Correction Instrument Legislation Texas Property Code Sections

Correction Instrument
Legislation
Texas Property Code Sections
5.027, .028, .029, .030, .031
G. Roland Love
Winstead PC
1201 Elm Street, Suite 5400
Dallas, Texas 75270
214.745.5400
[email protected]
Corrections Anyone?
Why did we need this new
law?
CORRECTION INSTRUMENTS AFTER MYRAD PROPERTIES v LASALLE
BANK (TEX. 2009) AND S.B. 1496 (82ND TEXAS LEGISLATURE, REGULAR
SESSION)
• Ambiguities and errors in recorded real property conveyance
instruments are inevitable.
• Myrad Properties, Inc. v LaSalle Bank National Association, 300
S.W.3d 746 (Tex. 2009), a recent Texas Supreme Court opinion
involving an attempted use of a correction deed to add a tract of
land that had been omitted from the original recorded substitute
trustee’s non-judicial foreclosure deed
Myrad Properties, Inc. (“Myrad”)
• Myrad financed two separate apartment complexes located in
Killeen, Texas. The apartment complexes were constructed on
two, non-contiguous tracts of land located a mile apart.
Myrad executed a promissory note in favor of the original
lender secured by a deed of trust lien on both tracts of land.
• The substitute trustee posted a sale notice. The sale notice
referred both to the note and the recorded deed of trust. The
property description in the sale notice referred to an “Exhibit
A,” the only exhibit to the sale notice, and that exhibit listed
only one of the two tracts of land described in the deed of
trust.
Myrad
• At the foreclosure sale the substitute trustee read only the
legal description described on Exhibit A to the sale notice, but
the substitute trustee did generally refer to the property
described in the deed of trust. The bid amount was almost,
but not quite, equal to the debt that Myrad owed LaSalle, and
it was also near the combined values of the two real
properties.
• The substitute trustee’s foreclosure deed conveyed the
“Property” to LaSalle, defining the “Property” as “(T)he real
property described in Exhibit A attached hereto and made a
part hereof for all purposes, together with all improvements
and personal property described in the Deed of Trust.” Exhibit
A to the deed only described the one tract of land that was
described in Exhibit A to the sale notice.
The Litigation
• LaSalle recorded a correction deed that included a description of
both tracts of land. Myrad then sought to quiet title, seeking a
declaration that LaSalle owned only the one tract of land described
in Exhibit A to the original substitute trustee’s foreclosure deed, and
that Myrad owned the second tract of land described in the deed of
trust free from encumbrances.
• The trial court declared that the foreclosure sale had conveyed title
to both tracts of land to LaSalle, and declaring that the correction
substitute trustee’s foreclosure deed vested LaSalle with title to
both tracts of land. The Court of Appeals affirmed the trial court’s
decision.
• The Texas Supreme court reversed the lower court holdings that
declared the correction substitute trustees’ foreclosure deed had
vested LaSalle with title to both tracts of land, holding that LaSalle’s
correction substitute trustees’ foreclosure deed purporting to
convey both properties was void as a matter of law.
The Supreme Court
• The Texas Supreme Court determined that a correction deed
could not be used to correct a mistake omitting an entire
second property.
• The Texas Supreme Court noted that correction deeds were
appropriate among agreeable parties to correct:
• facial imperfections in title
• recitation of inaccurate metes and bounds,
• a defective description in a grantor’s capacity.
The Supreme Court laid out in the case the kinds of corrections
that were allowed and the kinds that were not allowed
• Allowed: Correcting defects and imperfections
• Defective legal descriptions, such as errors in a metes and bounds
description
• Although the court does not specifically mention it, it is a
reasonable assumption that an error in the name of the
Subdivision or recording information may be repaired by a
correction deed.
