J. Patrick Sutton Cases & Issues Blog

No, A City Can't Ban STR's says the Austin Court of Appeals

An important new decision from the Austin Court of Appeals agrees: No, a city can't ban STR's outright. On November 27, 2019, the Third Court of Appeals decided Zaatari v. City of Austin, Appeal No. 03-17-00812-CV and invalidated the City of Austin's ban on short-term rentals by owners who do not claim a home as a homestead. The opinion held that a ban is an unconstitutional retroactive law. Why retroactive? This is the critical holding: because the right to rent for all durations is a fundamental property right protected by the Texas Constitution.

This dovetails nicely with a case I handle, Muns et al. v. City of Grapevine, pending in the Tarrant County District Court and Fort Worth's Second Court of Appeals, in which the trial court has temporarily enjoined the City of Grapevine STR ban while the court of appeals decides some gateway jurisdiction questions. Based on Zaatari, one would expect the Grapevine case to go much the same way — invalidating the Grapevine ban because it retroactively takes away a settled property right.

The new Zataari decision was not unanimous — it drew a dissent from one of the new justices on that court. I expect a lot more fireworks on city ordinance cases in the next year!
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In a stunning rebuke to municipal overreach and unfairness, my clients — a group of homeowners in the City of Grapevine — prevailed today (November 7, 2018) in obtaining a temporary injunction halting enforcement of a new City of Grapevine ban on short-term rentals. The order is HERE. My clients brought a lawsuit claiming that the new Grapevine STR ban is unconstitutional in various ways — as a regulatory "taking," as violative of due process, and as preempted by other Texas law. The City defended the new ban in various ways, among them an argument that the Grapevine ordinances already barred STR's by their silence! That is, the familiar argument of STR opponents that if a law or ordinance is silent about STR's but require "residential use," then STR's are by implication forbidden. The Texas Supreme Court rejected that in my Tarr case on May 25, 2018, but the City of Grapevine appears to have missed that point. Content may continue . . .

City Ordiances and STR's

One STR issue that is heating up is whether city ordinances that ban short-term rentals are vulnerable to legal challenge. I believe they are, and on several constitutional grounds. A Texas appeals court in Houston recently allowed such a challenge to proceed based on the theory that imposing such an ordinance on a homeowner who purchased based on STR rights had it taken away — an unfair “taking” of property. See Village of Tiki Island v. Ronquille, 463 S.W.3d 562, 565 (Tex. App. - Houston [1st Dist.] 2015).

The Austin STR ordinance seems to me to be unconstitutional on several grounds. I represent one client in a challenge to the ordinance based on its vagueness in not making clear whether leases of 30 days or more are exempt. The City of Austin is requiring an STR permit even for long-term leases if tenants do not physically occupy a property for the entire term of their lease, in effect making it impossible for any landlord to avoid the STR ordinance. If the City knocks on the door and the tenant says she is only staying for three days, the City issues a citation for renting without an STR license even if the lease is for 30 days or more! Obviously, when someone leases a property, they need not actually stay there if they don't wish to. Any owner who wishes to avoid the STR ordinance necessarily leases for 30 days or more, but that's no safe harbor in Austin.Content may continue . . .

Can A City Ban STR's?

I have been working on short-term rental issues for 9 years, first in the context of deed restrictions, and more recently in the context of city ordinances. Until I saw some recent city ordinances which outright BAN STR's, I had sort of assumed that a City could, if it writes an ordinance carefully, ban STR's.

I've changed my tune. I've wracked my brain trying to see how a city — particularly a Texas city — can pick out one type of interest of land -- residential lease — and prevent an owner from allowing other human beings to stay at that land under just that one kind of possessory interest. Where I land is that it seems unlikely to me that any city will be able to prove that DURATION OF LEASE provides a rational basis for BARRING RESIDENCY. Furthermore, I think that the Legislature has already preempted cities from outright BARRING STR's — after all, Texas raises revenue from them by taxing them expressly. Could a city ban all hotels? Sounds absurd, right? The Legislature already regulates hotels and earns revenue from the Hotel Tax. How, then, can cities ban the very activity which the Legislature wants to allow?

The issues go deeper, actually, impinging upon fundamental liberty interests. People structure real property possessory interests in all sorts of ways, none of which are readily distinguishable from leasing when it comes to minimum duration of stay. The law allows these various ways of structuring possessory rights. Why would a tenant have fewer possessory rights than, say, the co-owner of an LLC?

As this issue heats up, I expect to see — and argue — very direct challenges to the very power of a city to ban STR's. Without action by the Legislature, my current view is that cities cannot do it. They can regulate many other aspects of real property use — nuisance, noise, occupancy (with an asterisk, since, again, the Legislature has already regulated that area) — but I strongly doubt they can bar a class of people from using property in the normal residential manner. Content may continue . . .

Ways In Which Texas Cities Trounce Property Owners' Constitutional Rights

Some anecdotes from real life:

  • The City of Austin issues a bed-and-breakfast license. Neighbors repeatedly call in the property for "renting for short terms." Meanwhile, the B&B is up and running and has bookings extending into the future. The City of Austin, on a Friday, revokes the B&B license, asserting it issued it "in error." On Saturday, Austin Code Enforcement officers descend on the B&B and commence issuing citations for "renting for short terms without a short-term rental license."

  • The City of Grapevine allows STR's for years and collects local short-term occupancy taxes from property owners who rent out their homes for short terms. The City tells owners there are no regulations in place for STR's. Many property owners invest in properties in reliance on their right to rent for short terms. A search reveals no ordinances which regulate STR's. Abruptly, the City of Grapevine announces that it is barring STR's effective in 45 days.

