4 Recording and Constructive Notice Anyone may put the world on notice of an interest in real estate by recording the instrument in the records of the county in which the land is located. The effect is to put all subsequent purchasers and creditors on notice of the claimant’s interest, and that the instrument is subject to inspection by the public. Subsequent purchasers and creditors are under a duty to search the records to assure themselves of proper title or of priority lien interests in the real estate that may adversely affect them. Texas law further provides that unless these instruments are recorded, they are void as to all such subsequent purchasers and creditors,
5 Recording and Constructive Notice Therefore, the basic premises behind the Recording Act are: 1. To protect the individual who owns an interest in real estate (because by recording he establishes the priority of his interest). 2. To assure subsequent purchasers and creditors as to the status of the title of that real estate.
6 Recording and Constructive Notice Any instrument that is not recorded is still binding between the parties; but it is not notice to third parties or subsequent creditors or purchasers of the property and therefore would not be binding against them!
7 Constructive Notice vs. Actual Notice Constructive notice is accomplished once the instrument has been properly recorded in the county clerk’s ofﬁce. The entire world is legally on notice of that interest in the real estate. The law requires subsequent purchasers and creditors to search the records. Constructive notice is information or knowledge of a fact imputed by law to a person. Actual notice exists when the subsequent purchaser or creditor has express information about something— something that reasonable, diligent inquiry and exercise of the means of information would disclose.
8 If a person acquires property without either actual or constructive notice, he is considered to be a bona ﬁde purchaser for value without notice and acquires title to that real property free and clear of any other claims. Therefore, in order to obtain the status of bona ﬁde purchaser for value without notice, the prospective purchaser has the obligation to: (1) search the record and (2) look at the property to see who is in possession. Constructive Notice vs. Actual Notice
9 The Recording Process There are four basic requirements that an instrument must have to be properly recorded: 1. The instrument must be the original instrument, not a copy (which means that the signature must be original). 2. The instrument must be in English and not a foreign language. 3. The instrument must be properly acknowledged, witnessed, or sworn to with a proper jurat. 4. It must be recorded in the county where the property is located.
10 The Recording Process If it is an “instrument” (deed or deed of trust) it must contain a notice on the ﬁrst page of the instrument in 12 point bold-faced type or 12 point upper case letters and read substantially as follows: NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY OF THE FOLLOWING INFORMATION FROM ANY INSTRUMENT THAT TRANSFERS AN INTEREST IN REAL PROPERTY BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S LICENSE NUMBER. If federal law requires a document contain a social security number or driver’s license number, it overrules this requirement.
11 Electronic Filing New changes were recently enacted by the Texas Legislature that allow authorized persons to ﬁle documents electronically with a county clerk that accepts electronic ﬁling.
12 Electronic Filing Those who may ﬁle electronically include: (1) an attorney licensed in Texas. (2) a bank, savings and loan association savings bank, or a credit union doing business under the laws of the United States or the State of Texas. (3) a federally chartered lending institution, a federal government- sponsored entity, an instrumentality of the federal government, or a person approved as a mortgagee by the United States to make federally insured loans. (4) a person licensed to make regulated loans in Texas. (5) a title insurance company or title insurance agent licensed to do business in Texas. (6) an agency of the State of Texas.
13 County clerk must conﬁrm or reject the electronic ﬁling not later than the ﬁrst business day after the date the instrument is ﬁled. This notice must be made by electronic means, if possible, or if not possible, by telephone or electronic facsimile machine. If the county clerk fails to provide a notice of rejection within the time provided, the instrument is considered accepted for ﬁling. Recorder is required to charge the same fee for ﬁling electronically. Electronic Filing
14 Chain of Title In the less populated Texas counties, the instruments are recorded in the county clerk’s records in books provided speciﬁcally for that purpose. In more populated counties, the Texas legislature has provided for a method of recording by microﬁlming the documents, rather than keeping the entries recorded in large volumes.
