Examining the “Life” of a Correction Instrument After Broadway and Concho
EXAMINING THE “LIFE” OF A CORRECTION INSTRUMENT AFTER BROADWAY BANK AND CONCHO
CELIA C. FLOWERS, Tyler
Flowers Davis, P.L.L.C.
State Bar of Texas
OIL, GAS & MINERAL TITLE EXAMINATION
June 30–July 1, 2022 Houston
TABLE OF CONTENTS
I. INTRODUCTION 1
II. LIFE BEFORE BROADWAY AND CONCHO 1
A. Myrad Case 1
B. Legislative Response to Myrad 1
III. TEXAS TITLE EXAMINATION STANDARDS 2
IV. SUMMARY OF FACTS AND HOLDINGS IN THE BROADWAY BANK CASE 2
A. Caution Added by the Title Examination Standards Board 2
V. SUMMARY OF FACTS AND HOLDINGS IN THE CONCHO CASE 2
VI. DIVESTING RECORD OWNERS OF THEIR INTEREST 3
VII. RATIFICATION ISSUE 4
VIII. INDEXING OF DOCUMENTS INTO COUNTY RECORDS 4
IX. A CLOSER LOOK AT SECTION 5.029 5
X. EFFECT ON THE TITLE EXAMINATION PROCESS 7
XI. NO LIMITATION PERIODS 8
XII. WHAT MAY APPEAR IN THE NEXT LEGISLATIVE SESSION 8
A. Relation Back and Knowledge 8
B. Notice Issue 8
C. Revision Of Statute 9
D. Add Limitation Period 9
XVI. SUMMARY 9
EXHIBIT A 11
EXAMINING THE “LIFE” OF A CORRECTION INSTRUMENT AFTER BROADWAY BANK AND CONCHO
I. INTRODUCTION
The stability and certainty of title to real property in Texas cannot be overstated. The Supreme Court has upheld and promoted such stability for over 100 years in its many opinions related to record title, notice, and protection of subsequent purchasers. In April of 2021, the Texas Supreme Court decided Concho Resources, Inc. v. Ellison, 627 S.W.3d 226 (Tex. 2021) (“Concho”) wherein the court allowed the subsequent actions of parties to divest an ownership interest of the current interest owner. Then, in May of 2021, the Texas Supreme Court decided Broadway National Bank v. Yates Energy Corp. 631 S.W.3d 16 (Tex. 2021). In that case the court held that a material correction deed only needed to be executed by the original parties to the document requiring the correction regardless of subsequent transfers by those original parties. The Supreme Court’s recent opinions in Broadway and Concho appear to have altered centuries-old policy in favor of allowing subsequent actions (even by parties who own no current interest) to retroactively alter the interest conveyed in the public records without the consent of the current, vested owners. Title examiners must be conscious of these opinions in conducting their examinations of the status of real property titles in Texas.
II. LIFE BEFORE BROADWAY AND CONCHO
For many years, common law allowed the correction of errors in documents based on mutual mistake. In that regard, courts accepted the use of a correction instrument to correct the defects of a deed when the correction instrument referred to those defects and states in the correction instrument that it had the same effect upon the rights of the parties that a court’s judgment would have. In other words, if a court were to preside over a dispute regarding a mutual mistake with all of the interested parties before the court, the agreement of all those parties would have the same effect as the court’s judgment itself would have. For example, one would see correction deeds prepared to correct elements of a legal description signed by all of the respective parties who would have required to be present before the court in order for a judgment to be rendered on the description. In this connection, the correction had to reflect that its intent was to conform the deed to the intent of the parties involved in the original transaction, and therefore, it related back to the original date. Myrad Props. v. LaSalle Bank Nat’l Ass’n, 300 S.W.3d 746 (Tex. 2009), citing Doty v. Barnard, 92 Tex. 104, 47 S.W. 712, 713 (1898); Adams v. First Nat’l Bank of Bells/Savoy, 154 S.W.3d 859, 871 (Tex. App.— Dallas 2005, no pet.); Humble Oil & Refining Co. v. Mullican, 144 Tex. 609, 192 S.W.2d 770, 771-72 (Tex. 1946); see also, Smith v. Liddell, 367 S.W.2d 662, 666 (Tex. 1963); Sanborn v. Crowdus Bros. & Co., 100 Tex. 605, 102 S.W. 719, 720 (Tex. 1907); Halbert v. Green, 156 Tex. 223, 293 S.W.2d 848, 852-53 (Tex. 1956).
Attorneys utilized several different methods to draft these correction instruments. The standard practice developed to require the signatures of any subsequent purchasers because those persons were the record title holders, while the actual original parties were not necessarily required to sign if their interest was not affected.
A. Myrad Case
The Myrad case – rendered in 2008 – provides an illustration the issue of correction instruments. Myrad Properties, Inc. v. LaSalle Bank Nat’l Ass’n, 300 S.W.3d 746, 750 (Tex. 2009). The issue in Myrad involved the foreclosure of two properties. Although the deed of trust covered two tracts of land, the substitute trustees’ deed conveyed only one of those tracts after the foreclosure. Thereafter, the substitute trustee used a correction deed to add the second tract that was originally described in the deed of trust.
