Deeds, Bills of Sale, and Other Transfers
§ 5.1General Considerations for Deeds
Form 5-1 in this chapter, a general warranty deed, conveys to a grantee a fee simple estate in real property with a covenant of general warranty, subject to the reservations and exceptions stated in the deed.
The traditional deed clauses include the granting clause, the habendum clause, and the warranty clause. The customary granting clause includes the grant of the property with its related rights and appurtenances and begins with “grants, sells, and conveys.” The customary habendum clause defines the extent of property ownership to be held by the grantee and begins with “to have and to hold.” The customary warranty clause describes the warranty of title made by the grantor and begins with “Grantor binds.”
Two implied covenants, often called “warranties,” are given by stating that the deed “grants” or “conveys.” By using either of those words, the grantor covenants that—
1.before 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.at the time of the execution of the conveyance, the estate is free from encumbrances.
Taxes, assessments, and liens on real property are included in the term encumbrance. Tex. Prop. Code § 5.024.
The general warranty of title obligates the grantor to indemnify the grantee against any loss resulting from a title defect or from any encumbrances that arose before the conveyance. The grantor warrants that he will restore the purchase price to the grantee if the property is lost. City of Beaumont v. Moore, 202 S.W.2d 448, 453 (Tex. 1947). However, the express covenant of warranty and the implied covenants are limited if exceptions, reservations, and encumbrances are excepted from those warranties by the terms of the deed. A reliable title examination is important to determine if title defects or encumbrances exist.
A deed must identify a grantor and a grantee, contain operative words or words of grant showing the intent of the grantor to convey title to a real property interest to the grantee, and contain an adequate description of the property that is sufficient to identify the subject matter of the grant. Harlan v. Vetter, 732 S.W.2d 390 (Tex. App.—Eastland 1987, writ ref’d n.r.e.). A description in a deed must furnish within itself or by reference to some other existing writing the means by which the land to be conveyed may be identified with reasonable certainty. Morrow v. Shotwell, 477 S.W.2d 538 (Tex. 1972). See section 3.7 in this manual for a discussion of property descriptions.
Although no particular form of warranty deed is required by statute, the Texas Property Code suggests a form and states that any form substantially the same “conveys a fee simple estate in real property with a covenant of general warranty.” Tex. Prop. Code § 5.022. The conveyance and warranty clauses in form 5-1 in this chapter are substantially the same as the statutory language. A deed does not have to include a warranty, and the parties may insert any clause or use any form not in contravention of law. Tex. Prop. Code § 5.022.
A deed must be in writing and must be subscribed and delivered by the grantor. Tex. Prop. Code § 5.021. A corporation may convey real property by a deed with or without its seal (subject to any approval required by the Texas Business Organizations Code or the governing documents of the corporation). Tex. Bus. Orgs. Code § 10.251. An unrecorded deed is binding on a party to the instrument, the party’s heirs, and a subsequent purchaser who does not pay a valuable consideration or who has notice of the unrecorded deed, but it is void as to a creditor or subsequent purchaser for value without notice. Tex. Prop. Code § 13.001. If a party to a deed is an individual, the deed must contain the confidentiality rights notice required by Tex. Prop. Code § 11.008(c). See section 3.16 in this manual.
§ 5.1:2Characterization of Marital Property
Texas follows the community system of property rights of spouses. Under the inception of title doctrine, the character of property, whether separate or community, is fixed at the time of acquisition. Henry S. Miller Co. v. Evans, 452 S.W.2d 426, 430 (Tex. 1970).
Separate property consists of the property owned or claimed by a spouse before marriage; the property acquired by the spouse during marriage by gift, devise, or descent; and the recovery for personal injuries sustained by the spouse during the marriage, except any recovery for loss of earning capacity during marriage. Tex. Fam. Code § 3.001. Spouses may also set aside all or part of their community property as separate property by partition or exchange agreement. See Tex. Const. art. XVI, § 15; Tex. Fam. Code §§ 4.102–.106. Although such property may undergo changes or mutations, as long as it can be traced and properly identified it will remain separate property. McKinley v. McKinley, 496 S.W.2d 540 (Tex. 1973).
Community property consists of the property, other than separate property, acquired by either spouse during marriage. Tex. Fam. Code § 3.002.
Property possessed by either spouse during or on dissolution of marriage is presumed to be community property unless there is clear and convincing evidence that it is separate property. Tex. Fam. Code § 3.003. The presumption of community property may be rebutted and a separate-property presumption may arise if (1) one spouse is the grantor and the other spouse is the grantee (Story v. Marshall, 24 Tex. 305, 308 (1859)), (2) one spouse furnishes separate-property consideration and title is taken in the name of the other spouse (Smith v. Strahan, 16 Tex. 314 (1856)), or (3) the instrument of conveyance contains a “separate property recital” (for example, a statement that the property is conveyed to a spouse as that spouse’s separate property) (Henry S. Miller Co., 452 S.W.2d at 431).
Control of marital property is a separate matter from ownership; it relates to who may sell and convey marital property. A spouse has sole control of his or her own separate property. Tex. Fam. Code § 3.101. However, if the property is homestead, both spouses must execute the conveyance. Tex. Const. art. XVI, § 50. The general rules governing control of community property are statutory. See Tex. Fam. Code § 3.102. Third parties are entitled to rely on certain evidence concerning control. See Tex. Fam. Code § 3.104. Rules of marital property liability are also governed by statute. See Tex. Fam. Code § 3.202.
See chapter 3 in this manual for general information about designations of parties, addresses, and property descriptions.
§ 5.2:2Consideration—Cash Sale
If the parties wish to show the actual amount of the consideration, they may use a description like the one in clause 5-6-6 in this chapter. If the parties prefer not to show the amount of cash paid in a document that will become a public record, the deed may recite as consideration “cash” or a nominal amount and “other consideration.” Suitable descriptions for this purpose are set out in clauses 5-6-4 and 5-6-5. Note, however, that the fictional recitation of a nominal amount may create rights in the grantee or other consequences that the parties do not intend. See 1464–Eight, Ltd. v. Joppich, 154 S.W.3d 101 (Tex. 2004).
§ 5.2:3Consideration—Assumption of Note
If the grantee assumes a note secured by one or more liens, the consideration description in the warranty deed should contain a recitation of any actual or nominal cash paid, a promise to assume and pay the unpaid principal and earned interest of the note, a promise to abide by all terms in all instruments securing the note, and an indemnity to protect the grantor from a breach by the grantee. For an example of such a clause, see clause 5-6-2 in this chapter.
Clause 5-6-2 can be adapted to fit any existing lien. This clause assigns to the grantee any escrow fund for payment of taxes and insurance. Because insurance is often not assumed, an assignment of it to the grantee might prevent the grantor from receiving unearned premiums on cancellation. The clause also states the unpaid principal balance. If the parties do not want to state the unpaid principal balance, the recitation of that balance should be omitted. Most deeds with assumptions provide for a vendor’s lien and a deed of trust to secure assumption. It is important for the grantee to accept a deed with an assumption by signing either the deed or a separate acceptance document because the promises to pay the note and to perform the obligations under the deed of trust and the indemnity benefiting the grantor are contractual obligations of the grantee.
If the grantee assumes a note and the grantor wants to secure payment of the note with both a vendor’s lien in the deed and a deed of trust to secure assumption, the deed should provide for the vendor’s lien in the reservations description and refer to the deed of trust to secure assumption at the end of the deed. See clause 5-9-23. The deed should recite the assumption of the note in the consideration description. Of course, if only a vendor’s lien is retained, references to the deed of trust to secure assumption should be omitted.
§ 5.2:4Consideration—Subject to Note That Grantee Does Not Assume
If the consideration is cash but the property is encumbered by a lien securing a note that the grantee does not assume, the deed should show that the conveyance is subject to that encumbrance. In this instance the consideration description in the deed will recite the cash consideration, and the exceptions description should show that the conveyance is subject to one or more liens and that the grantee does not assume the debt. See clause 5-8-39 in this chapter.
§ 5.2:5Consideration—Separate Property of Grantee
If the property is conveyed as the grantee’s separate property, that fact should be recited in the deed. There are two opportunities to characterize the property as separate. First, the description of consideration may state that it was paid from the grantee’s separate property. See clauses 5-6-11 and 5-6-12 in this chapter. Second, the parties should insert a reference to the separate nature of the property in the space provided for miscellaneous clauses following the conveyance and warranty clause. For an example, see clause 5-9-16.
§ 5.2:6Reservations from Conveyance
Properly used, a reservation creates a new severance in favor of the grantor. Donnell v. Otts, 230 S.W. 864, 865 (Tex. App.—Fort Worth 1921, no writ); Klein v. Humble Oil & Refining Co., 67 S.W.2d 911, 915 (Tex. App.—Beaumont 1934), aff’d, 86 S.W.2d 1077 (Tex. 1935).
If the grantor wishes to reserve a property right from the conveyance, the reservation should be described under that heading in the deed. A reservation in favor of a third party is inoperative. Little v. Linder, 651 S.W.2d 895, 900–901 (Tex. App.—Tyler 1983, writ ref’d n.r.e.).
