THE RECORDING STATUTE IN TEXAS (AND THE INNOCENT PURCHASER DOCTRINE)

Transcription

1 THE RECORDING STATUTE IN TEXAS (AND THE INNOCENT PURCHASER DOCTRINE) STEVEN C. HALEY Moorman Tate Haley Upchurch & Yates, LLP 207 East Main Street P.O. Box 1808 Brenham, Texas Telephone: Fax: TH ANNUAL ROBERT C. SNEED TEXAS LAND TITLE INSTITUTE December 4-5, 2014 San Antonio {12855.ADVRE DOC}

2 STEVEN C. HALEY Moorman Tate Haley Upchurch & Yates, LLP 207 E. Main Brenham, Texas FAX: BIOGRAPHICAL INFORMATION EDUCATION B.S., Agricultural Economics, cum laude, Texas A&M University, 1978 J.D., cum laude, Bates College of Law, University of Houston, 1981 Articles Research Editor, Houston Law Review PROFESSIONAL ACTIVITIES Partner, Moorman Tate Haley Upchurch & Yates, LLP Admitted to the State Bar of Texas, 1981 Admitted to practice in Texas in the U.S. Fifth Circuit Court of Appeals, U. S. District Courts for the Northern, Eastern, Southern, and Western Districts of Texas General Counsel, Texas Department of Agriculture ( ) Senior Staff Attorney, Texas A&M University System ( ) Member: Texas College of Real Estate Attorneys (Chairman ) American College of Real Estate Lawyers State Bar of Texas' Real Estate, Probate and Trust Law Council(REPTL) ( ) State Bar of Texas' Real Estate Forms Committee (1997 ) State Bar of Texas' Agricultural Law Committee (Chairman ) College of the State Bar of Texas American Agricultural Law Ass'n Washington County Bar Ass'n (President ) Texas Aggie Bar Ass'n (President ) Texas Super Lawyer, Texas Monthly Magazine Named in Texas Best Lawyers Edition LAW RELATED PUBLICATIONS AND HONORS State Bar of Texas, Jerry Charles Saegert Award, Best Real Estate CLE Paper 2009, 2008, 2004 State Bar of Texas, Advanced Real Estate Law Course, Best Speaker 2009 Co-Course Director for the University of Texas School of Law and Texas Mortgage Bankers' Association; Texas Mortgage Lending Institute 2001 Co-Course Director for the State Bar of Texas; Advanced Real Estate Law Course, 2000 Co-Course Director for the South Texas College of Law; Real Estate Conference, 2002 Co-Course Director for the State Bar of Texas; Advanced Real Estate Drafting Course, 2006 Author/speaker for the State Bar of Texas; Advanced Real Estate Law Course 2014; The Recording Statute in Texas (and the Innocent Purchaser Doctrine) Author/speaker for the State Bar of Texas; Advanced Real Estate Law Course, 2013; Texas Homestead Law Author/speaker for the State Bar of Texas; Advanced Real Estate Law Course 2009; Material Alteration of Documents Author/speaker for the State Bar of Texas; Advanced Real Estate Law Course 2009; Strumpet Flourish, Temple Houston and the Soiled Dove Defense Author/speaker for the State Bar of Texas; Advanced Real Estate Drafting Course 2008; Lis Pendens in Texas Author/speaker for the University of Texas School of Law and Texas Mortgage Bankers' Association; Texas Mortgage Lending Institute 2005; The Recording Statute in Texas Author/speaker for the State Bar of Texas; Advanced Real Estate Drafting Course, 2003; Drafting Hunting and Agricultural Leases Author/speaker for the Southern Methodist University; Real Estate Transactions in Depth, 2000; Texas Abstracts of Judgment and Judgment Liens Author/speaker for the South Texas College of Law; Real Estate Law Conference, 1999; Texas Law of Acknowledgments Author/speaker for the University of Texas School of Law and Texas Mortgage Bankers Association; Texas Mortgage Lending Institute, 1998, Sale or Disposition of Personal Property Collateral Author/speaker for the State Bar of Texas; Advanced Real Estate Law Course, 1997; Homestead Update Author/speaker for the University of Texas School of Law and Texas Mortgage Bankers Association; Texas Mortgage Lending Institute, 1997, Creative Ways To Get To The Homestead: Resulting And Constructive Trusts Author/speaker for the University of Texas at Austin; Texas Mortgage Lending Institute, 1996, Texas Law of Acknowledgments Author/speaker for the University of Texas at Austin; Texas Mortgage Lending Institute, 1994, Homestead Update {12855.ADVRE DOC} 2

3 Author/speaker for the State Bar of Texas; Agricultural Law Seminar, 1994, Texas Farm Products as Collateral Author/speaker for the State Bar of Texas; Agricultural Law Seminar, 1993, Distinguishing the Rural and Urban Homestead {12855.ADVRE DOC} 3

