Escrow Agreements

Escrow agreements are used to safeguard money or property with a neural third party while a transaction is completed. The escrow agent is the neutral party that will hold the property until the transaction is completed or fails and will act according to the terms set forth in the escrow agreement. To be more specific, the escrow agreement will detail the circumstances under which the agent will take and retain the property and whether anything will be done with it while it is stored. The agreement states how the property will be distributed, and finally, the agent’s fees, release from any liability while storing the property, and possibly an indemnification provision for any losses arising out of the storage of the property.

Typically, escrow agents require joint written instructions from the parties, because they agree as to the terms, otherwise a court order may be required, or some sort of neutral dispute resolution procedure. Sometimes, an agent will be permitted to resign if the parties cannot agree to the terms of the escrow agreement. In either case, an agent will be permitted to bring a legal action seeking declaratory relief as to the disposition of any property. Pertaining to the purchase of real estate, the escrow deposit takes place at the simultaneous signing of the contract and escrow agreement, wherein the purchaser deposits the earnest money with the agent until the deal is closed or a certain period of time passes without closing, or the buyer is at fault for the failure to close on the property and the funds are then remitted to the seller. Otherwise, the deal may fail to close through no fault of buyer or seller and the funds or a portion thereof are returned to the buyer. Problems in escrow agreement drafting occur when the terms of the storage, transfer or return of the funds are not made clear to one of the parties, or when certain expenses that the agent expects to have reimbursed, have not been explicitly listed, and the agent is permitted to deduct those expenses from the stored property, and even hold the property as security until the fees are paid.

There are also quasi-criminal escrow services that operate with relative frequency which possess the intent of creating ambiguous escrow agreements and count on the failure of the parties to retain legal counsel to review them. As a result there are various fees tacked on to the agent’s expressly stated fees, which were not expressly disclosed. Sometimes the terms of the agreement permit the agent to sell or otherwise dispose of the held property if it unclaimed for a specified period, or to pay off the fees. In Texas, escrow officers are required to be licensed by the state, prior to which they must be sponsored by another agent, post bond, and undergo a criminal background investigation. The parties should be certain to investigate the license and the commercial status of any escrow company they are planning to deal with, and get the escrow agreement reviewed by a knowledgeable professional.

Deceptive Trade Practices Act; Four Causes of Action

There are 4 ways to use the Texas Deceptive Trade Practices Act to initiate a claim:

1. Unconscionable Acts. This occurs when a merchant takes advantage of a consumer’s lack of knowledge, ability, experience, or capacity to a grossly unfair degree. This is basically fraud, extreme dishonesty, or abhorrent act. Think used car salesman selling a buyer a lemon knowing it will break down after a few miles.

2. Breach of Warranty. This will include a variety of warranties:

  • Express Warranty: Written or verbal warranty.
  • Implied Warranty of Merchantability: Item purchased does what it is supposed to do. This is not written or stated verbally.
  • Warranty of Fitness for a Particular Purpose: Item purchased performs the specific job the sales person claimed it would perform.

3. Insurance Code. Any violation of the insurance code will automatically be actionable under the DTPA and its favorable damage provisions will apply. The insurance code is a whole separate consumer protection statute which governs insurance companies dealings with their insureds.

4. DTPA Laundry List. The DTPA provides a list of 27 violations which must be specifically listed in a petition against a defendant. A few of the more commonly used violations enumerated in Section 17.46(b) are:

(1)  passing off goods or services as those of another;

(5)  representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities which they do not have or that a person has a sponsorship, approval, status, affiliation, or connection which he does not;

(12)  representing that an agreement confers or involves rights, remedies, or obligations which it does not have or involve, or which are prohibited by law;

(14)  misrepresenting the authority of a salesman, representative or agent to negotiate the final terms of a consumer transaction;

(17)  advertising of any sale by fraudulently representing that a person is going out of business;

(20)  representing that a guarantee or warranty confers or involves rights or remedies which it does not have or involve…

(22)  representing that work or services have been performed on, or parts replaced in, goods when the work or services were not performed or the parts replaced;

(24)  failing to disclose information concerning goods or services which was known at the time of the transaction if such failure to disclose such information was intended to induce the consumer into a transaction into which the consumer would not have entered had the information been disclosed;

These provisions are relatively self-explanatory, however there are other violations which fall under the auspices of the DTPA, and to be certain that your potential claim may be filed under The Act, you should consult with a knowledgeable attorney to discuss your particular facts.



Deceptive Trade Practices; Waiver Requirements

The default rule under the Deceptive Trade Practices Act is that it is not subject to waiver, and any such waiver is void. However, in order for a seller or provider of services to establish the defense of ‘waiver’ to a lawsuit claiming a Texas Deceptive Trade Practices Act violation, that merchant must abide by the express provisions of the act’s Section 17.42 prior to providing the goods or services to the consumer: (emphasis added)

(1) the waiver is in writing and is signed by the consumer.
(2) the consumer is not in a significantly disparate bargaining position; and:
(3) the consumer is represented by legal counsel in seeking or acquiring the goods or services.