Examples of common reservations are found in form 5-7 in this chapter.
§ 5.2:7Exceptions to Conveyance and Warranty
All encumbrances affecting the property, whether recorded or not, must be excepted to, or the grantor will breach the general warranty clause immediately on execution of the warranty deed. The items may be excepted to in broad, general terms or specifically itemized. The broad exceptions are more commonly preferred by sellers and the specific exceptions by buyers.
If specific exceptions are used, those suggested in form 5-8 in this chapter may be appropriate, depending on the condition of title. If the parties have agreed not to examine title, the broadest possible exception will be appropriate. See clauses 5-8-1 and 5-8-2.
Properly used, an exception excludes an existing outstanding interest from the conveyance. Donnell v. Otts, 230 S.W. 864, 865 (Tex. App.—Fort Worth 1921, no writ). Exceptions should be drafted so as not to validate an instrument that is no longer in effect. Morgan v. Fox, 536 S.W.2d 644, 649–50 (Tex. App.—Corpus Christi–Edinburg 1976, writ ref’d n.r.e.).
§ 5.3General Warranty Deed with Vendor’s Lien
The warranty deed with vendor’s lien is designed for use anytime a portion of the purchase price is financed. This usually occurs when the note is to be executed either in favor of the grantor or a third-party mortgagee financing the grantee’s purchase of the property. Other circumstances in which use of a warranty deed with vendor’s lien is appropriate include the assumption of an existing first-lien note together with execution of a new second-lien note to the grantor or a third party, or execution of new first- and second-lien notes. See form 5-2 in this chapter.
Anytime the entire purchase price is not paid to the grantor of real property, an implied vendor’s lien arises in favor of the grantor, whether stated in the deed or not. Briscoe v. Bronaugh, 1 Tex. 326, 330 (1846); Delley v. Unknown Stockholders of the Brotherly & Sisterly Club of Christ, Inc., 509 S.W.2d 709, 714 (Tex. App.—Tyler 1974, writ ref’d n.r.e.). A bona fide purchaser for value and without notice of the implied vendor’s lien, however, takes title free from the implied lien. Smith v. Price, 230 S.W. 836, 838 (Tex. App.—Austin 1921, no writ). Implied vendor’s liens may arise in the following instances:
1.Seller Financing. An implied vendor’s lien may arise in favor of a grantor who finances a portion of the conveyed property’s purchase price. Manz v. Johnson, 531 S.W.2d 934, 936 (Tex. App.—Fort Worth 1976, no writ).
2.Third-Party Lender—Assumption. An implied vendor’s lien may arise in favor of a third-party lender if part of the purchase price is the assumption of lien debt due the lender. Etter v. Tuck, 101 S.W.2d 843, 844 (Tex. App.—Dallas 1937, no writ).
3.Exchange. An implied vendor’s lien may arise in the land conveyed and for the benefit of the party who received exchange property with a defective title. White v. Street, 2 S.W. 529, 531 (Tex. 1886); Price, 230 S.W. at 838.
4.Spreading. If a grantor conveys two tracts of land and receives the full purchase price for one but takes a note for the other, the grantor is entitled to an implied vendor’s lien on both tracts. Bielss v. Moeller, 83 S.W.2d 1098, 1101 (Tex. App.—Austin 1935, no writ). Similarly, if one of the two tracts is encumbered by a lien that is assumed, the holder of the assumed debt is entitled to an implied vendor’s lien on both tracts. Fidelity Union Fire Insurance Co. v. Cain, 28 S.W.2d 833, 836 (Tex. App.—Dallas 1930, no writ).
Although an express vendor’s lien may be reserved in documents other than the deed, reserving it in the deed has the advantage of its being recorded for notice purposes. See Simms v. Espindola, 310 S.W.2d 364, 366–67 (Tex. App.—San Antonio 1958, writ ref’d n.r.e.). Texas courts have consistently held that a deed expressly retaining a vendor’s lien is an executory contract as it applies to the grantor and grantee and those in privity with them, but it is executory only to the extent that superior title remains in the grantor and will be vested automatically in the grantee on payment of the purchase money. See Zapata v. Torres, 464 S.W.2d 926, 928–29 (Tex. App.—Dallas 1971, no writ). In all other respects affecting the parties and strangers to the transaction, the deed is an executed contract rather than an executory one. See Babb v. McGee, 507 S.W.2d 821, 823 (Tex. App.—Dallas 1974, writ ref’d n.r.e.).
The phrase vendor’s lien and superior title is the conventional means of expressing the intention of the parties to make rescission available to the vendor’s lien holder.
§ 5.3:2Execution of Note to Grantor or Third Party
If the grantee in the deed gives the grantor a note for consideration, both a note and a deed of trust are ordinarily required. The note should contain a security clause such as clauses 6-5-1 through 6-5-4 in this manual. The deed of trust should contain a vendor’s lien clause, such as clause 8-3-1.
The same documents are required when the note is to a third party, and the note should also have a security clause like that suggested for a note payable to the grantor. The deed of trust, however, should instead have a clause like clause 8-3-2. In this case, the vendor’s lien is reserved in the deed and transferred to the third-party lender.
§ 5.3:3Execution of First-Lien Note and Second-Lien Note
Two separate notes and two deeds of trust are necessary if the grantee in the deed is to execute a first-lien note payable to the grantor or a third party and a second-lien note payable to the grantor or a third party. Each note is secured by a deed of trust in which each respective payee is the beneficiary. Each of the four documents should be identified as “first-lien” or “second-lien,” both in its title and in additional language.
§ 5.3:4Assumption of First-Lien Note and Execution of Second-Lien Note
The grantee’s assumption of a first-lien note is ordinarily accompanied by a deed of trust to secure assumption. The simultaneous execution of a second-lien note requires a note payable to the grantor or a third party and a deed of trust naming the grantor or the third party as beneficiary. These two documents should be identified as second-lien instruments both in their titles and in additional language. See the discussion at sections 5.2:3 above and 5.3:5 below and sections 8.6 and 8.7 in this manual.
§ 5.3:5Consideration and Miscellaneous Clauses
Clauses 5-6-1, 5-6-2, 5-6-8, 5-6-13, and 5-6-14 in this chapter describe a variety of financing choices if the consideration involves a note, an assumption, or both.
Execution of Note to Grantor: A common transaction involving the warranty deed with vendor’s lien is one in which the grantee executes a note in favor of the grantor. See clause 5-6-13. In addition to the deed provisions, the note should contain a security clause, such as clauses 6-5-1 through 6-5-4 in this manual. The deed of trust should contain a clause like clause 8-3-1.
Execution of Note to Third Party: If the note is in favor of a third party financing the grantee’s purchase, the warranty deed with vendor’s lien should contain both a consideration clause like clause 5-6-13 and another clause noting that the lien is retained in favor of the third party. The second clause should appear in the space provided for additional clauses. See clause 5-9-8. Also, the note should contain a security clause like clauses 6-5-1 through 6-5-4, and the deed of trust should contain a clause like clause 8-3-2.
Execution of First-Lien Note to Third Party and Second-Lien Note to Grantor: If the grantee executes a first-lien note to a third party and a second-lien note to the grantor, appropriate clauses must be added to the consideration description and to the clause that retains the lien, as suggested at clause 5-6-8 and clause 5-9-9.
Assumption of First-Lien Note and Execution of Second-Lien Note to Grantor: If the grantee assumes an existing first-lien note and executes a second-lien note to the grantor, the grantor should provide that the vendor’s lien secures both the second-lien note and the assumption. Clause 5-6-1 and clause 5-9-10 provide for this. When used with the second-lien clause in the note, which appears as clauses 6-6-1 and 6-6-2, they authorize maturity of the second-lien note if the grantee defaults on the note assumed. If the grantor is not released from liability for the assumed debt, the assumption is generally also secured by a deed of trust to secure assumption, form 8-2.
Assumption of First-Lien Note and Execution of Second-Lien Note to Third Party: If the grantee assumes an existing first-lien note and executes a second-lien note to a third party, the deed should provide that the vendor’s lien secures both the second-lien note and the assumption. For this use clause 5-6-1 and clause 5-9-11. The assumption is generally also secured by a deed of trust to secure assumption, form 8-2.
By converting the general warranty to a special warranty, the grantor warrants to defend the title conveyed to the grantee only to the extent that claims are made by, through, or under the grantor. The special warranty covers only title defects caused by the grantor, not those caused by the grantor’s predecessors in title. Title insurance coverage for covenants of warranty on the insured’s conveyance of title is available under an owner policy of title insurance; however, this coverage is limited to title defects that are covered by both the covenants of warranty and the title insurance policy. Because the owner policy purchased on acquisition of property covers only title defects caused before the purchase, and the special warranty warrants only against title defects caused after the purchase, the title insurance coverage for covenants of warranty provides no benefit under these circumstances.
