# Texas Title Exceptions: Analysis and Treatment

## Table of Contents
1. [Standard/Printed Exceptions](#standardprinted-exceptions)
2. [Deed Restrictions and CCRs](#deed-restrictions-and-ccrs)
3. [Easements](#easements)
4. [Liens and Encumbrances](#liens-and-encumbrances)
5. [Survey Matters](#survey-matters)
6. [Mineral Exceptions](#mineral-exceptions)
7. [Exception Analysis Framework](#exception-analysis-framework)

## Standard/Printed Exceptions

### Exception: Standby Fees, Taxes, and Assessments

**Standard language**:
> "Standby fees, taxes, assessments, and charges not yet due and payable for the year ___."

**Analysis**:
- Standard exception in all policies
- Covers taxes not yet assessed (future years)
- Current year prorated at closing
- NOT deletable

**Action**: None required; standard exception remains.

### Exception: Rights of Parties in Possession

**Standard language**:
> "Rights of parties in possession not shown by the public records."

**Analysis**:
- Protects against unrecorded possessory rights
- Tenants, adverse possessors, licensees
- Survey may show evidence of possession

**Deletion requirements**:
1. Seller's affidavit: No parties in possession other than seller
2. Survey showing no evidence of third-party possession
3. Inspection confirming vacancy or seller occupancy

**For rentals**: Exception modified to except "rights of tenants under recorded/unrecorded leases"

### Exception: Survey Matters

**Standard language**:
> "Discrepancies, conflicts in boundary lines, shortage in area, encroachments, or any other facts which a correct survey would disclose, and which are not shown by the public records."

**Analysis**:
- Broad protection for title company
- Covers physical condition issues
- Deleted with acceptable survey

**Deletion requirements**:
1. Current ALTA/NSPS or staked survey
2. Survey shows no encroachments, conflicts, shortages
3. T-19 endorsement purchased

**Partial deletion**: May modify to except only specific matters shown on survey

### Exception: Mechanic's/Materialman's Liens

**Standard language**:
> "Liens or claims for liens not shown by the public records for labor or material heretofore or hereafter furnished."

**Analysis**:
- Texas constitutional lien: Attaches to land regardless of recording
- 4-month perfection period from completion
- Covers both recorded and potential liens

**Deletion requirements**:
1. T-47 affidavit: No improvements within 90 days (or disclose)
2. If recent work: Lien waivers from all contractors
3. Escrow for lien period if work ongoing
4. Builder's indemnity if new construction

### Exception: Easements and Rights-of-Way

**Standard language**:
> "Easements, or claims of easements, not shown by the public records."

**Analysis**:
- Unrecorded easements: Prescriptive, implied, necessity
- May be visible on survey
- Could affect property use

**Deletion requirements**:
1. Survey showing no evidence of unrecorded easements
2. Physical inspection
3. T-47 affidavit: No knowledge of unrecorded easements

**Note**: Recorded easements excepted separately (see below)

## Deed Restrictions and CCRs

### Basic Restriction Exception

**Typical language**:
> "Restrictive covenants recorded in Volume ___, Page ___, [County] Real Property Records, but omitting any covenant or restriction based on race, color, religion, sex, handicap, familial status, or national origin."

**Analysis steps**:
1. **Obtain the document**: Pull from county records
2. **Review restrictions**: Use restrictions, setbacks, architectural controls
3. **Check enforcement**: HOA or committee with authority
4. **Assess compliance**: Does current use comply?
5. **Expiration**: Check for term limit or renewal provisions

**Common restriction types**:
- Single-family residential use only
- Minimum square footage
- Building setback lines
- Architectural review requirements
- Fence/outbuilding restrictions
- Commercial use prohibitions
- Nuisance provisions

**Enforceability considerations**:
- Changed conditions doctrine (neighborhood changed)
- Abandonment/waiver (widespread violations)
- Expiration of term
- Laches/statute of limitations

### Supplemental Declarations

**Language**:
> "Supplemental Declaration recorded in Volume ___, Page ___."

**Analysis**:
- May add, modify, or remove restrictions
- Read in conjunction with original
- Check recording dates and applicability

### Residential/Commercial District Restrictions

**Commercial property**: May have different restrictions:
- Permitted uses
- Operating hours
- Signage limitations
- Parking requirements
- Building materials/appearance

**Mixed use**: Review both residential and commercial provisions

## Easements

### Utility Easements

**Typical language**:
> "Easement to [Utility Company] for [purpose] recorded in Volume ___, Page ___."

**Analysis checklist**:
- [ ] Width and location
- [ ] Purpose (electric, gas, water, sewer, telecom)
- [ ] Exclusive or non-exclusive
- [ ] Surface vs. subsurface
- [ ] Existing improvements within easement
- [ ] Ability to build over/across

