What is a deed?
A deed is a written instrument that conveys legal and equitable title to real property—the legal term is a “fee simple” interest, meaning the highest level of ownership. “An absolute or ‘fee simple’ estate is one entitling the owner to the benefits of that estate during his life and descending to his heirs, devisees, and legal representatives on his death. One can own a fee simple estate in both legal and equitable property interests.” Jackson v. Wildflower Prod. Co., 505 S.W.3d 80, 88 (Tex.App.—Amarillo 2016, pet. denied).
It is difficult to imagine a more important document to the real estate investor, and yet its preparation is often left to a title company attorney who represents neither buyer nor seller and has no incentive to produce anything other than a basic boilerplate form. This is true even though Property Code Section 5.022(b) expressly states that “the parties to a conveyance may insert any clause . . . not in contravention of law.”
Title company deeds generally lack clauses that add additional protection for the grantor or grantee since it not the job of the title company or its attorney to protect the interests of either party beyond a simple conveyance with general or special warranties. Problem is, inclusion of additional custom clauses may be both useful and necessary in order to accomplish the terms of the deal. An obvious example would be inclusion of an “as is” clause to protect the seller from post-closing lawsuits.
Note that if a deed includes custom clauses and is executed by both parties (not just by the grantor as in the usual case), then it becomes a contract as well as a conveyance. This can have significant value if the transaction involves special provisions upon which the parties are relying.
A deed is to be distinguished from a promissory note (or real estate lien note) which is a promise to pay a sum of money, and from a deed of trust, which provides the lender with remedies (including foreclosure) if a borrower defaults on the note. A warranty deed, note, and deed of trust are the three principal documents in most Texas residential real estate transactions.
This chapter briefly describes different types of deeds commonly used in connection with real estate transactions in Texas. It is deliberately organized in pragmatic fashion and is not intended as a comprehensive academic review of the topic.
There is no standard form for a deed although Property Code Section 5.022(a) offers a simple form that may be used for conveyances. Texas does have certain rules that apply if a deed is to be valid. For instance, the parties should be named, the intent to convey property must be clear from the wording, the property must be sufficiently described, and the deed must be signed by the grantor and delivered to the grantee. Gordon v. W. Hous. Trees, Ltd., 352 S.W.3d 32 (Tex. App.—Houston [1st Dist.] 2011, no pet.). Having said this, it is not true that all deeds are created equal. In particular, when a grantor intends to accomplish a specific objective and limit liability in doing so, the wording of a deed can be critically important.
“For a deed or instrument to effect conveyance of real property, it is not necessary to have all the formal parts of a deed formerly recognized at common law or to contain technical words. If, from the whole instrument, a grantor and grantee can be ascertained, and if there are operative words of grant showing an intention of the grantor to convey title to a real property interest to the grantee, and if the instrument is signed and acknowledged by the grantor, it is a deed which is legally effective as a conveyance.” Harlan v. Vetter, 732 S.W.2d 390 (Tex.App.—Eastland 1987, writ ref’d n.r.e.). If there is a signed written document that identifies a grantor and grantee, provides a reasonably accurate description of the property, and clearly contains the intention to convey, then that document is a “deed” under Texas law. Green v. Cannon, 33 S.W.3d 855,858 (Tex.App.—Houston [14th Dist.] 2000, pet. denied).
In the event of ambiguity or controversy, the goal of a court in interpreting a deed is “ascertaining and effectuating the parties’ intent . . . by conducting a careful and detailed examination of the deed in its entirety.” Wenske v. Ealy. 521 S.W.3d 791, 792 (Tex. 2017).
A deed conveys fee simple title “unless the estate is limited by express words or unless a lesser estate is conveyed or devised by construction or operation of law.” Prop. Code Sec. 5.001.
A deed can only convey what the grantor owns and no more. This is true even if the deed “purports to transfer a greater right or estate in the property.” Prop. Code Sec. 5.003.
“In Texas, deeds are construed to confer upon the grantee the greatest estate that the terms of the instrument will allow. A deed will pass whatever interest the grantor has in the land, unless it contains language showing the intention to grant a lesser estate.” Parker v. Jordan, 632 S.W.3d 108 (Tex.App. —El Paso 2021, pet. granted).
The Texas rule is that a property description in a deed is sufficient if it identifies the property with reasonable accuracy. Morrow v. Shotwell, 477 S.W.2d 538 (Tex. 1972). Having said that, no investor should be satisfied unless the legal description is precisely correct and corresponds to previous descriptions in the chain of title. In some cases lengthy metes and bounds are used to describe the property rather than the usual “lot and block” descriptions commonly found in residential subdivisions. If a legal description is outdated, or if there is any doubt as to its present accuracy (e.g., it refers to an “old oak tree for corner” or a “stream for boundary”), then a new survey would be a good investment.
If the deed for some reason refers to more than one description of the property, and there is a conflict, then the more specific metes-and-bounds description controls. Stribling v. Millican DPC Partners, LP, 458 S.W.3d 17 (Tex. 2015).
It is not required that the street address of the property be included in the deed, but it is certainly the better practice to include it. As a practical matter, this makes it easier for investors with multiple properties to determine which deed goes with which property.
A caveat concerning legal descriptions obtained from an appraisal district: these are typically abbreviated and condensed and may not be the official legal description of the property as shown in the county clerk’s real property records. Two different computer systems are involved. The legal description in a new deed should track the description (lot and block or metes and bounds) in the prior deed on file with the county clerk—corrected, if necessary—in order to preserve proper chain of title.