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The Consequences of Tarr v. Timberwood Park

After my client prevailed in the important Tarr v. Timberwood Park case in the Texas Supreme Court, the consequences have been exactly what Ken Tarr (and I) had hoped: the regulation of short-term rentals has moved to the community for a vote. All over the state, subdivisions and HOA's are instituting the amendment process to get restrictive covenants changed. Cities are considering or passing ordinances. So, instead of tricking and surprising people with strained interpretations of old rules, subdivisions and cities are enacting new ones. While there was a lot of grumbling about the Texas Supreme Court's refusal to act as the legislature on the STR issue, I think lawyers all over the state are telling their clients to move the issue to the voting hall instead of trying to harass people with unfair, expensive lawsuits.

Alas, if only that were unalloyed good news. Most of the action statewide is to ban STR's, though in varying degrees depending on bogus rationales — owner-occupied vs. non-owner-occupied, for example, or 25% of homes only. Those kinds of regulations present all sorts of problems and unfairnesses.

In addition, some of the amended restrictions I have seen are not very clear. Some of the city ordinances are not only unclear, but either draconian or outright unconstitutional. While I am heartened that people are exercising the vote, I am concerned that, as has happened in Austin, hastily-written or ill-conceived STR regulations are just going to generate more litigation. Good for lawyers, of course; bad for everyone else.

Also, I continue to believe that where owners already have a vested property right in renting a property for short terms, both constitutional and Texas statutory requirements forbid an abrupt taking of such rights. However, as I have blogged before, Texas law is not clear or settled in this area. That issue, too, is likely to result in litigation.

Perhaps the saddest part of the shift of STR regulation to local voting is that badly-written restrictions and ordinances still put the onus on individual homeowners to fight The Man. I've taken in many calls and had many meetings where I advised that a restriction or ordinance had serious flaws, but the time and expense to litigate the issues is too expensive for most ordinary homeowners to undertake.

Probably the right answer is for the Texas Legislature to regulate this area comprehensively. In that way, local ordinances will not be allowed to conflict with state law, and state law can be more carefully composed based on input from everyone.
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Homeowner Freed From Overreaching HOA!

In a powerful new decision rejecting an overreaching HOA, the Austin Court of Appeals has reversed two lower courts which required a homeowner to submit to an HOA from whose tentacled reach the homeowner was supposed to be exempt. In Vann v. Homeowners Association for Woodland Park of Georgetown, Inc., No. 03-18-00201-CV, 2018 WL 4140443 (Tex. App.-Austin Aug. 30, 2018), a developer goofed and had to exempt over 100 homes from subdivision governing documents. Right after the developer filed that exemption, a homeowner (the Vanns) bought one of the exempt homes. Several years later, after the developer had left the scene, the HOA starting dinging the Vanns for violations of various rules that did not apply to the Vanns (even though the same rules did apply to the Vanns immediate neighbors!). The Vanns sued to declare the HOA powerless over their property and the rules not applicable. Relentlessly, the HOA claimed the power to declare itself the Vanns' HOA and enforce all the HOA's rules. The HOA refused to acknowledge that the developer had expressly exempted the Vanns from the HOA's reach. After disappointing losses in both the justice court and the county court at law, including large attorney fee awards against the Vanns, the Vanns prevailed completely on appeal. Said the court of appeals in reversing the lower courts: "Our review of the documents outlined above reveals a gap in the logical chain that would establish the HOA’s authority over the Vanns’ property." Right on! That was exactly what the Vanns had been arguing for years, but the pleas always fell on deaf ears because, well, you know, HOA's always win, right?

This is not an uncommon fact pattern. I fairly often see cases where some local "HOA" just endows itself with authority despite the lack of any support in the governing documents. It's not always as clear-cut as the Vann case, though it should be noted that even there, the HOA's appeal briefs accused the Vanns of confusing and misleading the court by merely pointing out the obvious discrepancies in the governing documents. That is a common HOA strategy — demonize and belittle the homeowner, bring the resources of a large law firm to bear, seek huge attorney fee awards against the homeowner, etc.

HOA's hoard power. Too often, they simply won't yield once they take a position. They drive around in golf carts hunting for violations. No amount of reasoned argument or evidence gets them to back off or admit error. The Vanns hung in there and shut it all down, finally getting vindication in the courts and complete freedom from an overreaching HOA. This was a sweet win for a brave, tenacious homeowner.Content may continue . . .


My client, Ken Tarr, has now prevailed in a case that protects Texas property owners statewide. On May 25, 2018, the Texas Supreme Court, in a unanimous decision authored by Justice Brown, held that short-term rentals are not barred by the widespread, typical "residential use only" deed restriction. Even more importantly, the case announces a rule that restrictions cannot be interpreted into existence where silence reigns. Wow! We can now say with some confidence that what is not expressly forbidden by deed restrictions is allowed. Seems like a no-brainer, but it's been a long time coming — I've been litigating short-term rental cases for 9 years, pushing them forward across the state in hopes of getting one up to the Supreme Court.

"Residential use only" is the commonest deed restriction and zoning ordinance and goes back over 100 years. Opponents of short-term rentals insist that short-duration leases constitute the operation of a business at a home, a logically untenable position for any number of reasons — not the least of which is that the tenants are not doing anything different on day 31 than they were doing on day 29. The Texas Supreme Court, joining at least 19 other states, rejected the business-use argument in a lengthy, carefully-reasoned, and logically unassailable opinion. The new decision is sufficiently exhaustive that it seems destined to become the leading state supreme court opinion in this area of the law. Content may continue . . .