**Impact assessment**:
- **Low impact**: Underground utilities along property line
- **Moderate impact**: Overhead lines, visible infrastructure
- **High impact**: Easement across buildable area, restricts use

### Access Easements

**Typical language**:
> "Easement for ingress and egress across [description]."

**Analysis**:
- Does property have legal access without easement?
- Benefited (dominant) vs. burdened (servient) estate
- Maintenance obligations
- Exclusive or shared access

**Landlocked property**: Critical issue—verify access exists

### Drainage Easements

**Language variations**:
- "Drainage easement"
- "Storm water easement"
- "Floodway easement"
- "Detention pond easement"

**Analysis**:
- Location relative to improvements
- Flood zone implications
- Maintenance obligations
- Impact on development potential

### Pipeline Easements

**Language**:
> "Pipeline easement to [Company] for [type] pipeline..."

**Analysis**:
- Width (typically 25-75 feet)
- Type: Oil, gas, refined products, water
- Surface rights: Can you build over?
- Safety setbacks
- Existing pipeline location (verify with survey)

**Regulatory**: Check Railroad Commission records for active pipelines

### Conservation/Scenic Easements

**Language**:
> "Conservation easement in favor of [Land Trust/Agency]..."

**Analysis**:
- Permanent (most are)
- Restrictions on development, subdivision, use
- May prohibit or limit: construction, clearing, commercial use
- Often provide tax benefits to grantor

**Impact**: Usually severe—limits development options significantly

### Easement Termination

**Ways easements terminate**:
1. Expiration of stated term
2. Release from easement holder
3. Merger (same party owns both estates)
4. Abandonment (requires intent + non-use)
5. End of necessity (for easements by necessity)
6. Condemnation

## Liens and Encumbrances

### Deed of Trust Exception

**Language**:
> "Deed of Trust dated ___, from [Grantor] to [Trustee] for the benefit of [Beneficiary], recorded..."

**Treatment**: Must be released at or before closing

**Verification**:
- Obtain payoff from current servicer
- Verify recording information matches
- Check for modifications/assumptions
- Confirm release will be recorded

### Judgment Lien Exception

**Language**:
> "Abstract of Judgment, Case No. ___, [Court], [Creditor] vs. [Debtor], recorded..."

**Analysis**:
- Is the owner the judgment debtor? (verify identity)
- Amount and accrued interest
- Dormancy status (10-year enforcement period)
- Renewal filed?

**Treatment**:
- Release from creditor
- Payoff at closing
- Identity affidavit if different person

### Federal Tax Lien Exception

**Language**:
> "Notice of Federal Tax Lien, IRS vs. [Taxpayer], recorded..."

**Analysis**:
- Covers all property of taxpayer
- 10-year lien period from assessment
- IRS 120-day redemption right post-sale

**Treatment**:
- Payoff with Certificate of Release
- IRS subordination (rare)
- Discharge of specific property

### State Tax Lien Exception

**Language**:
> "State Tax Lien, Texas Comptroller vs. [Taxpayer]..."

**Analysis**:
- Franchise tax, sales tax, or other state taxes
- Check entity good standing

**Treatment**:
- Payoff with release
- Certificate of Account Status (for franchise tax)

### HOA/POA Lien Exception

**Language**:
> "Assessment lien in favor of [Association]..."

**Analysis**:
- Amount owed
- Super-priority status (6 months of assessments in Texas)
- Special assessments

**Treatment**:
- Payoff at closing
- Updated resale certificate
- Subordination if lien to remain (unusual)

### Mechanic's Lien (Perfected)

**Language**:
> "Mechanic's Lien Affidavit filed by [Claimant], recorded..."

**Analysis**:
- Validity: Was lien timely perfected?
- Amount claimed
- Underlying contract

**Treatment options**:
- Payment/release
- Bond around lien (Tex. Prop. Code § 53.171)
- Contest validity
- Indemnity (with underwriter approval)

## Survey Matters

### Encroachments

**Types**:
- Building encroaches onto neighbor/easement
- Neighbor's structure encroaches onto subject
- Fence not on boundary

**Analysis**:
- Severity: Minor (inches) vs. major (feet)
- Impact on use and marketability
- Cure options: Removal, easement, encroachment agreement

**Treatment**:
- Minor: Title company may insure with affidavit
- Major: Cure required (relocation, agreement)
- Policy exception for specific encroachment

### Boundary Conflicts

**Types**:
- Survey doesn't close
- Conflict with adjacent survey
- Deed description conflicts with monument

**Analysis**:
- Cause of conflict
- Historical use and possession
- Adverse possession potential

**Treatment**:
- Boundary line agreement with neighbor
- Surveyor resolution
- Quiet title action (if disputed)

### Shortage in Area

**Issue**: Actual acreage less than stated

**Analysis**:
- Percentage of shortage
- Impact on value
- Purchase price adjustment

**Treatment**:
- De minimis: Proceed with disclosure
- Material: Price adjustment or termination right
- Title company may limit coverage to actual area