Absent an express reservation to the contrary, legal descriptions in Texas deeds are presumed to also include and convey omitted narrow strips of land that should logically be included in the conveyance, given the nature of the property, and which would otherwise have little utility to the grantor. This is the “strips-and-gores” doctrine. Strait v. Savannah Court Partnership, 576 S.W. 3d 802 (Tex.App.—Fort Worth 2019, pet. denied). Another presumption is the centerline presumption, which states that a landowner is presumed to have ownership of the soil all the way to the centerline of an adjoining street (subject to the public’s right of passage), even if the legal description in the landowner’s deed does not specifically extend that far. As with the strips-and-gores doctrine, this presumption is rebuttable by evidence that the parties clearly intended a different outcome. Id.
Signing, Dating, and Delivering the Deed
“A conveyance of an interest in real property must: (1) be in writing, (2) be signed by the grantor, and (3) be delivered to the grantee. Tex. Prop. Code Sec. 5.021.
A deed need not be dated in order to be effective, although it is clearly a better practice to do so. If the deed lacks a date or recites an impossible date, then it will take effect as of the date of delivery. Webb v. Huff, 61 Tex. 677 (1884).
“Conveyance by requires delivery of the deed. . . . Manual delivery of the deed is not, however, required. The test is not physical possession, but whether the grantor gave grantee control of the deed.” This may be accomplished by means of delivery through a third person. Wheatley v. Farley, 610 S.W.3d 511 (Tex.App.—El Paso 2020, no pet.).
Delivery and the Presumption of Acceptance
A deed must be delivered (actually or constructively) in order to be effective (Prop. Code Sec. 5.021). A showing that a deed was executed and delivered with an intent to convey the property is sufficient to establish that the deed vested title in the grantee. Stephens County Museum, Inc. v. Swenson, 17 S.W.2d 257, 261-62 (Tex. 1975).
Proof that a deed was recorded creates a presumption of and establishes a prima facie case of delivery and intent by the grantor to convey the land. Troxel v. Bishop, 201 S.W.3d 290, 297 (Tex.App.—Dallas 2006, no pet.). Both cases are cited with approval in Watson v. Tipton, 274 S.W.3d 791 (Tex.App.—Fort Worth 2008, pet. denied).
When a grantor transfers property, title to the property vests in the grantee upon execution and delivery of the deed. The grantee’s acceptance is not usually indicated anywhere on the document. Acceptance (express or implied) is generally presumed.
“[A] deed which is not accepted by the grantee does not convey any interest in the land.” Martin v. Uvalde Sav. and Loan Ass’n, 773 S.W.2d 808 (Tex.App. 1989).
Must deeds show the actual purchase price?
No. In fact, in Texas, it is customary to recite that the consideration paid is “ten dollars and other valuable consideration.” Confidentiality is the reason. While recording gives the public notice that a transaction has occurred, and therefore preserves the integrity of the chain of title, it is Texas tradition that it is not the public’s business what the purchase price was. Of course, the parties can always choose to show the actual price if they wish.
Must deeds be recorded to be valid?
An original deed may be recorded in the real property records if it is signed and acknowledged by the grantor. However, there is no requirement that a deed be recorded in order to be valid—only that it be executed and delivered to the grantee (this may be done privately), at which time the transfer is fully effective between the grantor (seller) and the grantee (buyer). As between a grantor and grantee, deeds are valid even if the signature of the grantor is not acknowledged before a notary. Haile v. Holtzclaw, 414 S.W.2d 916, 928 (Tex. 1967).
“In Texas, it is settled that title to real property will vest upon execution and delivery of the deed. . . . The recording of the deed is not necessary to pass title. . . . The recording, however, establishes a prima facie case of delivery and the accompanying presumption that the grantor intended to convey the land according to the terms of the deed. . . . Although equitable title to real property passes at the time a deed is delivered, a delay in recording of the deed leaves open the possibility that the prior owner could illegally purport to convey the same property to a different purchaser. . . . This possibility arises because the prior owner still appears to be the current, legal owner when the subsequent purchaser searches the public record. . . . In such a case, of course, both purchasers would claim title to the property. . . . Texas law settles such a dispute over competing deeds in favor of the first to record, even where the first to record is a subsequent purchaser, as long as such deed holder qualifies as a subsequent purchaser for value pursuant to Section 13.001(a) of the Property Code. See Tex. Prop. Code Sec. 13.001(a) stating that an unrecorded conveyance in real property is ’void as to a creditor or to a subsequent purchaser for a valuable consideration without notice.’ Even so, with regard to the prior unrecorded deed, section 13.001(b) further provides that the unrecorded instrument remains binding on a party to that instrument, on the party’s heirs, and on a subsequent purchaser who does not pay a valuable consideration or who has notice of the instrument.” Thompson v. Six Shooter Enterprises, LLC, 633 S.W.3d 107 (Tex.App.—El Paso 2021, no pet.).
A deed must be properly acknowledged and notarized if it is to be recorded in the county clerk’s real property records (statutory recording requirements for this are found primarily in Property Code Chapters 12 and 13). Texas is considered a “notice state,” meaning that recording both gives notice to the world of the transfer and establishes priority in the event an unscrupulous seller attempts to convey the property twice. “Recorded instruments in a grantee’s chain of title generally establish an irrebuttable presumption of notice.” Noble Mortg. & Invs. v. D&M Vision Invs., 340 S.W.3d 65, 76 (Tex.App—Houston [1st Dist.] 2011, no pet.).
Recording a deed makes it easier for title companies to research and insure the chain of title. Title companies insist on recording for this reason. Recording also informs the taxing authorities where ad valorem tax bills should be sent.
Executing and delivering a deed without immediately recording it can be a useful, inexpensive estate planning device—sometimes called “the deed in the drawer.” If, for example, a parent wants to insure that property is transferred to a child without probate or other difficulty, then he or she can sign and deliver a deed with the intention that it be held (unrecorded) until death. This is an entirely legal technique that has been used for ages. Note that there is another option in this area—the transfer on death deed (TODD), a recordable instrument, explained below.