4 THE RECORDING STATUTE IN TEXAS (AND THE INNOCENT PURCHASER DOCTRINE) Table of Contents I. INTRODUCTION... 1 A. Registration Generally Permissive... 1 B. Registration Generally Not Necessary to Effectiveness of Instrument Documents Which Release, Transfer, Assign, Etc. a Previously Recorded Document Contractual Liens for Improvements Against Homestead... 1 a. Residential Homesteads Extensions of Liens Involuntary Mechanic s Liens (Constitutional)... 2 a. Residential Homesteads Involuntary Mechanic s Liens (Statutory)... 2 a. Residential Homesteads Bankruptcy Debtor-in-Possession Release of Tax Lien Transfers of Tax Lien C. The Common Law Rule Regarding Priority of Conveyances... 2 D. General Thrust and Intent of Recording Statute... 2 E. The Elements of the General Recording Statute... 3 F. Special Recording Statute for Court Orders and Judgments Affecting Title to Land... 3 G. Special Recording Statute for Extensions of Liens... 3 H. Special Recording Statute for Lis Pendens... 3 I. Special Recording Statute for Destroyed or Lost Public Records... 3 J. Special Recording Statute for Purchaser at Execution Sale... 3 K. Special Recording Statute for Involuntary Mechanics Liens... 3 L. Special Recording Statute for Partitions of Marital Real Property... 4 M. History of the General Recording Statute... 4 N. Construction of the General Recording Statute No Equitable Estoppel Exception to the Recording Statute O. The Innocent Purchaser Doctrine... 4 P. Construction of the Innocent Purchaser Doctrine... 4 II. CONVEYANCES SUBJECT TO RECORDING STATUTE... 4 A. Conveyance Required... 4 B. Liens... 4 C. Involuntary Mechanic s Liens... 5 D. Life Estates... 5 E. Timber Deeds... 5 F. Leases... 5 G. Mineral Interests... 5 H. Restrictive Covenants... 5 I. Easements Easements by Estoppel Easements Implied by Prior Use... 5 J. Wills and Estates Unrecorded Deed By Decedent... 5 K. Deeds by Minors... 5 L. Written Express Trusts... 5 M. Equitable Interests Are Not Subject to Recording Statute Resulting Trusts Constructive Trusts Parol Trusts Executory Contracts of Conveyance Equitable Right of Reformation... 7 {12855.ADVRE DOC} iv

5 6. Parol Partitions Equitable Liens Equitable Subrogation... 7 N. Equitable Interests Are Subject to the Innocent Purchaser Doctrine Resulting Trusts Constructive Trusts Executory Contracts of Conveyance Equitable Right of Reformation Parol Partitions Equitable Liens Equitable Subrogation Parol Dedication Parol Boundary Line Agreement Parol Gift Conditional Sale Parol Trust... 8 O. Limitations Title Not Subject to Recording Statute/Innocent Purchaser Doctrine Prescriptive Easements... 9 P. Governmental Units Are Subject to the Recording Statute Exception Ad Valorem Tax Liens Q. Financing Statements... 9 III. VOID AS TO SUBSEQUENT CREDITOR OR PURCHASER... 9 A. Class of Persons Protected by the Recording Statute... 9 B. General Recording Statute Right of Redemption... 9 C. Innocent Purchaser Doctrine... 9 D. Unrecorded Judgments... 9 IV. LIEN CREDITORS... 9 A. Creditor Refers to Lien Creditor... 9 B. Creditor Not Limited to Subsequent Lien Creditor... 9 C. Creditor Refers to Lien Creditor Without Notice... 9 D. Lien Creditor Under the Recording Statute Need Not Pay Valuable Consideration E. Types of Lien Creditors Covered by Recording Statute Judgment Creditors Levying By Writ of Execution or Attachment Judgment Creditors Filing an Abstract of Judgment Trustee in Bankruptcy Bankruptcy Debtor-in-Possession Judicial Foreclosure Mechanic=s Liens Landlord=s Liens Tax Liens F. Creditor=s Lien Attaches To All Apparent Interest of Debtor When Lien Creditor Has Notice of a Prior Unrecorded Conveyance When No Apparent Title is in the Judgment Debtor G. Creditor=s Rights Under Recording Statute Are Fixed At Time Lien Attaches H. Lien Creditors Under the Innocent Purchaser Doctrine V. INNOCENT PURCHASER FOR VALUABLE CONSIDERATION A. Innocent Purchaser Innocent Purchaser Status a Legal Conclusion Purchase Required a. Merger Not a Purchase Good Faith Required a. Titles Acquired by Speculation b. Titles Subject to Litigation c. Titles Acquired by Inequitable Conduct d. Effect of Inadequate Consideration e. Time for Determination of Good Faith {12855.ADVRE DOC} v

6 4. AApparent Must be Acquired a. Apparent Title Must Deraign by Series of Conveyances b. Apparent Title Must Deraign by Written Conveyances Must Apparent Title Be Legal Title? Innocent Includes Mortgagees Mineral Interests Forged Deed Void Instrument Void Judgment/Voidable Judgment Deed Procured by Fraud/Fraudulent Conveyance Deed Executed by Accident or Mistake Deed by Person Under Disability Deed by Unauthorized Person a. Void Trustee=s Sale b. Voidable Trustee=s Sale Deed by Fiduciary or Trustee Deed to Corporation Not Authorized to Act Deed Not Intended For Delivery Simulated Transaction Involving Homestead Deed By Person With Identical/Deceptively Similar Name Remote Purchasers (the AShelter 16 a. Reconveyance to a Person Not an Innocent Purchaser B. Valuable Consideration Consideration a Question of Law or Fact? Acceptable Proof of Valuable Consideration Sufficiency of Consideration a. Gift Deeds b. Property Acquired by Inheritance c. Antecedent Debt Not Valuable Consideration Promissory Note as Valuable Consideration Surrender of Legal Right as Consideration Unlawful Consideration Consideration Must Be Paid Before Notice of Competing Claim Pro Tanto Protection of Innocent Purchasers Conveyances for Which Valuable Consideration Must Be Shown Valuable Consideration - Purchase at Execution Sale (Innocent Purchaser Doctrine) VI. WITHOUT NOTICE A. Generally Notice May Be Actual or Constructive a. Abstracts of Judgment Constructive Notice Generally a Question of Law Actual Notice Generally a Question of Fact Evidentiary Presumptions Regarding Notice Timing of Notice a. Date That Junior Interest is Created b. Effect of Notice Before the Junior Interest is Created c. Effect of Notice After the Junior Interest Created Notice Must Be Reliable? Notice Must Be Specific to Senior Title Notice to Agent Notice to Principal Notice to Title Company Notice to Predecessor in Title Notice of Successor in Title Notice to Joint Purchaser/Mortgagee Notice to Partner Notice to Predecessor Entity Duty of Inquiry {12855.ADVRE DOC} vi

