Adverse Possession Also Clarified
Congrats to Texas, where the government just gave a boost to the quitclaim deed! People who receive their homes through recorded quitclaim deeds will now be on firmer ground in the Lone Star State. Here’s what you need to know.
Strengthening the Chain of Title for Texas Property
In May, a bill was signed into law to amend Chapter 13 of the Texas Property Code, to take effect on Sep. 1, 2021. From now on, using a quitclaim deed to transfer title from one owner to the next will be easier. Title companies will be able to consider buyers who accepted and recorded quitclaims as bona fide purchasers after four years. Texas formally set a four-year statute of limitations for competing claims.
Once a quitclaim deed is recorded in the property’s county, a later purchaser or lender has good-faith protection, as long as the party has no knowledge of other unrecorded claims on the property. What does this mean for buyers of real estate with a quitclaim in the chain of title? The buyer can legally claim good faith purchaser status.
Why the Four-Year Statute of Limitations Matters
In general, the recipient of a quitclaim gets whatever the grantor (person transferring the document) owned — no more, no less, and with no guarantees expressed in the document. This means the holder of a quitclaim deed cannot prove title to the property by the document alone. That said, in states other than Texas, a rule has prevailed that a quitclaim, recorded by a buyer in good faith and without knowledge of competing claims, does take precedence over earlier, unrecorded claims.
In Texas, though, while a quitclaim is valid, the document flags doubts about what interest the grantor had. So, a buyer taking a quitclaim deed would be “on notice” of doubts about the interest being conveyed.
A quitclaim in the chain of title can rule out a Texas property for title insurance coverage. That’s why Texans may have avoided quitclaims, and attorneys in Texas have generally cautioned against using them.
What about quitclaims between related people? Homeowners outside of Texas often use quitclaim deeds between divorcing spouses, family members, and co-buyers. While quitclaim deeds are common in most states in such situations, Texas attorneys have, even in these cases, suggested warranty deeds instead.
“The root of the problem is a single section of the Texas property code, which essentially states that unrecorded title transfers in the past are binding to subsequent purchasers,” one Texas attorney has observed, who adds that quitclaim deeds in Texas would be “seen as red flags to potential buyers.”
And that negative effect would just stay in the chain of title forever. The only way to make the title insurable, and thereby market the home, would be to undertake the expensive legal hassle of a quiet title action.
How do owners clear a title that might be clouded by unrecorded claims? See our overview: What Is a Quiet Title Action?
Title Industry Leads on Law
One big driver of this legal milestone was the Texas Land Title Association (TLTA). Frustrated by uninsurable titles, the Association asked the state to enact a quitclaim statute of limitations, so the uncertainty of a Texas quitclaim could, in due time, be removed from chains of title.
The issue became continually more urgent, according to TLTA. The courts have, more and more, looked at the language in property deeds and determined them to be quitclaims. Texas courts have tended to find quitclaims when spotting language that transfers the grantor’s interest only. The judicial trend has resulted in fuzzier title transfers, with quitclaims in chains of title where the parties had not intended to create uncertainty.
To firm up property conveyances in Texas, TLTA pressed for an amendment to extend bona fide purchaser status to later owners of formerly quitclaimed properties who receive them in good faith, without notice of competing, unrecorded claims of ownership.
Wisely, TLTA put forth a specific solution. Four years after the recording of a quitclaim, a lender or a potential buyer is protected, and no longer deemed to have “notice” of unrecorded transactions.
Benefits of the New Texas Quitclaim Law
The resulting amendment to Texas property law was SB 885. It does not constitute complete good faith protection, but it does support later buyers, lenders, and title insurers by creating clear limits. Third-party challenges to ownership based on quitclaim must occur in four years from the quitclaim’s recording date, or they are time-barred. And this takes out the question marks for future buyers, lenders, and title companies that depend on deed records to establish good title.
For deeds recorded in the property’s county, from September 2021 on, here is what happens when the four years in the statute of limitations passes:
- Titles with quitclaims (or documents potentially construed as quitclaims) in the record can now be confidently assessed. The presence of a quitclaim deed doesn’t flag a title for further due diligence from the title examiner.
- No longer will a quitclaim deed equate to doubt about a title’s validity. It will not constitute “notice” of some unrecorded encumbrance or transfer in the past.
- Texas law is now aligned with the standard accepted in other states. Innocent people who buy homes in good faith will have their ownership interests protected under Texas law.
On the other side of the coin, parties who believe they have a valid claim against a transfer by quitclaim still receive their fair share of time to mount a challenge after the deed is placed in the public record.
For more information and a clear, suitable quitclaim deed for use in Texas, please see our Texas Quitclaim Deed Page and select the county where the property is located.
Newly Adopted Adverse Possession Law Solidifies Texas Court Decisions
At the same time, the new law amends Section 16.025 of the Texas Civil Practices and Remedies Code (CP&RC) and formalizes the stance on adverse possession held by the Texas courts.
In Texas, a person who is not the landowner can claim legal title to a piece of property by adverse possession — that is, by continually and visibly treating the land as an owner would. This is so, whether the person is acting as an owner because of a sincere belief they own the land, or because the person is deliberately making a case for ownership through adverse possession.
There are three types of adverse possession recognized in Texas and each has a different time period for its statute of limitations. The new law specifically addresses the five-year statute of limitations: the CP&RC’s Section 16.025. Under this section, the displaced owner can’t sue to regain possession of a property that’s been adversely held for five years — if the adverse possessor visibly used the property, paid the property taxes, and got onto the property by way of a recorded deed.
Texas courts have held that the deed would have to be a warranty deed, signed by a party with legal capacity. A quitclaim deed doesn’t count. The adverse possessor must have been using, and paying property taxes on, the real estate — continually and visibly — for five years.
So, courts have not accepted recorded quitclaim deeds as valid for purposes of the adverse possession’s five-year limitations period. And now, under the new amendment to Texas real estate law, that’s confirmed in the statute. No one may claim land under the adverse possession five-year statute of limitations based on a quitclaim deed.
Moving Forward…
The amendment to Texas law merely clarifies the Texas courts’ view of adverse possession in Texas. But it overrides the earlier effect of quitclaims on titles. This is a serious win for quitclaim deeds in in the state. If there are any concerns about a valid title conveyance by quitclaim, the new law in Texas settles those questions after the title is held for four years without challenge.
For Texas property holders wishing to use quitclaim deeds, it’s important to know that their effect as valid conveyances is a matter of statute. Readers should keep in mind that this law is not retroactive. It only has bearing on quitclaim deeds recorded after Sep. 1, 2021. As always, case-specific questions about the legal effects of any document should be brought to a lawyer who is well versed in real estate, and admitted to the state bar.
Supporting References
Tex. Prop. Code Ann. § 13.006.
2021 Tex. Sess. Law Serv. Ch. 94 (S.B. 885).
Tex. Civ. Prac. & Rem. Code §§ 16.025(b).
Thomson Reuters Practical Law: Texas Law Gives Guidance on the Effect of Quitclaim Deeds (Jun. 8, 2021).
Texas Land Title Association: One Pager (PDF) — Quitclaim Statute of Limitations (Mar. 2021).
Atty. Judon Fambrough, Real Estate Center at Texas A&M University: Use It or Lose It (Oct. 19, 2010).
Lydia Blair for CandysDirt.com: Title Tip — Real Estate Industry Gets Little Attention During 2021 Legislative Session (Aug. 24, 2021).
Photo credits: mat_hias, via Pixabay, and Enrique Macias, via Unsplash