Legal vs. Equitable Title to Real Estate -- The Deed Doesn't Always Dictate Ownership

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

In the area of real estate law in Texas, ownership of property isn't always black and white. In fact, many a real estate lawsuit has been fought over divided, fractured and disputed ownership interests in a single property. In some instances, the "owner of record," or "title owner" (i.e. the party whose name appears on the deed) is not the only (or even the superior) possessor of an ownership interest in real estate.

In fact, there are two components to ownership of real estate in Texas -- "legal title" and "equitable title." While both components are usually vested in the same owner, sometimes they can be vested in different parties, and that's where disputes frequently arise. 

Legal title arises from the appearance of a patty's name on a deed, which evidences his ownership.  Thus, "legal title" to property evidences apparent ownership (ownership "on paper"). Yet, legal title "does not necessarily signify full and complete title or a beneficial interest." Longoria v. Lasater, 292 S.W.3d 156, 165 (Tex. App.-San Antonio 2009, pet. denied). In fact, standing alone, legal title is sometimes unimportant because equitable title is superior to legal title. 

As one court of appeals stated, it is "[o]wnership of the equitable estate [that] is the real ownership, and the legal estate is no more than the `shadow following the equitable estate,' which is the substance. . . ." Neeley v. Intercity Mgmt. Corp., 623 S.W.2d 942, 951 (Tex. App.-Houston [1st Dist.] 1981, no writ) (quoting Patty v. Middleton, 17 S.W. 909, 912 (Tex. 1891)). 

This is because "equitable title" indicates a beneficial interest in property and "gives the holder the right to acquire formal legal title." Longoria, 292 S.W.3d at 165. Equitable title arises by operation of law and exists independent of the execution of a deed; the recording of the deed is not essential to an effective conveyance of title. Gaona v. Gonzales, 997 S.W.2d 784, 787 (Tex. App.-Austin 1999, no pet.). Further, a party holds equitable title when it possesses "the present right to [compel] legal title." Harris County Appraisal Dist. v. Southeast Texas Hous. Fin. Corp., 991 S.W.2d 18, 23 (Tex.App.-Amarillo 1998, no pet.); see also Comerica Acceptance Corp. v. Dallas Cent. Appraisal Dist., 52 S.W.3d 495, 497-98 (Tex.App.-Dallas 2001, pet. denied).

Equitable title is vested in the purchaser from the date of the contract to convey real property or from the date he takes possession of the property. See Cadle Co., 46 S.W.3d at 287 (citing Leeson v. City of Houston, 243 S.W. 485, 488-90 (Tex. Comm'n App. 1922, judgm't adopted)). That is, a purchaser receives equitable title in property when he pays the purchase price and fully satisfies the obligations under the contract of sale (or a "contract for deed"). See Johnson v. Wood, 157 S.W.2d 146, 148 (Tex. 1941); Cadle Co. v. Harvey, 46 S.W.3d 282, 287-88 (Tex. App.-Fort Worth 2001, pet. denied); see also Yarto v. Gilliland, 287 S.W.3d 83, 89-90 (Tex. App.-Corpus Christi 2009, no pet.). 

Determining the rights of various "owners" of property can have far reaching implications bearing on the right of possession of the property, the right to sell or convey it, and the extent to which liens or judgments placed against the property are enforceable.

When is a Writing or Defective Deed "Good Enough" to Convey Real Estate in Texas?

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

Many times, real estate lawyers (in San Antonio, TX and elsewhere) are called upon to opine on the validity and effectiveness of less-than perfect writings intended to grant/transfer/convey interests in land. These documents come in all shapes and forms -- from template documents missing essential details, to scribbled writings on the back of beer coasters.  Irrespective of the form of such a writing, the analysis of whether they are "good enough" to convey ownership falls upon their substance, as judged by  somewhat mundane criteria prescribed by two Texas statutes.

To validly convey an interest in land, a document (including a contract for the sale of real estate, a Contract for Deed, a deed, and/or any other writing) must satisfy the requirements of both the "statute of conveyances" (located at Texas Property Code section 5.021), and the "statute of frauds" (located at Texas Business and Commerce Code section 26.001). 

To be enforceable and comply with the statute of frauds, a document purporting to transfer/grant/convey an interest in real property must be in writing and signed by the person to be charged with the agreement. TEX. BUS. & COM.CODE ANN. § 26.01(a), (b)(4) (Vernon 2009); Cate v. Woods, 299 S.W.3d 149, 152 (Tex.App.-Texarkana 2009, no pet.). 

To convey an interest in land under the statute of conveyances, the instrument of conveyance must be in writing, must be signed, and must be delivered by the party disposing of his interest. TEX. PROP.CODE ANN. § 5.021 (Vernon 2004); Thompson v. Clayton, 346 S.W.3d 650, 656 (Tex.App.-El Paso 2009, no pet.); McDaniel v. Carruth, 637 S.W.2d 498, 505 (Tex.App.-Corpus Christi 1982, no pet.).

In essence, the instrument conveying the land must contain the essential characteristics of a deed. See TEX. PROP.CODE ANN. § 5.021; see Green v. Canon,33 S.W.3d 855, 858 (Tex. App.-Houston [14th Dist.] 2000, pet. denied). There is, however, no longer a requirement that a deed or instrument to effect the conveyance of real property must have all the formal parts of a deed recognized at common law or technical language. Green, 33 S.W.3d at 858; see also Marrs & Smith, P'ship, v. D.K. Boyd Oil & Gas Co., No. 08-00-00386-CV, 2002 WL 1445334, at *5 (Tex.App.-El Paso July 3, 2002, no pet.) (not designated for publication). 

Rather, if (1) from the instrument as a whole a grantor and grantee can be ascertained and (2) there are operative words or words of grant showing an intention by the grantor to convey to the grantee title to a real property interest, (3) which is sufficiently described, and (4) the instrument is signed and acknowledged by the grantor, then the instrument of conveyance is a deed that accomplishes a legally effective conveyance. Green, 33 S.W.3d at 858; Marrs & Smith, 2002 WL 1445334, at *5.

Language in an instrument that contemplates future action is not language that contemplates a completed transaction in land. See Green, 33 S.W.3d at 859 (holding attempted gift of land invalid where contemplated future action evidenced "an intent to make a gift in the future rather than a completed gift"); see also Marrs & Smith,2002 WL 1445334, at *6 (finding that agreement purportedly conveying interest in land did not evidence present intent on part of alleged grantor to convey interest in land where agreement contemplated obligation to convey interest upon occurrence of specific future event).