Another item relating to the timing of conveyances is the doctrine of “after-acquired title.” If I give you a deed today to property that I do not yet own, it of course has no effect; but if I acquire that same property next week, then the deed I previously gave you comes to life and the property is yours.
Implied Covenants in a Texas Deed
At common law, a deed was accompanied by six implied covenants: (1) the covenant of seisin (the grantor is the owner of the property being sold); (2) the covenant against encumbrances (the land is owned free and clear of liens); (3) the covenant that the grantor has the right to convey the property without joinder of others; (4) the covenant of quiet enjoyment, which represents an assurance by the grantor that the grantee’s title will not be disturbed by third-party claims; (5) the covenant of warranty, obliging the grantor to defend title against challenges by others; and (6) the covenant of further assurances, meaning a promise by the grantor that will take such other and further actions in the future as may be necessary to vest title in the grantee.
The Property Code, without excluding the existence of the implied common-law, recites only two statutory covenants—an attenuated version of the covenant of seisin and the covenant against encumbrances:
Sec. 5.023. Implied Covenants
(a) Unless the conveyance expressly provides otherwise, the use of “grant” or “convey” in a conveyance of an estate of inheritance or fee simple implies only that the grantor and the grantors heirs covenant to the grantee and the grantees heirs or assigns:
(1) that prior to the execution of the conveyance the grantor has not conveyed the estate or any interest in the estate to a person other than the grantee; and
(2) that at the time of the execution of the conveyance the estate is free from encumbrances.
(b) An implied covenant under this section may be the basis for a lawsuit as if it had been expressed in the conveyance.
The common-law covenant of seisin was a representation on the part of the grantor that the grantor was, in fact, the owner of the property. Section 5.023 changes this to mean that the grantor has not previously conveyed the property to someone else, which is not quite the same thing. It is unclear what advantage this more limited covenant may possess, except perhaps to make it slightly easier for a swindler to flim-flam a gullible grantee.
The law of implied covenants has been established in Texas law for quite some time. “[In] the absence of any qualifying expressions, [such implied covenants] are read into every conveyance of land or an interest of land except in quitclaim deeds.” Childress v. Siler, 272 S.W.2d 417, 420 (Tex.Civ.App.—Waco 1954, writ ref’d n.r.e).
The implied covenants in a deed are conceptually and legally separate from warranties of title (i.e., whether a deed offers a general warranty, a special warranty, or no warranties at all). “A warranty clause in a conveyance is not part of the conveyance proper; it neither strengthens, enlarges, nor limits the title conveyed, but is a separate contract on the part of the grantor to pay damages in the event of failure of title. A warranty of title does not warrant the title of grantor but instead warrants the title of the grantee.” Chicago Title Insurance Company v. Cochran Investments, Inc. 602 S.W.3d 895 (Tex. 2020).
To summarize: even though deeds may legitimately vary in form in Texas, the use of the traditional phrase “grant, sell, and convey” will always include the two statutory covenants contained in Section 5.023 plus the implied common-law covenants—unless these are waived by express language in the deed.
A practice note concerning deeds without warranties (discussed below): a careful drafter will take pains to expressly disclaim the two statutory covenants contained in Section 5.023 in order to assure that the conveyance is entirely devoid of warranties.
One occasionally hears about the implied covenant of habitability and the implied covenant of good and workmanlike construction. Both of these covenants exist in Texas, but apply only in the case of newly-built residences. Centex Homes v. Buecher, 95 S.W.3d 266, 273 (Tex. 2002).
Reservations and Exceptions
Property Code Section 5.001 provides that a deed conveys a fee simple interest in property (i.e., all of the rights to the property, without exceptions or reservations) “unless the estate is limited by express words or unless a lesser estate is conveyed or devised by construction or operation of law.” Modern deed formats usually refer to whether or not there are reservations and exceptions. These should either be expressly mentioned or “none” should be inserted in that space.
Generally, Texas law construes deeds in order to confer upon the grantee the greatest estate that the terms of the instrument will allow. Both reservations and exceptions in deeds must be clear and specific. Courts will not find reservations or exceptions by implication. Rahlek, Ltd. v. Wells, 587 S.W.3d 57 (Tex.App.—Eastland 2019, pet. denied).
A note on terminology: “The primary distinction between a reservation and exception is that a reservation must always be in favor and [held back] for the benefit of the grantor; whereas an exception is a mere exclusion from the grant. . . .” Pich v. Lankford, 302 S.W.2D 645 (Tex. 1957). In other words, a reservation retains a certain interest in the grantor (e.g., minerals, an easement, or a life estate); by contrast, an exception stipulates that a certain interest is simply not conveyed at all, regardless of who may be the owner of it. Such language must be clear; an implied exception or reservation is not good enough. Griswold v. EOG Resources, Inc., 459 S.W.3d 713 (Tex.App.—Fort Worth 2015, no pet.). Reservations and exceptions affect the total package of rights and interests a buyer is getting, so investors should consult an attorney and place close attention to the wording.
Community Property Considerations
Texas is a community property state. It is good practice (but not required) to state the marital status of the parties in the deed since not doing so may raise questions later. For instance, a title company involved in a subsequent transaction may want to resolve potential community property issues by asking that a prior owner in the chain execute a marital status affidavit or take other action to assure that all community property interests are properly tied up and accounted for before title insurance is issued.
It is common in Texas deeds for a party’s name to be followed by one of the following phrases:
an unmarried person;
a married person not joined herein by Grantor’s spouse as the property conveyed forms no part of the residence or business homestead;
a married person not joined herein by Grantor’s spouse as the property conveyed is his or her sole and separate property and forms no part of the residence or business homestead; or
a married person, joined herein pro forma by Grantor’s spouse even though the property herein conveyed forms no part of the residence or business homestead.