(b) A waiver under Subsection (a) is not effective if the consumer’s legal counsel was directly or indirectly identified, suggested, or selected by a defendant or an agent of the defendant.

(c) A waiver under this section must be:
(1) conspicuous and in bold-face type of at least 10 points in size; (2) identified by the heading “Waiver of Consumer Rights,” or words of similar meaning; and
(3) in substantially the following form:

“I waive my rights under the Deceptive Trade Practices-Consumer Protection Act, Section 17.41 et seq., Business & Commerce Code, a law that gives consumers special rights and protections. After consultation with an attorney of my own selection, I voluntarily consent to this waiver.”

The main points to remember are that in order for a merchant’s waiver to be effective it must be clearly written and readable in bold font, signed by the consumer, use substantially the above phrasing, and the consumer must be represented by an attorney, which the merchant did not select for the consumer.

The above provisions make waiver a very difficult defense to clearly establish because although consumers often sign waivers of rights when making purchases, the DTPA will likely not be included in those waivers. This makes consultation with an attorney all the more important when you believe you have a DTPA claim, because although not all situations warrant a full DTPA lawsuit, some situations will warrant the issuance of a statutory DTPA demand letter, and other situations will warrant no action because the merchant committed no violation. Your rights as a consumer are valuable, don’t abandon them without a full review of the facts by a knowledgeable professional.


Texas Deceptive Trade Practices; What is a Consumer?

One can only assert a claim under the DTPA is one is a “consumer” under the act and under the court decisions which have interpreted it. Under section 17.45(4) a consumer is:

…an individual, partnership, corporation, this state, or a subdivision or agency of this state who seeks or acquires by purchase or lease, any goods or services, except that the term does not include a business consumer that has assets of $25 million or more, or that is owned or controlled by a corporation or entity with assets of $25 million or more.

So the range of parties which would be considered “consumers” is quite broad, and to “seek or acquire” does not require a contractual relationship, an actual purchase, or any payments made. Additionally, a person who seeks or acquires goods or services on another person’s behalf who will be the ultimate user will qualify as a consumer if there was intent to benefit a 3rd party by the buyer. Any gratuitously provided goods or services will not qualify the buyer as a ‘consumer,’ unless the goods were paid for by another party.

“Goods” is defined to mean “tangible chattels or real property purchased or leased for use,” and real estate is included.  “Services” is defined to mean “work, labor, or service purchased or leased for use, including services furnished in connection with the sale or repair of goods.” Just about anything can qualify as a good or a service, however the specific list of items which should definitely not be considered goods includes: money, accounts receivable, stock, options contracts, certificates of deposit, the proceeds of an insurance policy, trademarks, a limited partnership interest, and lottery tickets. The requirement that the purchase must be for ‘use’ is broand enough to include any use, including resale or investment.

The DTPA also does not apply to a claim arising out of a written contract if the contract relates to a “transaction, project, or set of transactions related to the same project” involving consideration by the consumer of more than $100,000, although the consumer’s own residence is still covered under the act.

As you can see, the DTPA was written to be interpreted liberally by any court reviewing a case brought under it. The court is to base its interpretation of the act on the concept of maximum consumer protection, as intended by the legislature. You should have your potential claim reviewed by a knowledgeable attorney because compliance with all of the DTPA’s provisions is necessary in order to be able to use it to maximum effect. These days courts take a strict view of DTPA litigation and getting a case to a jury without a summary judgment issued by the judge requires a very strong case and full compliance with its requirements.  



Consumer Protection: Time Share Resale Companies

If you have been burned by a time share investment and have been unable to sell your interest, you may have been contacted or attempted to contact various companies promising and even guaranteeing the sale of your property interest. Unfortunately most such companies are not being honest with you regarding any such sale, and some are committing outright fraud. This office has yet to see a time share resale agreement that does not attempt to gouge the owner in some way for an extremely excessive amount. Therefore, we recommend you stay away from all such companies or find one which commits none of the following acts. And certainly if you are contemplating entering such an arrangement you should consult a knowledgeable attorney who will review all relevant agreements and advise you on the best course of action.

Firstly, such agreements typically will send an ‘intent’ letter stating that you, the owner, fully intend to complete the transaction and sign a full agreement with the company. Some companies will use the intent letter to pressure an owner to sign the full agreement telling them that the letter of intent is binding and they must now execute the full resale agreement. This is borderline fraudulent inducement. The letter of intent does not disclose any of the terms of the resale, any moneys to be paid, and is not binding. You should not sign any such letter until you see the full agreement, so you can avoid any conflicts when you see the full agreement. Many of these companies engage in psychological manipulatino and prey on desperate and/or unsophisticated parties to entice them into a very disadvantageous resale arrangement.

