Fraudulent Deeds...Can they be Set-Aside by Courts?

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

Recently, I completed the successful defense of a client whose elderly parent had sued them to set-aside a years old deed to real estate in San Antonio on grounds of fraud.  

The fraud allegations in that case were unique, in that the parent was alleging fraud in the inducement, as opposed to fraud in securing the deed, or outright forgery. The parent alleged in the lawsuit that, even though the parent had knowingly and intentionally signed the deed in favor of the child, this conveyance was in consideration for a promise by the child (which was allegedly false at the time it was made) that such child would care for the parent for life.  

When the parent determined that the child wasn't doing a good enough job as a caretaker, suit was filed in an effort to have the Court determine that the deed was void, and should be set-aside.  Although the case was resolved quickly, in our client's favor, our research revealed some important points of law that are worth re-producing here.

First, deeds procured by fraud are voidable only, not void, at the election of the grantor.  

Second, it is well-settled law in Texas that a properly executed, notarized and recorded deed  (if if such deed is alleged to be fraudulent) is valid and represents prima facie evidence of title until there has been a successful suit to set it aside. See Meiners v. Texas Osage Cooperative Royalty Pool, 309 S.W.2d 898 (Tex. Civ.App. — El Paso 1958, writ ref'd n. r. e.); Whalen v. Richardson, 353 S.W.2d 941 (Tex. Civ.App. — Amarillo 1962, n. w. h.). To the same effect is Deaton v. Rush, 113 Tex. 176, 252 S.W. 1025 (1923), wherein the court stated that: A deed obtained by fraud is not void but voidable only. As between the original parties [Defendant's] title is prima facie good, and it could only be avoided by a suit and a decree annulling and canceling the deed.

Third, it is a fundamental rule of law that only the person whose primary legal right has been breached may seek redress for an injury. As such, a suit to set aside a deed obtained by fraud can only be maintained by the defrauded party. Smith v. Carter, 45 S.W.2d 398 (Tex.Civ.App. — Texarkana 1932, writ dism'd); Meiners v. Texas Osage Cooperative Royalty Pool, supra. A party who was not defrauded by the conveyance has not suffered an invasion of a legal right and therefore does not have standing to bring suit based on that fraud.

Fourth, at least one Texas Court of Appeals has allowed to stand a Judgment issued by a Texas District Judge setting aside a deed based upon an alleged false promise by the grantee to care for the grantor "for the rest of his life." Williams v. Kaufman, 275 SW 3d 637 (Tex.App. --Beaumont) 2009

While it appears that setting aside a deed based upon fraud in the inducement may be tough, and somewhat uncommon, deeds secured by forgery and other fraudulent artifices are more common. An individual involved in a dispute over a fraudulent deed should consult with an experienced real estate attorney to explain the law and discuss possible outcomes.

Changes in Life Circumstances May Require Deed Changes

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

Each week we receive several calls from folks whose life circumstances have changed, and, as a result, they desire to change the name on a deed.  The typical requests relate to marriage and/or divorce, and consist of adding or removing another individual's name to the title of residential real estate. In other cases, property owners wish to grant property to loved ones.

While the process of creating a deed or other legal instrument to convey or change title is somewhat simple for an experienced Texas real estate lawyer, the implications and legality of such an instrument may be more complex. Here are some important considerations associated with adding or removing names from existing deeds:

1.  Removal of a person's name from title to property does not alleviate that person from mortgage or other indebtedness. Stated simply, if you are a borrower (or co-borrower) on a loan for the purchase of real estate, conveying your interest in title to another person (including your co-borrower) does not in any manner absolve you of your indebtedness under a mortgage note.  The note is a contract between you and the lender, and unless such lender agrees to allow a co-borrower to assume the full indebtedness, you are still "on the hook" for the loan, even if you do not reside in or desire to own the collateralized property.

2.  Likewise, addition of a new spouse's or other person's name to title to property encumbered by a mortgage lien (or deed of trust evidencing such an encumbrance), does not mitigate the existing borrower's obligations under mortgage note indebtedness, or work as an assumption by the added-person of the mortgage note balance.

3.  Conveying an interest in the property could violate the terms of an existing mortgage lien (deed of trust), and result in acceleration of the entire mortgage balance. Most deeds of trust contain a "due on sale" clause. This clause should be reviewed before changing title to real property that is not owned free and clear of any indebtedness.

4.  Adding a spouse's name to real property might change the character of that property from separate property to community property. This is all well and good until a divorce is looming or inheritance of the property is considered.

If you have considered these factors, and still desire to move forward with making deed changes, you should be sure that a real estate lawyer who is knowledgeable about deed drafting and real estate transactions handles the process for you.