Mahboubi assigned the Contract to Semira Rezaie. Rezaie then entered into a Contract to flip the parcel to Jerry Spencer, LP.
The first closing was on August 4, 2006.
The second closing was also on August 4. At that closing, Rezaie conveyed the property to Spencer, without exceptions or restrictions. The second Deed was recorded on August 7, 2006 – 18 days before the first Deed.
Spencer leased the property to 2327 Manana, LLC, who posted a notice on the front door announcing its intent to operate a SOB. Then the litigation started.
Spencer and Manana argued in trial court that they could not be held responsible for compliance with the SOB restriction, because the Deed containing that restriction was not recorded in
Spencer and Manana lost. They appealed.
On June 25, 2010, the Dallas Court of Appeals affirmed the trial court’s judgment. The Court of Appeals had little trouble concluding that a real estate purchaser is bound by every matter contained in or disclosed by any instrument which forms an essential link in the chain of title, even though Spencer and Manana had never read the documents. Essentially, if Spencer and Manana closed their transaction without reviewing the immediately preceding deed in the chain – the ‘vesting deed’ – then Spencer and Manana did so at their own peril.
Not addressed in the case due to procedural matters were the claims against the broker who represented all of the buyers, and possibly failed to disclose the inclusion of the restrictive clause in the first deed. Also not addressed were possible claims against the title company, who may have insured the secondary transaction without reference to the restrictive covenant contained in the
1. Demand to see the Vesting Deed. Check it for restrictions. Particularly in flip transactions where closings are occurring quickly.
2. If possible, get representations and indemnities in Contracts and Leases, obligating the Seller / Landlord to certify that the property can be used as the Purchaser / Tenant requires.
3. If you have actual knowledge about a latent defect or material condition, immediately disclose it to your principal in writing.
Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.