In Cochran Investments, Inc. v. Chicago Title Insurance Co., 550 S.W.3d 196, 205 (Tex. App.—Houston [14th Dist.] 2018), aff’d, 602 S.W.3d 895 (Tex. 2020), the Fourteenth Court of Appeals held that the special warranty deed in that case did not imply a covenant of seisin. A covenant of seisin is “an assurance to the grantee that the grantor actually owns the property being conveyed, in the quantity and quality which he purports to convey, and it is breached if the grantor does not own the estate that he undertakes to convey.” Cochran Investments, 550 S.W.3d at 202 (citing Jackson v. Wildflower Production Co., 505 S.W.3d 80, 89 n.12 (Tex. App.—Amarillo 2016, pet. denied). The case was appealed to the Texas Supreme Court, which decided the case on the basis of the special warranty, leaving open the question whether a special warranty deed includes an implied covenant of seisin. Chicago Title Insurance, 602 S.W.3d at 901. The court held that, whether or not the special warranty deed contained a covenant of seisin, the grantor’s liability under the deed was limited by the special warranty, which limited the circumstances under which the grantee can recover. Chicago Title Insurance, 602 S.W.3d at 908.
Because the supreme court did not rule on whether the special warranty deed in that case included an implied covenant of seisin, concern remains over whether it does. Clause 5-9-27 in this chapter may be used to include an express covenant of seisin.
A covenant of warranty is not required in a conveyance. Tex. Prop. Code § 5.022(b). The deed without warranty passes the grantor’s title to the grantee with an express exclusion of warranties. This deed relieves the grantor of any warranty responsibility for title defects yet provides the grantee a true deed, as opposed to a mere quitclaim. See form 5-4 in this chapter.
A quitclaim conveys only the right, title, and interest that the grantor has in the property at the time the instrument is executed and delivered. It will not convey “after-acquired” title—that is, title acquired after the date of the execution and delivery of the quitclaim deed. There is no recourse by the grantee or any subsequent owner of the property against the grantor. See form 5-5 in this chapter for an example of a quitclaim.
A quitclaim gives notice to the grantee that title to the property may not be clear, so the grantee is not a bona fide purchaser for value. Thus, if the grantor has title to the property but will not warrant title, a deed without warranty is preferable to a quitclaim. An adverse possessor cannot rely on a quitclaim as a basis for claiming title to property under the Texas five-year limitations statute, Tex. Civ. Prac. & Rem. Code § 16.025; Porter v. Wilson, 389 S.W.2d 650 (Tex. 1965). After the fourth anniversary of the date a quitclaim is recorded in the county where the property is located, the quitclaim does not affect the question of the good faith of a subsequent purchaser or creditor and is not notice to a subsequent purchaser or creditor of any unrecorded conveyance of, transfer of, or encumbrance on the real property. Tex. Prop. Code § 13.006.
Some types of personal property are subject to statutory requirements for a bill of sale on transfer of title. A nonexclusive list includes (1) livestock (Tex. Agric. Code § 146.001), (2) trees or timber (Tex. Nat. Res. Code §§ 151.001–.006), and (3) used pipeline and oil and gas equipment (Tex. Nat. Res. Code §§ 112.011–.012).
For other types of property, recording is optional but useful for notifying third parties of the buyer’s rights under a contract for sale. See Tex. Bus. & Com. Code § 2.107(c) (contract for sale of goods to be severed from realty).
The sale of a motor vehicle cannot occur unless the owner designated on the title submits a transfer of ownership of the title. Tex. Transp. Code § 501.071.
Caution: A transaction involving appliance warranties may be subject to the Magnuson-Moss Warranty–Federal Trade Commission Improvement Act, 15 U.S.C. §§ 2301–2312.
§ 5.7:2Instructions for Completing Forms
The bill of sale, form 5-16 in this chapter, may be used to transfer title to most personal property. This form makes an express warranty of title, but that warranty and implied warranties may be excluded.
The blanket bill of sale, form 5-15, is used to ensure that the buyer has acquired ownership of the personal property assets that may be involved in a transaction if a specific listing of items is impractical.
If a blanket bill of sale is used, it is important that the seller specifically identify as excluded property anything that will not be transferred.
Generally, the description of the property should clearly identify the personal property sold and, if possible, should include a specific description, make, model, and identifying number.
See the discussion at section 5.12:2 below about the possibility of including the bill of sale in the deed itself.
The sale of goods creates three implied warranties under the Texas Uniform Commercial Code:
1.Warranty of Title. The seller warrants that at the time of conveyance the title conveyed is good, that its transfer is lawful, and that the title is free from encumbrances other than those known to the buyer. Tex. Bus. & Com. Code § 2.312. In addition to the implied warranty of title, the bill of sale forms (forms 5-15 and 5-16 in this chapter) contain an express warranty of title.
2.Warranty of Merchantability. If the seller is a merchant of goods of the kind sold, the sale creates an implied warranty of merchantability for the goods. Tex. Bus. & Com. Code § 2.314(a). The UCC defines minimum standards of merchantability. Course of dealing or usage may imply other minimum standards.
3.Warranty of Fitness. If the seller has reason to know that the buyer is relying on the seller’s skill or judgment in furnishing goods suitable for a particular purpose, a warranty of fitness for that purpose arises. Tex. Bus. & Com. Code § 2.315.
These warranties may be excluded or modified through revisions to the bill of sale. Any exclusion is subject to the provisions of Tex. Bus. & Com. Code § 2.316.
Correction deeds are generally used to accomplish amicably what would otherwise be done through a suit for reformation. Reformation is the equitable power of courts to correct a written instrument that due to mutual mistake fails to embody the actual agreement reached by the parties. National Resort Communities, Inc. v. Cain, 526 S.W.2d 510, 513–14 (Tex. 1975). Reformation will not go beyond the original agreement. Southwest Savings Ass’n v. Dunagan, 392 S.W.2d 761, 768 (Tex. App.—Dallas 1965, writ ref’d n.r.e.).
Types of mistakes subject to reformation include mistakes in descriptions (Wilson v. Dearing, Inc., 415 S.W.2d 475, 476 (Tex. App.—Eastland 1967, no writ)); omissions and inclusions (Parker v. McKinnon, 353 S.W.2d 954, 955 (Tex. App.—Amarillo 1962, writ ref’d n.r.e.)); scrivener’s errors (Fenn v. Boxwell, 312 S.W.2d 536, 541 (Tex. App.—Amarillo 1958, writ ref’d n.r.e.)); and mistakes of law (Martin v. Snuggs, 302 S.W.2d 676, 680 (Tex. App.—Fort Worth 1957, writ ref’d n.r.e.)). A grantor may not use a correction deed as a unilateral attempt to add restrictive covenants to a deed. Joe T. Garcia’s Enterprises v. Snadon, 751 S.W.2d 914, 916 (Tex. App.—Dallas 1988, writ denied).
As between the parties, a correction deed generally relates back to the date of the original incorrect deed. Parker, 353 S.W.2d at 956; Buccaneer’s Cove, Inc. v. Mainland Bank, 831 S.W.2d 582, 584 (Tex. App.—Corpus Christi–Edinburg 1992, no writ). However, bankruptcy of an intervening bona fide purchaser for value will prevent the relation back. See In re Jones, 37 B.R. 969 (Bankr. N.D. Tex. 1984).
The consideration for the correction deed is the correction. Tatum v. Blackstock, 418 S.W.2d 269, 274 (Tex. App.—Waco 1967, writ ref’d n.r.e.). Although the correction deed is considered a replacement for the original deed, the original deed will be used to determine the intention of the parties; further, the original deed may continue to be controlling with respect to matters outside of the stated purpose of the correction deed. Parker, 353 S.W.2d at 956.
A party to a deed who knows of a mistake should immediately request a correction deed. Barker v. Coastal Builders, Inc., 271 S.W.2d 798, 804 (Tex. 1954). Suits for reformation are subject to the four-year limitations period. Tex. Civ. Prac. & Rem. Code § 16.051; Brown v. Havard, 593 S.W.2d 939, 943 (Tex. 1980). The discovery rule, which might toll limitations, does not apply to a plainly evident mistake in an unambiguous deed. Cosgrove v. Cade, 468 S.W.3d 32, 36 (Tex. 2015). Certain technical defects in instruments will be cured by statute unless suit is brought within two years of recording. Tex. Civ. Prac. & Rem. Code § 16.033.
While a correction deed replaces and is a substitute for the original instrument, a correction deed is subject to the property interest of a creditor or a subsequent purchaser for valuable consideration without notice after the original instrument was properly recorded and before the correction deed is properly recorded. Tex. Prop. Code § 5.030(b), (c). A title search is suggested to determine whether any intervening creditors or bona fide purchasers exist.
Instruments that correct a conveyance of real property should comply with sections 5.027 through 5.031 of the Texas Property Code. Nonmaterial corrections are subject to section 5.028, and material corrections are subject to section 5.029.
