Often people find themselves confused as to how the Texas recording system works. There are many people, including the occasional legal author, who wrongly conclude that Texas is what is known as a "Race Notice" state. In fact, Texas is a "Pure Notice" state.
We all know that conveyances and agreements concerning real property must be in writing to be enforceable between the parties to a transaction. However, to be enforceable as to third persons, Texas, like all states, requires that these instruments be filed in the public record. The Texas law about notice is found in both statute and case law.
The Texas Recording Act is statutory law which makes certain conveyances void as to subsequent purchasers or creditors without notice. The Doctrine of Bona Fide Purchaser (hereinafter “BFP Doctrine”), is a common law or case law doctrine that provides that certain conveyances or interests in property are not enforceable against a subsequent purchaser for value unless the subsequent purchaser had actual or constructive notice of the prior conveyance.
The Texas Recording Act is found in Section 13.001 of the Texas Property Code:
(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 the party's heirs, and on a subsequent purchaser who does not pay a valuable consideration or who has notice of the instrument.
(c) This section does not apply to a financing statement, a security agreement filed as a financing statement, or a continuation statement filed for record under the Business & Commerce Code. Tex. Prop. Code§13.001.
One will note that the Recording Act only covers “conveyances” of real property or a “mortgage or deed of trust”. Thus, subsequent purchasers are not protected under the Act from other competing claims that don’t fall into those categories. It is the BFP Doctrine that fills in some of these gaps. The BFP Doctrine provides that a subsequent claimant will prevail over a prior competing interest in real property where the later claimant (1) acquires a recordable interest in real property (2) for value (3) in good faith and (4) without notice of the prior claim. Stahl v. Westerman, 250 S.W.2d 325 (Tex. App. – San Antonio 1952, no writ). The interplay between the Recording Act and the BFP Doctrine creates the framework that provides certainty to titles.Both the Recording Act and the BFP Doctrine hinge on “notice.” Notice comes in two forms actual and constructive. A party has constructive notice of every instrument properly recorded in their chain of title as well as every recital, reference, reservation, provision, and attachment included in or with those instruments. Westland Oil Development Corp. v. Gulf Oil Corp., 637 S.W.2d 903 (Tex. 1982). Obviously, a person has actual notice of something when they or their agent becomes aware of it regardless of whether it is recorded or not.
Texas is a “pure notice” state. That is, a subsequent purchaser for value, without actual or constructive notice of a prior claim, will take free from that claim. Here is an example of this in practice - Person A leases Blackacre to Oil Company X on February 1 and Oil Company X pays a bonus check to A on the spot.
- The land department in Oil Company X records the lease on February 22.
- Meanwhile Landman Y from Oil Company Y takes a Lease from Person A on February 5 and pays a bonus to Person A by check on the spot.
- Person A doesn’t tell Landman Y about the earlier lease and neither he nor Oil Company Y knows about the earlier lease.
- Oil Company Y records its lease on July 1.
Which company has a good lease? Oil Company Y. Oil Company Y took its lease without actual or constructive notice of the earlier lease and paid valuable consideration for it. The fact that Oil Company X recorded its lease first is irrelevant in Texas. If it is not on file at the courthouse at the time Oil Company Y takes its lease, then Oil Company Y wins. There would be a different result in a "race notice" state. In a race notice state, the fact that Oil Company X recorded it's lease first would give it the win, e.g. the "race to the courthouse".
So, to reiterate, Texas is a pure notice state. The winner of this contest between competing claims is determined at the time the second claim is created. In Texas then the order in which the competing claims are recorded is irrelevant except to the extent that recording creates constructive notice. Thus, the only questions are, at the time of the creation of the second claim: (1) did the second claimant have actual or constructive knowledge of the first conveyance, and (2) is the second claimant either (a) a creditor or (b) a purchaser for value?