7 a. Threshold Level of Notice Triggering Duty of Inquiry b. Extent of Duty of Inquiry c. Tolling the Duty of Inquiry B. Actual Notice Claims in Litigation Boundary Lines Effect of Bankruptcy on Actual Notice C. Constructive Notice By Form/Timing of Conveyance Quitclaim Deeds a. Effect of Shelter Rule b. Sheriff=s or Constable=s Deeds c. Deeds by Personal Representative Deeds of Limited Warranty D. Constructive Notice by Registration Buyer May Rely on the Truth of Each Recorded Instrument Buyer May Rely Upon Construction of Instrument According to Commonly Accepted Meanings Class of Persons to Whom Registration is Notice a. Limitations Statutes Documents Authorized to be Recorded Records Not Giving Constructive Notice of Land Titles a. Tax Records b. Estate Administration Proceedings c. Testamentary Instruments (Testator Not Yet Deceased) d. Litigation/Court Records e. Courthouse Postings f. Legal Notices in the Newspaper g. Municipal Ordinances and Records h. Marriage Records i. Railroad Commission Records j. Documents Not Authorized to be Recorded Instrument Must Be in Buyer=s Chain of Title a. Instrument by Interloper in Title b. Instrument With Inadequate Property Description c. Instrument Apparently Expired or Barred d. Void Instruments e. Conveyance Recorded Before Grantor Has Acquired Record Title f. Conveyance Recorded While Grantor Has Record Title g. Conveyance Recorded After Grantor Has Parted With Record Title h. Released Lien Instrument i. Instrument Relating to Different Tract j. Unrecorded Instrument k. Recorded Plat Instrument Must Affect Buyer=s Title Extent of Constructive Notice Given By Instrument a. Purchaser Charged With Notice of All Recitals in Instrument b. Purchaser Charged With Notice of Documents Referenced by Instrument Notice Must Be of an Interest in Apparent Conflict with Purchaser=s Title Estoppel E. Constructive Notice by Possession The General Rule Instances Where No Duty of Inquiry To Possessor Arises a. No Person in Possession b. Possession Must be Accompanied by an Interest in the Property c. Record Title Owner in Possession {12855.ADVRE DOC} vii

8 d. Possession After Junior Title is Acquired e. Possession Before Junior Title is Acquired f. Deed Out of Possessor Absolute on its Face (the AEylar 44 g. Possession Insufficiently Evident h. Possession by Stranger Duty of Inquiry Arises From Fact of Possession Not Purchaser=s Knowledge of Possession Extent of Duty of Inquiry a. Possession Notice of Unrecorded Lien? b. No Duty to Inquire of Landlord if Tenant in Possession Without Notice of Unrecorded Deed Effect of Failure to Pursue Inquiry of Possessor a. Possessor Without Knowledge of Status of Title b. Possessor Misrepresenting Status of Title c. Claims to Property Adverse to Possessor Effect of Possession of Only Part of the Property Possession Through Tenant a. Possession of Tenant as Notice of Landlord=s Rights b. Possession of Tenant as Notice of Tenant=s Rights Possession by Agent Possession by Co-Tenant Possession by Affiliated Entity F. Constructive Notice By Lis Pendens G. Constructive Notice By Physical Conditions on the Property Recent Construction Evidence of Mineral Production or Exploration Boundary Encroachments Easements Uniform Development As Notice of Deed Restrictions Signs on Property VII. AUTHENTICATION AND PROOF OF INSTRUMENTS A. Effect of Recordation of an Unproved Instrument Inadequately Proved Instrument - Actual Notice Inadequately Proved Instrument - Referenced by Another Instrument Which is Adequately Proved VIII. DUE RECORDATION A. Place of Recordation Effect of Subsequent Subdivision of the Property Rerecording Instrument Originally Filed in Wrong County B. English Language C. Address of Grantee D. Duties of Clerk Upon Filing of Instrument Filing a. Constructive Notice of Instrument Effective Immediately Upon Filing Recording Indexing Return of Instrument E. Documents Destroyed or Lost Before Recorded F. Recording of Judgments Recording a Judgment From Justice Court IX. ACTIONS INVOLVING THE RECORDING STATUTE A. Pleading B. Burden of Proof Recording Statute Innocent Purchaser Doctrine Recording Statute for Judgments and Orders C. Jury Issues {12855.ADVRE DOC} viii