Instruments that correct a material error must be, and instruments that correct a nonmaterial error may be, executed by each party to the conveyance or, if applicable, the parties’ heirs, successors, or assigns. The Texas Supreme Court has held that if the original signatories to the instrument are available to execute the correction, they can correct the instrument without joinder of a subsequent or current owner of the real property. Broadway National Bank v. Yates Energy Corp., 631 S.W.3d 16 (Tex. 2021), reh’g denied (Sept. 24, 2021). Tex. Prop. Code § 5.029(a). These instruments must be recorded. Tex. Prop. Code §§ 5.028(d)(1), 5.029(b)(2). Clause 5-9-5 may be inserted as the last paragraph in a restated deed executed by the original parties to the conveyance, or by their heirs, successors, or assigns, to correct a material or nonmaterial error.
A person who has personal knowledge of the relevant facts is authorized to execute a correction instrument to make a nonmaterial change that resulted from a clerical error, without the joinder of the original parties to the conveyance or their heirs, successors, or assigns. These changes include correction of an inaccurate or incorrect element in a legal description, including a distance, angle, direction, bearing, or chord, a reference to a plat or other plat information, and other matters set forth in the statute; an addition, correction, or clarification of a party’s name or marital status; the date on which the conveyance was executed; the recording data for an instrument referenced in the correction instrument; or a fact relating to the acknowledgment or authentication of the original conveyance. Tex. Prop. Code § 5.028(a). A correction instrument executed by a person with knowledge of the relevant facts may also provide an acknowledgment or authentication that was not included in the original conveyance.
A person who has personal knowledge of the relevant facts is authorized to execute a correction instrument to make a nonmaterial change that resulted from an inadvertent error, without the joinder of the original parties to the conveyance or their heirs, successors, or assigns. These changes include the addition, correction, or clarification of a legal description prepared in connection with the preparation of the original instrument but inadvertently omitted or an omitted call in a metes-and-bounds description that completes the legal description of the property. Tex. Prop. Code § 5.028(a–1).
The person executing the correction instrument must disclose in the instrument the basis for his knowledge of the relevant facts; send a copy of the correction instrument and notice by first class mail, e-mail, or other reasonable means to each party to the original conveyance and, if applicable, the parties’ heirs, successors, and assigns; and record the correction instrument and evidence of notice. Tex. Prop. Code § 5.028(d)(2). Form 5-24 in this chapter is a form for making a nonmaterial correction by a person with knowledge of relevant facts.
In addition to nonmaterial corrections, including the corrections described by section 5.028 of the Property Code, the parties to the original transaction or their successors or assigns may execute a correction instrument to make a material correction to the recorded original instrument of conveyance. These material changes include adding a buyer’s disclaimer of an interest in the property, a mortgagee’s consent to or subordination to a recorded document, or land to a conveyance that correctly conveys other land; removing land from a conveyance that correctly conveys other land; and correcting a description of a lot or unit number or letter of property that is inaccurately identified as another lot or unit number or letter. Tex. Prop. Code § 5.029.
A correction instrument that complies with section 5.028 or 5.029 of the Property Code is (1) effective as of the effective date of the conveyance, (2) prima facie evidence of the facts stated in the correction instrument, and (3) notice to a subsequent buyer of the facts stated in the correction instrument. Tex. Prop. Code § 5.030.
Title companies may require a jurat as a prerequisite to acceptance.
See clause 5-9-5 and form 5-24 for correction deed language.
The essential elements of a gift made during a grantor’s life are donative intent, delivery, and acceptance. Gannon v. Baker, 830 S.W.2d 706, 710 (Tex. App.—Houston [1st Dist.] 1992, writ denied).
If the grantor desires to make a gift, the commonly understood terminology to evidence the donative interest, although not true consideration, is a recitation of “love and affection” as the consideration. However, other words and phrases that accomplish the same purpose are appropriate, especially when “love and affection” are not the grantor’s motivation to make the gift. See clauses 5-6-9 and 5-6-10 in this chapter. Further, the deed should be titled “Gift Deed.”
An essential characteristic of a gift is the absence of consideration paid by the donee to the donor. A deed by gift that otherwise satisfies the requirements for an effective conveyance will vest title in the grantee to the same extent as a deed with valuable consideration. Woodworth v. Cortez, 660 S.W.2d 561, 564 (Tex. App.—San Antonio 1983, writ ref’d n.r.e.).
A gift is presumed if a parent purchases property in the name of a child. Woodworth, 660 S.W.2d at 564.
A partition is the act of dividing the undivided interests in property held by joint owners so each owns full title to a separate tract. The term joint owner includes ownership arrangements also sometimes known as tenants in common, cotenants, or joint tenants. Partitions may be either voluntary or involuntary. A voluntary partition is accomplished by a written instrument or deed. Houston Oil Co. of Texas v. Kirkindall, 145 S.W.2d 1074, 1077 (Tex. 1941); Chandler v. Hartt, 467 S.W.2d 629, 634 (Tex. App.—Tyler 1971, writ ref’d n.r.e.). An involuntary partition arises when a cotenant exercises the statutory right to compel a partition. See Tex. Prop. Code §§ 23.001–.004. If property is partitioned involuntarily, a nonexclusive access easement may be required in limited circumstances. See Tex. Prop. Code § 23.006. An express agreement among joint owners not to partition is enforceable. Lichtenstein v. Lichtenstein Building Corp., 442 S.W.2d 765, 769 (Tex. App.—Corpus Christi–Edinburg 1969, no writ).
Form 5-23 in this chapter is a partition deed for effectuating a voluntary partition. Often partition deeds are executed by family members who have inherited the co-owned properties. In this situation, a special warranty of title ordinarily will be preferred by the parties. Often no title search is obtained, and a party usually will not want to be responsible for warranting title to the land partitioned to the other family members (except as to that party’s own acts). Accordingly, form 5-23 contains a special warranty of title. If a general warranty of title or deed without warranty is desired, form 5-23 may be adapted to provide for this. If no title search is performed in connection with a partition deed, the other parties may be unaware that one party’s acts have given rise to a lien, such as a federal tax lien or child support lien. Knowledge of the existence of a lien before the partition deed is executed is desirable so that the lien may be addressed, as this is preferable to a claim for breach of warranty of title, whether special or general.
Partitions are not subject to the statute of frauds, making oral partitions enforceable (Houston Oil Co. of Texas, 145 S.W.2d at 1077), and partitions do not alter the character of property as either separate or community (Westhoff v. Reitz, 554 S.W.2d 1 (Tex. App.—Fort Worth 1977, writ ref’d n.r.e.).
Owelty is the difference that is paid by one joint owner to another or a lien that arises for the purpose of equalizing the partition. In instances in which one joint owner is to receive owelty from another, see the discussion of owelty of partition in section 5.13:5 below.
If suit is filed to foreclose a tax lien, joint owners are entitled to partition their property and have the taxes apportioned pro rata. Tex. Tax Code § 33.46.
The Texas Real Property Transfer on Death Act authorizes an individual to execute and record a transfer on death deed to make a revocable transfer of the transferor’s interest in real property to one or more designated beneficiaries, including alternate beneficiaries, effective at the transferor’s death. See Tex. Est. Code ch. 114. In the 86th legislative session, the statutory forms for the transfer on death deed and the revocation of transfer on death deed were removed from chapter 114 of the Texas Estates Code. Acts 2019, 86th Leg., R.S., ch. 337, § 3.2 (S.B. 874), eff. Sept. 1, 2019. Tex. Gov’t Code § 22.020 directs the Texas Supreme Court to promulgate forms for creating and revoking a transfer on death deed. As of the publication date of this edition, the forms are not yet complete. The Estates Code continues to authorize use of transfer on death deeds and revocation of transfer on death deeds but no longer prescribes statutory language.
A transfer on death deed transfers a transferor’s interest in real property to designated beneficiaries effective at the transferor’s death. Tex. Est. Code § 114.051. As a transfer on death deed is nontestamentary, probate proceedings are not necessary to transfer the transferor’s interest in the described real property to the designated beneficiaries. Tex. Est. Code § 114.053.
During the transferor’s lifetime, a transfer on death deed does not affect any right, title, or interest of the transferor in the property, vest any legal or equitable title in a designated beneficiary, or subject the property to the claims of creditors of any designated beneficiary. Notwithstanding the recordation of a transfer on death deed, the transferor retains the right to transfer or encumber the property, any present or future homestead rights, and any present or future ad valorem tax exemptions to which the transferor is entitled. During the transferor’s lifetime, a transfer on death deed does not affect the rights of creditors of the transferor, secured or unsecured, and does not trigger any “due on sale” clause. Upon the death of the transferor a secured creditor’s rights are subject to the Texas Estates Code. A transfer on death deed does not affect the eligibility for public assistance of either the transferor or any designated beneficiary. Tex. Est. Code § 114.101.
At the death of the transferor, the transferor’s interest in the property is transferred to the designated beneficiaries in accordance with the deed. Tex. Est. Code § 114.103(a). A transfer under a transfer on death deed lapses as to a designated beneficiary that disclaims in the manner provided in chapter 122 of the Estates Code. Tex. Est. Code § 114.105. A transfer also lapses as to a designated beneficiary that does not survive the transferor by 120 hours. Lapsed transfers of concurrent interests pass in accordance with subchapter D of chapter 255 of the Estates Code. Except where chapter 255 applies, concurrent interests are transferred in equal, undivided interests with no right of survivorship, subject to the transferor’s option to provide alternative disposition of lapsed transfers. Tex. Est. Code § 114.103(a).