Sigh. Disclosures in Residential Real Estate Transactions

I've probably blogged about it before, but since the issue comes around again and again, it's worth repeating: When in doubt, disclose!

Because I handle so many different and varied kinds of real estate disputes, it's common for a property that is the subject of contention to be put up for sale in the midst of — or immediately following — litigation. How often have I seen persons aggrieved by a lack of information when they purchased get tempted to hold back on disclosing the litigation warts when they themselves are ready to sell?

Real property (land, houses) has a determinable market value: potential buyers bid and thereby set the market price. But that process breaks down when buyers can't get reliable or correct information. Sellers want to maximize the sale price, and that can lead them to be shy about over-disclosing.

The answer? Easy! The golden rule! ALL SELLERS OF REAL ESTATE: DISCLOSE WHAT YOU WOULD WISH TO HAVE DISCLOSED TO YOU. This will yield the true market price, avoid litigation, and make you, the seller, feel super special about what a good, honest person you are. Content may continue . . .

When Subdivisions are Cities In All But Name

Lately, I've had a number of subdivision governing documents ("declarations," "CCR's," etc.) come across my desk that are just bizarrely lengthy and complicated. As I've said in previous posts, it's not reasonable to expect homeowners without law degrees to read and understand these documents. I realize that's the whole point — that lawyers and association managers have to run the show behind the scenes, generating fees in the process. But then we have the odd situation where homeowners are supposed to be able to control their own communities, but in effect the communities are run by a permanent bureaucracy of unelected, highly-paid technocrats. Can you say "Yes, Minister"? Content may continue . . .

STR Article in Texas Tribune

I was interviewed as part of a new article in the Texas Tribune about short-term rentals. It's an informative summary of legislative and legal battles over the issue in Texas. I commend it to you. Content may continue . . .

Why I Charge for Consults

There's a new expression gaining currency since the Facebook private data scandal: "If the product is free, you are the product." Before it becomes a cliché, I want to use it for its relevance to lawyers in civil practice.

I've gained through hard work knowledge in certain narrow areas of the law over the past 10 years. I get calls from prospective clients related to those areas in which I work. If I'm not paid to render advice, then I'll end up talking to clients in order to land clients. But if I'm paid to render advice, I'm talking to clients to give the best advice I can, not to land that client. They are already my client if they're paying me, if only for a few minutes of time! For the relationship to be fruitful and worth the hourly rate I charge, I have to give disinterested, unvarnished advice. And boy do I try. Things I say all the time in consults after going over a list of all the strategy options:Content may continue . . .

Amendments to Restrictive Covenants That Take Away Property Rights Need to Be Challenged

As the short-term rental battles become ever more pitched, more subdivisions (and HOA's) are wielding the power to amend their restrictions — a majority or supermajority votes to amend the restrictions to bar short-term rentals or even leasing generally. Over the past several years, I have become increasingly concerned about this majority-rules approach. On the one hand, it's a fair vote, right? But on the other hand, clients come to me who purchased property precisely because of the leasing rights granted in the restrictive covenants. They purchase in anticipation of leasing income, whether for short terms or long terms. Is it fair for such fundamental property rights to be taken from owners who relied upon them when purchasing? I believe not.

Texas law is far from clear on the issue of how far amendments to restrictive covenants can go. However, in the context of city ordinances, it's clear that cities cannot take away vested property rights from owners who purchased property under one set of rules guaranteeing those rights. In addition, the Texas condominium laws require a 100% owner vote for fundamental changes in ownership rights. Finally, other states that have squarely addressed the issue of restrictive covenant amendments which take away important property rights have protected owners who purchased under one set of rights.

I believe this is an important issue that needs to be taken all the way up to the Texas Supreme Court. There needs to be clarity as to how far a majority of owners can go in taking away the vested property rights of other owners in a subdivision. Content may continue . . .

KAOS, CONTROL: Declarant Turnover Of HOA

I'm calling this post "KAOS and CONTROL" because of the complexity, confusion, and bumbling in the process of subdivision developers' turnover of power to the HOA's of the subdivisions they create. KAOS is that period after some homes are sold in a new subdivision but before all homes are sold or before the developer has fully relinquished CONTROL. (And of course, KAOS is the arch-nemesis of CONTROL). It's a rickety scaffolding for an in-joke, but hey, I'm not above strained analogies.

There is often a lengthy period of years when owners are in the dark about what is happening as their community gets built, extended, and even radically changed during the many years the original developer still has almost complete control over the subdivision and its HOA. During that time, developers can engage in abuse or shenanigans to the detriment of the owners who previously bought in under a certain set of assumptions — how big the community would be, how expensive the assessments would be, what amenities would get built, what kinds of homes would be built, etc. Owners are surprised to learn that developers have so much power under the governing documents and Texas law that the developers can maintain almost complete control for not just years, but decades. Any idea that the HOA represents the owners is a joke because the developer controls all or most board of directors seats indefinitely, and developers routinely appoint their friends, family, and employees to those HOA Boards. Obviously, those directors are beholden to the developer, not the community at large, despite the fact that they have fiduciary duties to the community. Often, they just ignore those duties and rubber-stamp whatever the developer needs and wants.

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I am in currently repairing links in the blogs. Please check back if you require specific documents.Content may continue . . .