As to use of a correction deed to cure an otherwise unambiguous deed erroneously conveying only one property, the Supreme Court held “to allow correction deeds to convey additional separate properties not described in the original deed would introduce unwarranted and unnecessary confusion, distrust, and expense into the Texas real property records system.” Myrad, 300 S.W.3d at 750. As a result of the Myrad holding, parties, even those in agreement, were pushed into filing a lawsuit for reformation to correct a document if it was necessary to have the correction document relate back to the date of the prior instrument it was replacing. Because the correction instrument related back to and became effective as of the time of the instrument it purported to correct, subsequent parties would be put on constructive notice of the deed’s existence and bound by its recitals in spite of the fact those previous owners had conveyed their interest. Adams v. First Nat’l Bank of Bells/Savoy, 154 S.W.3d 859, 871 (Tex. App.—Dallas 2005, no pet.).
B. Legislative Response to Myrad
In response to the court’s holding in Myrad, fearing the inconvenience, delay and expense of a court ordered correction instruction, and with persistent persuasion from the title industry, the legislature passed legislation to limit the Myrad holding and to provide a “self-help” process to correct prior documents without going through a courthouse procedure. The intent of the title industry (and presumably the legislature) was to codify the existing common law. Sections 5.027 through 5.031 were added to the Texas Property Code to set out a method to correct non-material errors as well as material errors in documents that had been recorded in the real property records.
Albeit Sections 5.027 through 5.031 were subject to Section 13.001 of the Texas Property Code which provides protection to “a creditor or a subsequent purchaser for a valuable consideration without notice of an unrecorded instrument,” the statute provided a means for the correction document to relate back to the date of the original transaction and provide the correct terms of the transaction (i.e. the intent of the parties to the original transaction). However, the correction deed could not affect the rights of the intervening bona fide purchaser for value who has no real or constructive notice. Tex. Prop. Code § 5.027 (c) and 5.030(c).
III. TEXAS TITLE EXAMINATION STANDARDS
The practice of obtaining the signatures of all parties whose interest was affected on the correction instrument is embedded in the Texas Title Examination Standards (“Standards”). Myrad 300 S.W.3d at 750; White v. McGregor, 92 Tex. 556, 50 S.W. 564 (1899). The Title Examination Standards Board consists of title insurance, real estate, oil and gas, and title law professionals. The Standards reflect a consensus among well-seasoned industry professionals as to what is required to maintain the stability of title in the State of Texas. Moreover, Title Standard 2.20 of the Title Examination Standard, Chapter II – Marketable Title, Correction Instruments, plainly sets out that a correction deed materially altering a prior deed “should be considered effective only if joined by all persons whose interest are affected.” If the prior (or “original”) owner’s interest is affected, the prior (or “original”) owner would also join along with the current owners, whose interest would also be affected. In short, anyone who owns any interest or whose ownership interest will be affected in any way should be required to sign the correction instrument for that instrument to be effective. This fundamental principle is set forth in the Standards and has been consistently upheld at Texas common law.
IV. SUMMARY OF FACTS AND HOLDINGS IN THE BROADWAY BANK CASE
Broadway Bank involved the correction of a 2005 deed wherein Broadway Bank, acting as a trustee conveyed an undivided mineral interest to one of the beneficiaries under a trust. However, the parties only intended to convey a life estate, rather than the entire fee simple interest. To correct the mistake the Bank filed the first Correction Deed a year later, but that deed was not executed by the beneficiary who was the original grantee. There were several conveyances made after the first Correction Deed including a royalty deed executed by the beneficiary. Then, in 2013, the original grantors and the original grantee to the 2005 mineral deed executed an Amended Correction Deed correcting the 2005 conveyance to convey only a life estate. The Amended Correction Deed was not signed by any of the subsequent interest owners.
The Supreme Court, reviewing the applicable provisions of the Texas Property Code, held that the 2013 Amended Correction Deed was valid because it was signed by the “original” parties to the 2005 transaction. The Court further held, that unless one of the “original” parties were “unavailable”, only the “original” parties to the transaction must sign the correction instrument. The signatures of the parties to the subsequent transactions, who were the apparent current record title owners, were not required. The Court failed to define “unavailable”. Additionally, the Court did not address the inconsistency of their interpretation of Section 5.029 with the applicable Texas Title Examination Standard.
A. Caution Added by the Title Examination Standards Board
After the Broadway Bank case was decided, the Title Examination Standards Board added the following caution to its Standards:
“In Broadway Nat ’l Bank v. Yates Energy Corp., 631 S.W.3d 16, 2021 WL 194002 (Tex. 2021), the Texas Supreme Court held that a material correction made in a correction instrument signed by parties who no longer held an interest in the property was valid without the joinder of the then current owners. Notwithstanding this holding, an examiner should not rely on a purported correction instrument that makes a material correction to an earlier instrument under Tex. Prop. Code section 5.029 unless all who could be adversely affected by the correction, i.e., creditors and subsequent purchasers have joined in its execution because an examiner cannot ordinarily determine whether such party is protected or unprotected by Tex. Prop. Code section 5.030. In the case of a nonmaterial correction, if the correction instrument has not been executed by all parties to the original instrument and current owners, then the examiner should not presume that the parties that executed the correction instrument complied with the requirements of subsection 5.030(d). Moreover, an examiner should use caution in determining whether a particular correction is material or nonmaterial. Because of the difficulty in determining the materiality of a correction, absent a judicial resolution, the examiner should exercise caution in relying on a correction instrument in which not all affected persons have joined.”
