Adverse Possession under the Three-Year Statute

This blog entry is the second of a series related to adverse possession. Adverse possession is a legal principle under which someone can acquire ownership of real property that belongs to someone else. It is a form of “involuntary conveyance.”

The shortest period for a claimant to assert adverse possession over real property under Texas law is three (3) years. In order to qualify for adverse possession under Section 16.024 of the Texas Civil Practice and Remedies Code, the claimant must:

* actually and visibly appropriate the property (in other words, take possession of the property in such a way that it is open and obvious);

* possess the property in a manner that consistently and unmistakably indicates the claimant asserts exclusive ownership to the property;

* use or possess the property peacefully, but without the owner’s permission (in other words, scaring the owner off with a shotgun is not allowed); and

* hold the property under title or “color of title.”

The key to the three year statute for adverse possession is the final factor listed above. In other words, the claimant must have received (1) a deed or other document reflecting title to the property, but his title is considered “irregular” because there is a document that is missing or has not been properly recorded, or (2) an unusual document, such as a certificate of headright, land warrant, or land scrip.

If all of these three things occur, the statute requires that the true owner to the property take action by bringing a lawsuit to recover the property within three years from the date that the claimant first enters the property, or else he will lose his ownership rights. In actuality, however, a title insurance company or buyer will likely request that the claimant sue the rightful owner or presumed owners and obtain a judgment reflecting title through adverse possession before they will agree to purchase the property from the adverse claimant.

There are several other statutes in the State of Texas which describe what factors must occur before a claimant can obtain title through adverse possession. As a result, adverse possession is a complex legal issue, and we strongly suggest that you seek the advice of an attorney (preferably someone versed in the litigation process, as well as real estate law) if you are confronted with either the need to assert or defend against a claim of adverse possession.

What is Adverse Possession and When Can It Help Me?

This blog entry is the first of a series related to adverse possession. Adverse possession is a legal principle under which someone can acquire ownership of real property that belongs to someone else. It is a form of “involuntary conveyance.”

Adverse possession is defined by statute in Texas as “an actual and visible appropriation of real property, commenced and continued under a claim of right that is inconsistent with and is hostile to the claim of another person.” In other words, a person who does not hold title to real property can peaceably enter upon property owned by someone else and undertake actions (such as use of the property) that are inconsistent with and adverse to the rights of the property’s true owner. If the property’s rightful owner does not diligently attempt to stop the adverse claimant, he may find it difficult to transfer title to his property or even find that he has lost his ownership rights.

Adverse possession can be useful in a variety of situations which are more common than one might expect. For example, if land is occupied or operated by descendants even though title to the property was not transferred through probate from a deceased relative and probate is no longer an option, it may be possible to “clear title” through adverse possession. Adverse possession may be one way to obtain clear title in boundary disputes, such as when a surveyor has discovered that a fence or other structure has not been properly placed along the dividing line between two neighboring properties.

There are several statutes in the State of Texas which describe what factors must exist (and for how long) before a claimant can obtain title through adverse possession. As a result, adverse possession is a complex legal issue, and we strongly suggest that you seek the advice of an attorney (preferably someone versed in the litigation process, as well as real estate law) if you are confronted with either the need to assert or defend against a claim of adverse possession.

Austin Lawyer Tip: Five Problems with Form LLC Formation

Many have asked the question, "why go to a lawyer when there is LegalZoom.com?" Well, for some sophisticated business persons with experience in corporate formation, it may be OK. But I have to say, having litigated a lot of disputes between co-owners of a business, LegalZoom.com is NOT a substitute for a lawyer (LegalZoom even admits this openly), and it is very often a pennywise and a pound foolish, emphasis on the foolish.

Now, I know many of you reading this may say, "of course, this is coming from a lawyer". True, I admit to some level of bias on this issue, but being biased doesn't mean I'm wrong.

Five Issues not typically dealt with in Form LLC Agreements

1. The problem of "OK, it's formed, I'm done"
There are many issues not usually dealt with in typical "form" LLC Agreements, but the worst thing is that most signers of LLC formation documents think that when the LLC is formed, everything is done. This is not true. There are so many other issues that need to be dealt with, including election of officers, delegation of duties, initial organization meeting, and many other discussions that need to take place. Now, the reality is that in single member LLC's, the member can do roughly whatever they please with the operation agreement at almost any time, but in two or multi-member LLC's, this is not the case. Think about how much easier it is to deal with issues such as one owner's death, divorce or bankruptcy than before said death, divorce or bankruptcy. Most form LLC agreements, particularly if only the certificate of formation is filed, do not adequately deal with these contingencies, or are not even reviewed by the members before signing the LLC agreement. Wouldn't you want to know whether you're going to be future business partners/co-owners with your business partner's husband or wife if they die? Wouldn't it be nice to know that a bankruptcy trustee will not hold the keys to whether your business can raise future capital? Yeah, I thought so.

