acquisition transaction structure has been determined, both buyer and seller will delve into relevant confidential information concerning the other party to evaluate the desirability of completing the transaction. Generally, the buyer will need substantially more detailed information than the seller, especially if the seller is receiving the purchase price in cash. However, if the seller will receive his or her compensation in the form of an ownership interest in the buyer, both parties will want extensive information about the other. A checklist of the categories of information that the parties should review is set forth below.

  • Organization documents for the entity, together with all amendments
  • Financial statements, audit letters and tax returns
  • Books and records of the entity
  • Major contracts
  • Real property deeds and/or leases
  • Pending or threatened litigation
  • Governmental compliance & permit requirements
  • Major customers and suppliers
  • Employment terms for employees that will be retained
  • Intellectual property rights
  • Environmental issues
  • Lien searches for counties and states where entity does business
  • Inspection of the business facilities
  • Listing and condition of machinery, equipment and inventory
  • Listing of accounts receivable
  • Insurance
  • Guarantee Agreements
  • Required approvals and consents

In addition, depending on whether or not the seller will continue to be involved in the business, satisfactory consulting or employment agreements, in the first instance, or non-compete, in the later instance, should also be executed.

Selling your business can create a “win-win” based on the parties engaging in a methodical and realistic due diligence review of your company.

Construction Project Mangement: When Being Last Can Be Least

A new construction, large or small, is a very exciting process to be a part of, but it comes with it’s share of hassles. Managing contractors, subcontractors and suppliers and all of the laws associated with it can be a headache. Are you educated before embarking on your project?

In Texas, liens for labor and materials incorporated into a construction project must strictly comply with the statutory notices and time frames to be enforceable. On the other hand, if the contractor has a direct contract with the owner, the contractor can rely on the self-enacting constitutional lien. However, the contractor should still file a notice of its constitutional lien so that third parties will have constructive notice of it. Of course, in addition to creating a lien, the contractor’s main goal is to get paid.

Subcontractors or suppliers who provide labor and/or services toward the end of a construction project face two additional challenges. First, the 10% statutory retainage may have been released to a large extent pursuant to the owner’s contract with the general contractor or because early finishing subcontractors have already received 100% of their funds. Even if the retainage funds are still available, the owner is entitled to release them 30 days after final completion of the construction project. Unless a subcontractor or supplier checks the real estate records frequently, such person may not even be aware that the retainage holding period has expired, often before such person’s statutory lien notice and filing dates have occurred.

To protect their lien rights, subcontractors and suppliers should proactively file their liens and notices promptly and not wait for the statutory deadlines, which are outside limits similar to a statute of limitations. Sending a retainage notice to both the owner and the general contractor as soon as such subcontractor or supplier starts work on the construction project provides further evidence of its rights.

Despite taking all these steps, if a contractor is not paid in full, such contractor should consider either pursuing a judicial foreclosure that allows removal of its materials (if possible) or if the contractor is relying on a constitutional lien, filing a lawsuit and a lis pendens notice against the property.

Limitations on Covenants in General Warranty Deeds

The covenant language in a typical general warranty deed, which reads as follows:


seems straightforward and ironclad. However, in a recent Texas Court of Appeals opinion issued on September 25, 2014, in which our own Kyle Dickson successfully represented the appellant (Grantor), the Court placed two significant restrictions on the covenant to warrant and forever defend. Stumhoffer v. Perales, No.01-12-00953-CV, (Tex. App.-Houston [1st Dist.] 2014, rev’d and remanded).


The trial court initially held that Grantor’s covenant to defend included attorney’s fees and costs and granted summary judgment in favor of Grantee. With $75,000 at stake, Grantor appealed.


The trial court held that, in that situation, the Grantor waived any right to object to the manner in which the Grantee handled the defense of the action. Moreover, if Grantee lost title to any part of the Premises, then Grantor would be liable to Grantee for the fair market value of the portion of the Premises so lost. Ironically, Grantee prevailed in the lawsuit and, thus, Grantor incurred no liability under the general warranty deed.

The lesson is that grantors decline to defend title claims at their own peril.


The Court of Appeals reasoned that, if there had been a failure of title to the Premises, Grantee’s damages would not have included attorney’s fees absent a question of fraud, imposition, or malicious conduct involved. The Court also distinguished several cases in which grantors made additional promises specifically relating to the payment of a grantee’s attorney’s fees, stating no such promise was made in this case. The Court concludes that attorney’s fees are recoverable in Texas only when an agreement between the parties so provides.

The Grantee was also unable to recover attorney’s fees based on a breach of contract because Grantee’s defense of title to the Premises was successful and, therefore, no breach occurred.

As a result of this ruling, a grantee has two options. First, the grantee should get a specific written agreement with the grantor concerning attorney’s fee reimbursement before defending title. If the grantor refuses, the grantee has to weigh the cost of defense against the fair market value of the premises in dispute.

In the case before the Court, one hopes that the Grantee is satisfied that retaining the additional seven feet width of Grantee’s Premises was worth the $75,000 expended in attorney’s fees.

A Look Into Statutes of Limitations

Question: When is the four-year statute of limitations for suit on a debt not governed by the four-year statute of imitations?

Answer: When there is a foreclosure of real property involved.

In a case of first impression, the 14th Court of Appeals in Houston has ruled that following a non-judicial foreclosure sale, the four-year limitations period for breach of a personal guaranty is extended so that the limitations period ends two years after the date of the foreclosure sale.