V. SUMMARY OF FACTS AND HOLDINGS IN THE CONCHO CASE
The Concho case involved another fundamental title principle upon which all title examinations start — the identification of the subject property to be examined. This fundamental title principle is also embedded in the Texas Title Examination Standards. V.T.C.A., Property Code T. 2, App., Title Examination Standard 2.20.
In Concho, a road that had been in place many years was considered the boundary line between two pieces of property which were conveyed in a 1927 deed. The location of the road and the description of the properties calling to that road were in several recorded documents. The oil and gas leasehold ownership was different under the two tracts.
Then, in 2008, decades after the 1927 deed, an agent for one of the current leasehold owners approached the landowners who owned record title of both the surface and the minerals requesting a boundary stipulation to cure a title requirement as to the location of a well. The owners agreed to sign a boundary stipulation changing the boundary line between the tracts from the road to another location. Part of the basis for the stipulation was that it reflected the “called acreage” in the 1927 deed originally filed among the parties. The change in the boundary affected the ownership of 154 acres. Approximately 5 years later, a party affected by the boundary stipulation filed suit to have the stipulation set aside as void based on the assertion, in part, that the 1927 deed was unambiguous as to the location of the boundary between the two tracts. However, the Texas Supreme Court did not agree. In reversing the Corpus Christi appellate court’s decision, the Texas Supreme Court held “that the Boundary Stipulation [was] a valid agreement between the mineral owners of the two tracts at issue” based partially on the rationale that owners could freely decide to bind themselves to an agreement to resolve property disputes in an effort to avoid litigation. The high court also held that a document, which was essentially a “letter of intent,” signed by the leasehold owners served as a ratification that signified their acknowledgement and acceptance of the boundary change. The boundary agreement in this case contained express wording to retroactively transfer title to all estates in the disputed 154 acres from the current owner(s) to the party on the other side of the unambiguous public road boundary without the joinder or acceptance of all those leasehold owners that owned a recorded, vested interest in the tract. The boundary agreement thus resulted in the conveyance of approximately 154 acres of leasehold interest to a different owner.
As set out in the Standards and consistently upheld at Texas common law, the location of the property must be properly defined by its unambiguous boundaries, regardless of any nominal acreage discrepancies recited in property conveyances. This rule known as the “Stribling rule” encompasses multiple common law principles and statutory requirements for determining boundaries as well as the “priority or dignity of calls” rules. This property rule has been accepted by the courts regardless of the size of any asserted acreage discrepancy. Stribling v. Millican DPC Partners, LP, 458 S.W.3d 17 (Tex. 2015).
Despite these title standards, the Supreme Court in the Concho decision allowed the “called acreage” to control over unambiguous boundaries expressly identified in the public property records. The “public road” was clearly described as the unambiguous boundary between the tracts in the recorded 1927 deed and the oil and gas leases creating the leasehold interest The court’s holding allows a later subjective determination of “uncertainty” to control over the unambiguously defined location of record. This holding may not only be interpreted to apply to the “uncertainty” or error in a boundary agreement but also an error in a deed justifying the use of a correction deed under the property code. Title examiners will now have no means to confirm whether boundaries in documents filed of record are the “correct” boundaries if “off record” facts are allowed to dictate the existence of a boundary lines in contradiction of descriptions shown of record.
Unfortunately, the opinion serves to undermine the reliance title examiners have placed on recorded title conveyances with unambiguous boundary descriptions. This inability to rely on record title will result in inconsistencies in title examination, as well as jeopardize the availability of financing by lending institutions relying on real property as collateral.
How can a title examiner conduct investigations of “off record” facts relating to each prior conveyance in a title chain? How far does that examiner have to investigate the past documents to look for acreage “discrepancies” or other undefined “circumstances” that would somehow give indication (or not) that the parties did not really mean to convey certain property despite the existence of recorded conveyances that clearly define the boundaries?
VI. DIVESTING RECORD OWNERS OF THEIR INTEREST
The Concho and Broadway Bank opinions serve to allow the divestiture of a current owner’s real property interest. The potential schemes by undivided interest owners, prior owners and/or adjacent landowners to unilaterally divest record title owners are endless. Such schemes can certainly lead to increased jury trials with unpredictable results based upon juries finding acreage discrepancies “too large”, or juries finding other off record “circumstances” to justify disallowing unambiguous boundaries referred to in ancient documents or the subsequent correction of a prior deed to control as the proper original intention of the parties. V.T.C.A., Property Code T. 2, App., Title Examination Standard 13.40. The oil and gas and real estate industries, their lenders, title insurance policies, oil and gas title opinion writers, and professional landman that investigate and confirm the titles to facilitate their client’s business activities cannot properly function without certainty in recorded legal titles.
Of course, at any time, landowners with a common boundary can execute a “boundary agreement” if they want to change that boundary. Texas law provides the means for such action by allowing the parties to adequately describe the new boundary line location in writing and execute a document with cross-conveyance language that includes present words of grant to convey the land that is being moved from one side of the boundary to the other side of the new boundary. Such action violates no title law principles or property rules. However, what is troubling is to allow that agreement to affect other interest owners in the property that were not parties to the agreement.