Sample choices for the grantee would include “an unmarried person” and “as grantee’s sole and separate property.”
Best practices in this area require that neither the marital status of grantor nor grantee be in doubt when real property is conveyed.
Sale of Property Subject to Existing Indebtedness
Can title to property be transferred if money is owed to a lender? Yes. Title and debt are different and divisible concepts, both practically and legally.
A “subject to” deed refers to acquiring title to property while expressly providing that the buyer assumes no liability for existing debts and liens. It is a common device used by investors in order to buy property, fix it, and then flip it for a profit, all without promising to pay the existing debt or taking any liability for it.
Here is a sample of a “subject to” clause: “This conveyance is made subject to any and all indebtedness of Grantor and liens against the Property, including but not limited to that certain indebtedness and liens securing same evidenced by a note in the original principal amount of $_______, dated _______, executed by Grantor and payable to the order of ____, which note is secured by a vendor’s lien retained in deed of even date recorded at Clerk’s File No. ____ in the Official Public Records of Real Property of _______ County, Texas, and is additionally secured by a deed of trust of even date to ____, Trustee, recorded at Clerk’s File No. ____ in the Official Public Records of Real Property of _______ County, Texas. Grantee does not assume payment of this or any other indebtedness of Grantor.”
Sale of Property “As Is”
A grantor may be willing to sell only on an “as is” basis. In such a case, “as is” refers to the condition of the property rather than the condition of the title. In other words, an “as is” deed may also be a warranty deed. The two are not mutually exclusive. Express and implied warranties of title may be and usually are present; however, there are no warranties made in an “as is” deed as to the state or condition of the land or any improvements upon it.
Does the presence of an “as is” clause negate any duty on the part of the seller to disclose defects? The answer is no. Failing to do so is a deceptive trade practice and may constitute fraud.
Note that a grantor may wish to sell and convey property by means of a deed without warranties, which is the effective equivalent of an “as is” clause in the context of title. If this is the objective of the parties, a deed without warranties is almost always a better choice than a quitclaim (which is not truly a deed at all).
Additional Deed Clauses Reflecting Agreements between the Parties
Some lawyers take the view that a deed should be a pure conveyance, uncluttered by clauses and agreements that do not bear directly upon the transfer of title or warranties made by the grantor. This approach often necessitates preparation of companion documents designed to contain additional deal points that have been agreed to between the parties. In other words, two or more documents are required rather than one. This may have value when the parties’ side agreements are confidential (not to be reflected in the public record), but otherwise it may be simpler and more direct to include such agreements in the deed itself. Both grantor and grantee then sign and acknowledge the deed, making it a contract as well as a conveyance.
An example would be the sale of a rental property from one investor to another. In this scenario it would helpful to include certain assignments in the deed—e.g., assigning the escrow account, any transferrable warranties, and so forth to the grantee. As a practical matter the value of including these assignments is self-evident. If nothing else, it clarifies a number of pesky details that are otherwise unresolved by a basic deed format.
In passing, it is worth noting that Texas adheres to the principle of “estoppel by deed,” meaning that the parties to a deed (grantor and grantee) are generally bound by statements and recitals that are contained within it, even though a deed is traditionally signed only by the grantor. Trial v. Dragon, No. 18.0203 (Tex. June 21, 2019). However, it adds certainty and benefit to fortify this doctrine by actually having both grantor and grantee execute the deed in order to indicate agreement.
General Warranty Deed
The term “warranty deed” refers to a deed that contains both express and implied warranties (There is also a deed without warranties, discussed below.) A general warranty deed is the preferred form of deed for a buyer because it expressly warrants the entire chain of title all the way back to the sovereign, and it binds the grantor to defend against title defects, even if those defects were created prior to the grantor’s period of ownership.
Here is a sample general warranty clause: “Grantor binds Grantor and Grantor’s heirs, executors, administrators, successors and assigns to warrant and forever defend all and singular the Property to Grantee and Grantee’s heirs, executors, administrators, successors, and assigns against every person whomsoever lawfully claiming or to claim the same or any part thereof, except as to the reservations from conveyance and the exceptions to conveyance and warranty.”
General warranty deeds predominate in sales of residential property.
Special Warranty Deed
In a special warranty deed, title is warranted only from the grantor and no further back than that. The grantor’s liability for title defects is therefore limited to his period of ownership up to and including conveyance to the grantee. Example: “Grantor binds Grantor and Grantor’s heirs, executors, administrators, successors and assigns to warrant and forever defend all and singular the Property to Grantee and Grantee’s heirs, executors, administrators, successors, and assigns against every person whomsoever lawfully claiming or to claim the same or any part thereof, when the claim is by, through, or under Grantor, but not otherwise, except as to the reservations from conveyance and the exceptions to conveyance and warranty.”
There is usually no reason not to use a general warranty deed if the property is residential, although executors commonly use special warranty deeds. Commercial properties are typically conveyed by special warranty deed. Deeds into an investor’s LLC may be either with general or special warranty, depending on the circumstances.
Deed Without Warranties
A deed without warranties is a conveyance of real property without warranties of title, express or implied. This is a sample no-warranties conveyance clause: “Grantor, for the consideration and subject to the Reservations from Conveyance and Exceptions to Conveyance and Warranty, grants, sells, and conveys to Grantee the Property, together with all and singular the rights and appurtenances thereto in any way belonging, to have and to hold it to Grantee and Grantee’s heirs, executors, administrators, successors, and assigns forever, without express or implied warranty.” If the drafter wishes to also exclude any warranties pertaining to property condition (certainly in the best interest of the seller), then the following clause may be added: “All covenants and warranties that might arise by common law as well as the statutory implied covenants contained in Section 5.023 of the Texas Property Code are also excluded and disclaimed.”
