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Careful Post-Closing Scrutiny Helps Avoid Title Issues

After closing on a commercial real estate deal, buyers may assume they can reallocate attention to other business matters and count the transaction as a success. In Texas, the title company usually handles the closing as well as the filing or recordation of the deed with the appropriate government officials, so the purchaser’s responsibility may indeed seem to conclude after the closing. As a result, the recordation process usually receives little scrutiny from the parties to the transaction. But a title company’s failure to comply with the Texas recording statutes can create substantial and costly problems for the purchaser, including loss of title, so it is beneficial for real estate purchasers to become familiar with the basic rules and purposes of deed recordation.

The purpose of recording a deed is to give the public notice of the contents of the deed. The recordation process does not and cannot validate an otherwise invalid deed. In order for a deed to be valid, it must satisfy five requirements. The deed must be: in writing, be signed by the grantor at the end of the document, include the grantee’s correct legal name, contain an accurate legal description of the property, and be given to and accepted by the grantee. In order to be recorded, the deed must also be “acknowledged”, which authenticates the document and identifies the signers and their respective signatures; this is typically accomplished by signing the document before a notary public who then signs or affixes an official seal.

After the deed is acknowledged, it needs to be filed or recorded in the county where the real estate is located. Although not strictly required by the Texas Property Code, if the land touches more than one county, the deed should be recorded in each county. If the deed is filed in the wrong county, the legal effect is the same as if it was never filed; remedial action is required by the new owner to protect ownership interest in the title.

A deed must be recorded or filed to be effective against creditors or subsequent bona fide purchasers, who enjoy great protection under Texas law. A purchaser who pays valuable consideration for the property, without actual knowledge of the earlier unrecorded deed, and without constructive notice of a third party’s interest in the property, is considered a bona fide purchaser. Bona fide purchasers enjoy preferred status, and under the Texas Property Code a subsequent bona fide purchaser’s title is superior to the title of an earlier purchaser with an unrecorded deed.

If the deed is simply recorded incorrectly or contains errors, the title can still become clouded and rendered unmarketable. Clouded titles can require costly quiet title actions to resolve, placing ownership of the property in limbo until the matter is settled. Post-closing verification by the purchaser and the purchaser’s attorney is a quick and relatively simple way to ensure the ownership interest in the property has successfully transferred and prevent unforeseen future challenges to the title.

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