Wednesday, March 16, 2016

Interplay of Limitations and Imputed Notice (Based on Public Deed Records) in Real Estate Fraud / DTPA Claims

Trey Wilson San Antonio Texas Real Estate Attorney, Trey Wilson Real Estate Lawyer in San Antonio wrote:

Texas law provides for a comprehensive statutory recording system which provides in part that “[a]n instrument ... properly recorded in the proper county is notice to all persons of the existence of the instrument.” TEX. PROP. CODE ANN. § 13.002

The statute makes sense because purchasers of real estate are -- or definitely should be -- on notice of the contents of the deed history/ chain of title of property that they have purchased. Often, this notice arises from a title search performed as part of a closing.


The recording statute has often, but unsuccessfully, been asserted as a defense in claims against a Seller of real property.  The defensive theory is generally something akin to:
"If the Plaintiff would have searched the deed records, he would have known that I did not... [own all of the land that I purported to transfer to him under our contract]or [disclose the fact that I had conveyed the property to somebody else] or [disclose the easement running through the property], etc., etc."
Despite the plain language of the recording statute, Texas courts have very rarely -- if ever - held that a purchaser’s failure to search the deed records would bar his fraud action against the seller. See Graham v. Roder, 5 Tex. 141, 147 (1849) (fraud and deceit action maintainable despite fact that plaintiff “did not go to the records, the proper source for information”); Buchanan v. Burnett, 102 Tex. 492, 119 S.W. 1141 (1909); Ojeda de Toca v. Wise, 748 S.W.2d 449 (Tex. 1988) (imputed notice under the real property recording statutes does not operate as a defense to a buyer’s action for damages arising out of deceptive trade practices). Instead, Courts have stated that the purpose of this "recording statute" is "to notify subsequent purchasers ... and not to give protection to perpetrators of fraud” See Boucher v. Wallis, 236 S.W.2d 519, 526 (Tex. Civ. App.— Eastland 1951, writ ref’d n.r.e.).


Thus, it can fairly be stated that the law is currently as follows: In Texas, the existence of a recorded instrument (deed, easement, etc.) in real property records does not, in and of itself, bar a claim arising from fraud or deceptive trade practices related to the property made the subject of the instrument.  That is, imputed notice arising from the deed records does not constitute a direct defense against a real estate fraud or DTPA claim.

However, the implications of a recorded instrument on whether a real estate fraud claim is barred by limitations -- and when a cause of action accrues -- are far more dicey.  


In Scott vs. Furrow (Opinion delivered March 9, 2016), the Fourth Court of Appeals recently addressed the interplay of the recording statute and statutes of limitations in the context of a Buyer's claim that a Seller of real estate and that Seller's broker had engaged in misrepresentations related to the waterfront character of  property in Seguin, Texas.

After a detailed analysis of established case law reflecting the General Statement of Law provided above in this post, the 4th Court concluded that, while the Texas Supreme Court's holding in Wise prevents a defendant from using imputed notice from the deed records as a direct defense against a DPTA claim, that Defendant could rely upon the deed records to establish when a plaintiff should have discovered a claim for limitations purposes

In reaching this conclusion, the 4th Court relied on Am. Homeowner Pres. Fund, LP v. Pirkle, No. 02-14-00293-CV, 2015 WL 5173066, at *9 n.11 (Tex. App.—Fort Worth Sept. 3, 2015, pet. filed) (citing Wise to note that failure to search deed records would not preclude fraud claim by purchaser but further noting limitations on such a claim would begin to run immediately because the purchaser was on notice of the deed records for purposes of limitations), Sherman v. Sipper, 152 S.W.2d 319 (Tex. 1941) (fraud will prevent the running of a statute of limitation only until such time as the fraud is discovered, or by the exercise of reasonable diligence it might have been discovered).

The Fourth Court also reconciled their decision with the Texas Supreme Court’s more recent holding in Ford v. Exxon Mobil Chem. Co, in which a plaintiff sued for real estate fraud, but -- in addressing a statute of limitations defense -- the Texas Supreme Court held constructive notice from the deed records provided sufficient notice for limitations to immediately begin to run. 


The take-away form the 4th Court's opinion in Scott vs. Furrow is this: A Plaintiff with a right in real property is not excused by another's fraud from reviewing open and available title records that reveal a title defect, and timely discovering such defect. Even in the face of fraudulent misrepresentation, a Plaintiff must exercise reasonable diligence to discover a title defect, and where -- by the exercise of such diligence he could have discovered such defect and would have known of his right -- he is legally presumed by the recording statute to have known it, and limitation will run against his claim from the time he could have made such discovery by the exercise of ordinary diligence.

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