Prior to this decision by the 14th Court of Appeals, there was a conflict in the limitations period in Section 16.004 of the Texas Practice & Remedies Code and Section 51.003(a) of the Texas Property Code.

Section 16.004 of the Texas Practice & Remedies Code provides that suit must be brought not later than four years after the day the cause of action accrues on a debt. An action on a promissory note and guaranty would normally be governed by this statute.

Section 51.003(a) of the Texas Property Code provides that any action brought to recover a deficiency must be brought within two years of the foreclosure sale.

This is what happened in the case of Sowell v. International Interests, 416 S.W. 3d 593 (Tex. App. [14th Dist.] 2013). On May 30, 2002, DSI–HP 2002, Ltd. (“DSI”) executed a promissory note payable to Bank One, N.A. (“Bank One”) in the original principal amount of $12,823,000 (the “Hobby Place Note”). The Hobby Place Note was secured by a Construction Deed of Trust recorded against a 596–unit apartment complex located at 11911 Martin Luther King, Jr. Blvd., Houston, Texas 77048 (the “Hobby Place Property”). The same day, Donald W. Sowell (“Sowell”) executed a Guaranty Agreement for the benefit of Bank One guarantying repayment of the Hobby Place Note and all renewals, rearrangements, and extensions thereof (the “Guaranty”).

The loan matured on November 30, 2004, and neither DSI nor Sowell paid the Hobby Place Note. On February 6, 2007, three years after the maturity of the Hobby Place Note, the lender (assignee of Bank One) conducted a non-judicial foreclosure, leaving a deficiency of over $8 million. The holder of the Hobby Place Note (assignee) then filed suit on February 4, 2009, five years after the maturity date of the Hobby Place Note.

The cause of action accrued on November 30, 2004, when the Hobby Place Note matured and was not paid. One would think that the holder of the Hobby Place Note must being suit within four years from that date (November 20, 2008). However, under Section 51.003(a) of the Texas Property Code, the holder of the Hobby Place Note must being suit within two years of the foreclosure sale. That bar date would be February 6, 2009.

Therefore, the limitations period against Sowell did not run until February 6, 2009, five years after the maturity date of the Hobby Place Note. In affirming the trial court’s judgment, the Court held that “[u]nder Section 51.003(a), the limitations period for [DSI’s] claims against Sowell under the Guaranty expired two years after the date of the foreclosure sale [February 6, 2007]. Because [DSI’s] filed suit within this period [February 4, 2007], the trial court did not err in concluding that International’s claims against Sowell were not barred by statute of limitations.” Sowell, 416 S.W.3d at 602.

Business Formation – Back to the Basics

So you want to form a business?  Be aware that while the formation of the correct business entity is important, how you get out of the business or how you get another owner out is even more important.

The actual formation of a business entity is easy and relatively inexpensive.  Too many people use online services to form a business, or even when using an attorney, don’t take the more important next step – creating the operative document that delineates the powers, authority, distribution of profits and payment of debts and finally how to deal with a change in “corporate” ownership.  This change could be bringing someone else into the company as a part owner/investor or having an owner leave either voluntarily or not.

The documentation filed with the Secretary of State’s office to initially form an entity does not, in itself, insulate the owners from personal liability. The actual operating agreement must be completed and executed, and the parties must adhere to its provisions to obtain personal liability protection.This important document is not usually obtainable through the online services, and when it is, the document is so generic it is of little practical use.  The governing document is called several things (i.e. shareholders agreement, bylaws, regulations, member agreement, partnership agreement, company agreement). Don’t get cheap in the organization of your business, concentrating on the organization documents, while ignoring the governing document.  If you do, chances are you will pay a lot more without it in litigation.  This is especially true when you have more than one owner.  When you have a single owner the document is important to guide the estate.

For the purposes of this blog post, we will call the governing document the Company Agreement because this is the term for the governing document for a limited liability company (LLC), which has become the most popular business entity because LLC’s do not have to follow corporate formalities.

The first consideration is the percentage of ownership and how it will be evidenced.  You do not have to actually invest money.  What is considered “time, toil, & talent” can also be a basis for the percentage of ownership.  Take for instance someone who wants to form a hair salon and spa business.  The initiator/investor is willing to invest his money, but he knows nothing about hair styling and salon management.  His other owner is the actual person doing the styling and running the operation.  It just so happens that his daughter is a new hair stylist and will be working in the business.   His “dream” is to obviously make a return on his money, but he also wants his daughter to someday become an owner and eventually take his place as an owner when he decides to “cash out”.

So with two owners, each one should own ½ of the business, right? That structure actually sets the owners up for deadlock, with each party essentially having veto power over any decisions. So let’s make it 51% to 49%, which works for the majority owner, but leaves the minority owner unprotected in most instances. The solution is to specifically craft the management decision-making power to fit the circumstances of the business. For example, the “talented” owner makes the day- to-day operations of the business, while the “money” owner has to consent to capital expenditures, cash calls, or sale of the business. The parties can also include an alternative dispute resolution process such as mediation or arbitration.

What if the business is based on some “unique” concept? Provisions that address confidentiality, non-competes and trademark licensing are a few matters that should be included in the Company Agreement.

If the owners of the business are individuals, the owners need to consider adding a buy-sell structure in the event of death, disability, divorce, or bad behavior. Agreeing on a valuation process at the beginning of the relationship avoids protracted disputes when such events later occur. Likewise, if the owners wish to admit additional owners, or sell out, a process should be clearly delineated in the Company Agreement.

As the adage says: “An ounce of prevention is worth a pound of cure.”

Inequality Scales