Why would anyone make or accept a conveyance without warranties? The usual case is when the parties are unsure as to the extent of the grantor’s interest, or if the grantor is willing to enter into the conveyance only on the condition that there is no liability for doing so. A deed without warranties may transfer the entire interest in a certain property, or it may not. The parties assume the risk of this uncertainty, which is presumably reflected in the (lower) price paid. A deed without warranties is therefore considered an inferior form of deed, but it nevertheless is effective in transferring whatever title the grantor possesses. Another way to put it: a deed without warranties may transfer record title but it does not necessarily transfer insurable title or marketable title. Even so, as a means of transfer, it is certainly superior to a quitclaim, discussed next.
Clients often call a lawyer’s office and say they need a quitclaim deed. The lawyer’s response should almost always be “No, you don’t.” Why? For one reason, a quitclaim is not a true deed at all since it is technically not a conveyance. It merely “quits” any “claim” by Grantor to any right, title, and interest that the grantor may have in a certain property, if any such interest exists. In this context, the term “quit” is akin to a “release” of any such claim to the recipient of the quitclaim. There is no “grant, sell, and convey” language as there is in a deed, so nothing is conveyed. Rogers v. Ricane Enterprises, 884 S.W.2d 763, 769 (Tex. 1994). Secondly, from a practical standpoint, title companies disdain quitclaims and will frequently require that a proper deed be obtained instead. One does no favor to the chain of title by inserting a quitclaim into it. If the seller is unwilling to provide a conveyance with warranties (a general or special warranty deed), then a knowledgeable buyer should insist on a deed without warranties instead of a quitclaim.
A quitclaim contains no covenant of seisen or warranty of title. Jackson v. Wildflower Prod. Co., Inc., 505 S.W.3d 80, 90 (Tex.App.—Amarillo 2016, pet. denied). Because of this, the recipient of a quitclaim is considered to be on notice that something about either seisen or title may be awry. Accordingly, the grantee of a quitclaim deed cannot attain the status of bona fide purchaser for value against unrecorded instruments and equities that may exist when the quitclaim was made. Threadgill v. Bickerstaff, 29 S.W. 757 (Tex. 1895). For all of these reasons, a quitclaim is, for the grantee, the least desirable of all conveyances.
Notwithstanding the foregoing, if a quitclaim has been recorded for four or more years, Property Code Section 13.006 allows a subsequent purchaser to attain bona fide purchaser status free of any constructive notice of title defects such as unrecorded conveyances or encumbrances.
Assumption deeds are general or special warranty deeds of the usual type. The difference is that assumption deeds expressly provide, as part of the consideration, that the grantee will assume liability for existing indebtedness and promise to discharge one or more existing liens against the property. The consideration clause in an assumption deed might read as follows:
“Ten dollars ($10.00) and other valuable consideration, the receipt and value of which is hereby acknowledged, including Grantee’s assumption of and promise to pay, according to its terms, all principal and interest remaining unpaid on that certain note (the “Assumed Note”) in the original principal amount of $_____, dated _______, executed by________ and payable to the order of ____ (said payee together with its successors and assigns being referred to herein as “Lender”), subsequently assigned to and now held by ____. The Assumed Note is secured by an express vendor’s lien and superior title retained in deed of even date recorded at Clerk’s File No. ____ in the Official Public Records of Real Property of________ County, Texas, and is additionally secured by a deed of trust of even date (the “Deed of Trust”) in favor of ____, Trustee, recorded at Clerk’s File No. ____ in the Official Public Records of Real Property of ________ County, Texas. As further consideration, Grantee promises to keep and perform all of the covenants and obligations of the Grantor contained in the Assumed Note and the Deed of Trust and to indemnify, defend, and hold Grantor harmless from any loss, attorney’s fees, expenses, or claims attributable to a breach or default of any provision of this assumption by Grantee. Grantee shall commence payments on the Assumed Note on or before the next regular due date under the Assumed Note.”
Title is separate from debt. They are related concepts but different. One can take title to property without becoming liable to pay the underlying debt. Debts secured by liens against the property remain in place even if title is transferred.
Under an assumption deed the grantee declares his assumption obligation to the grantor—but, it should be pointed out, not to the lender, since the grantee has not signed the lender’s note. Similarly, the grantor has not been released from the existing note unless the lender has approved the assumption and expressly released the grantor in writing, which is so rare as to be nearly nonexistent. As a practical matter, expect a release only in response to full payment.
An assumption deed may be accompanied by a deed of trust to secure assumption which enables the grantor to step in and make payments if the buyer fails to do so. The seller may then recover these “advancements” from the buyer. This enables the seller to proactively mitigate loss and preserve good credit. If reimbursement for advancements is not made, foreclosure may follow.
Can assumptions occur without the lender’s consent? Yes, and they often do, in spite of the due-on-sale clause contained in paragraph 18 of the widely-used FNMA deed of trust, which gives the lender the option (but not the obligation) to accelerate the note in such cases.
Deed in a Wraparound Transaction
A wraparound transaction is a form of creative seller financing that leaves the original loan and lien on the property in place when the property is sold. The buyer makes a down payment and signs a new note to the seller (the “wraparound note”) for the balance of the sales price. This wrap note, secured by a new deed of trust (the “wraparound deed of trust”), becomes a junior (subordinate) lien on the property. The buyer makes monthly payments to the seller on the wrap note and the seller in turn makes payments to the original lender. The original lender’s note is referred to as the “wrapped note” and it remains secured by the “wrapped deed of trust.” The buyer receives a warranty deed (general or special) which transfers title to the property into the buyer’s name.
The consideration clause in a wraparound deed reads something like this: “Ten dollars ($10.00) and other valuable consideration, including execution of a note (the “Wraparound Note”) of even date in the principal amount of $____, executed by Grantee, and payable to the order of Grantor. The Wraparound Note is secured by a vendor’s lien retained in this General Warranty Deed and by a Wraparound Deed of Trust of even date from Grantee to ____, Trustee.”
