THE RECORDING STATUTE
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 STATUTE IS NO DEFENSE TO REAL ESTATE
FRAUD
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.).
GENERAL STATEMENT OF THE LAW
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.
RECORDING STATUTE AND LIMITATIONS
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
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.