## Lien Priority Analysis

### Texas Recording Statute (Tex. Prop. Code § 13.001)

Texas has a **NOTICE** recording system (Standard 15.90):
- A subsequent good-faith purchaser for value prevails over a prior unrecorded instrument
- Notice (actual or constructive) defeats subsequent purchaser—NOT who records first
- Key distinction from race-notice: The subsequent purchaser prevails even if the prior instrument records first, as long as the subsequent purchaser had no notice at time of purchase

**Requirements for protection**:
1. Good faith purchaser
2. For valuable consideration
3. Without notice (actual, constructive, or inquiry) of the prior interest

### Priority Hierarchy

| Priority | Lien Type | Authority |
|----------|-----------|-----------|
| 1 | Ad valorem property taxes | TEX. TAX CODE § 32.01 |
| 2 | Federal tax liens (if filed) | 26 U.S.C. § 6323 |
| 3 | Constitutional mechanic's liens | TEX. CONST. art. XVI, § 37 |
| 4 | Purchase money mortgages | Common law |
| 5 | Recorded deeds of trust | Tex. Prop. Code § 13.001 |
| 6 | HOA super-priority (6 months) | Tex. Prop. Code § 209.0091 |
| 7 | Judgment liens | From recording of abstract |

### Constitutional Mechanic's Liens

**Texas Constitution art. XVI, § 37**:
- Self-executing constitutional lien
- Attaches to land regardless of recording
- Inception date: When labor/materials first furnished
- May prime recorded deeds of trust

**Perfection requirements** (Tex. Prop. Code §§ 53.021-53.059):
- Original contractor: File affidavit within 4 months of completion
- Subcontractors: Notice requirements per statute
- Residential: Additional retainage requirements

### Federal Tax Lien Considerations

**26 U.S.C. §§ 6321-6323**:
- Attaches to all property from assessment date
- Must be filed for priority against purchasers
- 120-day redemption right post-foreclosure

**Superpriority exceptions** (beat federal tax liens):
- Property tax liens
- Mechanic's liens (if inception before filing)
- Purchase money security interests (45-day rule)

### Transferred Tax Liens (Tex. Tax Code §§ 32.06, 32.065)

**Priority rules**:
- Private entity pays delinquent taxes
- Steps into taxing unit's priority position
- Superior to most other liens

**Title analysis**:
- Verify lien status and transferee
- Obtain payoff statement
- Confirm release will be recorded

### Equitable Subrogation

**When applicable**:
- Lender pays off prior encumbrance
- Intended to obtain prior lien's priority
- No prejudice to intervening interests
- Equity favors subrogation

**Common scenario**: Refinance lender pays first, records after judgment lien

## Mineral Exceptions

See `references/tx-minerals.md` for detailed analysis.

### Basic Mineral Exception

**Language**:
> "Minerals reserved in deed recorded in Volume ___, Page ___..."

**Quick analysis**:
1. What's reserved: Full minerals, NPRI, specific substances
2. Fraction: 100%, 1/2, 1/4, etc.
3. Surface rights: Ingress/egress reserved?
4. Current lease status: Are minerals leased?

### No Minerals Remain

**Verification**: If seller claims to own minerals:
- Trace through chain of title
- Confirm no outstanding reservations
- Consider mineral title search

**If confirmed**: Request deletion of mineral exception

## Exception Analysis Framework

### For Each Exception, Determine:

1. **What does it affect?**
   - Physical location on property
   - Rights granted/restricted
   - Duration (permanent, term, or condition)

2. **How does it impact the transaction?**
   - Use restrictions
   - Development limitations
   - Access issues
   - Financial obligations

3. **Can it be cured?**
   - Yes: Specify cure steps
   - No: Remain as exception
   - Partial: Can be modified/limited

4. **What's the recommendation?**
   - Accept as-is
   - Require cure before closing
   - Modify policy coverage
   - Flag for client review

### Exception Summary Table Template

| # | Exception | Type | Impact | Cure? | Recommendation |
|---|-----------|------|--------|-------|----------------|
| 1 | [Description] | [Type] | [Low/Med/High] | [Yes/No/Partial] | [Action] |
| 2 | ... | ... | ... | ... | ... |

### Risk Classification

**Low risk** (proceed with standard coverage):
- Standard printed exceptions (appropriately modified)
- Utility easements in expected locations
- Current deed restrictions in compliance

**Medium risk** (flag for review, may need action):
- Easements affecting buildable area
- Restrictions limiting intended use
- Minor encroachments

**High risk** (must cure or obtain specific coverage):
- Access issues
- Major encroachments
- Unreleased liens
- Ownership disputes