Lots of details need to be addressed, so a separate wraparound agreement often accompanies the warranty deed in a wrap. Unlike the deed, the wraparound agreement is not recorded, so deal points that are confidential can be addressed there.
Trustee’s Deed or Foreclosure Deed
A trustee’s deed is delivered by a lender’s trustee to the successful bidder at a foreclosure sale. The lender often bids the amount of the debt (plus accrued fees and costs) and acquires the property in this way. If the sale generates proceeds in excess of the debt, the trustee must distribute the excess funds to other lienholders in order of seniority and the remaining balance, if any, to the borrower.
Property Code Section 51.009 states that a buyer at a foreclosure sale “acquires the foreclosed property ‘as is’ without any expressed or implied warranties, except as to warranties of title, and at the purchaser’s own risk; and is not a consumer.” It is also certain that the trustee’s deed itself will contain its own extensive disclaimers. Even with these limitations, a foreclosure deed is probably the cleanest title obtainable, though it does not eliminate taxes owed.
Deed Incident to Divorce
A divorce deed is typically a special warranty deed that contains a clause similar to the following: “Consideration for this transaction is the division of property pursuant to a Final Decree of Divorce dated ____ entered in Cause No. ____, IN THE MATTER OF THE MARRIAGE OF _______AND _______, in the ____ District Court of _______ County, Texas.”
The deed may also include an “owelty of partition” that creates a lien in favor of the grantor to secure payment of a certain sum from the other spouse. This is used to equalize the overall division of property.
The parties to a divorce should not rely on the final decree to transfer title to real property. A special warranty deed (often accompanied by a deed of trust to secure assumption if there is debt against the property) should be executed and recorded.
Transfer on Death Deed (TODD)
Texas permits a transfer on death deed (TODD) which is an uncomplicated, non-probate method of transferring title to real estate when the owner dies. The Texas Real Property Transfer on Death Act is found in Estates Code Chapter 114. Section114.051 states that “An individual may transfer the individual’s interest in real property to one or more beneficiaries effective at the transferor’s death by a transfer on death deed. . . .” A transfer on death deed is effective without consideration and without notice or delivery to or acceptance by the designated beneficiary during the life of the grantor (Sec. 114.056). All in all, a TODD is a good basic estate planning device.
The statutory form that was once available for a TODD has been repealed, so lawyers are left to their own devices in the crafting of these conveyances. Clearly, the instrument must comply with the usual legal formalities of a deed and it must be recorded.
A TODD cannot be revoked by a last will and testament but can be revoked by a recorded revocation. In fact, a TODD is revocable (by statute) even if the instrument states otherwise. Also, if the grantor sells the property by means of a recorded transfer subsequent to executing a TODD, then the TODD is automatically revoked: “If a transferor during the transferor’s lifetime conveys to any person all of the transferor’s interest in real property that is the subject of a transfer on death deed, the transfer on death deed is void as to that interest in real property” (Sec.114.102).
Can a living trust be a “person” for purposes of being a beneficiary of a TODD? Yes, since in this context the term person has the meaning assigned by Government Code Section 31.005. In most situations, however, it would make more sense just to convey the property into the living trust contemporaneously, without waiting for the death of the grantor.
TODDs largely replace the former use of “Lady Bird Deeds” which are revocable deeds retaining a life estate. LBDs were designed to avoid recovery against the grantor’s probate estate by Medicaid pursuant to the Texas Medicaid Recovery Program. This issue is clearly addressed by Section 114.106(b) which provides that real property transferred by means of a TODD is not considered to be a part of the grantor’s estate.
For those attempting to do some basic estate planning, it is possible to combine joint ownership (JTWROS) with a TODD, so that (for example) parents now have an inexpensive alternative method to pass real property to a child upon the death of the last parent.
Deed in Lieu of Foreclosure (DIL)
A deed in lieu of foreclosure is a specialized instrument designed to transfer property to a lender in satisfaction of a debt and in exchange for a full and complete release. DILs often contain a clause similar to the following: “This Deed is executed and delivered by Grantor and accepted by Grantee in lieu of Grantee demanding and collecting the Indebtedness and in lieu of the necessity for Grantee to give notice of default, notice of intent to accelerate, notice of acceleration, notice of posting for foreclosure, and conduct of a foreclosure sale of the Property.” The customary DIL occurs when both parties expressly consent to the mutual benefits of this arrangement. Morission v. Christie, 266 S.W.3d 89 Tex.App.—Ft. Worth 2008, no pet.).
It goes without saying that a DIL should contain specific statements and recitals if it is to have the desired effect. A simple warranty deed to the lender will not do the job. Ideally for the borrower, the DIL should convey the property “as is” and include: (1) agreement by the lender not to post the property for foreclosure or conduct a foreclosure sale; (2) agreement that the indebtedness is fully paid, without forgiveness of debt and without deficiency, and the borrower is fully released; (3) the liens (i.e., the vendor’s lien and the deed of trust lien) are canceled; (4) the lender waives any claims and causes of action against borrower going forward; (5) the lender agrees not to take any action that will damage the borrower’s credit; and (7) the lender agrees not to report to the IRS that the borrower has received income as a consequence of the DIL agreement. Finally (again, in the optimal circumstance) a separate release of lien(s) should also be recorded.
A DIL is usually accomplished by means of a special warranty deed, but a deed without warranties may also be used.
Unfortunately, few institutional lenders today accept a DIL as a means of avoiding foreclosure. The reason is that the foreclosure process itself is usually advantageous to the lender since it cleans up title by eliminating junior liens. It also clearly establishes a deficiency amount (the difference between the price at foreclosure and the balance on the note) for which the lender may then sue the borrower.
