Real Estate Law Blog

Changes to Texas Title Rules

In 2013 the Texas Commissioner of Insurance adopted a number of changes to the Texas Basic Manual of Rules, Rates and Forms for the Writing of Title Insurance in the State of Texas (the "Texas Title Manual"). Those changes became effective January 3, 2014. A few of the more significant changes are summarized below. For more information, and to subscribe to updates to the Texas Title Manual, visit the Texas Land Title Association's website.

• Procedural Rule P-57 was amended to include "Fairway language" for an optional coverage in the T-26 Additional Insured Endorsement.The amended endorsement now will allow transfer of an interest in a limited liability company without being deemed to create a new entity, thus voiding the title policy's coverage. (The reference is to Fairway Dev. Co. v. Title Ins. Co. of Minn., 621 F. Supp. 120 (N.D. Ohio 1985), in which the court held that the assignment of partnership interests to the remaining partner and a new unrelated purchaser resulted in a termination of the partnership insured by the title policy at issue and the creation of a new partnership that therefore lacked standing to bring a claim under the title policy issued to the original partnership). 
• A new Commercial Environmental Protection Lien endorsement (Form T-36.1) was adopted. Unlike many other jurisdictions, Texas previously allowed this coverage only on residential property. The new endorsement is consistent with the ALTA 8.2-06 endorsement commonly available in other jurisdictions. NOTE: Although approved, this endorsement will not be available until a Rate Rule and a Procedural Rule are proposed and adopted by the Texas Department of Insurance.
• A new Procedural Rule (P-72) and endorsement form (T-54) were adopted to address situations in which an item's status as real or personal property is disputed. The endorsement affects the measure of damages available if certain title defects cause a diminution of value or result in certain specified costs.
• Endorsement Forms T-19 and T-19.1 (Restrictions, Encroachments, Minerals) were amended to more closely conform with ALTA forms 9-06 and 9.1, and to include language insuring against covenant violations.
• Several other endorsements were amended to more closely track the corresponding ALTA forms. Included among these are T-16 (Loan Policy Aggregation), T-14 (Leasehold Owner's Policy), T-4R (Residential Leasehold), T-5 (Leasehold Loan Policy).

Again, a fuller description of the newly effective changes can be found in the update bulletin on TLTA's website. 

Laura McClellan
Thompson & Knight LLP
Email me

Fifth Circuit Ruling on Certain Covenants Running with the Land

"Bankruptcy allows the sale of real property free and clear of certain liens and interests. A covenant running with the land, however, is likely not affected by a sale in bankruptcy. Whether a right is a covenant running with the land is thus a crucial issue, especially when a debtor in bankruptcy seeks to strip the right without the owner’s consent. The Fifth Circuit recently held in Newco Energy v. Energytec, Inc. (In re Energytec, Inc.),[1] that a right to a transportation fee in connection with a pipeline and a right to consent to the assignment of the pipeline were covenants running with the land."

So begins a recent post by my colleagues Mitchell Ayer and Evelyn Breithaupt on Thompson & Knight's Oil and Gas Update blog. In the post, Mitchell and Evelyn summarize and analyze the case and its impact on oil and gas contracts. They conclude with the suggestion that in "agreements such as participation agreements, joint venture agreements and joint operating agreements[, t]o improve the chances that a purchaser’s obligations will survive bankruptcy (i) characterize the obligations as covenants running with the land and (ii) file the agreement of record by referencing the agreement in the assignment (assuming you are in a state like Texas that allows record notice by reference)."

The case, and their suggestions, are relevant to real estate contracts as well. I encourage you to read their post for more information. Click here to read more.

Laura McClellan
Thompson & Knight LLP
Email me

---

[1] No. 12-41162 (Dec. 31, 2013), available at http://www.ca5.uscourts.gov/opinions/pub/12/12-41162-CV0.pdf