9 THE RECORDING STATUTE IN TEXAS (AND THE INNOCENT PURCHASER DOCTRINE) I. INTRODUCTION A. Registration Generally Permissive The recordation of instrument concerning real property is ostensively permissive in nature. 1 However, recordation is the prudent course, 2 as it can have an effect on the priority of an instrument. 3 Recordation, although extremely advisable, is not a required duty. 4 B. Registration Generally Not Necessary to Effectiveness of Instrument The purpose of registration is to give notice to third parties of the existence of an instrument affecting title to real property. 5 Generally, the registration of an instrument is not necessary to its effectiveness as a conveyance or its enforceability between the immediate parties thereto. 6 However, this general rule is subject to some notable refinements: 1. Documents Which Release, Transfer, Assign, Etc. a Previously Recorded Document. TEX. LOC. GOV T CODE ANN (a) provides: To release, transfer, assign or take another action relating to an instrument that is filed, registered, or recorded in the office of the County Clerk, a person must file, register, or record another instrument relating to the action in the same manner as the original instrument was required to be filed, registered, or recorded. 7 The plain language of this provision has been interpreted to create a duty requiring recordation of any instrument releasing, assigning, transferring, or taking any other action with respect to an instrument previously filed with the County Clerk. 8 While the consequences of failing to comply with this statutory directive are not completely clear, 9 the failure to record such an amendatory instrument is generally not considered to be essential to its validity. 10 The mandatory language of this statute is considered to be an administrative requirement for clerks, requiring that a party seeking to file an amendatory instrument file a wholly new amending instrument rather than a mere annotation or alteration made on the original document. 11 The members of the mortgage banking industry have created an electronic mortgage tracking system (MERS) to facilitate the rapid transfer of mortgage loans among their members and to avoid the need to record these transfers in county property records. 12 Under the MERS system, transfers of mortgage loans are tracked electronically on the MERS website, avoiding millions of dollars of recording {12855.ADVRE DOC} 1 fees. 13 In Nueces County v. MERSCORP Holdings, Inc., 14 this tracking method, without real property recording, was held violative of TEX. LOC. GOV T CODE ANN. 192,007(a), 15 potentially exposing MERS to suit for damages on theories of TEX. CIV. PRAC. & REM. CODE ANN (filing fraudulent lien), fraudulent misrepresentation, unjust enrichment, and conspiracy Contractual Liens for Improvements Against Homestead As a general rule, a contractual lien for improvements, like any other contractual lien, need not be recorded to be effective between the immediate parties to the transaction. a. Residential Homesteads However, this rule is complicated by special constitutional and statutory protections accorded to residential homesteads. There is a dispute among the authorities whether recordation is a requirement to make a contractual lien for improvements to a residential homestead effective between the immediate parties. TEX. PROP. CODE ANN requires, as a precondition to establishing an involuntary mechanic s lien by operation of law on a residential homestead, that a written contract for improvements be filed with the county clerk of the county in which the homestead is located. 17 This condition (for an involuntary lien) is not specifically adopted by reference for application to contractual liens for improvements by TEX. PROP. CODE ANN (b)(3). 18 Some authorities have concluded that the filing requirements of TEX. PROP. CODE ANN are inapplicable to a contract lien. 19 But other cases have applied the recording requirement to a contract lien. For example in In re Sorrell, 20 a mechanic s lien contract was ineffective when no evidence was presented that the contract had been filed and recorded in the county where the homestead was located. 21 Sorrell also concluded that in order for a contractual lien against a residential homestead to be valid, the contract must be recorded before the commencement of work on the improvements. 22 This reasoning is dubious. There is no express constitutional or statutory requirement to this effect Extensions of Liens TEX. CIV. PRAC. & REM. CODE ANN provides that the parties primarily liable on a debt secured by a real property lien may suspend the limitations period for the lien by written extension agreement filed of record. 24 This provision has been construed as a recording statute made for the benefit of subsequent purchasers or encumbrances. 25 Recordation of such a renewal and extension is not necessary to the effectiveness of the renewal between the immediate parties thereto. 26

10 4. Involuntary Mechanic s Liens (Constitutional) TEX. CONST. art. XVI 37 creates a lien for mechanics, artisans, or materialmen upon buildings or articles made or repaired by them. 27 This constitutional lien is said to be self executing and requires no recordation to make the constitutional lien valid between the owner and the contractor. 28 Generally, the provision of notice to third parties is the only purpose for recording a constitutional mechanic s lien. 29 a. Residential Homesteads An exception to this general rule applies when perfecting an involuntary mechanic s lien (constitutional) against a residential homestead. TEX. PROP. CODE ANN requires, as a condition to fixing an involuntary mechanic s lien against a residential homestead, 30 that the owner and the person providing the labor or materials enter into a written contract setting forth the terms of the agreement. 31 That written contract must be filed with the county clerk of the county in which the homestead is located. 32 There is no requirement that the written contract create or attempt to create a contractual lien. While the underlying written contract for improvements is a prerequisite to fixing an involuntary mechanic s lien, it is not the source of that lien. 33 Rather, the constitutional lien arises from the performance of the work and the satisfaction of all applicable constitutional and statutory requirements for the perfection of the lien. With an involuntary mechanic s lien (constitutional), the only filing requirement is that pertaining to the written contract between the owner and the original contractor. There is no requirement that contractor file a mechanic s lien affidavit to make the lien enforceable between the contractor and the owner Involuntary Mechanic s Liens (Statutory) An involuntary mechanic s lien (statutory) cannot be perfected or enforced, even between a contractor (or subcontractor) and the owner, unless a mechanic s lien affidavit meeting all statutory formalities is filed within the required deadlines. 35 a. Residential Homesteads In addition to the required lien affidavit, an involuntary mechanic s lien (statutory) against a residential homestead must be supported by a written contract for the improvements setting forth the terms of the agreement and filed with the county clerk in the county in which the homestead is located. 36 The filed contract must contain all of the formalities set out in TEX. CONST. art. XVI 50(a)(5) and TEX. PROP. CODE ANN Bankruptcy Debtor-in-Possession A bankruptcy debtor-in-possession is a separate juristic person than the pre-petition debtor. A bankruptcy debtor in possession has the same innocent purchaser status as a bankruptcy trustee. 38 As a result, a lien must be recorded to be effective against a bankruptcy debtor in possession, although an unrecorded lien would have been effective against the same debtor outside of the bankruptcy context. 39 In In re Earnest and Associates, Inc., 40 an unfiled constitutional mechanic s lien, though perfected against the pre-petition debtor, was precluded by the innocent purchaser status of the debtor-in-possession after the bankruptcy was filed. 41 This rule was applicable even though the debtor had actual notice of the lien claim and even though that actual notice, under general Recording Statute doctrine, would have rendered recordation unnecessary against the pre-petition debtor Release of Tax Lien. A release of a tax lien must be recorded in each county in which any part of the property is located Transfers of Tax Lien. A transfer of a tax lien by a taxing authority must be recorded in the county where the property is located in order to be enforceable by the transferee. 44 The failure to record any such transfer may render a subsequent foreclosure sale voidable. 45 C. The Common Law Rule Regarding Priority of Conveyances The common law rule regarding the priority of conveyances is prior tempore potior jure - the first instrument executed (the senior conveyance ) will prevail over any later executed and conflicting instrument (the junior conveyance ). 46 Under the common law rule, the junior interest takes the property subject to the senior title. 47 D. General Thrust and Intent of Recording Statute However, seniority does not always establish superiority. 48 One such instance is when the Recording Statute is implicated. The Recording Statute is essentially an affirmative defense 49 which, if satisfied, partially abrogates the common law rule for the priority of instruments and allows a junior conveyance to prevail over a conflicting senior conveyance. 50 Recording statutes began in early Colonial America and have been present in Texas long before statehood. 51 The Recording Statute is a specialized form of statutory estoppel which precludes the assertion of a senior title to the detriment of a junior title when the holder of the senior title has, willfully or negligently, failed to place same of record in a manner as would allow persons who deal with the property to be aware of the existence of the senior claim. 52 Registration is intended to provide a comprehensive, convenient, and effective method of exhibiting publicly the {12855.ADVRE DOC} 2