Even if the transfer on death deed provides otherwise, a transfer on death deed transfers title to a beneficiary without warranty of title. Tex. Est. Code § 114.103(d). A beneficiary under a transfer on death deed takes title to the property subject to all conveyances, liens, encumbrances and other rights enforceable against the property at the transferor’s death. Tex. Est. Code § 114.104. Although not considered a probate asset, claims against the transferor’s estate, expenses of administration, estate taxes, allowances in lieu of exempt property, and family allowances are enforceable against property transferred by a transfer on death deed. Tex. Est. Code § 114.106.
§ 5.11:2Requirements Generally; Exceptions
A transfer on death deed must state that the transfer occurs at the transferor’s death, be properly executed by the transferor, be properly recorded before the transferor’s death, and contain the essential elements and formalities of deeds, except consideration, notice, delivery, or acceptance. Tex. Est. Code §§ 114.055, 114.056. No statutorily required notice or disclosure need be given in connection with a transfer on death deed. Tex. Est. Code § 114.101(6).
§ 5.11:3Transferor Considerations
A transferor must have capacity to contract to make or revoke a transfer on death deed. Tex. Est. Code § 114.054(a). A transfer on death deed cannot be created under a power of attorney. Tex. Est. Code § 114.054(b).
To be effective, a transfer on death deed must be recorded before the transferor’s death in the county where the property is located. Tex. Est. Code § 114.003. Likewise, an instrument revoking a transfer on death deed must be recorded before the transferor’s death. Tex. Est. Code § 114.057(a).
§ 5.11:5Caution—Existing Rights of Survivorship
If a transferor is a joint owner with right of survivorship, a transfer on death deed will not be effective unless the transferor is the surviving joint owner. Tex. Est. Code § 114.103(b). A transfer on death deed made by joint owners with the right of survivorship can be revoked only by all living joint owners. Tex. Est. Code § 114.057(e).
Even if the transfer on death deed provides otherwise, a transfer on death deed is revocable. Tex. Est. Code § 114.052. Revocation, in whole or in part, is effective upon the proper recordation before the transferor’s death of a subsequent, inconsistent transfer on death deed, a subsequent instrument of revocation, a divorce decree dissolving the marital relationship be-tween the transferor and a designated beneficiary, or a subsequent conveyance by the transferor. If the transfer on death deed is made by more than one transferor, a revocation is only effective as to the interest of the revoking transferor and does not affect the interests of the non-revoking transferors. Tex. Est. Code § 114.057.
§ 5.11:7Revocation—Subsequent Transfer on Death Deed
A prior transfer on death deed is revoked on the recordation of a subsequently acknowledged transfer on death deed as to the interests that are expressly stated or are inconsistent with the subsequent deed. Tex. Est. Code § 114.057(a). Form 5-25 in this chapter provides optional clauses for revoking all or part of a prior transfer on death deed. Alternatively, form 5-26 or form 5-27 can be used to document the revocation of the prior transfer on death deed in whole or in part.
§ 5.11:8Revocation—Subsequent Instrument of Revocation
A prior transfer on death deed is revoked upon the recordation of a subsequently acknowledged instrument of revocation, other than a will, that expressly revokes the prior deed, as to the beneficiaries and property designated in the instrument. Tex. Est. Code § 114.057(a). A subsequent will made by the transferor does not revoke nor supersede a transfer on death deed. Tex. Est. Code § 114.057(b).
Form 5-26 or form 5-27 in this chapter can be used to revoke a prior transfer on death deed in whole or in part.
The recordation of a notice of a final decree of divorce dissolving the marital relationship be-tween a transferor and a designated beneficiary revokes a transfer on death deed as to the divorced, designated beneficiary. Tex. Est. Code § 114.057(c).
§ 5.11:10Revocation—Subsequent Conveyance; Protection of Purchasers
A subsequent, valid conveyance by the transferor during the transferor’s lifetime renders a prior transfer on death deed void as to any interest in the property conveyed if the conveyancing instrument is properly recorded before the death of the transferor. Tex. Est. Code § 114.102.
Form 5-26 or form 5-27 in this chapter, as the circumstances dictate, will document the revocation of a prior transfer on death deed.
§ 5.11:11Instructions for Completing Form
Form 5-25 in this chapter can be used to transfer to one or more designated beneficiaries, including alternative beneficiaries, the transferor’s interest in real property effective at death of the transferor.
Although the transferor can rely upon the presumed anti-lapse provisions in chapter 114 of the Texas Estates Code, if the transferor intends to transfer the transferor’s community property interest in property to a surviving spouse, or to the transferor’s children if the transferor’s spouse predeceases the transferor, it is recommended that the transferor’s spouse be designated as the primary beneficiary and the children designated as the alternate beneficiaries.
Caution should be employed in selecting the alternative clauses for disposition of the property where a named primary beneficiary does not survive the transferor as the alternative clause selected will determine whether the deceased primary beneficiary’s share will pass to the other primary beneficiaries, the descendants of the deceased primary beneficiary, or named alternative beneficiaries. Alternative clauses are provided for the disposition of the property to the descendants of a deceased beneficiary or to the other named beneficiaries.
As consideration is not required for the validity of a transfer on death deed, and to avoid uncertainty about whether consideration was exchanged, references to recitations and confessions of consideration are intentionally omitted in form 5-25.
As there are no warranties of title under a transfer on death deed and, at the death of the transferor, title passes subject to all present and subsequent conveyances, liens, and other encumbrances, references to exceptions to conveyance and warranties are intentionally omitted in form 5-25.
Any interest that the transferor intends to reserve from the transfer on death deed should be properly described in the heading “Reservations from Transfer.” See section 5.2:6 above for a discussion of reservations. Examples of common reservations are found in form 5-7.
Form 5-26 revokes a prior transfer on death deed in its entirety.
Form 5-27, depending on the options clause selected, partially revokes a prior transfer on death deed as to the property described either to all beneficiaries or only as to specifically named beneficiaries.
Provisions other than the consideration clause, property description, reservations, and exceptions may be called for in some deeds. These clauses may be located in several different places in the deed. Use of some of these provisions is discussed in this section, and sample language is found in form 5-9 in this chapter.
§ 5.12:1Waiver of Implied Liens
The implied vendor’s lien should be negated if its existence is not intended by the parties. If the grantor who receives the full price for one parcel is to waive the implied lien on that parcel, the waiver in clause 5-9-24 in this chapter may be used. If an existing lien affects only a portion of the property conveyed by an assumption deed, the deed should contain an express waiver to avoid spreading the lien. Clause 5-9-25 is an example of an appropriate waiver for this purpose. If the parties exchanging property wish to waive the implied lien, the waiver in clause 5-6-7 may be used in the description of the consideration.
Many kinds of personal property, including items used in operating the improvements that can be removed without materially damaging the improvements, are often transferred as part of the sale of real property.
Personal property is not included in the real property description and thus is not transferred by the deed. Instead, personal property is transferred by bill of sale. The personal property transfer can be accomplished in a separate bill of sale or by including the bill of sale in the deed itself. A combined instrument has the benefit of reducing the number of documents to be signed at closing.
To add the personal property transfer to the deed, the drafter may use the clauses provided. See clauses 5-9-12 and 5-9-13 in this chapter.
If the conveyance is on an “as is” basis, the parties may evidence the basis of the bargain in the deed. See clause 5-9-1 in this chapter.
For a separate disclaimer form, see form 26-33 in this manual.
§ 5.12:4Fee Simple Determinable
A fee simple determinable exists if a fee simple estate will terminate automatically and revert to the grantor on the occurrence of a stated event.
The phrase “as long as” has been recognized as evidencing a fee simple determinable estate. See Clark v. Perez, 679 S.W.2d 710, 712 (Tex. App.—San Antonio 1984, no writ). In addition, it is prudent practice to state an intent to create a fee simple determinable because of the presumption that a conveyance is a fee simple absolute (see Tex. Prop. Code § 5.001(a)) and the rule of interpretation construing provisions as covenants rather than conditions. Schwarz-Jordan, Inc. v. Delisle Construction Co., 569 S.W.2d 878, 881 (Tex. 1978). See clause 5-9-7 in this chapter.
In some cases the event that would cause the fee simple determinable condition to be satisfied is not evident from an inspection of the property, which creates uncertainty concerning title. In those situations, it is suggested that the condition language include a provision for recording a document that establishes with certainty the satisfaction of the condition. For example, the suggested clause at 5-9-6 includes a provision allowing an affidavit to serve as evidence of the satisfaction of the condition, unless contradicted by another affidavit.