• Incorrect acreage designation
• Defective description of a party’s capacity
• Correcting from administrator to executor
• Not allowed:
•
•
•
•
Adding another parcel
Adding mineral interests
Changing a mineral interest
Changing the nature of a mineral interest
The Supreme Court
• According to the Court, allowing “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. For example, it could require those who must
rely on such records to look beyond the deed and research the
circumstances of ownership to make sure that no conveyance
mistake such as that before us in this case was made,
undermining the entire purpose of record notice.”
The Supreme Court
• However, the Texas Supreme Court concluded that Myrad
would be unjustly enriched if the original substitute trustees’
foreclosure deed were enforced, holding in favor of LaSalle,
and rendering judgment on LaSalle’s rescission claim.
• The entire matter was sent back to the trial court.
14
The Texas Legislature to the Rescue
• The Texas Legislature, during its 82nd Regular Session (2011),
reacting to the Myrad decision, passed, and Governor Rick
Perry signed into law, S.B. No. 1496 (“SB1496"), governing the
scope and validity of corrections to instruments that convey
real property or an interest in real property. SB1496, effective
on September 1, 2011, adds Sections 5.027 through 5.031 to
the Texas Property Code (“Code”).
• A correction instrument recorded before September 1, 2011,
that substantially complies with the requirements of SB 1496
is also effective to the same extent as a correction instrument
recorded after September 1, 2011, unless a court of
competent jurisdiction renders a final judgment determining
that the correction instrument does not substantially comply
with SB 1496.
• The bill analysis on SB1496 prepared by the Senate Research
Center included the following statements: It has been the
practice in Texas that correction instruments may be filed in
order to correct certain non substantive errors. The Texas
Supreme Court in Myrad Properties, Inc. v. LaSalle Bank
National Association, included language in the opinion which
could suggest that certain correction instruments may be void.
This is particularly so if additional property is included with the
correction instrument. The Myrad decision thus created
uncertainty within the real estate industry as to the validity of
correction documents. S.B. 1496 amends current law relating
to the scope and validity of correction instruments in the
conveyance of real property.
Where did it come from?
Other states that have correction legislation:
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Arkansas
California
Florida
Kansas
Iowa
Maine
Minnesota
New Mexico
Ohio
Oklahoma
South Dakota
Washington D.C.
West Virginia
Wisconsin
• Historically, affidavits of correction were commonly used to
correct minor errors, but after the 2007 decision in Smiljanic v.
Niedermeyer, the validity of those affidavits came into
question.
• Wisconsin study groups, found the laws around the country to
be varied and mostly archaic. This could be a good model for
other states in which title people would like to simplify the
curing of minor conveyancing errors.
“My people will get back with your people.”
• The alternative would be to require a party to go to court,
which is costly, lengthy, uncertain, and a waste of judge’s time
when there are more important things to ask them to decide.
Senate Bill 1496
• This bill amended the Property Code, adding Sections 5.027-5.031
• The bill was submitted by the Texas Land Title Association and
sponsored by Senator Uresti
• HB 2254 is the companion bill sponsored by Representative
Anderson
• A subcommittee of the of the TLTA Legislative Committee, John
Cook, Bryon Jay Lewis, Roland Love, Alan Monroe, and John
Rothermel submitted a first draft to legislative counsel for the State
of Texas.
• The draft was largely based on Wisconsin Stat. Section 706.085,
adopted in May 2010 to address a Wisconsin court decision
invalidating a recorded affidavit of correction because there was no
statutory authority
• The Texas bill was modified to recognize the case holding of Myrad
in a foreclosure context and to conform to Texas' strong bona fide
purchaser doctrine.
Section 5.027(a)
• Provides, generally, that if it complies with Section 5.028 or
5.029 a correction instrument “…may correct an ambiguity or
error in a recorded original instrument of conveyance to
transfer real property or an interest in real property, including
an ambiguity or error that relates to the description of or
extent of the interest conveyed.”
• In most cases, the settlement agent or the person who drafted
the conveyance can sign the corrective instrument• BUT NOT IF THE ERROR IS MATERIAL.
