Anyone involved professionally in real estate transactions in Tennessee probably knows that Tennessee law requires every instrument conveying an interest in real estate – such as a deed, a lease or a deed of trust – to contain a description of the real estate. The required description (commonly referred to as a “legal description”) usually takes the form of a “metes and bounds description” prepared by a land surveyor or a reference to a lot designated in a subdivision plat that’s been recorded in the register’s office of the county in which the real estate is located. If the legal description in an instrument erroneously describes the land being conveyed, is the instrument invalid? A recent opinion from the Tennessee Court of Appeals says not necessarily.
In ABN Amro Mortgage Group, Inc. v. Southern Security Federal Credit Union (Tennessee Court of Appeals, Nov. 17, 2011), a husband and wife obtained a loan from a local bank to finance their purchase of a new home. They granted the bank a deed of trust on the property to secure the loan. The deed of trust incorrectly referred to the property as “Lot 16” in the subdivision when, in fact, the correct lot was “Lot 10.” About a month later, the homeowners took out a home equity line of credit (“HELOC”) from another bank and granted that bank a deed of trust to secure the HELOC. That deed of trust correctly identified the property as Lot 10 of the subdivision. Four years later, the homeowners defaulted on both loans. When the first lender foreclosed its deed of trust on the property, the second lender claimed that the error in the legal description of the first lender’s deed of trust invalidated the instrument, which meant that the second lender stepped up and became the first lien holder on the property.
Referring to the wrong subdivided lot in the legal description of a deed or deed of trust seems like a pretty significant error. Is it enough to invalidate the instrument? In this case, the Court of Appeals said no. Tennessee law requires a description of the property, but it doesn’t require a perfect description. The description has to either identify the land or provide a means of identifying the land, as through facts outside the description, such as oral proof and other extrinsic evidence. The question is not whether the description identifies the land being conveyed but whether it provides enough information so that the identity of the land can be determined. On the other hand, if the description and available extrinsic proof as to what land was intended by the instrument remains a matter of conjecture, or if the description can be applied to more than one tract, the instrument is void.
Although the legal description at issue in this case referred to the wrong lot, the instrument stated the correct street address of the property, the correct tax map parcel number, and a reference to a vesting deed that correctly identified property by lot number. The description therefore was sufficiently definite to allow extrinsic evidence (i.e., the vesting deed referred to in the description) to be used to supply the correct lot number. The validity of the deed of trust was upheld, and the HELOC lender was relegated to a second lien position where it belonged.
Lesson from case: Obviously, legal descriptions need to be prepared with care, and they should be double checked before closing to ensure that they are error-free. Following that practice will avoid the kind of expensive litigation that tripped up the first bank in this case.
But when a mistake in a legal descriptions occurs, the instrument may be saved by including in the legal description as much additional information about the property as possible, including the property’s street address, the tax map parcel number assigned to it by the property tax assessor’s office, and any other information that would help identify the property.