Transparency in Appeals

As my law practice becomes more appeals-focused, I have begun looking for ways for clients and prospective clients to see more clearly what I do and my track record in doing it. I have begun the process of keeping a chronological list of every appeal I have handled, along with a brief description. Some of the cases have been important, published cases that established or changed Texas law; others are routine applications of existing law with the outcome not a particular surprise (even if I fought like crazy and lost in trying to get a change in the law or an exception).Content may continue . . .

All the wrong arguments about STR's

Rabid opponents of short-term rentals either seek out positions in which to ban them (elected and appointed local officials, hoa boards) or else bully and sue their neighbors to get their way. That's all fair and good — it's democracy in action, and proponents of property rights ought to get out in force to protect those rights.

The problem, in my experience arguing cases at every level of the court system and before city officials, comes in convincing local officials — judges, politicians, and city staffers alike — to break through the incendiary claims and arguments and analyze the
real issue. The basic problem that opponents hate to acknowledge is that every argument against STR's applies equally to long-term rentals as to short-term ones: landlords make money, landlords advertise, landlords use property managers, too many renters at the house, etc. More importantly, every landlord has an obligation to have decent tenants who respect neighbors — just as every owner should. Bad neighbors are bad neighbors whether they are owners or renters, and there are plenty of both kinds. The problem with everyone's occupancy of residential homes is that people can create nuisances, noise, trash, and other kinds of poor behavior, either sometimes or often. But that has nothing to do with the duration of someone's occupancy. All durations are equally bad and equally good in the sense that whoever is occupying a property can be bad for any duration or good for any duration. The proper target of regulation of leasing is what it has always been: respectful behavior by whoever is occupying a home. But what has happened instead is that opponents — just like the prohibitionists back in the day — demonize every property owner who leases and try to ban leasing — and not just STR's, either. At some point, higher-level elected officials and judges are going to have to step in and say, right, whatever else we do, we don't ditch freedom, whatever its faults. We regulate it and make money on it through taxation. That, of course, is the American way.Content may continue . . .

The Pace of Angry Change Ramps Up

Just my observation over the past couple of years, and quickening substantially since Donald J. Trump won the Republican nomination: Baby boomers with the time and wherewithal are taking over condos and HOA boards, and they are champing at the bit to remake their communities into the narrow slice of humanity that reflects their own demographic. I see it in a hundred little things and with almost every new HOA case I handle or consult I have. The single most persistent theme is the desire to transform ordinary condos and subdivisions into owner-occupied, single-family communities, where renting of any kind is forbidden and where new rules are imposed requiring some form of blood relation and permanent, full-time owner occupancy even to the exclusion of part-time owners. It is a stunning development, and it is generating a lot of courtroom brawls.Content may continue . . .

Getting down to what is really real in STR cases

In an alarming convergence, Donald Trump's incendiary campaign statements appear to be emboldening opponents of leasing and short-term rentals to say what they really mean: they want every subdivision to be gated and patrolled so that "people who don't belong here" can be kept out. Some HOA's have deed restrictions that allow them to build walls and curtail leasing, but many do not, and most non-HOA subdivisions do not. Those that do not increasingly wish they did, however, and they are seizing on the only deed restriction wording available — "residential use only" — to argue that homes that are rented are businesses because landlords earn money, or that people who do not establish "permanent" residency are not entitled to use or lease a home! If opponents of STR's get their way, residential leasing and owner second-home stays will become forbidden; all subdivisions will require mandatory, full-time owner-occupancy.Content may continue . . .

Do amendments to restrictive covenants apply retroactively?

After years of having the issue crop up but not get resolved, I've finally litigated the question whether amendments to deed restrictions can be applied to the detriment of owners who relied on the prior deed restrictions. I am pleased to report that my client prevailed in a state district court, based on the legal theories of estoppel and equity (unclean hands). My client was able to continue renting out a property under leases already in force when the subdivision amended its restrictions to ban short-term rentals.Content may continue . . .

Mortgage lien invalidated on statute of limitations grounds

Today, the Texas Supreme Court refused to disturb a decision by the Tyler Court of Appeals invalidating a mortgage lien. See Landers v. Nationstar Mortgage, LLC, 461 S.W.3d 923 (Tex. App. - Tyler 2015, pet. denied). This was a case I handled at all levels of trial and appeal. The Texas Supreme Court had requested full briefing on the merits, so all the arguments were before the high court. Ultimately, the rule of law prevailed over strong lender protests that applying the statute of limitations was unfair.

The lender and servicer, Nationstar Mortgage LLC, sued the Landers, a family in Athens, Texas, to foreclose. However, the lender's suit was filed more than four years after the lender accelerated the loan. The lender argued that an injunction in a prior lawsuit that had barred a nonjudicial foreclosure sale for a few weeks had also prevented the lender from filing a lawsuit to foreclose. The 3-judge panel of the Texas Court of Appeals in Tyler unanimously rejected that argument and declared the lien void. Nationstar asked the Texas Supreme Court to reverse the Tyler Court of Appeals, but the Texas Supreme Court declined that invitation.
Landers is now good law and stands as one of the very few modern cases in Texas voiding a mortgage lien on limitations grounds. Content may continue . . .

The Wet Condo Problem

At any given time, I have three or four cases involving condominiums where the condo association's ("HOA") neglect has caused some form of damage within individual units. With the coming of global warming and the volatility of Central Texas weather, the most common fact pattern is water infiltration, usually from a leaking roof, bad flashing, building design defect, or other water control system failure (landscaping, hardscaping, plumbing). People often call me after an HOA (or property manager) has said, "We don't have to pay for any damage inside of units."