11 condition of land titles. 53 The law favors recorded instruments to preserve the stability and certainty of real property titles. 54 Public policy requires that matters affecting title of real property be placed upon the public records so that potential purchasers and mortgagees may safely judge the status of the title. 55 The Recording Statute is intended to expose the chain of title to inspection by examination of real property records 56 and by this means protect innocent junior purchasers and lenders from injury or prejudice from secret titles and the subsequent fraud attendant to such titles. 57 The law exacts from a buyer a duty to place his title of record to entitle him to the full advantage of his purchase, 58 and failing to do so, the senior title must yield to a junior interest that the senior owner has assisted to mislead 59 by concealing the evidence of his ownership. 60 This rule fosters the security of land titles by allowing persons to rely on the apparent status of title as it may appear from the real property registry of the county where the land is located. 61 A good faith purchaser should not lose title to real estate when he has exercised diligence to verify the seller s ownership. 62 As against an innocent purchaser apparent title becomes title in fact. 63 An additional purpose of the Recording Statute is to protect senior titles from subsequent purchasers by disclosing them of record. 64 The Recording Statute is a means by which a buyer may fix and secure his title against the world. 65 While application of the recording statute can be harsh doing great injury to buyers whose good faith cannot be questioned, sympathy cannot be extended to a purchaser who was plainly notified of the opposing claim by a proper record. 66 It may be said that such a buyer deservedly sustains any loss that results. 67 E. The Elements of the General Recording Statute The general recording statute is found at TEX. PROP. CODE ANN. ' (a). The Recording Statute provides: (1) A conveyance of real property or an interest in real property or a mortgage or deed of trust (2) is void (3) as to a [lien] creditor (4) or to a subsequent purchaser for valuable consideration (5) without notice (6) unless the instrument has been acknowledged, sworn to, or proved (7) and filed of record as required by law. 68 F. Special Recording Statute for Court Orders and Judgments Affecting Title to Land TEX. PROP. CODE ANN (a) supplements the general recording statute by providing that a court order partitioning or allowing recovery of title to land must be recorded with the county clerk of the county in which the land is located in order to be admitted into evidence to support a claim of right claimed under the order. 69 This statute has been construed to be a recording statute not a rule of evidence. 70 {12855.ADVRE DOC} 3 In Prewitt v. United States, 71 a divorce decree awarded to former wife certain real property of the marriage. 72 An IRS tax lien filed against the husband after entry of the decree but prior to its recordation was superior to the wife s unrecorded interest in the property. 73 G. Special Recording Statute for Extensions of Liens TEX. CIV. PRAC. & REM. CODE ANN supplement the general recording statute by providing that the 4 year statute of limitations applicable to the judicial or non-judicial foreclosures of real property liens is not suspended against an innocent purchaser or encumbrancer who acquires an interest in the property after the foreclosure is apparently barred by limitations except by written extension duly recorded in the county where the property is located. 74 Otherwise, the extension is void as to a subsequent innocent purchaser for value. 75 These provisions have been construed in part as a recording statute. 76 H. Special Recording Statute for Lis Pendens TEX. PROP. CODE ANN supplement the general recording statute by providing that subsequent buyers or encumbrancers may be constructively notified of pending litigation affecting title to real property by recording a notice of lis pendens in the real property records of the county where the property is located. 77 I. Special Recording Statute for Destroyed or Lost Public Records TEX. CIV. PRAC. & REM. CODE ANN. '' supplement the general recording statute by providing special rules for re-recording instruments when public records are lost or destroyed. Adherence to these special rules continues in effect the constructive notice afforded by the destroyed or lost record. 78 J. Special Recording Statute for Purchaser at Execution Sale TEX. CIV. PRAC. & REM. CODE ANN supplements the general recording statute by providing that a purchaser at an execution sale will be considered an innocent purchaser without notice the same as if the sale had been one voluntarily and in person by the judgment debtor. 79 K. Special Recording Statute for Involuntary Mechanics Liens TEX. PROP. CODE ANN. Chapter 53, Subchapter C sets out the contents and filing deadlines for involuntary mechanic s liens (statutory). These requirements are generally accepted to be prerequisites to the creation and perfection of such a statutory lien rather than a recording statute for the benefit of subsequent purchasers or encumbrances. However, some authorities suggest that the subchapter has an additional role. With respect to an involuntary mechanic s lien (constitutional), the filing