For public policy reasons, a deed may be construed as including a small parcel of land in the conveyance of the larger tract if it is shown that the small parcel to be included (1) is small in comparison to the land conveyed, (2) is adjacent to or surrounded by the land conveyed, (3) belonged to the grantor at the time of the conveyance, and (4) was of no benefit or importance to the grantor. Alkas v. United Savings Ass’n of Texas, 672 S.W.2d 852, 857 (Tex. App.—Corpus Christi–Edinburg 1984, writ ref’d n.r.e.). This doctrine is called the “strip and gore doctrine.” Including a strips-and-gores provision in the deed is intended to ensure that the principle is applied in the transaction without the necessity of supplying proof of these elements. See clause 5-9-17 in this chapter for an example.
Because of the strip and gore doctrine, a conveyance of land bounded by a public highway carries with it the fee to the center of the road as part and parcel of the grant, even if the deed describes the abutting land by metes and bounds extending only to the edge of the highway. State v. Williams, 335 S.W.2d 834, 836 (Tex. 1960); Krenek v. Texstar North America, Inc., 787 S.W.2d 566, 568–69 (Tex. App.—Corpus Christi–Edinburg 1990, writ denied). The doctrine does not apply if the grantor owns land on both sides of the strip. Rio Bravo Oil Co. v. Weed, 50 S.W.2d 1080, 1086 (Tex. 1932). Nor does the doctrine apply if the strip is larger and more valuable than the conveyed tract. Angelo v. Biscamp, 441 S.W.2d 524, 527 (Tex. 1969).
The strips-and-gores provision should be included in a deed conveyance form rather than a quitclaim to avoid the concerns about quitclaims stated in the commentary at section 5.6 above; however, the warranties should be eliminated in case no strips or gores exist.
When using the strips-and-gores provision, the attorney should review other provisions of the deed that describe the property, because the strips and gores are discussed separately from the property. One suggestion is to add “and all strips and gores and appurtenances thereto” to the references to the property, other than in the warranty clause. Another option is to include strips and gores as a defined term within the definition of the property, then except the strips and gores out of the warranty in the express exclusion of warranties provisions.
If the seller agrees to continue to service an existing lien debt while the buyer executes a new note that is not reduced by the amount of the preexisting lien debt (commonly known as a wraparound transaction), the deed should be written to take exception to the preexisting lien to avoid breaching the warranty concerning encumbrances. The buyer should take title “subject to,” and without assuming, the preexisting lien debt.
See clause 5-9-26 in this chapter. See also section 6.4:2 in this manual and sections 8.3 through 8.5:4.
§ 5.12:7Transfer of Escrow and Insurance Policy
Lenders often establish an escrow for the payment of taxes and insurance relating to the property securing the loan. The escrow arrangement generally seeks to ensure that sufficient funds exist in the escrow to pay all real property ad valorem taxes when they come due and to pay the annual hazard insurance premium on its anniversary date.
If real property is transferred with the assumption of an existing lien debt or subject to a preexisting lien debt, regardless of whether the insurance and taxes are being prorated to the date of closing, it is customary for the seller to transfer the entire escrow fund to the buyer. It is generally considered simpler to prorate the escrow balance to the date of closing through the closing settlement statement, rather than have the buyer send money to the lender and expect the lender to reimburse the seller for that exact amount out of the escrow. The transfer of the escrow fund is usually included in the deed, although this is not required. Additionally, some lenders require the signing of a separate transfer form before the escrow will be transferred to the buyer. The more cautious approach would be to include the transfer both in the deed and in a separate document.
The transfer of escrow often includes a transfer of the insurance policy to the buyer, if the seller has agreed that the policy will be transferred. If the buyer will not assume the existing coverage, the seller should keep the policy in order to be entitled to the refund of unearned premiums when the buyer’s replacement policy is substituted for the seller’s policy coverage. Several aspects of insurance are regulated by statute, such as the fee for substitution of coverage and the kind of insurance binder a mortgage company must accept. The statutes governing prohibited practices relating to property insurance are found in chapter 549 of the Texas Insurance Code. See Tex. Ins. Code ch. 549. Unless the drafting attorney knows the agreement concerning the transfer of the insurance policy, it is suggested the deed include either nothing concerning the insurance or a statement that any transfer of insurance will be handled between the buyer and seller by separate instrument.
Form 5-17 in this chapter is provided to accomplish the transfer of escrow by separate instrument. Clause 5-9-22 may be used to incorporate the transfer of escrow in the deed.
§ 5.12:8Assumption of Liability Agreements for VA-Guaranteed Loans
If a loan guaranteed by the Department of Veterans Affairs (VA) is assumed, the VA has a number of requirements for the new loan. See 38 U.S.C. § 3714; 38 C.F.R. §§ 36.4300–.4393; U.S. Dep’t of Veterans Affairs, Veterans Benefits Administration, Lender’s Handbook: VA Pamphlet 26-7, available at www.benefits .va.gov/warms/pam26_7.asp. Clause 5-9-2 in this chapter is based on the sample indemnity liability assumption clause in chapter 9 of VA Pamphlet 26-7.
To be enforceable, restrictive covenants imposed by grant must satisfy certain requirements: (1) there must be privity of estate between the parties to the contract; (2) the restrictive covenants must relate to something in existence, or assignees must be named if they are to be bound by the restrictive covenants; (3) the restrictive covenants must touch or concern the land (that is, enhance or benefit it) (see Homsey v. University Gardens Racquet Club, 730 S.W.2d 763, 764 (Tex. App.—El Paso 1987, writ ref’d n.r.e.)); and (4) the original contracting parties must intend that the restrictive covenant run with the land. Billington v. Riffe, 492 S.W.2d 343, 346 (Tex. App.—Amarillo 1973, no writ). Further, the restrictive covenant must furnish adequate notice to the property owner of the specific restriction sought to be enforced. Davis v. Huey, 620 S.W.2d 561, 566 (Tex. 1981).
The restrictive covenants should make clear which lands are benefited by the covenants and that the owners thereby have standing to enforce the restrictive covenants. See clauses 5-9-14 and 5-9-15 in this chapter.
Acceptance is necessary for a deed to be effective. Robert Burns Concrete Contractors, Inc. v. Norman, 561 S.W.2d 614, 618 (Tex. App.—Tyler 1978, writ ref’d n.r.e.). Traditionally, the grantee’s acceptance is implied. Martin v. Uvalde Savings & Loan Ass’n, 773 S.W.2d 808 (Tex. App.—San Antonio 1989, no writ). However, the parties may want written confirmation of the grantee’s acceptance of the deed as to matters of form, substance, or both. Evidence of the grantee’s acceptance may be needed to enforce the grantor’s obligations under a deed, such as the promise to pay and the indemnity in the assumption or warranty deed. Confirmation can best be achieved by the grantee’s signature on the deed, although a separate instrument may be used. See form 5-10 in this chapter.
§ 5.13:2Deed in Lieu of Foreclosure
The term deed in lieu of foreclosure (or deed in lieu) describes a conveyance in which the consideration given by the grantee typically is the cancellation of the debt owed by the borrower, the release of the borrower from liability on the secured debt, and, in some cases, the release and discharge of the liens securing the debt. The deed in lieu does not have the same effect on title as a trustee’s deed in a nonjudicial foreclosure because the deed in lieu does not relate back to the date the deed of trust was filed for record to extinguish exceptions or encumbrances filed after the deed of trust. Instead, the grantee takes the property subject to whatever encumbrances and other exceptions have been imposed on the property before the deed in lieu is recorded, as is the case with any other deed. Flag-Redfern Oil Co. v. Humble Exploration Co., 744 S.W.2d 6, 9 (Tex. 1987).
If a holder of a debt secured by a deed of trust accepts title by a deed in lieu and later discovers that an encumbrance that was unknown to the holder and not disclosed by the debtor existed before the deed in lieu, the holder has four years to void the deed in lieu; further, the lien is restored to its former priority, and the holder may proceed with a foreclosure under the deed of trust. See Tex. Prop. Code § 51.006.
See form 5-13 in this chapter for an example of a deed in lieu of foreclosure.
§ 5.13:3Trustee’s Deed in Nonjudicial Foreclosure
For commentary and a form, see section 14.6:4 and form 14-15 in this manual.
§ 5.13:4Administration or Guardianship Deed
The Texas Estates Code governs the sale of property held by an estate. See Tex. Est. Code chs. 356, 1158. A court order is required for any sale of estate property unless otherwise provided by law. Tex. Est. Code §§ 356.001, 1158.001. Sales authorized by a will may be carried out by the executor without the need for a court order. Tex. Est. Code § 356.002. The administration or guardianship deed, form 5-14 in this chapter, is drafted to follow the format required by the Estates Code. See Tex. Est. Code §§ 356.557, 1158.557.
§ 5.13:5Owelty of Partition Deed and Agreement
Owelty results from an unequal partition between joint owners of real property whether by court decree or contract. Because the tract partitioned does not lend itself to an equal division, the difference in value between the partitioned tracts is adjusted by payment from one joint owner to the other. This difference is known as owelty. Because owelty payments are in the nature of purchase money, a lien to secure a payment arises. Such a lien is a purchase-money lien and is valid against the homestead. Sayers v. Pyland, 161 S.W.2d 769, 772 (Tex. 1942).