Bogus. Anyone who has either a contractual duty or a common-law duty to repair and maintain property is potentially liable if that failure results in damage to someone else. While it's true that an condo HOA is not required to repair and maintain individual units in most cases, a condo HOA
is responsible for its own breaches of contract or negligence if its failure to repair or maintain common elements (roof, foundation, etc.) causes damage to an individual unit.

These are often difficult cases because if an HOA is not keeping itself in repair, it's often because it doesn't have the cash. But that's not an excuse for not acting. HOA's are still required to do their duty, even if that means raising money by assessing all the owners or taking out loans to do it. HOA responses that "we don't have the money" are in essence an admission that the HOA is a failed entity that needs to be placed in the hands of a court-appointed receiver. Moreover, an HOA's failure to keep its property in good repair harshly penalize one or two owners at the expense of those not affected. Thus, ground-level units at one end of a building may be sodden and moldy, but those one or two owners are made to suffer while all the other units get a free ride to ignore serious building issues.

There are ways to solve these cases, but I have yet to see one that was solved quickly or without hardball lawyering. HOA's that are essentially failed have no one in charge to make litigation decisions. Condo boards that are unwilling to do their jobs and assess all owners to make repairs simply sit on these cases, intransigent, until forced by the court to act, since they can then point to a court order as the basis for assessing everyone. They also usually demonize the victims — people whose homes are, in many cases, rendered unlivable by constant water inundation and mold.
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Architectural Control Committee Swagger

I've seen it over and over in my HOA practice over the past 9 years: HOA architectural control committees that run amok and terrorize subdivisions by substituting their judgment for that of homeowners in even the most trivial of design and construction matters. Most horrifying are the icy building-plan-rejection letters in which the ACC (or a member thereof) assumes the tone of autocrat, dismissing the homeowner's proposals summarily and ordaining a list of things the ACC requires. It is, frankly, scary — but then, I chose not to live in an HOA. As will be seen, however, even avoiding living in an HOA doesn't insulate a homeowner from those who live to pass judgment on others.

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Texas Supreme Court Rejects HOA ban on STR's

Today, April 1, 2016, the Texas Supreme Court denied the HOA's request for review of the homeowner's significant win in NBRC PROPERTY OWNERS ASSOCIATION v. CRAIG ZGABAY AND TAMMY ZGABAY, No. 15-0730. The Third Court of Appeals in Austin rejected an HOA's arguments that the deed requirement of "residential use" bars short-term rentals (i.e., that they are a "business use" of property).

This was an important victory for homeowner rights since the Austin Court of Appeals held that when deed restrictions are unclear, they must be construed in favor of property owner's rights and against the party seeking to enforce an asserted restriction. The HOA was essentially arguing that HOA's always win because they say so. The HOA's petition was briefed well and at length by both sides, so the Texas Supreme Court's rejection of the HOA's petition is significant. The HOA argued that the Texas Supreme Court should clarify the standards for interpreting deed restrictions. The Zgabays argued that it was pointless for the Texas Supreme Court to take the case since
no method of interpretation could yield a win for the HOA. The Zgabays' argument prevailed.

I have another all-but-identical case coming up in the Fourth Court of Appeals in San Antonio. That's the
Tarr v. Timberwood Park HOA case. Similar cases are also pending in various trial courts. You would think HOA's would see the writing on the wall, but that's usually not their style. I suspect we'll continue to see them fight these cases in San Antonio, Dallas, and Houston to the bitter-end.Content may continue . . .

Welcome, SXSW STR tenants, to Austin: Police State

Austin is now a city where code police surveil ordinary people exercising ordinary property rights and going about their daily lives on their own land. Code officers train lenses on owners and tenants. They come onto the land and interrogate people. They stick lenses to window glass and shoot photos of people engaged in private, intimate activity. They issue code violations — believe it or not — for advertising on the internet.

Nosy neighbors peer through binoculars into private homes. They shoot photos of license plates and people relaxing in back yards and on porches. They confront and abuse tenants. They call in harassing, often false and extravagant claims. They stick their noses into the private affairs of human beings with lawful rights to occupy residences.

Welcome, visitors, to sunny Austin, Texas: Police State. Don't be alarmed when the code police and the neighbors knock on your door asking to explain who you are, where you're from, how many people are in your home, what their ages are, what you plan to do while in the home, and how long you plan to stay. It's all part of the Austin Experience.

I will be adding to the body of this blog over the coming days with a longer commentary and analysis of Austin's new STR ordinances and bans, including the various ways in which it may violate the Texas and U.S. Constitutions, along with a discussion of how a few elected officials have created an enormous new surveillance and enforcement superstructure that tramples upon fundamental personal and economic liberties.
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The City of Austin's Kafkaesque Short-Term Rental License-Denial Scheme

Based on what I see in my practice, the City of Austin appears to be systematically trying to prevent further Type 1 (owner-occupant) short-term rental licenses. When homeowners pay for an STR license and comply with all the requirements, the City of Austin doesn't then issue the license. It keeps people's money, but it then apparently uses the information it has just gotten to do drop-in inspections on the applicant's home. If an inspector observes someone there that the inspector may believe is a renter (whether confirmed or not), a notice of violation gets issued. The notice of violation then serves as the basis for the City of Austin to deny the homeowner the STR license the City refused to issue when it was paid for! Then, when the homeowner tries to figure out why the City won't issue the license, the homeowner gets a runaround — "complaints have been made" and other vague explanations — and cannot get a satisfactory answer as to anything. At the Code Department internal appeals process, the department pulls out a file full of information that was never previously provided to the homeowner, ostensibly with many "complaints." The appeal is denied.