Recall that Myrad confirmed the longstanding common law property title principle, that “correction deeds” – cannot retroactively change the nature or amount of vested property title ownership in an earlier conveyance in any material way. Myrad Properties Inc. v. LaSalle Bank National Association GMAC, 300 S.W.3d 746, 750 (Tex. 2009). In conjunction with the stability of title in Texas, the Myrad case ultimately held that if a real property interest is recorded with no obvious ambiguity or error on the face of an earlier conveyance, a “correction deed” – no matter how named or characterized – of said earlier conveyance cannot divest title from the current, vested title owner. See id.
It appears a motivating policy for the Texas Supreme Court in the Myrad holding was the preservation of the notice effect by recordation. 300 S.W.3d at 746. Myrad fully supports the procedures every title examiner employs to confirm titles by examining recorded title conveyances relying on the effect of notice given by those recorded instruments. An instrument such as a boundary stipulation does not meet the “correction deed” definition. That type of instrument, used to divest current interest owners, has never been permitted under Texas common law nor is it permitted under the correction deed statute. See, Tex. Prop. Code § 5.027. The correction statute requires an “ambiguity or error” in the original conveyance description. Such error is non-existent in the 1927 deed examined in the Concho case. See, Howard Williams, Recordation Hiatus and Cure by Limitation, 29 Tex. L. Rev. 1 (Nov. 1950), discussing the title search “quadrivium” of White v. McGregor, 50 S.W. 564 (Tex. 1899); Houston Oil Co. of Texas v. Kimball, 122 S.W. 533 (Tex. 1910); Delay v. Truitt, 182 S.W. 732 (Tex. Civ. App.—1916, error ref’d); Breen v. Morehead, 136
S.W. 1047, 1049 (Tex. 1911).
Apart from title examiners’ record title concerns, the Concho opinion’s allowance of a decision solely based on claimed “subjective intent” is an invitation to unpredictable jury trials. The uncertainty is additionally compounded by the Concho court’s perceived allowance of a subjective intent assertion without allowing it to be questioned or “second-guessed” despite clear evidence in the record to rebut that assertion. Concho Resources, Inc. v. Ellison, 627 S.W.3d 226 (Tex. 2021).
VII. RATIFICATION ISSUE
The court in Concho points to a “letter of intent” sent by one party to the other to support its holding. The 2008 “letter of intent” in Concho is not a legally effective ratification that could transfer and divest the leasehold owner’s vested title. This type of letter is a customary practice in the industry that invites negotiated documents which would later serve as the actual conveyance. Stated otherwise, the letter examined in Concho would arguably never be viewed as anything other than an agreement to later agree. That type of agreement, without conveyance language of any type, could not divest a leasehold owner.
Landmen often preliminarily “accept” a suggested written or oral description of the subject property with no expectation that title to the property would be divested in the process. Presumably, an oil and gas title attorney who examined the title in Concho would have advised a landman receiving the 2008 letter that it was a “letter of intent” that contemplated a future recordable assignment if a final “deal” were to be consummated. A title examiner reviewing a record title would not have notice of the unrecorded 2008 letter. Even if the examiner were provided a copy of the letter in Concho, it did not contain the necessary conveyance language. There has never been a Texas case holding that a client could lose a vested, recorded lease title through a preliminary “acceptance” of a proposed legal description modification where the agreement was expressly made subject to the landman’s promise to send a “more formal, recordable document” for review and approval. Simply put, the letter was not a conveyance and was not made a conveyance by merely countersigning and returning the “acceptance” letter. The fact that the letter, itself, refers to a later “recordable” form of document(s) indicates its author knew the letter itself would not meet the requirements to transfer the title. Westbrook v. Atlantic Richfield Co., 502 S.W.2d 551 (Tex. 1973).
Notwithstanding, the Supreme Court in Concho correctly held the [Stipulation] executed between the surface owners did not qualify as a statutory “correction deed”, and that any attempt to treat the Stipulation as a “conveyance” to retroactively change the 1927 Deed Tract description fails, because that would make the Stipulation a void common law “correction deed”, and thus incapable of any “ratification.”
VIII. INDEXING OF DOCUMENTS INTO COUNTY RECORDS
To understand how a subsequent conveyance made by a party that had divested itself of its interest would not be captured by a search of the property records, one must understand how a document is filed with the County Clerk into the public records. When a document is filed, the county clerk indexes that document by Grantor (seller/debtor/lessor) in the “Grantor” index and by Grantee (buyer/lender/lessee) in the “Grantee” index. These are separate indexes. This is even true in most of the counties that use electronic indexes. The index must be searched by the Grantor’s or Grantee’s name. The search of these records provides the history of the property in the form of documents filed under a person’s name as grantor or grantee. It is the search of that information that allows an examiner to determine the current owners of the various property interests.
The Broadway Bank and Concho opinions ignore the mechanics of indexing the public record that title examination depends upon. Essentially, the opinions upend any certainty for title examiners in relying on a search of the public property records in the manner currently used (i.e., one searches A’s name until A sells to B, then one searches B’s name and so on). Stated otherwise, following these opinions, title examiners will now have no means of confirming the current record title holder because a prior owner (whose name would not have been searched after conveying all of his interest) can execute a correction instrument affecting the current owner’s interest without the current owner joining in the instrument—in fact without even giving the current owner notice. Additionally, as this statute is now interpreted by the Court, the examiner could never certify as to the title owners without disclaimer because after the determination of the record title holder, any of the prior owners could unilaterally declare there was a mistake and divest the current title holder without notice or consent using the correction deed. The examiner’s opinion of current ownership can be upended the day after the opinion was issued by a correction deed divesting the current owner of his interest without the owner executing the deed or even knowing the divesture has occurred.