15 When recording has been made the records of that county would have a list of the grantors and grantees, as well as of all of the instruments that have been recorded as far back as records have been kept. This goes back to the original grant (called a patent) from the Sovereign of Texas in 1836. This list of grantor–grantee records is established in chronological order. It creates a chain of title, which establishes a complete line of fee title from the original grant from the Sovereign of Texas down to the most current property owner. When all of the recorded instruments are assembled in chronological order, these are collectively referred to as an abstract of title. Chain of Title
16 Chain of Title is a List of Documents Abstract of Title is a Collection of Documents
17 Individuals who wish to search title records are allowed to do so since all of these records are public. All courthouses keep an index of grantors and grantees. The title examiner then performs a grantor-to-grantee index search to be sure that there are no “breaks” or strangers in the chain. The examiner is not only held to a duty of care of examining the chain, but also of having read and understood the terms of every document. Examiner is not required to search for inferior claims or documents ﬁled outside the chain (such as court records or divorce proceedings). Private abstract companies also keep records of the titles of real property for each particular tract of land. The Texas Department of Insurance requires all title companies to maintain this type of title plant. Public Records
18 Lis Pendens Constructive notice that there is a lawsuit pending on the property. Anyone who buys property with notice of the lis pendens buys it subject to the outcome of the lawsuit affecting the property. Lis pendens can be abused when used to cloud the title to property because the claim has virtually no adverse effect on the claimant. This is because a lis pendens is considered “privileged’’ since it is part of a lawsuit that has been ﬁled and is currently pending. The legislature passed a new provision creating liability for a person using a fraudulent court document as a claim against real estate with intent to cause another to suffer ﬁnancial injury or mental anguish. This may create some liability for spurious lis pendens claims.
19 Acknowledgment One of the requirements for making instruments recordable. This, and only this, is the primary purpose of an acknowledgment. Does not make instrument “ofﬁcial” or “legal”; but simply recordable. The requirements to make an effective acknowledgment: 1. The person who executed the instrument must appear before the person authorized to take the acknowledgment. 2. The ofﬁcer taking the acknowledgment must know or have satisfactory evidence that the person making such acknowledgment is the individual who executed the instrument. 3. The signer must acknowledge to the ofﬁcer taking the acknowledgment that he executed the instrument for the purposes and consideration therein expressed. 4. The acknowledgment must be signed by the authorized ofﬁcer, and be sealed with his seal of ofﬁce.
21 Seal or Stamp The 2001 Legislature also passed an amendment to the Civil Practice and Remedies Code which eliminates the requirement for an embossed seal on an electronically transmitted certiﬁcate of acknowledgement. Another change in the Government Code though does require an electronically transmitted authenticated document to legibly reproduce the required elements of the seal.
22 Persons Authorized to Take Acknowledgments The acknowledgment may be made in Texas before: 1. A clerk of the district court. 2. A judge or a clerk of the county court. 3. A notary public.
23 Persons Authorized to Take Acknowledgments Acknowledgment may be made outside Texas, but within the U.S., before: 1. A clerk of some court of record having a seal. 2. A commissioner of deeds duly appointed into the laws of this state. 3. A notary public or any other ofﬁcial authorized to administer oaths.
24 Persons Authorized to Take Acknowledgments An acknowledgment may be made outside the United States before: 1. A minister, commissioner, or charge d’affaires of the United States, resident and accredited where the acknowledgment is made. 2. A consul general, consul, vice consul, commercial agent, vice commercial agent, deputy consul, or consular agent of the United States, resident in the country where the acknowledgment is made. 3. A notary public.
25 In addition to the above methods, the acknowledgment may be made by a member of the armed forces of the United States before any commissioned ofﬁcer of the armed forces of the United States or the auxiliaries thereof. Acknowledgments of this type do not necessarily require a seal as do other types of acknowledgments. Persons Authorized to Take Acknowledgments
26 The certiﬁcate of acknowledgment must be substantially the same as provided for by the statute. An ofﬁcer authorized to take acknowledgments must be a disinterested party. If he has an interest in the transaction, the acknowledgment is void; but this does not qualify or make the instrument itself void. Persons Authorized to Take Acknowledgments
27 The law even allows the notary public to sign the name of an individual who is physically unable to do so or to make a mark on behalf of the individual. The notary must write the following under the signature: “Signature afﬁxed by notary in the presence of the [name of witness], a disinterested witness, under Section406.0165 Government Code.” When signed in this manner, the signature is effective as the signature on whose behalf the signature is made for any purpose. Persons Authorized to Take Acknowledgments X
28 Notario Publico There have been abuses in the notary public system as a result of the inﬂux of Mexican nationals into Texas. In Mexico “notario publico” is a very high-ranking public ofﬁcial. In 2001 new legislation creates criminal liability if a notary public: (1) states or implies that the person is an attorney licensed in Texas. (2) solicits or accepts compensation to prepare documents for or otherwise represent the interest of another in a judicial or an administrative proceeding. (3) solicits or accepts compensation to obtain relief on behalf of another, from any ofﬁcer, agency or employee of this state or the U.S.. (4) uses the phrase “notario” or “notario publico” to advertise the services of a notary public. The ﬁrst offense is a Class A misdemeanor and the second offence is a third-degree felony.
