Most commercial real estate deals do not fall apart over price. They fall apart in the title commitment, when a buyer or lender finds an old lien, a gap in the chain of ownership, or a recorded claim that no one on the seller’s side knew existed. A clouded title is any recorded document or unresolved claim that casts doubt on the owner’s ability to convey a clean title, and the remedy depends on what created the cloud and how close the closing date is.
At Murray | Lobb Attorneys, our Galveston County real estate litigation attorneys have represented Texas property owners, buyers, and lenders since 1991.
Where Do Title Problems Usually Surface?
Title problems usually surface in the title insurance commitment, which the title company issues shortly after the purchase contract is signed in a typical Texas commercial transaction. The commitment uses a form promulgated by the Texas Department of Insurance, and it lists the conditions the title company requires before it will issue a policy, along with the exceptions it will not insure.
The exceptions appear in Schedule B and the requirements in Schedule C, and those two schedules are where clouds show up. Common examples include:
- Deeds of trust from paid-off loans that were never released
- Mechanic’s liens filed by contractors or suppliers
- Abstracts of judgment against the current or a prior owner
- Notices of lis pendens from pending litigation
- Errors in legal descriptions, party names, or acknowledgments
- Gaps in the chain of title, often caused by an unprobated estate
- Tax liens and fixture filings tied to equipment or improvements
Most purchase contracts give the buyer a short window to object to title matters and give the seller a limited period to cure. If the seller cannot cure in time, the buyer may be able to terminate and recover its earnest money.
Releasing Old Liens
When a loan is paid off but the lender has not recorded a release, the solution is usually to obtain a release from the lender or its successor. If the original lender has merged, sold the loan, or gone out of business, tracking down the current holder can take time, so this step should start as soon as the commitment arrives.
When the holder cannot be found or will not cooperate, Texas law can help. Under Section 16.035 of the Texas Civil Practice and Remedies Code, a lender generally must sue to foreclose, or complete a nonjudicial foreclosure sale, within four years after the cause of action accrues. For a note payable in installments, that period generally runs from the maturity of the final installment, or from an earlier date if the lender accelerated the debt. Once the period expires, the lien and the power of sale become void. Title companies do not always accept limitations without a court order, but the statute often provides the basis for removing a stale lien.
Removing Invalid Mechanic’s Liens
A mechanic’s lien can stop a closing even when the underlying claim is weak. Texas offers two main tools.
First, the owner or another interested party can file a bond under Section 53.171 of the Texas Property Code. Once a compliant bond and notice of the bond are recorded, the lien claim shifts from the property to the bond, so the closing can proceed while the dispute continues.
Second, if the lien is defective, Section 53.160 allows a party to a suit over the lien to file a summary motion to remove it. The grounds are limited and include the claimant’s failure to send required notices, a lien affidavit that was not timely filed or did not comply with the statute, and a valid lien waiver signed by the claimant. The motion cannot be heard until at least 30 days after the claimant answers or appears, so it is not an overnight fix.
Expunging a Lis Pendens
A notice of lis pendens tells the world that a lawsuit involves the property. Few buyers or lenders will close over one. Under Section 12.0071 of the Texas Property Code, a party to the suit may move to expunge the notice. The court must order expunction if the underlying pleading does not assert a real property claim, if the claimant cannot establish the probable validity of that claim, or if the person who recorded the notice did not serve a copy on each party entitled to one. Once a certified copy of the expunction order is recorded, a purchaser or lender for value can take the property free of the matters asserted in the notice.
Correcting Recording Errors
Not every cloud involves an adverse claim. Many arise from simple mistakes, such as a misspelled name, the wrong lot number, a transposed bearing in a metes-and-bounds description, or a defective acknowledgment.
Texas Property Code Sections 5.027 through 5.031 allow these errors to be fixed through a recorded correction instrument. Nonmaterial corrections, such as clerical errors in a legal description or a party’s name, may be made by a person with personal knowledge of the facts, with notice to any original party who did not sign it. Material corrections, such as adding land that was left out of a conveyance, must be signed by each party to the original instrument or their heirs, successors, or assigns. When those parties are unavailable or unwilling, a court proceeding may be necessary.
When Litigation Is the Only Option
Some clouds cannot be resolved by agreement. A competing ownership claim, a forged or wrongfully recorded deed, a boundary dispute, or an heir who cannot be found or refuses to sign may require a lawsuit. Depending on the issue, the proper vehicle may be a suit to quiet title or a trespass to try title action under Chapter 22 of the Texas Property Code. Under Section 37.004(c) of the Civil Practice and Remedies Code, a declaratory judgment action is available when the location of a boundary line is the only title question.
Because litigation takes time, the parties may need to extend the closing, close with an escrow holdback, or ask the title company whether it will insure over the issue while the suit proceeds.
Talk With a Galveston County Real Estate Lawyer
A clouded title does not have to end a transaction, but it does require prompt and accurate work. The Galveston County real estate attorneys at Murray | Lobb Attorneys represent sellers, buyers, and lenders in commercial real estate matters throughout Harris, Galveston, Fort Bend, Montgomery, and Chambers Counties. Call 281-488-0630 or contact us to schedule a consultation with a Galveston County real estate lawyer.