Payoff problem halts home sale

Law of the Land

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Jun. 16, 2010

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Law of the Land

Tara-Nicholle Nelson
Inman News

Nancy Logan purchased a property from Deborah Graves in 2000, signing a promissory note under which Logan would pay Graves $35,000. Logan contracted with a third party to resell the property in 2006.

In preparation for the planned June 2006 close of escrow on the second transaction, the title company approached Graves and requested that Graves issue a payoff statement providing the amount of principal and interest still outstanding and due from Logan to satisfy the promissory note.

Graves informed the title company that she was concerned because she believed that Logan might have missed some payments under the loan and did not provide a payoff figure prior to the planned close of escrow date.

When, in September 2006, Graves still had not provided a payoff figure, Logan again requested that Graves provide a payoff statement, emphasizing the urgent nature of her request.

Graves reportedly failed to respond until late October 2006, and when she finally did provide the payoff statement, the payoff figure she demanded was $6,000 higher than the actual amount due. By the time Graves responded with a payoff statement, Logan's sale contract with the third party had expired, and the transaction had been canceled.

Logan sued Graves for breach of contract, on grounds that the promissory note and lien on the property gave rise to an "implied duty to cooperate with Logan in 'determining the amount of unpaid principal and accrued interest on a given installment date.' "

Logan alleged that she was damaged by Graves' breach of this implied duty by virtue of having been unable to complete the sale of the property because, without Graves' payoff statement, Logan was unable to convey clear title to the third-party would-be purchaser of the property. Logan also asked the court to determine and declare the accurate payoff amount due under the promissory note.

At trial, on a motion for summary judgment, the court granted Logan's request for declaratory relief and ruled that Graves was liable to Logan for damages resulting from the canceled sale of the property.

Graves appealed, and The Texas Court of Appeals overturned the trial court's ruling that Graves was liable to Logan for damages. While both parties agreed that a valid contract -- the promissory note -- existed between them, the court explained, at issue was whether Graves had a duty under the promissory note to provide a payoff figure within a reasonable amount of time.

The promissory note did not expressly reference or require Graves to issue a payoff figure or statement.

While the Court of Appeals agreed with Logan that the promissory note gave rise to a duty on Graves' part not to hinder, prevent or interfere with Logan's ability to perform under the contract, the court went on to clarify that Logan's duty under the contract was only to pay the note.

Graves' failure to provide a payoff statement did not, the court opined, hinder Logan's ability to pay the note; "(a)t most, Graves arguably interfered with Logan's pursuit of benefits incidental to the full execution of her obligations under the promissory note."

A Texas statute that obligates a lienholder to provide a payoff figure on request was examined by the court and found to apply only in lease-purchase-option scenarios, which this case was not (see Texas Property Code Annotated Section 5.062(a)(2), Vernon Supplement 2009).

Accordingly, the Texas Court of Appeals reversed the trial court's judgment awarding damages to Logan and remanded the case back to the trial court for further proceedings.

Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Ask her a real estate question online or visit her website,

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