### TEE ATTORNEY GENERAL OF TEXAS

Dacaber14,1987

Mr. Earl Hale Opinion No. JM-834 Deputy Commissioner Texas Savings and Loan Re: Applicability of open Department beach disclosure reguire3601North Lamar, Suite 201 ments, section 61.025 of Austin, Texas 78705 the Natural Resources Code, to certain activities of savings and loan associations (RQ-1092)

Dear Deputy CommissionerHale:

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 IntracoastalWaterwaymust provide a specifiednotice to the purchaser stating, inter alia, that any structure erected seaward of the vegetation line (orthat 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 applicabilityand scope of section 61.025 of the Natural Resources Code. We will answer each of your questions in turn.

You first ask:

Does the DisclosureRequirement 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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located seaward of the Gulf Intracoastal Waterway to its southernmostpoint and then seaward of the longitudinal line also hOWlI as 97 degrees, 12', 19"which runs southerly to the international boundary from the intersectionof the centerline of the Gulf IntracoastalWaterway and the Brownsville Ship Channelmust 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 southerlyto the. international boundary from the intersectionof the centerline of the Gulf Intracoastal Waterway and the BrownsvilleShip Channel. If the property is in close proximity to a beach frontingthe 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 rightby 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 customarilymarks the landwardboundary of the public easement. If there is no clearly marked naturalvegetation 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 interferencewith the
use of the public easement, including the placement of structures seaward of the landward boundary of the easement. STRUCTURES ERECTED SEAWARD OF THE VEGETATION LINE (OR OTHERAPPLICABLE EASEMENT BOUNDARY)OR THAT BECOME SEAWARD OF THE VEGETATION LINEAS A RESULT OF NATURAL PROCESSESARE SUBJECT TO A LAWSUIT BY THE STATE OF TEXAS TO REMOVE THE STRUCTURES. -\

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The purchaser ishereby 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 ishereby purchasing
or contractingto purchase.
(b)If there isno executory contract for conveyance, the statementmust be delivered to, and receipt thereof acknowledgedby, the purchaserprior 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 earnestmoney shallbe 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 requiredby this section,does not diminish
ormodify the beach access and use rights of the public acquired through statute or under
common law. (Emphasisadded.)

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 knowwhether a nonjudicial foreclosuresale effects a sale or conveyance forpurposes 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 propertypursuant to the powers granted in a deed of trust. See aenerally Baggett, "Accelerationand Foreclosure on Texas Real Estate," 14 Tex. Tech L. Rev. 695 (1983); Rant, "ULTA [Uniform Land

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TransactionsAct] and NonjudicialMortgage Foreclosure in Texas,I@ 12 St. Mary's L.J. 1104 (1981); Cotellesse, "NonjudicialForeclosure under a Deed of TNSt: Some Problems of Notice," 49 Tex. L. Rev. 1085 (1971). The sectiondoes 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 I Dallas 1981,writ rek'd615 S.W.2d 881 (Tex. Civ. App. n.r.e.);menta v. Nusbauq

Christi 1975,' 519 S.W.Zd 673 (Tex. Civ. App. - corpus writ ref'd n.r.e.). The section requires that public sale be held under certain conditionswith notice being posted at the county courthouse, filedwith the county clerk, and servedby certifiedmail on each debtor who is obligated to pay the debt.

Section 61.025(a) of the Natural Resources Code provides that ':[a] person who S

ells 9th r th n a mineral. 1 as hold. or securltv rea? przperty locatede &thin interest, in 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 acknowledgedby, the purchaser prior to closing the transaction." A mortgage of real property is an executed contract inwhich 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. Lushe v. - Fort Worth 1953, -First writ ref'd n.r.e.);

FortWorth 1953,wri& 26O.S.W.2d 621 (Tex. Civ. ADD. - words, ref'd n.r.e.).

a mortgage contract conveys a security In other 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 noticemust be provided by a trustee in a nonjudicial foreclosure salewhen the purchaser is either the mortgagee or a non-related third pa*y. The answer to your question is determinedby the nature of the interest conveyedby the nonjudicial foreclosure sale.

A purchaser at a foreclosuresale obtains only, such title as the trustee has authority to convey. First So ther u 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 61.025noticemust be provided

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,- by the trustee to the purchaser, regardless of whether the

purchaser is themortgagee/creditoror an unrelated third p---W. Second,you ask:

If the DisclosureRequirement is found to be applicable,must the disclosuresbe set forth in the TNStee’S or Substitute TNStee's Deed or in a separatedocument?

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 askwhether the noticemust be set forth in the TNStee’S or SubstituteTrustee's Deed
or in a separatedocument.

An "executed contract" refers to a completed cont~ract,i.e., one inwhich 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 thatmay once have existed on the matter, it isnow well settled that an executed contract also existswhere the contracthas 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 unperformedby 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 executorywhere the deed conveying the property has not been delivered and accepted. &cCallv. Whalev, 115 S.W. 658 (Tex.Civ.App. 1908,no writ).

A deed is an instrumentinwriting that conveys title to real estate. &S Lockridaev. Mccommon, 38 S.W. 33 (Tex.1896):Wilsonv. Beck, 286 S.W. 315 (Tex. **CiV.** APP.

- Dallas 1926, writ ref'd). The terms t'deed,'l"conveyance," and "deed of conveyance" are frequently used interchangeablyto denote an instrument inwriting whereby

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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 arm u 252 S.W.2d 451 (Tex. 1952). An instrumentthat 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.