So, while Type 1 short-term rentals are supposed to be legal in Austin, the City is now making them
de facto illegal by blocking the issuance of licenses.

Stay tuned for further developments.
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Balloons and Interest-Only Payment Schedules for Texas Home Equity Loans

In the Nationstar MDL, Chase, and Bank of America class actions in which I serve as lead counsel, I am still fiercely trying to uphold the Texas Constitution's ban on volatile payment structures (Art. XVI, Section 50(a)(6)(L)), such as balloons, interest-only payments, and payment volatility. I have now filed a Petition for Review in the Texas Supreme Court in the Nationstar MDL, which is the leading case, and also a Petition for Certiorari in the U.S. Supreme Court (and a Reply there as well) to try to keep the Nationstar, Chase, and BofA class actions alive (BofA is stayed pending the Nationstar MDL final decision). Content may continue . . .

Foreclosure Statute of Limitations Cases Update

My clients have had recent wins and losses challenging foreclosures on the basis that the statute of limitations expired after the lender accelerated the loan. The Landers v. Nationstar case is being briefed in the Texas Supreme Court following the invalidation of the lender's lien by the Court of Appeals. The Texas Supreme Court has not yet decided whether to actually review the case; it simply asked the parties for briefs. Nationstar filed its brief on November 10, 2015; the Landers' brief goes in on November 13, 2015.

However, in a hotly-contested case,
Justice v. Wells Fargo Bank, a federal district court in Houston held that the lender's strong disclaimer of abandonment of acceleration was of no effect — the borrower's payments made under the penumbra of the bank's disclaimers still resulted in the bank's abandonment of acceleration. The case is now on appeal in the 5th Circuit U.S. Court of Appeals. No briefing schedule has been set as of this writing.
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An innovative approach to short-term occupancy even where STR's are not allowed

Part of the fallout from my successful prosecution of the Zgabay case validating short-term rentals when deed restrictions only allow "residential use" is that HOA's are now doing what they always should have done in the first place: get together proper votes of all owners to amend the deed restrictions. However, that can hit very hard those persons who purchased properties based on the deed restrictions in place at the time of purchase — that is, where short-term rentals were not barred at the time of purchase, but then the right to rent for short terms got taken away by a valid amendment to the deed restrictions. Content may continue . . .

More on STR Win in Austin Court of Appeals

Letting the Zgabay decision sink in has yielded insights into what the Third Court of Appeals was doing. The Court's opinion is simplicity itself — the facts, after all, were undisputed — but its implications are far-reaching for Texas homeowners and give them a leg-up when fighting arbitrary HOA or neighbor interpretations of deed restrictions.Content may continue . . .

Big Win for STR Rights In Texas in Austin Court of Appeals

The Texas Third Court of Appeals in Austin has issued an important decision validating short-term rentals in a case I briefed and argued both at trial and on appeal. To summarize briefly, if restrictive covenants do not define "residential use" to limit leasing based on duration, then the restrictive covenants will be interpreted to favor the free and open use of property. Thus, the court will not write into the restrictive covenants any minimum duration for rentals. The case is Zgabay v. NBRC Property Owners Assoc., No. 03-14-00660 (Tex. App. — Austin August 28, 2015). This will be, for the time being, the leading case authority on this issue in Texas. However, I have other cases percolating in other appellate districts, and I expect one or more of these to go up on appeal in the coming months.Content may continue . . .


Those who want to ban STR's and who demonize the owners often use, enjoy, and make money from short-term rentals themselves. Like, are you for real?Content may continue . . .

Pots calling kettles black -- HOA's that sue owners for working from home offices

HOA officers and directors engage in business use in their own homes all the time, yet they still sue other owners for prohibited "business use" of the same type, oblivious to their hypocrisy.Content may continue . . .

You can't escape HOA's even when you try!

I've been involved in a spate of cases where my clients purposely bought properties in subdivisions without mandatory HOA's, yet my clients STILL find themselves persecuted by HOA's!Content may continue . . .

Big win on statute of limitations barring foreclosure

My clients have prevailed in asserting the statute of limitations as a defense to a foreclosure, leaving the lender with only a claim for rescission (unwinding the loan transaction and refunding everything to my client) upon remand to the district court. This is one of the very few recent cases of this type where a Texas borrower has prevailed because a lender let more than 4 years pass after accelerating the loan. The case is Landers v. Nationstar Mortgage, LLC, No. 12-14-00261-CV (Tex. Ct. App.-Austin April 8, 2015). A copy of the decision is HERE. I expect it will get some good press because of the exceedingly clear appellate opinion and the result in favor of the borrowers. Content may continue . . .

HOA's are local-local governement

I think it's not generally appreciated by people who buy into subdivisions that HOA's are really local-local government. The deed restrictions are like a mini-Constitution that defines the powers of local-local HOA government. All too often, a small circle of owners maintain a tight grip on the board of directors of the HOA, effectively running an oligarchy — and sometimes a dictatorship. Many owners aren't willing to get involved, so a small group of owners gets to dictate the rights of the larger group unless and until a victimized owner is willing to sue — always a risky and expensive proposition. Too, the small circle of owners who run things have effective control of the voting processes, and they can make it hard for activist outsiders to get voted in.