12 requirements are in the nature of a recording statute. 80 These authorities suggest that the statutory filing requirements and deadlines must be complied with in order for there to be constructive notice of the constitutional lien to subsequent purchasers. 81 L. Special Recording Statute for Partitions of Marital Real Property TEX. FAM. CODE ANN (b) supplements the general recording statute by providing that a partition and exchange agreement between spouses of marital real property is constructive notice to a good faith purchaser for value or creditor without notice if the instrument is acknowledged and recorded in the county in which the real property is located. 82 M. History of the General Recording Statute The recording statute has provided a means for notice of ownership in Texas land since the early proceedings of the Republic of Texas (1840). 83 Prior to the recording statute, our present system of registration was unknown to common law. 84 At the time of the adoption of Recording Statute there existed the related common law Innocent Purchaser Doctrine. The Recording Statute supplements but does not replace the Innocent Purchaser Doctrine. The common law Innocent Purchaser Doctrine still has present vitality in many transactions which fall outside the express statutory terms of the Recording Statute. N. Construction of the General Recording Statute Because it is in derogation of common law and equitable principles, the Recording Statute is strictly construed. 85 Nevertheless, the law favors the Recording Statute. 86 For cases coming within the statute, the innocent purchaser is a peculiar favorite of the law whose rights are jealously guarded. 87 The defense of innocent purchaser is a strong one vigorously enforced. The equities underlying the defense are said to be among the most favorable that exist at law, 88 and the innocent purchaser defense an impregnable legal fortress, a juristic Gibraltar resting on the strongest considerations of public policy No Equitable Estoppel Exception to the Recording Statute. The Recording Statute defines the elements of innocent purchaser status for all cases coming within its operation. 90 The courts may not disregard or rewrite it even when they believe a straight application would be inequitable. 91 There is not an equitable estoppel exception to the Recording Statute. 92 O. The Innocent Purchaser Doctrine An innocent purchaser who is not protected from a senior conveyance by the Recording Statute, may nevertheless claim the protection of equity by invoking the Innocent Purchaser Doctrine. 93 This equitable rule is an affirmative defense 94 which operates independently of the Recording Statute. 95 The Innocent Purchaser Doctrine provides that: (1) a good faith purchaser of apparent legal title to real property (2) who pays valuable consideration therefore (3) without notice (actual or constructive) of a competing equitable interest (4) will be protected against others who may have equitable title in the property purchased. 96 Like the Recording Statute, the basis of the Innocent Purchaser Doctrine is estoppel. 97 When an owner has omitted or done something by which it is possible that his property has come into the hands of an innocent purchaser by an apparently valid title, it is deemed just to estop him from asserting his ownership and, by this means, protect an innocent purchaser. 98 Equity will in such cases visit the loss upon the party who was negligent in allowing his title to be obscured or unknown and provide relief to the innocent party charging his position to his detriment in reliance on the record. 99 P. Construction of the Innocent Purchaser Doctrine The Innocent Purchaser Doctrine, as an equitable doctrine, has no hard and fast rule of narrow application. 100 The rule is equitably and liberally applied. 101 II. CONVEYANCES SUBJECT TO RECORDING STATUTE A. Conveyance Required In order to invoke the Recording Statute against a senior title, the senior title must have arisen by virtue of a conveyance required or permitted to be recorded. 102 Without conveyance, the Recording Statute is not implicated. 103 A conveyance is construed to mean any writing that affects title to land. 104 It will pertain to any character of assignable interest in real property. 105 Personal property interests are not effected by the Recording Statute. 106 The recordation of an instrument not authorized or required to be recorded is a nullity and imparts no constructive notice. 107 In Smalley v. Octagon Oil Co., 108 the senior claimant s recordation of an ex parte affidavit claiming an interest in certain oil and gas leases was not an instrument authorized to be recorded therefore it imparted no constructive notice. 109 However, in Turrentine v. Lasane, 110 or affidavit of heirship was an instrument affecting title to land and properly recordable. 111 B. Liens Contractual liens on real property are subject to the Recording Statute. 112 Mortgages, vendor s liens, and deeds {12855.ADVRE DOC} 4