A lender may record an affidavit rejecting and voiding a DIL within four years if the grantor-debtor did not disclose liens of which the lender hand no personal knowledge. Prop. Code Sec. 51.006.
Deeds Involving Co-Ownership
The primary point to remember here is that co-ownership in Texas is presumed to be as tenants-in-common, meaning that heirs of each owner will inherit the other owner’s interest upon death. The decedent’s interest (likely) passes vertically. This is contrasted with joint tenancy (JTWROS) which provides that a co-owner will inherit the other co-owner’s interest upon death—a horizontal transfer. JTWROS must be expressly created by specific wording when the property is acquired and a written agreement must be signed by both parties (Est. Code §§111.001(a) and 112.051). Married buyers may want to consider taking title as JTWROS as part of basic estate planning.
Deeds with Life Estate Reserved
It is possible that an investor may encounter a situation where an older person is willing to sell but wishes to retain the right to reside in the property until his or her death. This may be an excellent investment if the property is likely to appreciate. A deed with life estate reserved should contain wording substantially similar to the following: “Grantor reserves, for Grantor and Grantor’s assigns, a legal life estate in and to the Property for the remainder of Grantor’s life, including rights to full possession, benefit, use, rents, revenues, and profits of and from the Property, until the death of Grantor (the “Life Estate”) at which time full legal and equitable title to the Property shall automatically vest in Grantee, free of any interest of Grantor, Grantor’s successor, heirs, and/or assigns. Grantor shall have the right to reside in the Property without rent or charge during the Life Estate.”
Correction Instrument Under Property Code Section 5.027
Prior to passage of Property Code Sections 5.027 et seq, instruments of this type were referred to as “correction deeds.” Now, a correction deed is now more properly called a “correction instrument.” It may take a form similar to the old correction deed or it may be in the form of an affidavit that recites the correction. Either way, a correction instrument is a supplementary filing that relates back in time to an original deed that contained some error or mutual mistake. It corrects the mistake but leaves other terms of the conveyance intact. No new consideration is required.
In determining if a correction instrument is appropriate, the first step is to make sure one is looking at an instrument of conveyance (e.g., a warranty deed, not an affidavit or the like). The second step is to examine the instrument and determine if the error is non-material or material.
Section 5.028 deals with correction instruments that make a non-material correction to instruments of conveyance—the classic scrivener’s error, in other words. Perhaps a distance or an angle in the legal description was misstated, or the name of a party is misspelled. A person with personal knowledge of the facts may execute this type of correction instrument without joinder of others, but a copy of the correction instrument must be sent to each party to the original instrument.
Material corrections are a more serious issue and are addressed by Section 5.029. Examples are include conveyance of the wrong property (lot 5 instead of lot 6 for example) or conveyance to the wrong entity. A correction instrument effecting this sort of material correction must be executed by each party to the original recorded instrument.
It is generally the better practice to have any correction instrument executed by all parties if feasible to do so.
Correction instruments are appropriate for addressing errors only. If the parties intend to alter fundamental terms of the original conveyance, then a new instrument—not a correction instrument—is required.
Can the parties use a correction instrument to correct a material error after a third party acquires an interest in the property? Must the third party sign off on the change? No, says the Supreme Court, basing its opinion on the plain language of the statute. Broadway National Bank v. Yates Energy Corporation, No. 19-0334 (Tex. May 14, 2021).
Statute of Limitations in Deed Correction and Reformation Cases
The usual four-year statute of limitations for written documents commences on the date the deed is signed and delivered, or when a claimant discovers, or through the exercise of ordinary diligence, should have discovered the alleged error or defect (known as the “discovery rule”). There is, however, a rebuttable presumption that the respective parties know the contents of a deed at the time of closing, particularly if clearly stated, since it is the basic due diligence obligation of nearly everyone to read a document before signing or receiving it at a real estate closing. Trahan v. Mettlen, 428 S.W.3d 905 (Tex.App.—Texarkana 2014, no pet.).
In cases of mistake, waiting to take action does not work to the benefit of the plaintiff. In Jarzombek v. Ramsey (534 S.W.3d 534 (Tex.App.—San Antonio [4th Dist.] 2017, pet. denied), the court declined to reform a deed seven years after closing, stating that the discovery rule is not intended to extend the statute of limitations for the purpose of correcting conspicuous and plainly-evident mistakes.
When a court is asked to interpret a deed that is ambiguous in its wording, the “court’s primary goal . . . is to ascertain the true intention of the parties as expressed within the “four corners” of the instrument.” This is known as the “four corners rule” and is frequently applied in the interpretation of legal instruments generally, not just deeds. Courts in this position look at the expressed intent of the parties as reflected by actual wording, not what the parties subjectively believe they were trying to say. “Generally, deeds are construed to confer upon the grantee the greatest estate that the terms of the instrument will allow.” Rahlek, Ltd. v. Wells, 587 S.W.3d 57 (Tex.App.—Eastland 2019, pet. denied).
A good reason for recording a deed is to preserve evidence of the transfer in the event the original document cannot be located. What happens when an unrecorded deed is lost or destroyed? “A deed or other document is not made ineffective by its destruction or loss. . . . Production of the original document is excused when it is established that the document has been lost or destroyed. . . . Other evidence of the contents of a writing is admissible if the original has been lost or destroyed. . . . Loss or destruction of the document is established by proof of search for this document and inability to find it.” Gause v. Gause, 496 S.W.3d 913 (Tex.App.—Austin, 2016, no pet.).