2. The problem with the 50-50 ownership LLC
Split ownership sounds good..."hey we'll be partners!"...but in reality, what it means is that no one is really in control and it is management by committee. A properly drafted LLC agreement is a negotiation, and requires that the parties have dispute resolution built into their agreement, either through some sort of buy-sell agreement or arbitration/tie breakers. Nothing worse than a thriving business that is deadlocked on raising capital or operation directives. But Form LLC's are FILLED with them. And I don't get angry when I see them after disputes, I charge hourly to fight over them. But it is sad that this is almost always entirely avoidable with some element of design in the formation documents.


3. The problem with the money in the future
This is a constant problem in litigation with the "form LLC filers". At the beginning, everyone's happy. "Hey, Jimmie Joe, let's open a restaurant called JJSeras! It will be kicks!" "Sure thing, Sera Jean! Let's go halfsies!" All is fine and good. Until one of two things happens...(1)the restaurant does really well and there are disputes over speed of expansion and distribution (when one party stops working at the store), or (2) it totally does horribly and creditors are knocking on the LLC door. Well, if it goes bad, JJ and Sera are covered, right? Yeah, well, not if they had to personally guarantee the lease or credit facilities. And if JJ paid it all, but only owns 50% of the business still, how good does that make JJ feel? A properly done agreement deals with these issues before the dispute arises.

4. The problem with no exit strategy
Most people enter into LLC's with others without really thinking about how they will extricate themselves from it. How will one party buy out the other? How will it be valued? Very frequently form LLC agreements just don't deal with these issues, or are so basic that they really aren't designed for the parties involved and end up being useless. How about deciding on a person to do the valuation? How about agreeing to a system of valuators if there's no agreement? How about a buy-sell agreement?

5. The problem with majority rule
Many people who put investment money into an endeavor are not the ones running the show. Typically, those "money only" guys are doing this as an investment and gambling that JJ and Sera discussed above are going to give them a return on that investment, and are thus willing to be passive investors in the endeavor at a smaller percentage of interest. This makes the problem of the minority interest holder. I'm constantly amazed at people who put in thousands of dollars, get a minority stake, and when you look at the operating agreement, their interests are almost totally worthless because they can be practically eliminated by "majority rule". It sounds great on paper...but if you are a 10% holder, and the other guy owns 90%, and he can decide to dilute shares by "majority rule", well you're in for a heap of hurt.

It just makes sense to have attorneys review these documents. Typically it is not that expensive, and it just makes sense to have someone with experience reviewing those documents. Obviously, if you need assistance in a review, feel free to contact me at (512) 472-2300.

Marc Lippincott

Part 4: Public Works Contracts & Subcontractors: Prime Contracts Over $25,000.00 & Retainage

Like in private construction projects, in public works projects, general contractors hold back part of the contract price until the subcontractor fulfills the contract as “retainage.” The amount withheld is a percentage of the total contract price, often around 10%. The retained money is supposed to be paid to the subcontractor after the public works contract (the contract between the governmental entity and the general contractor) is completed. If the general contractor does not pay the retained money, the subcontractor can file a lawsuit to collect on the payment bond; however, the subcontractor must first meet the notice requirements.

The subcontractor must give notice to the general contractor and surety on or before 90 days after final completion of the public works contract. The notice must include the amount of the contract, any amount paid, and the outstanding balance. Tex. Gov’t Code § 2253.046. The notices must be mailed by the proper method and to the proper addresses.

Once again, sending the notices timely, to the correct people, and with the correct content is crucial to perfect a claim retainage.

Texas law governing public projects can be found in Texas Government Code Chapter 2253 (formerly known as the McGregor Act) and Texas Property Code Chapter 53.

Please visit our blog again in a few days for Part 5: Public Works Construction Projects & Subcontractors: Prime Contracts Over $25,000.00 & Rights to Information.

Part 3: Public Works Contracts & Subcontractors: Prime Contracts Over $25,000

In reality, most public works projects are over $25,000.00 in value. When projects exceed $25,000.00 in value, the general contractor must post a payment bond in the amount of the prime contract for the protection of subcontractors and sub-subcontractors. Tex. Gov’t Code § 2253.021. If subcontractors are not paid by the general contractor, they can file a lawsuit to collect on the payment bond; however, before they can file suit, subcontractors must ensure that they have complied with strict notice requirements. If the notice requirements, including deadlines and content, are not properly met, the subcontractor will not be able to successfully sue to collect on the payment bond.