13 of trust are subject to registration. 113 Contractual liens for improvements must also be registered. 114 Instruments creating, releasing, transferring, subordinating, 115 or assigning a contractual lien must likewise be recorded to be effective against a junior interest. 116 The effect is that innocent mortgagees and contractual lien holders have the same protection under the Recording Statute as innocent purchasers. 117 As a corollary to this rule, a release of lien by its record owner will protect an innocent purchaser against the later assertion of that lien against the purchaser or his successors. 118 In Allen v. Hall, 119 Hall purchased vendor s lien notes in good faith without actual notice of any defense to them. 120 However, prior to Hall s purchase of the notes, a release of the liens had been duly recorded. 121 The release was a recordable instrument which charged Hall with constructive notice that the liens were released. 122 Hall did not acquire good title to the liens. 123 There is a difference among the authorities regarding whether the assignment of a negotiable note secured by a lien must be recorded. Grand Court of Order of Calanthe of Texas v. Ebeling 124 concluded that when a recorded deed of trust recited that it secured a series of negotiable bearer notes, that the transfer of these notes did not require a written recorded transfer to put a buyer on a duty of inquiry to determine the identity of the current holder of the bearer notes before acquiring an interest in the property. 125 However, the better authority is that negotiable notes and the liens that secure them are severable. 126 While the negotiable notes themselves are personal property and may be transferred by unrecorded assignment, 127 the negotiable quality of the note does not govern the lien securing it. 128 The law of notice (as embodied in the Recording Statute and the Innocent Purchaser Doctrine) controls in determining the rights of competing parties to the lien. 129 The owner of a negotiable note secured by a lien on real estate must record his interest in the lien to protect himself against an innocent purchaser. 130 C. Involuntary Mechanic s Liens Involuntary mechanic s liens, both statutory and constitutional 131 are not strictly conveyances but are subject to being precluded by a junior interest under the Innocent Purchaser Doctrine. An involuntary mechanic s lien may be protected from an innocent purchaser or encumbrancer by filing a lien affidavit under TEX. PROP. CODE ANN D. Life Estates A conveyance of a life estate is a conveyance within the ambit of the Recording Statute. 133 E. Timber Deeds Timber deeds conveying an interest in standing timber convey and interest in land subject to the Registration Statute. 134 {12855.ADVRE DOC} 5 F. Leases Real property leases and the assignment of same are subject to the Recording Statute. 135 G. Mineral Interests Mineral interests are interests in land are subject to the Recording Statute. 136 H. Restrictive Covenants Instruments creating restrictive covenants on real property are instruments affecting title to land and are subject to the Recording Statute. 137 I. Easements Express easements are conveyances of land which are subject to the Recording Statute Easements by Estoppel An easement by estoppel arising by operation of law, may not be imposed against a subsequent innocent purchaser for value buying without notice of the easement Easements Implied by Prior Use Likewise, an easement implied by prior use may not be enforced against a subsequent innocent purchaser for value buying without notice of the easement. 140 J. Wills and Estates 1. Unrecorded Deed By Decedent A purchaser from an estate or from the heirs of a decedent may claim the protection of an innocent purchaser. 141 Such a purchaser from an estate will be protected against an unrecorded inter vivos deed by the deceased. 142 This rule applies even if the purchaser is also an heir of the decedent buying out the interests of other heirs. 143 K. Deeds by Minors There is no exclusion in the Recording Statute exempting deeds by or on behalf of minors from the operation of the Recording Statute. 144 L. Written Express Trusts The authorities are not in accord whether the Recording Statute applies to an interest in land created by written but unrecorded express trust. In Johnson v. Darr, 145 property was deeded to F.B. Jones by the Woodmen of the World (WOW) for a nominal consideration. 146 Contemporaneously with the deed, Jones executed an unrecorded agreement to hold the property in trust for WOW and to reconvey it as directed. 147 Held that this

14 contemporaneous agreement was not a conveyance requiring registration under the Recording Statute. 148 However, see an opposite result involving a similar unrecorded agreement to reconvey in Stephens v. Keating. 149 Martin v. Cummer Mfg. Co. 150, determined that a written declaration of trust was not an instrument authorized or required to be registered. 151 As a result, its recordation did not give constructive notice of its contents. 152 M. Equitable Interests Are Not Subject to Recording Statute The Recording Statute is not applicable to an equitable interest in real property acquired independent of legal title. 153 That is because equitable title arises by operation of law and exists independent of the execution of a deed such that a deed is not essential to the effectiveness of the conveyance of equitable title. 154 It is reasoned that the owner of such an equitable interest does not have the opportunity nor is he required to spread his title on the record to the same extent as one owning some species of legal title. 155 As a result, the Recording Statute is unavailable to the owner of a junior interest seeking to prime a more senior equitable interest. Examples of equitable interests in real property which are not subject to the Recording Statute include: Resulting Trusts The person who furnishes the consideration for the purchase of property may be deemed by equity to be its true owner notwithstanding that ostensive legal title is held by another. 157 By the equitable remedy of a resulting trust, the owner of a beneficial interest in land may require its conversion into legal title. 158 Until that equitable title is so converted, it will not be lost to a junior interest by operation of the Recording Statute. 159 For example in Estelle v. Hart, 160 L.C. Estelle bought property in his name with the separate property funds of his wife, Fanny Estelle. 161 Hart obtained a judgment against L.C. Estelle and attempted to foreclose a judgment lien against the property. 162 The foreclosure was denied because beneficial title to the property was reposed in the separate estate of Fanny Estelle under a resulting trust theory. 163 Fanny s heirs were not precluded by the Recording Statute from raising their equitable title in defense of the judgment lien. 164 A different rule applies if the resulting trust is settled by a conveyance placing legal title in the trust beneficiary. 165 Once the legal and equitable titles are united in one person the Recording Statute takes effect immediately. 166 In Calvert v. Roche, 167 P.R. Trial bought property with funds belonging to Roche creating a resulting trust in favor of Roche. 168 The trust was later settled by unrecorded deed out of Trial and into Roche. 169 When Trial s judgment creditors attached a judgment lien to the {12855.ADVRE DOC} 6 property, Roche was not exempt from the Recording Statute. 170 The resulting trust ended with the deed in settlement thereof. That deed was required to be recorded the same as any other conveyance of legal title Constructive Trusts The equitable remedy of constructive trust rests on unjust enrichment. The remedy can be used to right a wrong when the person holding legal title to property is under an equitable duty to convey it to another. If property is acquired in an unconscientious manner, equity will not allow the legal owner to retain what rightfully should belong to another. 172 As a shambling creature of equity, this remedy exists on a fenceless field with hazy boundaries. 173 There are many different factual situations which may support the imposition of such a trust. 174 The basic function of the remedy is wrest legal title to property away from a wrongdoer and vest it in the wronged party through the legal fiction of a trust. So long as the interest of the beneficiary of such a trust remains equitable, it is not subject to the Recording Statute Parol Trusts A beneficial interest owned under a parol or unrecorded express trust is not subject to the recording statute. 176 In Henderson v. Rushing, 177 P. Henderson agreed to buy land for H. Henderson taking the property in the name of P. Henderson. 178 When P. Henderson s judgment creditor levied execution against the property, the lien creditor was not an innocent purchaser as to the equitable interest of M. Henderson in the land arising under the parol express trust between the Hendersons Executory Contracts of Conveyance An executory contract for the conveyance of real property places in the buyer superior equitable title to property and leaves the seller as the holder of naked legal title. 180 It has generally been determined that the Recording Statute has no application to the buyer s equitable title obtained under a Contract for Deed. 181 Such a sale is not considered a bargain, sale, or conveyance which passes an interest in real property. 182 The Property Code requires the seller to record an executory contract to convey real property used or to be used as a residence by either the purchaser or a close family member of the purchaser. 183 Has this statutory development now placed residential contracts for deed within the coverage of the Recording Statute? This question is not yet answered. In Smith v. Sumcer Homes, Inc., 184 Shaddock contracted to purchase property from Landstar, paid the purchase price at closing, and otherwise fully performed. 185 However, through oversight, no deed from Landstar to Shaddock was executed or recorded. 186 As the result of this transaction, equitable title passed to Shaddock which could not be precluded by the Recording Statute. 187