• This requires participation and execution by all parties to the
original instrument
• Also generally ineffective is the practice of making corrections
to a certified copy of the original recorded document unless
the corrections are initialed by the parties and a statement as
to why the corrections are being made is signed by the
parties.
• That said, it is important to remember that all corrections
must be made as soon as they are discovered. Failure to
promptly record a document as well as failure to make
corrections can cause large claims and losses.
• In particular, many documents are recorded without the
referenced attached legal description. These need to be
corrected immediately to preserve priority.
• Note that Section 5.027 utilizes the phrase “instrument of
conveyance to transfer real property or an interest in real
property.” Thus, the statute primarily addresses real property
deeds and deeds of trust, but could also include releases,
leases, assignments, and other documents acting as a
conveyance of a real property interest.
Foreclosure
Section 5.027(b)
• Prohibits a correction instrument under a Chapter 51 power
of sale “unless the conveyance otherwise complies with all
requirements of Chapter 51.”
Use of, and Limitations on, Correction
Instruments After S.B. 1496
• SB1496 authorizes correction instruments to remedy material and
nonmaterial errors or ambiguities in recorded conveyance
instruments that transfer real property or an interest in real
property, including ambiguities or errors in the description or the
extent of the interest conveyed.
• A correction instrument, however, may not be used to correct an
ambiguity or error in a recorded non-judicial foreclosure deed
involving the exercise of a power of sale under Chapter 51 of the
Code unless the conveyance also complies with Chapter 51 of the
Code.
• In other words, if the only thing wrong with the foreclosure is the
preparation of the Trustee's Deed, that can be corrected.
• Of course, Myrad and SB 1496 implicitly recognize the ability to
unilaterally rescinded a foreclosure sale that has error. There are
those, particularly the IRS or a third party purchaser, that will argue
to the contrary.
Effect of a Correction Instrument
Complying with S.B. 1496
• A correction instrument that complies with SB1496's
requirements is: (i) effective as of the effective date of the
recorded original conveyance instrument; (ii) prima facie
evidence of the facts stated in the correction instrument;
(iii) presumed to be true, but subject to rebuttal; and
(iv) notice to a subsequent buyer of the facts stated in the
correction instrument.
• A bona fide purchaser of real property subject to a correction
instrument may rely on the correction instrument against any
person making an adverse or inconsistent claim, but a
correction instrument is void as to a creditor or to a
subsequent purchaser for a valuable consideration without
notice unless the correction instrument has been
acknowledged, sworn to, or proved and filed for record as
required by law.
Effect of a Correction Instrument
Complying with S.B. 1496
• However, an unrecorded correction instrument is binding on
the parties to the correction instrument, on the parties’ heirs,
and on a subsequent purchaser who does not pay a valuable
consideration or who has notice of the correction instrument.
Section 5.027(c)
• States a correction instrument is subject to Section 13.001.
• That section states the instrument is not notice until it has
been filed, so a bona fide purchaser (BFP) could take without
notice based on the incorrect instrument of record and not
lose because of a later filed correction document that added
the legal description that the BFP had acquired, that had been
missing originally.
• This makes it very clear you must be careful to have a correct
legal description in every document you file, or a BFP could
acquire an interest before you file a correction instrument in
the real property records.
When is a correction
nonmaterial or material?
Section 5.028- Nonmaterial Corrections
• (a) A person who has personal knowledge of facts
relevant to the correction of a recorded original
instrument of conveyance may execute a correction
instrument to make a nonmaterial change that results
from a clerical error, including:
• (1) A correction of an inaccurate or incorrect element in a legal
description, such as a distance, angle, direction, bearing or chord,
a lot, block, unit, building designation, or section number, an
appurtenant easement, a township name or number, a
municipality, county, or state name, a range number or meridian,
a certified survey may number, or a subdivision or condominium
name, or
Section 5.028- Nonmaterial Corrections
• (2) An addition, correction, or clarification of:
• (A) A party’s name, including the spelling of a name, a first or middle
name or initial, a suffix, an alternate name by which a party is
known, or a description of an entity as a corporation, company, or
other type of organization;
• (B) A party’s marital status;
• (C) The date on which the conveyance was executed;
• (D) The recording data for an instrument referenced in the correction
instrument, or,
• (E) A fact relating to the acknowledgement, or authentication.
