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.

Understanding (Without Abusing) the Texas Correction Deed

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

In my practice as a real estate attorney in San Antonio, Tx, I have probably been more entertained and perplexed by "Correction Deeds" than any other document (except, perhaps, the Contract for Deed). Over the years, Clients and opposing parties, alike, have presented me "Correction Deeds" drafted and recorded for all manner of improper purposes, including to change the name of the grantee, to change the property being conveyed, and to add additional (or even new) grantees who were not parties to the original deed.

While the term "Correction Deed" would tend to indicate that this document is a "cure-all," Texas law narrowly limits the the proper use and scope of the Correction Deed. 

The historical purpose of Correction Deeds is to reform and correct erroneous deeds without undertaking the hassle and expense of court proceedings (i.e. lawsuits). See Doty v. Barnard, 92 Tex. 104, 47 S.W. 712, 713 (1898) (stating that use of a correction deed was proper "to correct the defects and imperfections of the deed above referred to, and had the same effect upon the rights of the parties that a judgment of court would have had"). Even upon recognition of this historical purpose, Texas courts have routinely held that the proper use of a correction deed is narrow in scope. See, e.g., Adams v. First Nat'l Bank of Bells/Savoy, 154 S.W.3d 859, 871 (Tex. App.-Dallas 2005, no pet.) ("A correction deed is filed for the sole purpose of correcting some facial imperfection in the title."). Stated differently, substantive changes to an original deed are not appropriately made through a Correction Deed.

Courts in Texas have recognized that preserving the narrow circumstances for acceptable use of a correction deed is important, among other reasons, because a proper correction deed may relate back to the date of the original deed it corrects. See Doty, 47 S.W. at 714. see also Wilson v. Dearing, Inc., 415 S.W.2d 475, 479 (Tex. Civ.App.-Eastland 1967, no writ) ("The correction instrument related back to and became effective as of the time of the instrument it purported to correct."); Adams, 154 S.W.3d at 871 ("Ordinarily, a correction deed relates back to the date of the document that it purports to express more accurately.").

Some examples of PROPER uses of correction deeds are:

•  to correct a defective description of a single property when a deed recites inaccurate metes and bounds. E.g., Doty, 47 S.W. at 712 (enforcing a deed correcting an improper acreage description). 
• to correct a defective description of a grantor's capacity. E.g., Humble Oil & Refining Co. v. Mullican, 144 Tex. 609, 192 S.W.2d 770, 771-72 (1946) (enforcing a correction deed stating that a grantor was "community administrator" of an estate under the probate code, not "independent executor" as stated in the original deed).

By contrast, Courts have held that the following uses of correction deeds are IMPROPER:

• to convey an additional, separate parcel of land not included in the original deed See Smith v. Liddell, 367 S.W.2d 662, 666 (Tex.1963) (refusing to enforce a correction deed purporting to convey a mineral interest in an additional 71.446-acre tract from a separate survey where the first deed mistakenly conveyed only an interest in a 152.11-acre tract); 
• To correct a mistake of omitting a second property from a Substitute Trustee's Deed following a foreclosure. see Myrad Props., Inc. v. LaSalle Bank Nat'l Ass'n, 300 S.W.3d 746, 753 (Tex.2009).
• to change the fractional interest of a mineral estate, or change a mineral interest to a royalty interest Halbert v. Green,156 Tex. 223, 293 S.W.2d 848, 852-53 (1956).

It is worth noting that an invalid Correction Deed that purports to convey an ownership interest in realty is VOID. A void instrument does not and connote convey interest in real estate.  Thus, even where the parties to a transaction intended otherwise, defective Correction Deeds are legal nullities, that accomplish no transfer of title.

Texans should use the Correction Deed sparingly, and view title conveyed by such deeds with a slight degree of skepticism. Form over substance is the general rule when determining which defects in an original deed may be corrected by a Correction Deed.

Recovery of Attorney's Fees in Adverse Possession Cases

There is little doubt that adverse possession lawsuits can be costly. Litigants to these title disputes -- where the key evidence is necessarily historical and often pre-dates current ownership of a given property -- frequently incur substantial expense in surveys, document searches, depositions of prior owners, expert witnesses and title searches. Naturally, a real estate lawyer's time associated with weaving or undermining a credible claim for ownership which is contrary to "legal title" as it appears in the deed records can also translate into significant attorneys' fees. Thus, property owners with boundary disputes often inquire about the possibility of recovering their costs and attorneys' fees in the event that the prevail in an adverse possession case.

For all its criticism, the Texas Legislature has generally been sensitive to the sanctity of land ownership in Texas. For that reason, it enacted Section 16.034(a) of the Texas Civil Practice and Remedies Code to allow the Court (in its discretion) to award costs and reasonable attorneys' fees to the prevailing party in a suit for the possession of real property where one party is "claiming under record title to the property and one claiming by adverse possession." TEX. CIV. PRAC. & REM. CODE ANN. § 16.034(a). However, this grant of discretionary authority for trial courts to award fees didn't have much of an impact on the number of adverse possession suits, including those where claims of ownership by adverse possession were simply frivolous.

To address this concern, statutory revisions were made in 2009, and Section 16.034(a) now requires the trial court to award attorney’s fees “if the court finds that the person unlawfully in actual possession made a claim of adverse possession that was groundless and made in bad faith, . . . .” TEX. CIV. PRAC. & REM. CODE ANN. § 16.034(a) (Vernon Supp. 2009).

The issue of unlawful possession is still part and parcel of the availability of attorney’s fees under section 16.034(a). TEX. CIV. PRAC. & REM. CODE ANN. § 16.034(a). However, under the statutory revisions, the presence of these elements, together with a finding of bad faith, frivolity and/or groundlessness will necessarily result in the shifting of costs and attorneys' fees.

When considering whether to litigate a trespass, title dispute or adverse possession claim, a landowner shouldn't count on having the opposing party pay his or her attorneys' fees. However, given the 2009 revisions to Section 16.034(a), the frequency of such recovery in those cases involving groundless claims of adverse possession seem much better.