Inquiry Notice In Texas

A dispute may arise related to who owns a piece of real estate or whether a lien is valid.  Generally, a person purchasing a piece of real estate must inquire with the person who occupies the property as to the occupier’s interest in the property.  A real estate attorney may guide you through the details of your situation.

As a general rule, possession of real estate is equivalent to registration and is constructive notice of the possessor’s right or claim, in that, as a matter of law, it puts a purchaser upon inquiry as to the nature of the claim of right of the possessor, and in the absence of proper inquiry the law charges the purchaser with notice of that claim upon the presumption that proper inquiry would disclose it. Downing v. Jeffrey, 195 S.W.2d 696 (Tex.Civ.App.—Texarkana 1946, writ ref’d n.r.e.); Ramirez v. Bell, 298 S.W. 924 (Tex.Civ.App.—Austin 1927, writ ref’d).  Aldridge v. N. E. Indep. Sch. Dist., 428 S.W.2d 447, 449 (Tex. Civ. App.—San Antonio 1968, writ ref’d), order set aside (Nov. 6, 1968).

The law requires reasonable diligence in a purchaser to ascertain any defect of title. But when such defect is brought to his knowledge, no inconvenience will excuse him from the utmost scrutiny. He is a voluntary purchaser; and having notice of a fact which casts doubt upon the validity of his title, are the rights of innocent persons to be prejudiced through his negligence?” 47 Tex. 109, 111, 1877 WL 8587 (Tex.), 2

The Texas Association of Realtors promulgates an “Estoppel Certificate” for its members.  This form is generally used in commercial transactions for a buyer to inquire with the tenants as to whether or not the tenant claims an ownership interest.  However, the courts say that the same principle applies to residential transactions, and practitioners have criticized TAR for failing to provide a residential estoppel certificate.

A purchaser of land must search the records, for they are the primary source of information as to title and he is charged with knowledge of the existence and contents of the recorded instruments affecting the title. Smith v. Crosby, 86 Tex. 15, 22, 23 S.W. 10, 40 Am.St.Rep. 818; Leonard v. Benfford Lumber Company, 110 Tex. 83, 216 S.W. 382. He must also make inquiry as to the rights or title of the possessor, for possession is equivalent to registration, in that it gives constructive notice of the possessor’s rights. Mainwarring v. Templeman, 51 Tex. 205, 43 Tex.Jur. § 389, p. 661. “The rationale seems to be, that as the occupant’s title is a good one, and as his possession is notorious and exclusive, a purchaser would certainly arrive at the truth upon making any due inquiry. The purchaser cannot say, and cannot be allowed to say, that he made a proper inquiry, and failed to ascertain the truth. The notice, therefore, upon the same motives of expediency, is made as absolute as in the case of a registration.” Pomeroy’s Equity Jurisprudence (4th Ed.) § 615, Vol. 2, pp. 1166, 1167.  Strong v. Strong, 128 Tex. 470, 474, 98 S.W.2d 346, 348 (Comm’n App. 1936).

‘Whatever puts a person on inquiry ordinarily amounts in law to notice, provided inquiry has become a duty and would lead to knowledge of the facts by the exercise of ordinary diligence and understanding. In other words, one who has knowledge of such facts as would cause a prudent man to make further inquiry, is chargeable with notice of the facts which, by use of ordinary intelligence, he would have ascertained. As the rule has been more precisely stated, ‘knowledge will be imputed and may be implied from circumstances where the circumstances known to one concerning a matter in which he is interested are sufficient to require him, as an honest and purdent person, to investigate concerning the rights of others in the same matter, and diligent investigation will lead to discovery of any right conflicting with his own.

‘In such circumstances the person sought to be charged with notice is presumed to have knowledge of all that might have been discovered by investigation; that is to say, he is presumed to know whatever, by the diligent use of what information he has, and of the means in his power, he ought to know. Responsibility in such circumstances is the same in all respects as if the person sought to be charged actually knew, and he will not be heard to allege ignorance. As was said by Mr. Justice Jackson in a recent case, (Brown v. Hart, Tex.Civ.App., 43 S.W.2d 274, 278), ‘He is not warranted in shutting his eyes against the lights before him.’ Means of knowledge, with the duty of using them, are thus deemed the equivalent of knowledge itself’. Sec. 4, 31 Tex.Jur., pp. 362-365.  Flack v. First Nat. Bank of Dalhart, 148 Tex. 495, 500, 226 S.W.2d 628, 632 (1950).

