McCabe Trust v. Ranger Energy LLC, is the consequence of failing to comply with the Texas Property Code when correcting real property conveyances.
The simplified facts
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In 2008, Mark III executes a mortgage granting a bank a security interest in property described in an attached exhibit which included certain oil and gas leases.
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In 2011, Mark III assigns overrides in the leases covered by the mortgage, plus two additional leases, the McShane Fee and Brice, to the McCabe Trust and the Rochford Trust.
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In January 2013, a revised mortgage is recorded, replacing the original exhibit with one including the McShane Fee and Brice leases. It is not executed by the bank or Mark III.
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The bank transfers the mortgage to Ranger Energy.
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Ranger forecloses.
Ranger asserted that the Trusts’ overrides in the McShane Fee and Brice leases were extinguished by the foreclosure sale. The trial court granted judgment for Ranger. The appellate court reversed and remanded.
Why the reversal? Blame the Texas Property Code
A correction instrument that complies with the Property Code is effective as of the date of the original conveyance. The statutory requirements for correction instruments differ based on whether the correction is a material change or nonmaterial correction.
A nonmaterial change
Section 5.028 allows a person with personal knowledge to execute a correction instrument making a nonmaterial change of an inadvertent error, including the addition of an inadverantly omitted legal description.
A material correction
Section 5.029 allows the original parties to the transaction or their successors to execute a correction instrument making a material correction, including “the addition of land to a conveyance that correctly conveys other land.”
The decision
The 2013 revisions added two additional leases to a mortgage which correctly conveyed interests in other leases. The addition was a material correction. The corrective instruments were not retrospectively valid because they were not signed by the parties who originally executed the instruments. Thus, they were not notice to subsequent buyers of the facts stated therein. Foreclosure of the revised mortgage did not extinguish the Trusts’ overrides in the two leases.
The dissent
The dissent agreed with Ranger that adding the two leases was a nonmaterial change but argued that the Trusts were not bona fide purchasers. The dissent would say the Trusts’ interests were extinguished.
Takeaways
There are several:
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Statutory requirements for correcting a real property conveyance differ depending on the circumstances.
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These provisions date from 2011. If you haven’t dusted off the Code since the Longhorns were successful on the gridiron, be warned.
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The general rule is that first in time is first in right. There will be times when you will need the correction to relate back.
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If there is a question whether a change is material or nonmaterial, have all original parties to the original transaction (or their successors) execute the correction.
Recall my desire to criminalize lame cover songs. Immunity should be granted for good ones. For example, we have the very outstanding Curtis Mayfield original, and the almost-as-good Huey Lewis cover.
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