In transactions in which one joint owner simply buys all of the interest of a fellow joint owner, the issue is less clear. Some decisions have determined that such a sale does not involve a true partition; therefore a lien securing the purchase may not encumber the entirety of the homestead. In re Shults, 97 B.R. 874 (Bankr. N.D. Tex. 1989). The Texas Constitution and the Texas Property Code provide that the homestead may be encumbered by “an owelty of partition imposed against the entirety of the property by a court order or by a written agreement of the parties to the partition, including a debt of one spouse in favor of the other spouse resulting from a division or an award of a family homestead in a divorce proceeding.” Tex. Const. art. XVI, § 50(a)(3); Tex. Prop. Code § 41.001(b)(4). Even after this constitutional amendment, there has been question about whether the entirety of the homestead may be encumbered by an owelty lien in the absence of an actual partition in kind. Opinion predominates in favor of the validity of these liens to the extent that such liens are generally insurable encumbrances.
An owelty of partition transaction that is not based on a court order should be documented by both a deed and a separate written partition agreement (not by a purchase and sale agreement).
The owelty of partition deed, form 5-11 in this chapter, should refer either to the court order or to the separate agreement on which it is based. See form 5-12 for an owelty of partition agreement.
§ 5.13:6Survivorship Agreement for Community and Noncommunity Property
Rights of survivorship will not be inferred from a joint tenancy in property that is not the community property of the tenants. Tex. Est. Code § 101.002. However, the joint tenants may agree in writing to implement rights of survivorship. Tex. Est. Code § 111.001. Spouses may agree between themselves that all or part of their community property, then existing or to be acquired, will be owned with rights of survivorship. Tex. Est. Code § 112.051.
Rights of survivorship in community property are treated differently from rights of survivorship in other property. See Tex. Est. Code §§ 111.002, 112.052. However, whether the property is community or not, the agreement must be in writing. In the case of community property, both spouses must sign the agreement. Tex. Est. Code § 112.052. For property that is not community, it is suggested that all joint tenants sign the writing for it to qualify as an agreement that satisfies the statute. See Tex. Est. Code § 111.001(a). The phrases with right of survivorship, will become the property of the survivor, will vest in and belong to the surviving spouse, or will pass to the surviving spouse are suggested for inclusion in the agreement.
Rights of survivorship do not affect the community status of property or the rights of the spouses concerning management, control, and disposition, unless the agreement so provides. Tex. Est. Code § 112.151. On the death of a spouse, a transfer resulting from the right of survivorship is not considered a testamentary transfer. Tex. Est. Code § 112.052. An agreement between spouses may be revoked in accordance with the agreement’s terms. If no provision is made for revocation, the agreement may be revoked by a written instrument signed by both spouses or by a written instrument signed by one spouse and delivered to the other spouse. Tex. Est. Code § 112.054(b). The disposition of property by one or both spouses will also revoke the agreement as to that property if the disposition is not inconsistent with the terms of the agreement and applicable law. Tex. Est. Code § 112.054(c). Although an agreement between spouses creating rights of survivorship is effective without court adjudication, the surviving spouse may obtain such an adjudication by application to the court. See Tex. Est. Code §§ 112.053, 112.101. The agreement between spouses and any revocation should be recorded, and a copy provided to the personal representative of the deceased spouse’s estate, to avoid the acquisition of good title by a buyer without actual notice of the agreement or the revocation under Tex. Est. Code §§ 112.201–.208. Community property subject to the sole or joint management, control, and disposition of a spouse during marriage continues to be subject to the liabilities of that spouse on death, regardless of the right of survivorship. See Tex. Est. Code §§ 112.251–.253.
See form 5-18 in this chapter for a survivorship agreement and form 5-19 for a survivorship agreement for community property.
§ 5.13:7Community Interest Special Warranty Deed
The Texas Constitution and the Texas Family Code provide a method of converting title of real and personal property from separate to community property. See Tex. Const. art. XVI, § 15; Tex. Fam. Code §§ 4.201–.206. Before January 1, 2000, the effective date of these provisions, separate property could not be converted to community property because Texas is an inception of title state. The primary purpose of the community interest special warranty deed is to allow a surviving spouse, at the time of the other spouse’s death, to obtain a nontaxable increase in the basis of the property for federal estate tax purposes. According to the Internal Revenue Code, all community property receives an increase in basis to the current market value at the death of the first spouse. See 26 U.S.C. § 1014(b)(6). Strict compliance with the provisions of the Family Code, including the use of bold-faced type, capital letters, or underlined warnings that must appear in the document, is necessary to convert the property to community property. See Tex. Fam. Code §§ 4.201–.206.
There are implications in this type of transaction for divorce, property management rights, and creditor claims, as described in section 4.205 of the Family Code. A separate agreement may be used to address personal-property or family-law issues. The form in this manual deals only with creating an effective conveyance of real property rights. See form 5-20 in this chapter for a community interest special warranty deed.
§ 5.13:8Assignment and Assumption of Leases
The right to receive rent passes with title to real property, and the seller’s tenant becomes the buyer’s tenant as a matter of law. Arredondo v. Mora, 340 S.W.2d 322, 325 (Tex. App.—El Paso 1960, writ ref’d n.r.e.). Nevertheless, parties to a real estate sales contract often provide for a separate assignment and assumption agreement in which the seller assigns its rights in leases affecting the property and the buyer assumes the landlord’s obligations under some or all of those leases. The assignment and assumption often contains indemnities by the parties covering their respective periods of responsibility for the landlord’s obligations under the leases, including those for tenant improvements and brokerage commissions. The assignment and assumption of leases can be modified to include a general or special warranty of title. See form 5-21 in this chapter for an assignment and assumption of leases and form 5-22 for a notice of transfer of security deposit.
§ 5.14General Considerations for Minerals
Texas mineral law is complex and extensive, and a comprehensive review is beyond the scope of this manual. This commentary is intended to identify common conveyancing issues that arise in transactions in which the primary focus is the surface estate, not the mineral estate. Attorneys who are not experienced in mineral law are urged to exercise caution and seek appropriate counsel when mineral law issues arise.
In Texas, the mineral estate may be severed from the surface estate. The mineral estate is the dominant estate and has five essential attributes: the right to explore and develop (ingress and egress); the right to lease (the executive right); the right to receive bonus payments; the right to receive delay rentals; and the right to receive royalty. Day & Co. v. Texland Petroleum, Inc., 786 S.W.2d 667 (Tex. 1990); Altman v. Blake, 712 S.W.2d 117, 118 (Tex. 1986). The mineral estate, and each of its five separate attributes, may be held in undivided interests.
Grants and reservations in Texas are commonly styled “oil, gas, and other minerals” or “all minerals in and under the land.” Although the meanings of “oil” and “gas” are usually clear, adjudication has been required to determine what minerals are included in a conveyance of “minerals.” The Supreme Court of Texas has held that “a severance of minerals in an oil, gas and other minerals clause includes all substances within the ordinary and natural meaning of that word, whether their presence or value is known at the time of severance.” Moser v. U.S. Steel Corp., 676 S.W.2d 99, 102 (Tex. 1984). The Moser decision confirmed the court’s previous holdings that, as a matter of law, certain substances belong to the surface estate: building stone, limestone, caliche, surface shale, water, sand, gravel, and near-surface lignite, iron, and coal. Moser, 676 S.W.2d at 102.
According to the common-law “greatest possible estate” rule, a conveyance will pass all of the estate owned by the grantor at the time of the conveyance unless the instrument states reservations that limit the estate being conveyed. Cockrell v. Texas Gulf Sulphur Co., 299 S.W.2d 672, 675 (Tex. 1956). Thus, a conveyance without a specific reservation of the minerals will convey the grantor’s entire mineral estate. Harris v. Currie, 176 S.W.2d 302, 304 (Tex. 1943). A result of the “greatest possible estate” rule is found in the Duhig rule, which provides that an outstanding right in the mineral estate will be charged to the grantor’s mineral estate reservation, unless a contrary intent is stated in the instrument. See Duhig v. Peavy-Moore Lumber Co., 144 S.W.2d 878, 880 (Tex. 1940).
Royalty is the nonpossessory right to receive a cost-free share of production. It may be reserved in a lease or severed from the fee in a grant or reservation in a deed. An “overriding royalty” or “override” is carved out of the lessee’s interest in the leasehold estate and, absent fraud, breach of fiduciary duty, or similar wrongdoing, terminates when the lease from which it was created terminates.
A royalty clause must be drafted carefully. For example, each of the following may have a different result: an undivided 1/8 royalty; an undivided 1/8 of the royalty; and an undivided 1/8 in a 1/8 royalty. See, e.g., Winslow v. Acker, 781 S.W.2d 322, 326–27 (Tex. App.—San Antonio 1989, writ denied); Ray v. Truitt, 751 S.W.2d 205, 207 (Tex. App.—El Paso 1988, no writ); Tiller v. Tiller, 685 S.W.2d 456, 458 (Tex. App.—Austin 1985, no writ); Lane v. Elkins, 441 S.W.2d 871, 874–75 (Tex. App.— Eastland 1969, writ ref’d n.r.e.).