Anyone who is thinking of buying into an HOA should consider that the value of the property they are buying is affected by the HOA and its board, plus the restrictive covenants themselves. A bad board can all but ruin the value of properties within a subdivision or condo. Even a good board is not a solution, because good boards in time can get voted out. Every year may bring a change, which at a minimum creates uncertainty. The only real constant is the behind-the-scenes players — the attorneys and property managers who effectively keep HOA's going, year-in and year-out. I call this the "HOA-Industrial Complex." Often, the Complex gets behind boards that behave badly, enabling actions that harm individuals without the resources to fight or defend themselves. Boards that allow the Complex to run HOA's without real human sensitivity not only harm the value of property, but tear apart communities. Often, the Complex argues that it's looking out for the community interest, when in reality it is looking out for itself at the expense of a community.

While I see no prospect of serious reform in the near future, at least the deed restrictions, as a writing that binds the parties, are a check on HOA power and abuse, and every homeowner has a right to seek relief when an HOA doesn't abide by its own mini-Constitution.

In addition, it's not generally appreciated that a small group of owners can usually force a special meeting of the membership to amend the mini-Constitution, such as to remove onerous restrictions on property uses. This is not a particularly difficult process, and it's not nearly as risky or expensive as litigation. Content may continue . . .

More STR cases -- losses, appeals

Having prevailed in a number of short-term rental cases in Travis County over the past several years, the going has been harder elsewhere. I have had a client lose on this issue against an HOA in Comal County in a case that is now on appeal and has been orally argued in the Texas Third Court of Appeals in Austin. The oral argument in that case was lively, and I am hopeful that the opinion will provide clear guidance (one way or the other) to homeowners seeking to rent for short terms in the absence of clear leasing wording in deed restrictions. The HOA's are now arguing that "residential use" means that short-term rentals are always banned. However, the HOA argument is that "residential" requires an "intent to remain permanently." My argument has been that that standard applies to both owners and tenants equally, so it would require owners to occupy their own homes permanently even if the property at issue is a vacation home or investment property. I don't see how that can be the law in the absence of clear deed restriction wording to the contrary. "Residential use," that is, applies equally to owners and renters, so you can't single out renters who don't stay permanently for a ban; you'd also have to ban owners who don't reside permanently at the homes they own. The other problem is that HOA's are no longer specifying what number of days constitutes an "intent to remain." My clients have no idea what the standard is and how to comply. In any event, all the "intent to remain" cases out there are cases where someone is seeking a state benefit, like in-state tuition, and not surprisingly there can be a minimum residency requirement before someone is affirmatively allowed a government benefit. I don't see how that relates to deed restrictions that are trying to ban "business use" and have nothing to do with the duration of a tenancy or owner-occupancy.

I also just learned that a client of mine was denied a win in Bexar County on this issue (this is the Tarr v. Timberwood Park HOA case in the Bexar County Court at Law #3), but I have not yet seen the court order. The HOA was arguing for "intent to remain permanently," however, so presumably the trial court agreed with the HOA to some extent. The procedural posture of the case means that the court isn't actually declaring the meaning of the restrictive covenants at issue in denying my client's motion for summary judgment. It may be some time before the practical effect of the court's ruling is known. I will update the blog accordingly.Content may continue . . .

Two recent STR wins

I have had two more clients obtain summary judgments in the past three weeks validating short-term rentals under common deed restriction wording. In one case, neighbors were arguing that short-term rentals are always a business use. In the other case, an HOA dropped that argument, instead arguing that an HOA has power to make rules banning STR's even when the deed restrictions already allow leasing without duration restrictions. See Kendrick v. Siddiqi. One of the cases later settled out of court with confidential terms.

Note that in the Kendrick v. Siddiqi case, the court expressly prevented the owner from engaging in individual instances of renting that are commercial in character, such as venues for events, while allowing short-term rentals as a general matter. That is, renting for short terms is an owner's right, but if an owner does engage in a business use unrelated to lease duration, that is a separate kind of violation of deed restrictions. Analytically, that is a very satisfying, logical result and is similar to other judgments my clients have won. Duration limits are not related to whether there is a business use.Content may continue . . .

Home businesses and HOA's

If you live in an HOA and wish to run a business from your home, you are best advised to spend an hour with me at my consult rate to determine your rights. It's $245 well spent if you can avoid hassles from the HOA. I can't offer general advice because the wordings of HOA declarations -- your contract with the HOA and other owners -- vary so much.

You can also search this blog for some of my articles on the subject.Content may continue . . .

Seller's Disclosures and Big Issues in Residential Real Estate Transactions

There's generally conceded to be a conflict between the "as-is" clause in Texas form real estate contracts and the fact that sellers are required by law to fill out a long form full of disclosures. If a buyer is buying the property "as-is," doesn't that mean the buyer has waived defects? No! A seller must fill out the disclosures in good faith, and a buyer is entitled to rely on those disclosures.Content may continue . . .

More HOA perversity

It occurs to me that there's another way in HOA's have a perverse incentive to continue litigation in the face of a loss. Where an HOA has made a suspect rule or brought a suspect lawsuit against a homeowner, at that point the HOA may be trying to fend off one or a few owners who instigated the rule or lawsuit. That is, if the HOA doesn't press its case, it may get sued by the owners who are insisting on the rule or lawsuit. In this way, the HOA can be squeezed -- unable to settle the lawsuit without someone suing the HOA for failing to enforce the rules, yet unable to prevail in the litigation because the HOA's case is so weak. The only beneficiaries, in this scenario, are the usual suspects: the lawyers! Content may continue . . .

The perversity of HOA's

HOA boards have perverse incentives to keep litigating bad cases because the board members never face any real consequences.Content may continue . . .

More HOA STR bans, and more HOA losses

HOA bans on STR's without clear declaration wording to support such bans still aren't gaining traction. My client won a case last week, I've got another coming up August 20, and another on September 3.Content may continue . . .