Subcontractors (those having a contract directly with the general contractor) must give written notice to the prime contractor and surety not later than the fifteenth day of the third month following each month in which the labor or material was provided for which the claimant has not been paid (often called the “Third Month Notice”). Tex. Gov’t Code § 2253.041(b). If this deadline is not properly met, the subcontractor will have lost its ability to prevail in a lawsuit. Furthermore, the notice must identify specific details such as: the labor or materials provided; who they were provided to; and when they were provided; in addition to other required information. Additionally, a sworn statement must be included verifying the amount due. Tex. Gov’t Code § 2253.041(c). The notices must be mailed by the proper method and to the proper addresses. Tex. Gov’t Code § 2253.044.

Sending the required notices on time is crucial for subcontractors but is often overlooked until it is too late or sent incorrectly due to a misunderstanding of the applicable laws. Subcontractors often wait too long believing that they will work something out with the general contractor. When they eventually do seek help from an attorney, the deadline has already passed. Subcontractors should pay careful attention to their past due invoices and ensure they seek an attorney’s advice far enough in advance so that all deadlines can be met and the subcontractor’s rights protected.

Texas law governing public projects can be found in Texas Government Code Chapter 2253 (formerly known as the McGregor Act) and Texas Property Code Chapter 53.

Please visit our blog again in a few days for Part 4: Public Works Construction Projects & Subcontractors: Prime Contracts Over $25,000.00 & Retainage.

Part 2: Public Works Projects & Subcontractors ("First Tier Claimants"): Prime Contracts Less Than $25,000.00

As noted in Part 1 of the series, in most cases, subcontractors ("First Tier Claimants") on public projects who have not been paid by the general contractor may make a claim on the payment bond posted by the general contractor. However, when the general contractor’s contract with the public entity is less than $25,000.00, the general contractor is not required to post a payment bond. Consequently, when the contract is less than $25,000.00, subcontractors have limited lien rights. The lien attaches to money due to the general contractor. (Tex. Prop. Code § 53.231).
To assert a lien, the subcontractor must give notice to both the general contractor and the appropriate public official. (Tex. Prop. Code § 53.232). Subcontractors must ensure that they strictly comply with notice deadlines and content requirements or they risk not perfecting their lien. The subcontractor must give the notice before any payment is made to the general contractor and not later than the 15th day of the 2nd month following the month in which the work was performed or the material furnished. (Tex. Prop. Code § 53.234). The notice must contain specific information relating to the labor performed or materials delivered. The notice must include (1) the amount claimed; (2) the name of the party to whom the materials were delivered or for whom the labor was performed; (3) the dates and place of delivery or performance; (4) a description reasonably sufficient to identify the materials delivered or labor performed and the amount due; (5) a description reasonably sufficient to identify the project for which the material was delivered or the labor performed; and (6) the claimant's business address. (Tex. Prop. Code § 53.233). The notice must also be accompanied by a sworn statement that the amount claimed is just and correct and that all payments, lawful offsets, and credits known to the affiant have been allowed. (Tex. Prop. Code § 53.233). Failure to comply with any of the notice requirements may result in loss of the lien.
When the public official receives notice, he should retain from the money due to the general contractor enough to pay the claim for which the notice was given. (Tex. Prop. Code § 53.233).
A general contractor may file a bond with the public entity to release the lien and obtain the money withheld. (Tex. Prop. Code § 53.236). The subcontractor must sue on the bond within 6 months after the bond is filed. (Tex. Prop. Code § 53.239).
Please visit our blog again in a few days for Part 3: Public Works Construction Projects & Subcontractors: Prime Contracts Over $25,000.00.

Texas law governing public projects can be found in Texas Government Code Chapter 2253 (formerly known as the McGregor Act) and Texas Property Code Chapter 53.

Part 1: Public Works Projects & Subcontractors ("First Tier Claimants")

For the next couple of weeks we will be posting a series of blogs relating to Public Works Construction Projects & Subcontractors ("First Tier Claimants"). Construction or improvements to public property are commonly referred to as public construction, public works contracts, or public projects. Some examples of public property are schools, courthouses, hospitals, highways, and bridges. On public projects, a subcontractor provides materials or labor to a general contractor whose contract is with a public entity. Unlike private property projects, a subcontractor cannot place a lien against public property due to nonpayment. Consequently, in order to protect their interests and increase their odds of receiving payment in full, subcontractors must be aware of the process and deadlines specific to public projects. In most cases, subcontractors on public projects who have not been paid by the general contractor may make a claim on the payment bond posted by the general contractor. A payment bond is a bond posted by the general contractor for the protection of subcontractors and sub-subcontractors. In more limited circumstances, subcontractors may have limited lien rights in money owed to the general contractor.

Please visit our blog again in a few days for Part 2: Public Works Construction Projects & Subcontractors: Prime Contracts Less Than $25,000.00.

Texas law governing public projects can be found in Texas Government Code Chapter 2253 (formerly known as the McGregor Act) and Texas Property Code Chapter 53.