29 Venue In an average transaction, most acknowledgments are taken by a notary public. The venue (jurisdiction) of a notary public is the boundaries of the state, irrespective of the county in which he is appointed. However the notary’s jurisdiction is conﬁned to the State of Texas.
30 Construction of an Acknowledgment Courts have liberally construed the requirements of an acknowledgment. Failure to show the date of commission expiration does not invalidate the certiﬁcate, but the certiﬁcate is invalid without the ofﬁcial seal. It appears that as long as the acknowledgment is signed by the person taking the acknowledgment, sealed, and in substantially the same form as prescribed by statute, it will be considered effective.
34 Proofs Other than by Acknowledgment Proof may be given by subscribing witnesses appearing before some ofﬁcer authorized to take said proof, and stating under oath that they saw the person execute the instrument. The witnesses must be personally known to the ofﬁcer taking the proof, or must prove by their oath that they are witnesses. Proof may also be established by proof of the handwriting of the grantor and of at least one subscribing witness. The same general rules apply if there is a signatory party who has made his mark rather than signed his name.
35 Record of Acknowledgment All ofﬁcers authorized or permitted by law to take acknowledgments shall keep a well-bound book. The book should contain: a.the true date on which the acknowledgment was taken. b.the name of the grantor of the instrument. c.the name of the witness. d.the residence of the witness. e.whether such witness is personally known to the ofﬁcer. Also requires that the notary keep a record of the acknowledging party’s signature, and the notary’s method of identifying that person. Persons injured by an ofﬁcer failing to comply with the requirements of the law shall have a cause of action against the ofﬁcer so failing.
36 Jurat A certiﬁcate of an ofﬁcer before whom a writing was sworn to. Made before the same people who take acknowledgments. A jurat is not, and should not be confused with, an acknowledgment. The signatory party is swearing that the facts contained in the instrument are true, and not simply that he signed same for the purposes and consideration therein expressed. The jurat veriﬁes the facts contained in the instrument.
37 CASE STUDIES FOR DISCUSSION 1. On August 9, 2003, Arnold D. Smith executed a quitclaim deed to Cristine Smith. On October 17, 2003, Arnold D. Smith executed a general warranty deed to Lucille Bell on the same property. Both deeds were acknowledged at the same time. Mrs. Bell claims that she had good title by virtue of her general warranty deed. Mrs. Smith claims that she has good title by her prior quitclaim deed and that Mrs. Bell could not be a bona ﬁde purchaser since Mrs. Smith was in possession at the time the deed was executed and delivered. What legal ramiﬁcations do you foresee?
38 CASE STUDIES FOR DISCUSSION 2. Plaintiffs ﬁled suit against Mr. Kropp alleging embezzlement of funds. Kropp claimed that Plaintiffs owed him money, asserted an equitable title in some property held by Plaintiffs, and ﬁled a lis pendens against same. Plaintiffs lost their cause of action but asserted a slander of title action against Kropp since their property was encumbered and any subsequent conveyances were forbidden because of the lis pendens notice. Defendant alleges that he has privilege because the lis pendens was part of a lawsuit. Assuming that neither cause of action reached ﬁnal adjudication, what legal ramiﬁcations do you foresee?
39 CASE STUDIES FOR DISCUSSION 3. On July 11, 2001, a deed was recorded from Sunshine Corporation to Empire Construction Company. On January 29, 2002, Snidely Whiplash recovered a judgment against Sunshine Corporation. On April 29, 2002, Snidely Whiplash recorded an abstract of judgment against Sunshine Corporation. On November 27, 2002, Sunshine Corporation recorded a correction deed to Empire Construction Company because of an allegedly defective acknowledgment. The acknowledgment did not contain the name of the grantor of the deed on July 11, 2001. Snidely Whiplash alleges that the correction deed passed with notice of the judgment lien and he therefore has the right to recover from the transfer of the property. Empire Construction Company alleges that the correction deed was valid and that the incorrect acknowledgment was not a fatal defect on the original transfer. What legal ramiﬁcations do you foresee?
40 Questions for Discussion 1. What are the two basic premises behind the Recording Act? 2. Explain the difference between constructive and actual notice. 3. What are the four basic requirements for recording? 4. Who may file a document electronically? 5. Discuss acknowledgment as it relates to recording documents.