- FortWorth lz35,writ dism#d by agreement). APP. The words t'sold and conveyed" and words of a similarmeaning are presumptivelywords of a present conveyance. Snow v. Prince, 13 S;W.2d 342 (Tex.-Comm'nApp. 1929); Continental Bpvaltv Co. v. Marshall 239 S.W.2d 837 (Tex.Civ.App. - Texarkana 1951. no wriC1. If it ismanifest from the whole instrument, however, that further acts or conveyances are contemplatedby 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 purchaserwhen the purchaserhas performed the obligation to pay the purchaseprice. Baker V. Marable, 396 S.W.2d 222 (Tex.Civ.App. - El Paso 1965,writ ref'd n.r.e.); Baileyv. 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 SubstituteTNstee*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 noticemust 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 DisclosureRequirement is found to be applicable,must disclosurebe provided to the mortgagee (whichhas the potential to acquire any or all of the properties posted fornon-judicial foreclosuresale) for each individual foreclosureor may the Disclosure Requirementbe satisfied by either (i) one 'masterdisclosure8 whereby the mortgagee acknowledgesthat the properties located in certain designated counties are subject to the Disclosure Requirement; or (ii)by a

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,-

P monthly 'master disclosure' whereby the mortgagee, on a monthly basis, acknowledges that certain designated properties are subject to the DisclosureRequirement?

You ask about a situation inwhich a mortgagee purchases the securityat a nonjudicial foreclosuresale. Section 61.025 of the Natural Resources Code evidences the apparent legislative intent that noticemust be provided for& individual foreclosure. The statute specifically provides that the personwho sells or conveys the real property interestmust includethe statutorynotice *Iin
a executory contract for conveyance." The required notice itself begins: "The realproperty described in this contract

. . .(a(emphasisadded). We think that the legislature intendedthat the sale of each parcel subject to foreclosuremust be accompaniedby a notice.

Our conclusion that noticemust be provided for each foreclosure is strengthenedby the fact that Texas courts, in the absence of contractual provisions permitting accelerationand foreclosure,have permittedpartition 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 satisfythe on the note secured therebyplus the expenses of sale and one-third of the court costs.

Motor h 1 Finance Corn.v. Huahes, 302 S.W.2d

I ndustria 386, 395 (Tex.1957), affirmingWarrenv. Harrold, 49 S.W. 364 (Tex.1899). (Emphasisadded.) If the deed of trust
so provides, the trustee can sell the'security in its entirety, subject to a lien retainedby the mortgagee, for the unmaturedportion of the debt, or reserve the power to make additionalpartial 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 conclude that notice isnot required for each foreclosure, the.evident legislative intention to provide notice to each purchaserwould be thwarted.

We are requiredto give effect to the evident intent of the legislaturewhen it enacts a provision. Minton v.

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-,

p&, 545 S.W.2d 442 (Tex. 1976); Calvertv. Texa PiDe Line Co. 517 S.W.2d 777 (Tex. 1974). section il.025 of the Natural ResourcesWe concludz that 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 actuallypurchased by an unrelated third party either before the non-judicial foreclosure sale or at the non-judicial foreclosuresale, is the act of giving such a notice to the non-purchasing mortgagee a deceptive act under the Texas Deceptive Trade Practices-Consumer ProtectionAct, Tex. Bus. & Corn.Code Ann. 17.41St sea. (VernonSupp. 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 61.025notice has been provided to a non-purchasingmortgagee. We have examined section 17.46 of the Business and Commerce Code and the cases and opinions decided under it. We fail to see inwhat way the DeceptiveTrade Practices Act can be violated by giving notice to someone to whom the statute does not require that noticebe given. We assume that you intend to ask whether the failure to give notice to a purchasing unrelated third party, even thoughnotice was given to the non-purchasingmortgagee, constitutes a violation of the DeceptiveTrade PracticesAct. Clearly,by the very terms of subsection (d), it does; the purchasermust be given notice and failure to **do** so constitutes a violation of the act.

Your fifth question is:

With respect .topurchases by unrelated third parties at non-judicial foreclosure sales, is it sufficient to obtain the

. . acknowledgmentrequired by the statute at

the time of the sale?

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Subsection (a)of section 61.025 requires that proper noticebe included in any executory contract for conveyante

. Subsection (b)provides that, in the event that there is no executory contract for conveyance,noticemust be delivered to the purchaser (andacknowledged thereby) prior to closlna the t=wix$&m

. Obviously,by the very terms of section 61.025,providing notice and obtaining acknowledgmentat the time of the nonjudicial foreclosure sale satisfies the requirementsof the section.

Your final questionasks:

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 listwill not be promulgated and published, is Harris County considered to 'border'the Gulf of Mexico?

Your request for an opinionwas submittedprior to the adjournmentof the 70th Legislature. The originally enactedversion of section 61.025provided that the notice requirementsapplied 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 Legislatureto address the concern that you raise. Now the notice requirementsapply to real property located

seaward of the Gulf IntracoastalWaterway to its southernmostpoint and then seaward of the longitudinal line also known as 97 degrees, 12', 19"which runs southerly to the international boundary from the intersectionof the centerlineof the Gulf IntracoastalWaterway and the Brownsville Ship Channel.

Acts 1987, 70th beg., ch. 75, at 370. Though we do not make findingsof fact in the opinion process,we note, after examination of a map, that Harris County does not fallwithin.the ambit of the section'sboundaries. For purposes of section 61.025of the Natural Resources Code, then, Harris County does not border the Gulf of Mexico.

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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 specifiedby 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 Trusteet s or Substitute Trustee's Deed fairly can be characterized
as an executory contract for conveyance, then the section 61.025 statementmust 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 separatedocument.

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 foreclosuresales, it is sufficient that the buyer obtain the acknowledgmentrequired 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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NARYKELLER ExecutiveAssistantAttorney General

JUDGE ZOLLIE STEAKLEY SpecialAssistantAttorney General

RICK GILPIN Chairman,Opinion Committee
Preparedby Jim Moellinger AssistantAttorney General

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