HOA's & STR's

It seems to me, from my small corner of the world, that things are heating up in the area of HOA's seeking to ban short-term rentals without amending their declarations. Readers of this blog will recall that my clients prevailed in such cases in the past, usually securing significant attorney-fee awards. But the lack of reported cases in Texas on the precise issue seems to embolden HOA's anyway, figuring the worst that happen is their insurance carriers will pay for the fallout!

The issue is that many HOA declarations ("declaration of conditions, covenants, and restrictions," AKA, "deed restrictions") are absolutely silent on the duration of allowed leasing. They allow leasing but do not purport to limit the length of time an owner must tailor the lease to. In Texas, leasing is an important property right and is considered a "use," and limitations on uses generally have to be done in the declaration. It's hard to amend a declaration, so HOA's try the short-cut of a board vote on new "rules" that take away leasing rights. IMLO, that's a no-go. A handful of persons cannot take away a fundamental property right that someone relied on when purchasing land.

The online leasing sites HomeAway, AirBNB, and others have made it very easy for homeowners to market their properties for STR's, and in Austin, for example, new city ordinances expressly allow STR's subject to licensing and rules. It's the way the world is going. If an HOA wants to take away the right completely, it needs a supermajority of all owners to do it. That's not easy, but it's not insurmountable. Content may continue . . .

The Problem with Duplex Condominium HOA's

In the Austin area, urban infill has put a premium on maximizing the square footage of new houses on expensive urban lots. Developers and builders are responding by building what used to be called "duplexes" but are increasingly being called "condominiums." The distinction has largely to do with permitting and zoning. Content may continue . . .

Update on Balcones Woods Clubs STR Case

Just before the court was to hear the plaintiff homeowner's motion for summary judgment on undisputed HOA declaration wording, the parties worked out a settlement whereby the homeowner kept the right to continue short-term rentals. The handwriting was on the wall, IMLO, as to how the court would rule, so I think the HOA acted sensibly in not continuing to contest the homeowner's right to rent for short terms. Content may continue . . .

Motion for Summary Judgment Filed against Balcones Woods Club HOA

Today, my client filed a motion for summary judgment immediately following Balcones Woods's answer. Balcones Woods is arguing that cases involving room rentals and without express leasing rights dictate that an owner with express leasing rights in the HOA declaration cannot rent for short terms. My client's motion puts those arguments to rest. A judgment in my client's favor would render it almost impossible for the Balcones Woods HOA to bully other owners as it did Mr. Cribbs.

The summary judgment is set to be heard by the court on November 1, 2013, in Travis County Court at Law.Content may continue . . .

Balcones Woods Club HOA bullies homeowner over short-term rentals

The Balcones Woods Club HOA in Austin just up and decided, with no justification, to send my client a cease-and-desist letter threatening litigation over my client's short term rentals. The Balcones Woods declaration not only authorizes leasing, but says NOTHING about limitations on leasing, and certainly has no minimum leasing term. My client specifically relied on that before purchasing.

The HOA has said that leasing is a "business use," in effect barring everyone at Balcones Woods from leasing. The overwhelming tide of cases addressing the question whether short-term renting constitutes a "business" have rejected the argument categorically. The HOA has not even tried to put a number to the minimum lease term -- what is it, Balcones Woods, 30 days? 10 days? 90 days? There is no principled basis for the HOA to impose a number short of amending its declarations, which it hasn't even tried to do.

My client sued Balcones Woods. Make no mistake: had my client not acted to protect their rights, the HOA would've spared no expense to bankrupt my client or dispossess them of their home. The only way to fight power-mad, bullying HOA's is to get judgments invalidating their actions so that NO ONE ELSE in the HOA can be victimized. In my past cases like this, the HOA directors who made these colossal goofs got the boot, as did the lawyers and property managers who enabled the misguided actions.

The case is Cribbs v. Balcones Woods Club, Inc., and the lawsuit is here. The Motion for Summary Judgment seeking immediate resolution of the legal issue is here. It is set to be heard by the court November 1, 2013, at 2:00PM.
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Improper homestead liens filed by Palisades Collection

Have you tried to sell your home and only then learned that Palisades Collection, from New Jersey, slapped a judgment lien on your homestead? You're not alone. By my reckoning, Palisades slapped thousands of liens on Texas homesteads over the past ten years. The liens are usually not valid since the Texas Constitution doesn't recognize judgment liens as valid on homesteads. However, I notice that many of the liens are in the sub-$3000 range, and I'll bet lots of people just decide to pay up at closing rather than fight a lien they don't understand isn't valid. If you have a Palisades lien on your home, call me to discuss.Content may continue . . .

Texas Monthly Article on HOA's and one of my clients

Reporter Jay Root has written a long exposé of the HOA industrial complex. He focuses on Texas State Senator John Carona, who heads up a large property management company that stands behind thousands of HOA's. The lead-in and conclusion feature one of my clients, a homeowner getting foreclosed on by the Brookfield HOA in Pflugerville, Texas for bogus fines that spiraled into thousands of dollars of handling charges and attorney's fees. My client, Shawn Riggs, got mad and hired me, and then Jay Root got hold of the story. The main focus of the article is about Senator Carona's empire building in the HOA field while serving in the Texas Legislature. The HOA abuse featured in the article doesn't surprise me, but the machinations behind the scenes does. I strongly recommend that anyone planning to buy into an HOA community read this article.Content may continue . . .
J. Patrick Sutton Cases & Issues Blog