A fraudulent deed is a void deed, but affirmative action must be taken in order to establish that the deed is fraudulent. A finding of fraud does not happen automatically, merely upon allegation or notice to the offending party. Remedies include:
1. Statutory Remedies under the Government Code
(a) County Clerk Action (Government Code Section 51.901)
Section 51.901, entitled “Fraudulent Document or Instrument,” requires a county clerk to act if there is “a reasonable basis to believe in good faith that document or instrument previously filed or recorded or offered or submitted for filing or for recording is fraudulent.” One way to trigger such action is for an aggrieved party to file an affidavit and then raise the matter with the county clerk. A copy of the affidavit should be sent to the perpetrating party along with a demand that the fraudulent instrument be canceled.
(b) District Court Action (Government Code Section 51.903)
Section 51.903, entitled “Action on Fraudulent Lien on Property,” contemplates action by a district court in response to a motion supported by an affidavit (see statute for suggested form). Although this section is primarily known as a remedy against fraudulent liens, it also addresses an instrument that assert a fraudulent interest in real property—which would certainly include a fraudulent deed claiming a fee-simple interest. Considered an expedited remedy, Section 51.903 should not require the filing of underlying lawsuit or scheduling a hearing.
2. Lawsuit Remedy
If statutory remedies are unsuccessful, a suit alleging fraud (both common-law fraud and statutory fraud under Business & Commerce Code Section 27.01) and requesting rescission and a declaratory judgment should be filed in district court. When it comes to penalties, Section 12.002 of the Civil Practice & Remedies Code provides that a person who knowingly and intentionally files a fraudulent lien or claim against real property may be held liable in civil district court for the greater of $10,000 or actual damages, exemplary damages, and recovery of attorney’s fees and costs.
Note that there is no rule at this stage requiring one to choose a specific remedy to the exclusion of the others. It may well be the better option to pursue all available remedies simultaneously.
Use of a Power of Attorney to Execute a Deed
Generally, according to the Estates Code, property transactions involving the use of a power of attorney require that the POA be recorded in the county clerk’s real property records within 30 days of the date the deed is recorded:
Estates Code Sec. 751.151. RECORDING FOR REAL PROPERTY TRANSACTIONS REQUIRING EXECUTION AND DELIVERY OF INSTRUMENTS. A durable power of attorney for a real property transaction requiring the execution and delivery of an instrument that is to be recorded, including a release, assignment, satisfaction, mortgage, including a reverse mortgage, security agreement, deed of trust, encumbrance, deed of conveyance, oil, gas, or other mineral lease, memorandum of a lease, lien, including a home equity lien, or other claim or right to real property, must be recorded in the office of the county clerk of the county in which the property is located not later than the 30th day after the date the instrument is filed for recording.
It therefore makes sense to draft powers of attorney in recordable form, including the usual statutory recording notice at the top: NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY OR ALL OF THE FOLLOWING INFORMATION FROM ANY INSTRUMENT THAT TRANSFERS AN INTEREST IN REAL PROPERTY BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S LICENSE NUMBER.
Estoppel by Deed
Generally speaking, all parties are bound by the terms, provisions, and statements contained in a deed. Green v. White, 153 S.W.2d 575 (Tex. 1941).This is true even though the deed is usually executed by one party—the grantor. As discussed elsewhere, the deed is a critical document because it more often than not entirely replaces contracts and agreements that have gone before it (the doctrine of merger). The deed is the final word on the subject of transfer of title. Accordingly, drafting a deed should not be a mere afterthought.
Deeds and the Earnest Money Contract
It is not prudent to assume that terms of the earnests money contract will continue to apply after closing. The doctrine of merger states that the terms of the contract merge into the deed (and thus disappear) in the absence of an express survival clause. “The merger doctrine provides that when a deed is delivered and accepted as performance of a contract to convey, the contract is merged into the deed. Thus where terms of the deed vary from those contained in the contract, courts must look to the deed alone to determine the rights of the parties.” Chicago Title Insurance Company v. Cochran Investments, Inc. 602 S.W.3d 895 (Tex. 2020).
Parties to a transaction should consult a consult a real estate attorney concerning the content of the deed and do so before the earnest money contract is signed. If a seller knows in advance that certain wording will be required (an “as is” clause, for example) then a provision to that effect should be included as a special provision in the contract. Otherwise, the seller will be under no obligation to agree to the inclusion of such a clause—or any other custom provision, for that matter. It is far and away the best practice to include a special provision in the contract that expressly recites the “as is” wording that will be used in the deed at closing. This is then established as a contract requirement. A special provisions addendum to the contract may be needed in order to effectively accomplish this, since a thorough “as is” clause usually consists of a dozen lines or more, which may be more than the space available for special provisions in a TREC or TAR contract.
What the Attorney Needs from the Client
When a client needs a deed prepared, the existing warranty deed to the property should be provided to the attorney along with a copy of the sales contract and title commitment. Since Texas is a community property state, the client should supply the marital status of the parties and the names of spouses, if any. The client should also explain if there will be any exceptions or reservations from the conveyance (a mineral interest, for example).
If the deed conveys property into an LLC, the attorney will want to see the formation documents of the LLC. If the company is a series LLC, then the destination series will need to be determined since the specific series must be stated in the grantee clause. And, as referenced above, the attorney will need to know if the proposed deed should include custom clauses, disclosures, disclaimers, or conditions. It may be advisable to secure the signatures of both grantor and grantee on the deed in order to assure the mutual acceptance and enforceability of any such clauses.
Information in this article is provided for general educational purposes only and is not offered as legal advice upon which anyone may rely. The law changes. Legal counsel relating to your individual needs and circumstances is advisable before taking any action that has legal consequences. Consult your tax advisor as well since we are not tax practitioners and do not offer tax advice. This firm does not represent you (i.e., no attorney-client relationship is established) unless and until it is retained and expressly agrees in writing to do so.
Copyright © 2022 by David J. Willis. All rights reserved. Mr. Willis is board certified in both residential and commercial real estate law by the Texas Board of Legal Specialization. More information is available at his website, www.LoneStarLandLaw.com.