The right to develop the mineral estate includes the right to use the surface to the extent reasonably necessary for development purposes. Sun Oil Co. v. Whitaker, 483 S.W.2d 808, 810 (Tex. 1972).
The surface owner whose land is to be developed for mineral purposes should be aware of the line of Texas cases concerning surface damages that includes Acker v. Guinn, 464 S.W.2d 348 (Tex. 1971), Reed v. Wylie, 597 S.W.2d 743 (Tex. 1980), and Moser v. U.S. Steel Corp., 676 S.W.2d 99 (Tex. 1984). In Moser, the Supreme Court of Texas confirmed that the mineral owner has the right to use the surface to develop the minerals, but within certain guidelines. For instruments executed before June 8, 1983, the mineral owner is liable for destruction of the surface only if the destruction is negligently inflicted, regardless of how the mineral is described in the severance. For instruments executed on or after June 8, 1983, however, the negligence rule applies only to minerals that are specifically conveyed or named in the instrument. If the mineral is not specifically conveyed or named in the instrument, the mineral owner must compensate the surface owner for surface destruction, whether the result of negligence or not. Moser, 676 S.W.2d at 103. In addition, the mineral owner must accommodate the surface owner’s use of the land to the extent described in Getty Oil Co. v. Jones, 470 S.W.2d 618 (Tex. 1971), and Sun Oil Co., 483 S.W.2d at 810–11.
The surface owner may want to protect the surface by contractual restrictions on mineral operations. Such protections may include limitations on areas that may be used for mineral operations, such as designation of drill sites and pipeline and access easements; alternatively, the surface owner may contract with the mineral owner for a complete prohibition of use of the surface by the mineral owner (a surface-use waiver by the mineral owner).
§ 5.14:4Existing Mineral Lease
There are special drafting considerations if the land being conveyed is subject to an existing mineral lease. For example, the grantor and the grantee should include in the deed their agreement on how to allocate the benefits of an undisputed existing lease between them.
§ 5.14:5Life Tenant’s Right to Consume Royalty
Whether the life tenant, as the owner of a life estate, is entitled to consume the royalty from mineral production on the property depends on the circumstances. If, at the inception of the life estate, there exists either mineral production or a mineral lease, the “open mine” doctrine entitles the life tenant to consume the royalties. Thompson v. Thompson, 236 S.W.2d 779, 786–87 (Tex. 1951); Youngman v. Shular, 281 S.W.2d 373, 375 (Tex. App.—San Antonio 1955), aff’d, 288 S.W.2d 495 (Tex. 1956). Otherwise, the life tenant is not entitled to consume the royalty and must account for it to the remainderman. Swayne v. Lone Acre Oil Co., 86 S.W. 740, 742 (Tex. 1905).
Although a discussion of all areas of concern encountered with mineral interests is beyond the scope of this manual, special consideration should be given to—
•land subject to the Texas Relinquishment Act, where the minerals are owned by the state of Texas and the surface owner acts as the agent for the state in leasing them (see Tex. Nat. Res. Code §§ 52.171–.190);
•exploration by the owners of the right to develop the minerals without executing a mineral lease;
•discrimination by the owner of the executive right (right to lease) among the owners of the right to royalty, the right to delay rentals, and the right to bonus payments;
•ownership of mineral rights by more than one party; and
•severance of the mineral estate, limited by depth of the minerals or duration of the severance.
See clauses 5-7-8 through 5-7-14 in this chapter for reservation of minerals and clauses 5-8-34 through 5-8-36 for exceptions of minerals.
§ 5.15General Considerations for Other Forms of Real Property
The right to harvest growing timber with the accompanying ingress and egress rights together constitutes an interest in real property, which must be conveyed by deed. Burkitt v. Wynne, 132 S.W. 816 (Tex. App. 1910, writ ref’d). See clause 5-9-18 in this chapter.
An easement is an interest in real property. Settegast v. Foley Bros. Dry Goods Co., 270 S.W. 1014, 1016 (Tex. 1925). It gives the holder the right to use another’s land for a specific purpose. Lakeside Launches, Inc. v. Austin Yacht Club, Inc., 750 S.W.2d 868, 871 (Tex. App.—Austin 1988, writ denied). See clauses 5-7-1 through 5-7-4 and 5-8-14 through 5-8-25 in this chapter.
A description of a condominium unit constitutes a sufficient legal description of the unit and all rights, obligations, and interests appurtenant to the unit if the description contains (1) the name of the condominium; (2) the recording data for the declaration, including any amendments, plats, and plans; (3) the county in which the condominium is located; and (4) the identifying number of the unit. Tex. Prop. Code § 82.054. This requirement from the Texas Uniform Condominium Act (Texas Property Code chapter 82) applies to all condominiums. Tex. Prop. Code § 82.002(c).
Some pre-1994 condominium regimes describe apartments by reference to a unit number and building letter. See Tex. Prop. Code § 81.102(a)(2). It is suggested that condominiums operating under the prior Condominium Act (Texas Property Code chapter 81) continue to include the building letter for description. As a practical matter, if condominiums recorded before January 1, 1994, use identifying numbers for apartments that are repeated in each of the buildings (for example, each building includes apartments 1 through 10), a reference to the building letter will be needed to distinguish between like-numbered apartments. See clause 5-8-13 in this chapter for an exception for use in a condominium deed and clause 5-9-3 for a condominium deed property description. See also chapter 24 in this manual for additional information on condominiums.
§ 5.15:4Townhouse and Planned Unit Development Properties
The traditional townhouse project and planned unit developments (PUD) are similar in that both involve privately owned building sites with the common area owned by a separate association (usually a nonprofit corporation) whose members are the owners of the building sites. Easements are provided for access and utilities over the common area in both types of projects.
The description for a typical townhouse or lot within a PUD need not refer specifically to the common area if, as is customary, the common area is owned by the separate community association and ownership of the townhouses or lots in the PUD necessarily includes membership in the association and a pro rata ownership interest in the common area.
Deeds for either townhouses or PUD properties should except to the association restrictive covenants and the assessment lien. See clause 5-9-20 in this chapter for a property description and clause 5-9-21 for exceptions typical of a townhouse deed.
Townhouses generally involve building sites that are the outline or footprint of the separately owned townhouse unit’s perimeter walls, whereas PUDs usually involve one conventional city lot per unit, including a yard and other city lot features. Because townhouses are usually more limited in space, the concept of limited common area is popular for townhouses. Limited common area involves limited access areas, such as screened patios, that are part of the common area but that usually no other owners may trespass on.
A “timeshare estate” is an arrangement under which the purchaser receives the right to occupy a timeshare property and an estate interest in the real property. Tex. Prop. Code § 221.002(24). Once the timeshare plan is established, each timeshare interest may be separately conveyed or encumbered, and the title is recordable. Tex. Prop. Code § 221.012.
The Texas Department of Housing and Community Affairs (TDHCA) administers manufactured housing according to the Texas Manufactured Housing Standards Act. Tex. Occ. Code ch. 1201. Forms pertaining to manufactured housing can be obtained from the TDHCA. Regulations have been promulgated to administer and enforce the Act in title 10, chapter 80, of the Texas Administrative Code. Ownership of a manufactured home is evidenced by the filing of a statement of ownership issued by the TDHCA. Tex. Occ. Code §§ 1201.003(30)(A), 1201.205. At the sale or transfer of manufactured home, ownership does not pass or vest until a completed application for the issuance of a statement of ownership is filed with the TDHCA. Tex. Occ. Code § 1201.206(e).
A process exists that allows the owner of a manufactured home to elect to treat the home as real estate, making it a part of the real property. See Tex. Occ. Code §§ 1201.2055, 1201.2075, 1201.222; Tex. Prop. Code § 2.001(b).
The TDHCA is required to make available to the public through the department’s website searchable and downloadable records regarding the ownership, liens, and installation of manufactured homes. Tex. Occ. Code §§ 1201.010, 1201.207(b).
The Texas Certificate of Title Act (Tex. Transp. Code ch. 501) governs “house trailers.” The Act does not contain a mechanism for converting house trailers to real estate by affixing them to the real estate. House trailers are generally defined as trailers designed for human habitation, and they are treated differently from manufactured housing. See Tex. Transp. Code § 501.002(9); Tex. Occ. Code § 1201.003(12), (18), (20).
If the owner of the manufactured home has elected to treat the home as real property, a copy of the statement of ownership must be recorded in the real property records of the county where the manufactured home is located. Tex. Occ. Code § 1201.222; Tex. Prop. Code § 2.001(b).
Texas statutes address when a manufactured home is personal property and when it is real property. See Tex. Occ. Code § 1201.222; Tex. Prop. Code § 2.001(b). Ordinarily, a manufactured home is personal property. However, if the statement of ownership issued by the TDHCA reflects that the owner had elected to treat the home as real property and a certified copy of the statement of ownership has been recorded in the real property records of the county where the home is located, the manufactured home will be real property. Property Code chapter 63 clarifies the status of a lien on a manufactured home when it converts to real property. See Tex. Prop. Code ch. 63.
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