15 5. Equitable Right of Reformation A conveyance which by fraud, accident, or mutual mistake fails to reflect the true intentions of the parties may be reformed in equity to correct its terms. While reformation is an equitable remedy, equitable title sufficient to be exempt from the Recording Statute refers to a present right to legal title which is available in a statutory action of trespass to try title. 188 This type of equitable title is distinguished from a mere equitable right to reform a deed not absolutely void. 189 Authorities have determined that reformation, as a right or title arising in equity, is subject to being precluded by the Recording Statute. 190 Henderson v. Odessa Bldg & Loan Ass n, 191 determined that an equitable right of a prior buyer to reform a mistaken deed to read lot 2, block 102" instead of lot 2, block 103" was inferior to a judgment lien abstracted by the vendor s judgment creditor against the lot intended to be conveyed when the lien creditor had no notice of the mistake at the time that the lien was abstracted Parol Partitions Parol partitions of property made by mutual agreement of co tenants create an equity in favor each to enforce the agreed upon division. This equity collides with the Recording Statute when an interest intervenes between the parol partition and its enforcement. It is generally accepted that the equitable right created by a parol partition is not within the operation of the Recording Statute. 193 In Allday v. Whittaker, 194 Frank and Cobb owned as cotenants 50 acres bisected by a railroad right-of-way. 195 Frank and Cobb orally agreed to a partition with Frank taking all of the property west of the railroad and Cobb taking all to the east. 196 Held a purchaser deraigning title through an intervening lien creditor of Frank could not disrupt the title of Cobb in the easterly tract by use of the Recording Statute Equitable Liens When a third party advances purchase money to a buyer upon an oral promise that the buyer will execute a mortgage and give a lien as security, an equitable lien arises in favor of the lender. 198 Likewise, an equitable vendor=s lien arises in favor of the seller to secure any deferred purchase consideration without any special agreement to that effect. 199 Such an equitable lien is not subject to the Recording Statute. 200 In IRS v. Fagin, 201 Fagin borrowed money from his parents for a down payment on his house promising them a deed of trust lien on the house in return. 202 This promise gave rise to an equitable lien in favor of the parents which was superior to a later filed federal tax lien Equitable Subrogation Under certain conditions, when one party pays the mortgage lien debt of another, the payor is equitably subrogated to the rights of the lien holder although no assignment of the lien is recorded. 204 This equitable right is not capable of registration and falls outside the coverage of the Recording Statute. 205 In Rusk v. Parmer, 206 a wife paid off a community mortgage with her separate property funds to become subrogated to the lien of the original mortgagee. 207 When a judicial lien later attached to the property, the Recording Statute did not preclude her from asserting her prior equitable subrogation lien rights. 208 N. Equitable Interests Are Subject to the Innocent Purchaser Doctrine While a senior equitable title cannot be defeated by use of the Recording Statute, the Innocent Purchaser Doctrine can be used to supercede a preexisting equitable title. 209 This is the context where the Doctrine is most often employed. In such a contest between two competing equities, the Innocent Purchaser Doctrine is said to be a perfect defense in equity to a senior equitable estate. 210 Examples of equitable title which can be subjected to the Innocent Purchaser Doctrine include: 1. Resulting Trusts Although a resulting trust is not subject to registration, it is not proof against an innocent purchaser for value without notice of the preexisting yet unexpressed equitable interest. 211 In Hawley v. Geer, 212 Hobdy purchased a lot in his name using funds belonging to Freeman. 213 Hobdy never claimed or controlled the land. 214 Freeman occupied and improved the property. 215 Under these facts a trust resulted in favor of Freeman although he had no record title to the lot. 216 Geer, a remote vendee of Hobdy claimed title to the lot under the Innocent Purchaser Doctrine. 217 While the doctrine was available to estop the assertion of title deraigning from a resulting trust, Geer failed to demonstrate that she was an innocent purchaser without notice Constructive Trusts An innocent purchaser for value is not affected by a deed in his chain of title which, though regular on its face, was procured by fraud or other deception. 219 If one defrauded or otherwise wronged asserts the equitable remedy of constructive trust to recover legal title, a bona fide purchaser for value will prevail over such a preexisting equitable interest. 220 In Blair v. Hennessey, 221 Blair acquired legal title to 1,175 acres in Leon County. 222 Unknown to Blair an instrument in his title was derived by fraud. 223 The successor of the defrauded party sought to impose a constructive trust to recover legal title to the property. 224 Blair defended under the Innocent Purchaser Doctrine claiming that he acquired his interest in the property for value without knowledge of the fraud. 225 While a bona fide purchaser for value can prevail over a {12855.ADVRE DOC} 7