Section 5.028- Nonmaterial Corrections
• (b) You may also add an acknowledgement or authentication that
was not included in the recorded original instrument of conveyance.
Section 5.028- Nonmaterial Corrections
• (c) A person who executes a correction instrument under this
section shall disclose in the instrument the basis for the person’s
personal knowledge of the facts relevant to the correction of the
recorded original instrument of conveyance.
Section 5.028- Nonmaterial Corrections
• (d) A person who executes a correction instrument under this
section shall:
• (1) Record the instrument in each county where the original was
recorded;
• (2) If the correction instrument is not signed by each party to the
recorded original instrument, 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 instrument of conveyance, and, if applicable, to the
party’s heirs, successors, or assigns.
Section 5.029- Correction Instruments:
Material Corrections
• You may have the parties correct their mistakes by having
them execute correction documents.
MATERIAL ERRORS UNDER S.B.1496.
• Material errors include:
• (i) adding:
• (a) a buyer's disclaimer of an interest in the real property that is the
subject of the original instrument of conveyance;
• (b) a mortgagee's consent or subordination to a recorded document
executed by the mortgagee or an heir, successor, or assign of the
mortgagee; or
• (c) real property to a conveyance that correctly conveys other real
property;
• (ii) removing real property from a conveyance that correctly
conveys other real property; or
• (iii) accurately identifying a lot or unit number or letter of real
property owned by a grantor that was inaccurately identified as
another lot or unit number or letter of real property owned by a
grantor in the recorded original instrument.
• Both sections 5.028 and 5.029 list errors as examples by the
use of the term “including.” The lists are not exclusive.
However those errors listed will obviously be treated as
nonmaterial or material according to the section of listing.
• Unlisted errors will require a judgment call.
Section 5.030 Correction Instrument:
Effect
• Gives presumptions of relating back to the effective date of
the original instrument if it complies with 5.028 or 5.029.
• If you are asked to update a title policy by virtue of a
corrective deed or mortgage, you should check title to date,
and if there are intervening equities or liens, show them as
exceptions in Schedule B or dispose of them prior to issuance.
Remember, under the instructions for the T-3 endorsement,
only changes are to be made to correct a set of facts existing
at the policy date.
Section 5.031 Correction Instruments
Recorded before September 1, 2011
• If a correction instrument is filed before the law is effective
but complies with 5.028 or 5.029, it is effective to the same
extent provided by 5.030, unless a court renders a final
judgment determining that the correction instrument does
not substantially comply with Section 5.028 or 5.029.
Who is permitted to prepare
them?
Persons Authorized to Execute
Correction Instruments After S.B. 1496
• A person who has personal knowledge of the relevant facts is
authorized, without the joinder of the original parties to the
conveyance, or their heirs, successors, or assigns, to execute
correction instruments involving nonmaterial clerical errors,
but that person must:
• (i) disclose in the correction instrument the basis for the person’s
knowledge of the relevant facts, and
• (ii) send a copy of the correction instrument and notice by first
class mail, e-mail or other reasonable means to all parties to the
original instrument, and, if applicable, a party’s heirs, successors
or assigns.
Persons Authorized to Execute
Correction Instruments After S.B. 1496
• Instruments correcting material errors must be, and
instruments correcting nonmaterial errors may be, executed
by each party to the conveyance (or, if applicable, a party's
heirs, successors, or assigns), and both material and
nonmaterial correction instruments must be recorded in every
county where the original instrument is recorded.
Trouble in River City
• There is no language in the new statute that suggests a
correction instrument that corrects a material error can be
prepared by anyone but an attorney.