Some believe the courthouse indexing no longer matters because title companies exist that index deeds and other instruments geographically (indexed by the property) and because the use of electronic searches are becoming more prevalent. However, it is not the indexing of the title company that is of consequence. The recording of the document at the County Clerk’s office is the significant yardstick of “recording”. In fact, the correction statute addresses this issue to some extent as it tells the County Clerk how to index the Correction Deed.
Section 5.027 confirms that a correction instrument can correct an ambiguity or error in a recorded “original” instrument of conveyance including an ambiguity or error that relates to the description of or extent of the interest conveyed if the instrument complies with Section 5.028 or 5.029.
Section 5.028 pertains to “Nonmaterial Corrections.” This section requires a person “who has personal knowledge of facts relevant to the correction” of a recorded original instrument of conveyance to prepare or execute a correction instrument to make a nonmaterial change that results from a clerical error. The statute sets out a list of those matters that would fall under the nonmaterial category. The person who executes a correction instrument under this section shall disclose in the correction instrument the basis for their personal knowledge of the facts relevant to the correction of the recorded original instrument of conveyance. This section requires that a person who executes a correction instrument that is “not signed by each party to the recorded original instrument” to send a copy of the correction instrument and notice by first class mail, email, or other reasonable means to each party to the original instrument of conveyance and “if applicable, a party’s heirs, successor or assigns.”
Section 5.029 includes similar but different language. In addition to nonmaterial corrections the parties to the original transaction or the parties’ heirs, successors, or assigns, as applicable may execute a correction instrument to make a material correction to the recorded original instrument of conveyance. The statute outlines the type of material correction that can be made. In Section 5.029 (b) the statute requires that a correction instrument must be executed by each party to the original instrument the correction instrument is executed to correct or if applicable, a party’s heirs, successors, or assigns.
Section 5.030 confirms that a correction instrument that complies with Section 5.028 or 5.029 is effective as of the effective date of the recorded original instrument and creates a presumption that the facts stated in the correction instrument are true. The section further states that an instrument in compliance with these sections is “notice to a subsequent buyer of the facts stated in the correction instrument”. The Supreme Court appears to believe that Section 5.030 is rendered pointless if the heirs, successors, or assigns are required to execute the correction deed.
IX. A CLOSER LOOK AT SECTION 5.029
Texas Property Code Section 5.029 allows a material correction to a recorded original instrument of conveyance and enumerates a number of specific instances where the section can be utilized. Section 5.029 (b) provides that a correction instrument under that section must be “executed by each party to the recorded original instrument of conveyance the correction instrument is executed to correct or, if applicable, a party’s heirs, successors, or assigns.” The Supreme Court’s holding in Broadway Bank interprets this section to allow former property owners to sign a
material correction deed years after the original deed, without notice before or after to current owners, and by doing so, divest current owners of their recorded title. (In the Broadway Bank case, the former owners unilaterally tried to reduce an outright fee simple conveyance to a life estate only, without the consent of the current owners). No notice to current record owners is required before doing so, and no notice except recording is required after.
Any statute or any court’s opinion that allows an owner of real property to be divested of their interest without their knowledge and consent has serious consequences to industries relying on “record title”. So, of course, to allow a previous owner to “correct” a conveyance and divest current owners of recorded title to any part of their property interest without written (recordable) consent or even without their knowledge would turn our system (a very dependable one) of checking titles to land and reporting on its ownership into an unworkable and undependable system.
The Broadway Bank opinion goes on to state that the Supreme Court’s understanding of the “if applicable” provision was to “provide a substitute person or entity to sign when a party to the original conveyance is unavailable to sign a correction instrument for a material error.” But “unavailable” does not mean “if applicable.” This interpretation reads “unavailable” into the statute where it does not exist. There is no definition given by the Court of “unavailable.” What reasoning exists for the original parties to a previous conveyance to execute the correction deed document changing the property’s ownership if they do not own a current interest in the property? Those parties would never be required to execute a deed to convey the property. The current interest owners would be the current record title holders and the proper parties to convey an interest in the property by deed. Additionally, the prior owners who do not currently own any interest would not be required parties to a lawsuit to determine the disputed ownership of property if the dispute did not affect their interest. The Court’s reasoning would make all parties in a chain of title necessary parties to execute deeds to convey the property and be necessary parties to a trespass to try title action.
The term “original parties” has no real meaning if those parties are no longer the current owners. If that were the case, “original party” could then mean any party in the chain of title because any of the prior owners could subsequently claim there was an error in the original conveyance. The more likely interpretation of “if applicable,” and one the Legislature surely meant, is that the correction document is executed by the original party while he or she is the record title holder or if the original party is dead or has conveyed the property, by the original parties’ heirs, successors, or assigns— because those parties are now the record title holders.
Because those original parties are dead or have conveyed the property, it would be applicable for the new and current owners to sign the correction deed. The four dissenting Texas Supreme Court justices in Broadway Bank agreed that when an original grantee has conveyed the property at issue, the current owners are the applicable successors or assigns to execute a correction deed affecting that property – which would be consistent with common law and the Standards. White v. McGregor, 92 Tex. 556, 50 S.W. 564 (1899). Under the majority’s decision, a court first must find that the original owners made any actual “error.” This would apply to conveyances made many years before the conveyance to the current owner by virtually any owner in the chain of title. How could a future purchaser have any objective knowledge of the subjectivity of the “original” owners (meaning any owner before the current owner) in determining whether there was an error? Under the Court’s interpretation of the statute, those “original” owners can simply unilaterally correct an instrument after conveyances to subsequent owners without the agreement of the subsequent owners. The Court reasons 5.030 protects the subsequent bona fide purchaser. So as a title examiner, you could arguably never depend on record title the day of the examination, because a prior owner could subsequently change the interest conveyed.