The full agreement will typically require a large down payment from the owner at the time of execution as a portion of the commission paid upfront and/or a payment for future services. This payment will not be refundable whether or not the property is sold. Next, these agreements typically have no expiration date or a very long term during which time if the time share is sold the company will be due a commission, which will typically be very high. Also the agreement may state that if the agreement is terminated for any reason, the commission will still be payable within some lengthy period after the termination, if the interest is sold by the owner or anyone else. Because of this, what happens in practice is that your interest in the property will be locked up by such a company for an extended and intolerable duration, and eventually the owner will decide to sell it for a loss, and then discover that the company that was supposed to sell the interest and has otherwise done nothing, is demanding an incredibly large commission. Disregard any ‘guarantees’ in the agreement because it will not guarantee a sale price, the time frame of the sale, and it probably will not guarantee that any actions will be taken by the company to attempt to sell your time share, and usually no action will occur at all.

Typically, such agreements will have no provisions protecting your interests such as the jurisdiction, dispute resolution, the time frame within which the sale must be completed, and any of the other matters which must be included by law in a real estate sale agreement with a licensed realtor. These companies are not realtors, they are not licensed and they are not specifically regulated in Texas. You are entering a grey area of business transactions with these entities, because they are quick to open for business and quick to vanish, with your money, only to reopen under another name.

Deceptive Trade Practices Act in a Nutshell.

What is the DTPA?

The Deceptive Trade Practices Act was passed with the intention of deterring a wide variety of fraud, acts by omission, and underhanded sales tactics, as well as providing an efficient process of obtaining compensation for consumers. Finally, it was intended as a harsh penalty for those found to have engaged in deceptive activity.

Can the act be waived in writing?

Yes, but only if you have an attorney with you, plus other requirements. So probably not.

Statute of limitations?

2 years from the injurious act or 2 years from the date the injury should have been discovered. Extensions are possible in some situations.

What type of deception is covered?

Almost any kind, as long as it can possibly fall under one of the 28 descriptors known as the ‘laundry list’. The act expresses its intent of being liberally construed and applied.

What else is covered?

Breaches of any kind of warranty, unconscionable acts (extremely severe fraud), and violations of Texas Insurance Code (as a tie in separate statute). And a consumer can sue on all four if they all apply!


Plenty: Only economic damages if the injury was caused by the defendant with possession of the mental state of mere ‘negligence’;
3x economic damages plus mental anguish damages if the injury was caused ‘knowingly’;
3x economic damages AND mental anguish damages if the defendant acted ‘intentionally’; the most culpable of mental states.

Economic damages are only those which may be readily and precisely calculated, such as physical damages to property or lost wages. Mental anguish damages are for extreme mental distress of sustained duration, not mere annoyance or anger that quickly passes within a week, for example.

Attorney fees and costs are also awarded in all cases where Plaintiff prevails.

Security Agreements and Repossession

A generic scenario involving the sale of goods frequently involves the retention of a security interest by the seller in the goods sold until the item is fully paid off by the purchaser. Also known as financing, this technique of providing the use of goods without transfer of title is a powerful method to boost the seller’s bottom line since it allows the purchaser to take the psychological leap that the item purchased is more affordable, and may be paid off piecemeal, and the seller may file that item’s remaining payments under ‘accounts receivable’. However, this method is also a riskier one for the selling party, since the possession of the goods must be relinquished without obtaining immediate full payment for them.

For this reason, the seller would be wise to obtain the unambiguous assent of the purchaser to a security agreement, in addition to accepting a note for the balance of the moneys due. The seller should not presume that the goods have an automatic security interest attached without a clear contract outlining the seller’s rights in the event of default. As a primary step, the clear terms of a default must be outlined; when is a payment late? How long does the purchaser have to cure? Is notice of default required? Is there a late payment penalty? If all the specific terms of default are not clearly outlined in terms the purchaser can understand, the seller stands to lose his/her goods, as well as deeper legal trouble, if the seller takes any actions not clearly authorized by the security agreement.

The second important phase of a valid security agreement is to clearly outline the terms of a potential repossession of the goods. For example, is notice of a coming repossession needed? Does the purchaser have a right to redeem the goods after repossession, and if so, for how long? What parties are permitted to repossess the goods? What happens if the goods are not able to be repossessed, or the goods are damaged to an unusable condition?

The foregoing was just a basic primer on financing techniques also known as secured transactions. These common commercial situations are governed by Chapter 9 of the Texas Business and Commerce Code. The above only covers ‘purchase money security interests’ which attach and are perfected automatically, without the need to file them with the Secretary of State or a county clerk, as many other security interests must be. Nothing above should be construed as legal advice.

Basic Contracts

In Texas, a contract must be in writing if it is:
1. A promise by an administrator or executor of an estate to pay for the debt of his estate from his own pocket.
2. A promise of any person to act as surety for another.
3. A promise made in exchange for marriage or merely taking up residence with another.
4. A sale of real estate.
5. A lease of real estate for longer than one year.
6. Any agreement which may not be performed within 1 year from date of execution.
7. An agreement pertaining to oil and gas commissions.
8. A promise or warranty of a cure or results made by a health care provider pertaining to medical treatment.