The Texas real estate market has been exceptionally hot this year. On May 19, 2021, the real estate brokerage Redfin released a report revealing that the Austin housing market experienced a 42.3% year-over-year rise in home-sale prices during April 2021. Tim Ellis, REDFIN (Updated on June 7, 2021), The DFW area saw an increase as well with Dallas at 19.9% and Fort Worth at 14.3%. Id. Amid this housing market boom, the 87th Texas legislature convened and passed a real estate appraisal bill, which will undoubtedly have an impact on prospective homebuyers.
House Bill 1939
The 87th legislature recently passed H.B. 1939, codified as Section 16.013 of the Texas Civil Practice and Remedies Code, which will go into effect on September 1, 2021. This bill sets a statute of limitations for claims stemming from an appraisal or appraisal review performed by a real estate appraiser or appraisal firm. However, this bill does not encompass causes of action related to fraud or breach of contract.
There are two deadlines for filing claims outlined by the bill: (1) an individual has two years from the date the person knew or should have known of the facts giving rise to a claim; or (2) an individual has five years from the date of the appraisal or appraisal review to file suit.
The purpose of restriction is to ensure real estate appraisers and appraisal firms are capable of reasonably defending themselves in lawsuits. Setting a limit ensures claims will be made within a timeframe when there will still be record of the appraisal at issue. Prior to H.B. 1939, an individual was not confined to an exact time limit to file a claim. A person was only timebound to bring a claim after the person discovered, or should have discovered, the alleged appraisal defect. Bill Analysis, Senate Research Center (May 7, 2021). The concern about excessively delayed appraisal claims arose from lawsuits involving mortgage transactions made during the “‘real estate bubble’” of 2005 to 2008 that went into default. The bill was drafted to align Texas with the Uniform Standards of Professional Appraisal Practice (USPAP). USPAP requires an appraiser to retain a work file for five years after the appraisal was prepared, or two years following disposition of any judicial proceeding in which the appraiser provided testimony. See Uniform Standards of Professional Appraisal Practice, 10 (2021), By following a similar framework to USPAP, the new statute of limitations will promote timely claims and ensure the preservation of relevant information. Similar legislation has already been passed in Louisiana, Minnesota, Mississippi, Oregon, and Tennessee. See La. Rev. Stat. Ann. § 9:5610(A); Minn. Stat. Ann. § 82B.24(4); Miss. Code Ann. § 15-1-83(2); Or. Rev. Stat. Ann. § 12.132(1); and Tenn. Code Ann. § 28-3-104(d).
Current prospective homebuyers in the Texas market face the financial risk of waiving appraisals to be competitive in a bidding war, but that does not preclude homes that do appraise from being subject to stricter scrutiny down the line. See also Dallas Real Estate Trends That Don’t Favor Buyers. The issue of inflated appraisals could likely again be a source of prolific litigation when home prices subside, and mortgage defaults become more common. Although H.B. 1939 was intended to manage disputes arising from the 2008 housing crisis, the effect of the bill will be equally relevant to homebuyers in the current Texas housing market.