Thus, every purchaser of land is charged with knowledge of all facts appearing in the chain of title through which he claims that would place a reasonably prudent person on inquiry as to the rights of other parties in the property conveyed. Williams v. Jennings, 755 S.W.2d 874, 882 (Tex.App.-Houston [14th Dist.] 1988, writ denied). Accordingly, if Nguyen or Southwestern had knowledge of any fact or circumstance sufficient to put a prudent man upon inquiry which, if prosecuted with ordinary diligence, would lead to actual notice of Chapa’s claim to the 3.101 acres, Nguyen and Southwestern are charged with such knowledge.  Hue Nguyen v. Chapa, 305 S.W.3d 316, 325 (Tex. App. 2009).

Status as a bona fide lender/mortgagee is obtained if the lender/mortgagee obtained an interest in the property in good faith, for value and without notice of the claim or interest of a third party. Houston First Am. Sav. v. Musick, 650 S.W.2d 764, 769 (Tex.1983).  (“We further hold that American is not a bona fide purchaser and, hence, has no better title than its grantor.”). [In this case, it appears that even a dispute about title was enough to deny the bona fide lender defense.]

A bona fide purchaser is one who acquires property in good faith, for value, and without notice, constructive or actual, of any third party claim or interest. Madison v. Gordon, 39 S.W.3d 604, 606 (Tex.2001); Richards v. Suckle, 871 S.W.2d 239, 242 (Tex.App.-Houston [14th Dist.] 1994, no writ). In Texas, a bona fide purchaser prevails over a holder of a prior unrecorded deed or other unrecorded interest in the same property. See generally Madison, 39 S.W.3d at 606.

(a) A conveyance of real property or an interest in real property or a mortgage or deed of trust is void as to a creditor or to a subsequent purchaser for a valuable consideration without notice unless the instrument has been acknowledged, sworn to, or proved and filed for record as required by law.

(b) The unrecorded instrument is binding on a party to the instrument, on *76 the party’s heirs, and on a subsequent purchaser who does not pay a valuable consideration or who has notice of the instrument.

….

TEX. PROP.CODE ANN. § 13.001(a)-(b) (Vernon 2004).

A bona fide purchaser similarly prevails over a claim under a prior equitable title. E.g., Richards, 871 S.W.2d at 242; H.D. Boswell v. Farm & Home Sav. Assoc., 894 S.W.2d 761, 766 (Tex.App.-Fort Worth 1994, writ denied).

Under section 13.001, a lender can be a bona fide mortgagee, if the lender takes a lien in good faith, for valuable consideration, and without actual or constructive notice of outstanding claims. Houston First Am. Sav. v. Musick, 650 S.W.2d 764, 769 (Tex.1983); Gordy v. Morton, 624 S.W.2d 705, 707 (Tex.App.-Houston [14th Dist.] 1981, no writ).

A bona fide mortgagee is entitled to the same protections as a bona fide purchaser. Graves v. Guar. Bond State Bank, 161 S.W.2d 118, 120 (Tex.Civ.App.-Texarkana 1942, no writ).

Status as a bona fide purchaser is generally an affirmative defense in a title dispute. Madison, 39 S.W.3d at 606. “In a contest between the owner of an equitable right of title and the holder of legal title,” however, “the burden of proof as to good faith and consideration is upon the party asserting the equitable right and not upon the subsequent purchaser of legal title.” Gordy, 624 S.W.2d at 707.

A purchaser of land must search the records, for they are the primary source of information as to title and he is charged with knowledge of the existence and contents of the recorded instruments affecting the title. Smith v. Crosby, 86 Tex. 15, 22, 23 S.W. 10, 40 Am.St.Rep. 818; Leonard v. Benfford Lumber Company, 110 Tex. 83, 216 S.W. 382. He must also make inquiry as to the rights or title of the possessor, for possession is equivalent to registration, in that it gives constructive notice of the possessor’s rights. Mainwarring v. Templeman, 51 Tex. 205, 43 Tex.Jur. § 389, p. 661. “The rationale seems to be, that as the occupant’s title is a good one, and as his possession is notorious and exclusive, a purchaser would certainly arrive at the truth upon making any due inquiry. The purchaser cannot say, and cannot be allowed to say, that he made a proper inquiry, and failed to ascertain the truth. The notice, therefore, upon the same motives of expediency, is made as absolute as in the case of a registration.” Pomeroy’s Equity Jurisprudence (4th Ed.) § 615, Vol. 2, pp. 1166, 1167. Strong v. Strong, 128 Tex. 470, 474, 98 S.W.2d 346, 348 (Comm’n App. 1936)

Possession by a tenant creates a duty to inquire.  Mainwarring V. Templeman, 51 Tex. 205, 209 (1879).

Possession of a single rental-unit dwelling was sufficient to create constructive notice. Moore v. Chamberlain, 195 S.W. 1135 (Tex. 1917); Collum v. Sanger Bros., 82 S.W. 459 (Tex. 1904)