Determining the identity of the “original owner” and whether the “original owner” was “unavailable” (whatever that means) forces title examination by subjective-intent analysis and jury fact-finding missions The argument that a Correction Deed executed by the original parties will be in the chain of title because 5.030 provides that it replaces the original deed that it purports to correct demonstrates the lack of understanding of the way deeds are indexed in the county records in Texas. As referenced above, unlike some states that index instruments on a tract basis, county clerks (and title examiners) in Texas rely solely on a grantor-grantee indexing system. Thus, an examiner who traces title on the grantor-grantee basis would not discover a correction deed executed by an original grantor who had already conveyed all his interest in the subject land. The opinion would imply that a party who subsequently acquired the property from the record owners under the chain of title rule could not be an innocent purchaser because the correction deed executed by the original grantor after he had already conveyed his interest would automatically become part of the chain of title like it was in the proper order with the other conveyances found by the search. A subsequently filed instrument executed by a grantor who had conveyed his interest is not a part of the chain of title because the examiner would never see the subsequently filed instrument—whether or not the relation back is effective as between the executing parties.
X. EFFECT ON THE TITLE EXAMINATION PROCESS
Although most likely not the Broadway Bank or Concho Courts’ intent, the holdings in these cases will serve to undermine the reliance title examiners have placed on recorded title conveyances. This inability to rely on record title will result in inconsistencies in title examination, provide unsure results, increase time and expense, and cause wide-spread delays in conducting real estate and energy industry development Additionally, the availability of financing by lending institutions relying on real property as collateral will be jeopardized.
The appearance of a correction deed in the prior chain of title presents more confusion. How can a current title examiner know who the “original” parties were and whether they were “unavailable”? Does any prior owner qualify as an “original” party? How can a title examiner conduct investigations of “off record” facts relating to each prior conveyance in a title chain? Does the examiner have to talk to all parties that are in the chain of title and confirm they have not unilaterally found a matter they think needs correction? If an “original” party did not sign the correction deed (just the parties affected by the correction), how does the examiner determine the “original” party was unavailable? Or is the correction deed invalid? How far does that examiner have to look into the past documents for “discrepancies” or other undefined “circumstances” that would somehow indicate (or not) that the parties did not really mean to convey the property in spite of the existence of other conveyances filed of record clearly conveying the interest?
Myrad, and cases cited therein confirm, preserving the notice effect due to recording is the cornerstone for protection of vested property titles. 300 S.W.3d at 750. That is why common law principles for “correction deed” law prohibit material, retroactive changes in a prior recorded conveyance to an unambiguous land description or to the nature of the property interest conveyed. See id. Myrad stands for the principle that a subsequent conveyance by any prior owner that divests later owners in the chain of title of any part of their vested title is not valid against the current owner who did not execute the correction deed.
As stated above, in going forward in the examination, the examiner searches only the current owners of the various property interest. The examiner does not search an owner in the chain of title that had divested its interest prior to the search. The idea of now having to perform forward searches of everyone in the chain of title would change the standards of all searches and make those searches unthinkably cumbersome. Additionally, an examiner who sees a correction deed in the chain of title would require undefined and unlimited “off record” investigations, searching for possible matters affecting title that are unknown and even unknowable. Stribling v. Millican DPC Partners, LP, 458 S.W.3d 17 (Tex. 2015). Operating under these opinions, a title examination and formal title opinion could never be conclusive, due to matters that are not known to the potential buyers, borrowers, and lenders that may subsequently be raised to defeat their ownership.
The Broadway Bank court’s opinion will change the examination of a correction deed in the chain of title from an issue easily discernable by the examiner that all parties who owned a current record title interest had executed the correction deed to a question of fact for a jury as to who were the “original parties” and whether one of original parties were “unavailable” (out of town, incapacitated or whatever that definition becomes). If the current owner happens to be the one that signed, does the examiner have to confirm the “original” owner is now dead, not capable of signing, out of the country (or at least out of town) so that he is one of the “applicable” parties referred to in the statute as interpreted by this Court? Every correction deed in the chain of title renders the title one that can only be decided by a court of law and not a mere title examination of the deed records. A correction deed in the chain of title would always be a title flaw presenting fact questions.
Additionally, under the Court’s interpretation, in every instance of a correction deed that is not executed by the true current owner, the current owner must file suit against the prior owner (who voluntarily divested his own self of his interest) to prove the current owner’s status. So the subsequent owner divested of title by a correction deed (in which all stated facts are presumed true) must first discover he has been divested because he is not given actual notice (though notice is even required under the “non-material” part of the correction statute), go to the expense to obtain a lawyer, determine if he must sue, file suit within the statute of limitations or be barred from getting the title for which he has already paid. Further, the current owner would not win on summary judgment due to the fact issues regarding his bona fide purchaser status. During this time, that current owner must be making his mortgage payment or face foreclosure by his mortgage holder, whose title used for collateral has also been divested. Of course, even if the true current owner prevails with a jury, he is still facing the costs, not to mention, the waste of judicial resources.