• The statute only addresses who may "execute" the
instruments.
The "Practice of Law" Includes the Preparation of
Instruments Affecting Title
• The “practice of law” is defined to include “the giving of advice or
the rendering of any service requiring the use of legal skill or
knowledge, such as preparing a will, contract, or other instrument,
the legal effect of which under the facts and conclusions involved
must be carefully determined.
• Preparing and filing mechanic’s liens or lien affidavits constitutes the
unauthorized practice of law when done by a person not licensed as
an attorney. Drafting conveyances of real property, or the releases
of liens or contracts for sale relating to such property, constitutes
the practice of law and must be accomplished by a licensed
attorney.
• The preparation of all types of legal instruments constitutes the
practice of law. Legal instruments include deeds and deeds of trust.
• Courts generally include as a "legal instruments" any and all
documents and instruments affecting title to real estate.
• More recently in 2008, the Texas Supreme Court decided
Unauthorized Practice of Law Committee v. American Home
Assurance Co., Inc., which it laid out three factors to consider
when determining whether a corporation has engaged in the
practice of law when its staff employees provided legal
services to someone other than the corporation. These three
factors are: (i) whether the company’s interest being served
by the rendition of legal services is existing, or prospective
only; (ii) whether the company has a direct, substantial inters
tint he matter for which it provides legal services; and (iii)
whether the company’s interest is aligned with the interest of
the person to whom the company is providing legal services.
• The Court evaluated its earlier decision in Hexter Title &
Abstract Co. v. Grievance Committee. Hexter Title & Abstract
Co. was a title insurance agent that had its employeeattorneys prepare title opinions on the title being insured and
draft corrective instruments to cure any defects found. The
service was rendered at no cost in order to attract business
and so title defects could be cured before insurance was
purchased.
Hexter Title & Abstract Co. v. Grievance
Committee (1944)
• Title insurance agent's interest was prospective because the
curative work was done for the purpose of placing good title
in the grantee.
• Hexter Title's interest in providing legal services was to attract
business, an interest distinct from that of its customers.
• The company's interest is aligned with that of the third party
to whom it is providing legal services.
• Only the parties, or their attorneys, can make material
changes.
• Texas case law holds a corporation cannot employ attorneys to
represent third party interests.
• A corporation does not engage in the practice of law when its
in-house attorneys provide legal advice regarding the
corporation's own affairs or represent others with identical
interests. It would probably be seen as representing the
parties to the underlying transaction rather than the company.
But What About Nonmaterial
Correction Instruments ?
• Section 311.023 of the Government Code provides that in
“construing a statute, whether or not the statue is considered
ambiguous on its face, a court may consider among other
matters the: (1) object sought to be attained; (2)
circumstances under which the statute was enacted; [and] (3)
legislative history.”
• Legislative history supports reaffirming the long time
established practice of escrow personnel preparation of
scrivener’s affidavits to correct nonmaterial errors.
• These persons clearly need to have knowledge of the facts.
Persons executing correction
instruments should do the following:
• Determine who may sign the correction instrument.
• Identify the basis for a person’s personal knowledge.
• "I have reviewed prior conveyances of this parcel. The prior
conveyances are consistent in stating that the initial call number is
for 15 feet whereas the deed that I drafted states the initial call
number is 14 feet, and therefore, I have deduced that the document I
drafted contains an error."
• Clearly define the Error
• "The lot number was incorrect on the above stated warranty deed.
The lot being conveyed should have been Lot 14 instead of Lot 15."
• Attach the Complete Legal Description
• Notify the parties to the original agreement.
• Proof of notice should be included with the correction instrument
for recording.
• An affidavit of mailing or certification indicating to whom and where
the notice was sent should suffice. Remember Texas allows email.
• Use plain language
How do you prepare correction
instruments?
Escrow Guidelines -Recording a Certified Copy of a
Document: Instances where a certified copy can
simply be filed of record.
• Original document(s) recorded in the wrong county can be
recorded by obtaining a certified copy of said document and
recording “as is” in the correct county.
• A court certified document such as a divorce decree or probate
filed in any Texas county that references the subject property can
be filed for record.
• A certified copy of a divorce decree or probate filed in another
state that references the subject property can be filed for record.
DON’T FORGET
Escrow Guidelines – Correcting or Amending an
Original Executed Document Prior to Recording.
• A document containing a typographical mistake that is corrected at
the time of execution or prior to recording is an example of an
allowable correction and/or amendment. However, the documents
must be initialed by all parties to the document, prior to recording.
• A correction and/or amendment to any lender document at the time
of execution or prior to recording must be approved in writing by
the lender funding the transaction and initialed by all parties signing
the document.
• A correction and/or amendment to an original document at the time
of execution or prior to recording CANNOT change the terms of the
document i.e., a mineral reservation cannot be added to the
document, an additional grantee cannot be added to the document,
etc. If a correction or amendment would change the terms of the
original document, then a correction instrument is required and
must be executed by all parties to the document.
Notice of Correction
• [Insert date}
• (Address of each party to the transaction should be inserted)
•
Re:
(insert file number)
• This letter serves as notice that at the time of the recording of
the (insert name of original document with nonmaterial
error), a nonmaterial error as defined in Section 5.028 of the
Texas Property Code was made. Pursuant to the requirements
contained therein, the attached Correction instrument and
this Notice of Correction will be filed for record to correct that
error.
State Bar of Texas Forms
• The suggested wording from Clause 12-9-4 and Clause 12-9-5,
Volume 1 of the Texas Real Estate Forms Manual, Second
Addition (Real Estate Forms Committee of the State Bar of
Texas, Austin 2011) represent examples of wording that may
be used in correction instruments if the correction is either
placed on the original instrument, and re-recorded, or placed
in a new instrument signed by the original parties to the
conveyance or, by a party’s heirs, successors, or assigns.
Clause 12-9-4
• NOTE CONCERNING CORRECTION: This deed is being filed
again for record as a correction deed to correct certain
incorrect information and to substitute for the deed as
originally recorded. The following incorrect information is
being corrected: [state the incorrect information and the
correction[s], e.g., when this deed was first recorded, the legal
description incorrectly stated the acreage as “32 acres,” when
it should have stated the acreage as “23 acres”]. Other than
the stated correction, no changes were made in the deed as
originally recorded, and the effective date of this correction
deed relates back to the effective date of the deed being
corrected.
Clause 12-9-5
• This deed is made as a correction deed in substitution of the
deed titled “[title of original deed]” (“Corrected Deed”) dated
[date] and recorded in [recording data] of the real property
records of [county] County, Texas, to correct the following
incorrect information: [state the incorrect information and the
correction[s], e.g., the legal description incorrectly stated the
acreage as “32 acres,” when it should have stated the acreage
as “23 acres”]. Other than the stated correction, this deed is
intended to restate in all respects the Corrected Deed, and the
effective date of this correction deed relates back to the
effective date of the Corrected Deed.
• An example follows of a draft form approved by the Real
Estate Forms Committee of the State Bar of Texas as a
correction instrument executed by a person who has personal
knowledge of relevant facts that is scheduled to be included in
the 2012 supplement of the Texas Real Estate Forms Manual.
State Bar of Texas
A Convoluted Example
Ode to the Spell Checker
Eye have a spelling chequer,
It came with my pea sea.
It plainly marques four my revue
Miss Steaks eye kin knot sea.
Eye strike a key and type a word
and weight four it two say
Weather Eye am wrong oar write
It shows me strait a weigh.
As soon as a mist ache is maid,
It nose bee fore two long,
And Eye can put the error rite—
Its rare lea ever wrong.
Eye have run this poem threw it
I am shore your pleased two no,
Its letter perfect awl the weigh.
My spell chequer tolled me sew.