This point is made in Concho where an examiner would not be obligated to search for (and would not even know to do so) the subsequent 2008 stipulation in because it was executed 20 years after the lease was executed. Concho Resources, Inc. v. Ellison, 627 S.W.3d 226 (Tex. 2021). There would be no reason to conduct further investigation as to the leasehold interest after it was vested and properly recorded. And, even if the subsequent stipulation came to the title examiner’s attention, its execution subsequent to the lessee’s vested recorded title would have no effect on the lessee’s title or any lender lien rights securing financing for the proposed drilling.
XI. NO LIMITATION PERIODS
The judicial remedy of deed reformation has a four-year statute of limitations. However, the holdings of the courts in Broadway Bank and Concho impose no such limitation period for the self-help provisions of the correction deed statute or the time in which must pass before you can rely on a description or rely on a conveyance. So current owners divested of their interest by “voluntary agreement” between prior owners (even those having no current interest) fall under the 4-year statute of limitations and therefore must file a lawsuit to protect their interest within a four-year period. There is no statute of limitations applicable to the prior owners who made the error on the deed that limits them to a time under which they must raise the issue with the subsequent owners.
XII. WHAT MAY APPEAR IN THE NEXT LEGISLATIVE SESSION
Changes to the Correction Deed Statute may have a place at the 88th Legislative Session coming in 2023. There are discussions among industry about whether the correction deed statute itself should be changed in response to Broadway Bank and, if so, what changes would clarify how correction deeds can be accomplished and how to give effect to the recorded correction deeds already in the record. The desire to clarify the statute is tempered by the fear of creating another issue with the statute that has not been reviewed by the courts.
A. RELATION BACK AND KNOWLEDGE
In reviewing whether to propose changes to the correction deed statute the concepts of relation back of the correction instrument to the date of the instrument being corrected and the statutory requirement of knowledge of the original transaction need to be considered. As discussed above, current record title holders can agree to change their boundaries/description or correct a prior instrument’s errors at any time. The change they agree on does not relate back to the “original” error date. To comply with Section 5.028 the correction cannot be retroactive unless the person executing the correction document has personal knowledge of the original transaction. This is understandable as this Section allows anyone (not just parties to the original transaction) with knowledge of the original transaction to execute the correction instrument when the correction is nonmaterial. However, there is no mention of the “knowledge” of the original transaction as a requirement in Section 5.029. This might be because this section involving material corrections anticipates the involvement of the parties to the original transaction or the “parties’ heirs, successors or assigns, as applicable.” If one reads the “knowledge” requirement into Section 5.029 then the original parties’ heirs, successors or assigs may not have the knowledge of a mistake that occurred in the original transaction in which they were not a party. That would arguably preclude them from executing the correction instrument. Would knowledge of the original transaction be important if the material correction does not affect the original owners’ interest? The Standard notes that all parties whose interest would be affected must sign the correction instrument. Therefore, IF the prior owner’s interest would be affected, then the signature of those prior parties would presumably be needed as well. But if the current owners discover an error made by the prior owner that does not affect that prior owners’ interest at the time of the correction deed, would knowledge of the original transaction be meaningful.
B. NOTICE ISSUE
Another issue that could be addressed with a change to the correction deed statute might be a notice requirement. Section 5.028, which covers non-material corrections, requires the original parties to be noticed “by sending a copy of the correction instrument and notice by first class mail, email, or other reasonable means to each party to the original instrument of conveyance and if applicable, a party’s heirs, successor or assigns.”
There is no such notice provision in 5.029 that covers material corrections. Certainly, if there is a notice provision in the nonmaterial section, it would make sense in light of the current case law that a notice provision be added to the material correction Section 5.029. However, when current vested title interest owners are subject to being divested of their interest by prior owners that have no current interest, one would believe the level of notice would be something more than is required in Section 5.028, which covers only nonmaterial corrections.
When there has been a subsequent transfer of the interest of the “original” party and the current interest owners are correcting the prior conveyance, should the notice be made to the “original” owners by the subsequent owners who are making a correction regardless of whether the proposed correction affects the “original” owners’ interest? What if the “original” parties who have conveyed all their interest have decided they made a mistake and want to correct it? Should the notice be given by the “original” owners to any subsequent owners that the “original” owners are making a correction that will/may affect the subsequent owners’ interest? Should notice be required at all if a party’s interest is not affected? In both situations, the party that is being asked to execute a correction for the benefit of the other party may hold the transaction hostage and require money for their signature.
So, what kind of notice should the statute require when a party is going to be divested of their current record title? If it is actual notice, then it begs the question of how that actual notice will be evidenced.
C. OTHER THOUGHTS ON REVISION OF STATUTE
Perhaps the Sections referring to “if applicable” can be easily revised. Section 5.028 requires notice to be given to “each party to the original instrument of conveyance and, if applicable, a party’s heirs, successors, or assigns.” Section 5.029 requires the parties to the original transaction “or the parties’ heirs, successors, or assigns, as applicable” to execute a correction instrument. Remember the Supreme Court in Broadway Bank interpreted this “if” or “or” provision to mean if the original parties are “unavailable” without a definition of unavailable. Would the revision simply be to revise the statute to define “unavailable” or “as/if” applicable. Possibly an instruction or definition could be added confirming these Sections apply to give notice to or require signatures by the parties to the original transaction only if those original parties’ interest will be affected. If the original owners are not affected, the only the current interest owners would be necessary parties to the correction instrument. In other words, revise the statute to have meaning consistent with the Title Examination Standards. If the original parties “are not living or have conveyed all of their interest” then the proper parties would be original parties’, heirs, successors, or assigns whose interest would be affected. Then it is clear to the industry who is required to sign a correction deed for it to be effective and clear to the industry how to treat a correction deed in the chain of title.
D. ADD A LIMITATIONS PERIOD
The negative impact of these cases may be reduced if the legislature added a limitations period limiting the time in which the “original” parties can file suit to correct their original transaction when it affects the subsequent or current owners’ interest. As stated before, the current owners divested of their interest by “voluntary agreement” between prior owners fall under the 4-year statute of limitations and therefore must file a lawsuit to protect their interest within a four-year period. It would make sense to impose a similar limitations period on the “original” owners.
XVI. SUMMARY
The Broadway Bank and Concho courts’ construction of Property Code sections 5.027 through 5.030 have the potential to invite fraud, promote litigation, and undermine stability of title. Attached as Exhibit A is an example of the absurd results title examiners will now face. Under the courts’ decision, owners and examiners would have the burden to monitor deed records going forward after the original conveyances to determine if prior owners have filed any correction document that would change the current owners’ interest. The “correction” deed could even be secretly created and filed without notice to the current record owners of the interest. Certainly, this goes against the intent of the correction deed statute.
These decisions will increase the burden of searching title prior to acquiring property or issuing title insurance. No longer will title examiners be able to stop searching title on parties who have conveyed all their interest in the relevant property, because those parties may still divest current owners by unilaterally executing a correction deed changing the property or type of interest conveyed to them without notice.
Instead, title examiners would now have to run everyone in the chain of title out ad infinitum—even after they are no longer in the chain of title—lest they overlook a correction deed that would defeat vested title of a record title owner or even its predecessors up the chain being examined. These cases show little respect for valid recorded title, which is the very thing the title industries rely on.
The Myrad case clearly and concisely stated the dangers of this type of situation. Even the Concho case recognizes subsequent agreements by themselves could not retroactively bind others who had an interest in the tracts and were not parties to the agreement.
Under the current case law if a correction deed is found, the examiner has no idea if the “original owner” was “unavailable” (whatever that means) and therefore, every time a correction deed is used, the title will become questionable and examiners will be forced to make burdensome requirements to determine if the correction deed is valid (or not). The Supreme Court has provided title examiners no answers to that dilemma.
EXHIBIT A
Examples of the ridiculous results
In 2008, Abbey owns 100 acres of land in Smith County. In 2009, Abbey has two 50 acre tracts surveyed out of the 100.0 acre tract. Later in 2009, Abbey sells the two 50-acre tracts to Alice. Alice sells one of the 50-acre tracts and ½ of the minerals thereunder to Ben in 2010. In 2012, Alice sells the other 50-acre tract and ½ of the minerals thereunder to Candice. In 2015, Alice sells all interest she has in the property (which is only a mineral interest) to Doug. In 2015, Doug executes an oil and gas lease to Pond Petroleum on Ben’s 50 acres and an oil and gas lease to Dry Hole Exploration on Candice’s 50 acres.
One of the calls of the 2009 survey in the deed to Ben was incorrect. A dispute arises over the boundary line between the two 50-acre tracts. Ben and Candice are agreeable to settle that matter by signing a correction deed to move the boundary line 50 feet further onto Ben’s property.
In this scenario prior to Broadway Bank and under the preferred reading of 5.029, Ben and Candice could simply enter into a correction deed correcting the description. They were the assignees of the “original” owner. The “original” owners have no remaining interest. Abbey had conveyed all her interest to Alice and Alice had conveyed all her interest so neither had a reason to sign as their interest would not be affected. (Forget that warranty rabbit trail argument – warranties have NOTHING to do with record title.) Unless Pond and Dry Hole joined the deed, their interests could not be affected during the life of their lease. Seems simple….
With the Court’s reading of 5.029, the correction deed would have to executed by Alice too (OR would it have to also be executed by Alice and Abbey because the mistake was made during the time Abbey owned the property)? But when Ben and Candice go to Abbey to get the correction deed signed, Abbey refuses to sign without the payment of money. (See that is how it works when you ask someone to sign something, they want to be paid). SO the only party that does not agree is the party who owns no interest.
Under the Dissent’s interpretation of Sec. 5.029, Ben and Candice could proceed because they were the only necessary parties and would have been the only necessary parties in the resulting lawsuit regarding the title if they had not agreed. Now with the Court’s reading of 5.029, does the statute itself cause Abbey to now be a necessary party in a lawsuit in a dispute where she owns no interest?
Under the Court’s reading of 5.029, would it be wiser for Ben and Candice (who agree) to do a boundary line agreement with conveyance language that is not retroactive? Contrary to Concho, I would believe that if Pond and Dry Hole’s interest was affected, they would have to be parties to the boundary line agreement.
If the agreement is agreeing to a boundary on the surface of the property in the future and not affecting the mineral ownership boundary lines, then there is no need for Pond or Dry Hole to sign. If the agreement is affecting surface and minerals, then (before Concho) clearly Pond and Dry Hole would have to sign and agree to the boundary change.