It may be common practice to record a modification or extension agreement on a properly secured real estate loan, but does anyone know if there is a legal requirement to do so?

I researched the issue of whether there is a requirement to record a modification or extension of a loan secured by real estate. The below information from the case of Cadle v. Butler, 951 S.W.2d 901, 909 (Tex. App--Corpus Christi, 1997):

"The former and current statutes plainly state that parties to a lien debt can suspend the running of the statute of limitations only by executing and recording a written extension agreement. See TEX. REV. CIV. STAT. ANN. art. 5522 (Vernon 1958) (repealed 1985; currently codified as TEX. CIV. PRAC. & REM. CODE ANN. §§ 16.036 & 16.037 (Vernon 1997)). The Texas Supreme Court has declared that if a bona fide third person acquires his interest in the property when no renewal or extension agreements are recorded and the lien debt appears to be four years past due, such agreements are void as against that person. Mercer v. Daoran Corp., 676 S.W.2d 580, 582 (Tex. 1984) (judgment lienholder who acquired his interest when prior lien was valid of record is not a bona fide third person); Hughes, 172 S.W.2d at 304 (abstract of judgment lien filed before prior lien barred of record rendered judgment creditor disqualified as bona fide third person); see also TEX. REV. CIV. STAT. ANN. art. 5522 (Vernon 1958) (repealed 1985; currently codified as TEX. CIV. PRAC. & REM. CODE ANN. §§ 16.035-16.037 (Vernon 1997)).

Under article 5522, now section 16.036, where there is no recorded renewal or extension, the maturity date stated in the original instrument is conclusive evidence of the maturity date of the debt. See TEX. REV. CIV. STAT. ANN. art. 5522 (Vernon 1958) (repealed 1985); TEX. CIV. PRAC. & REM. CODE ANN. § 16.036(d) (Vernon 1997). Four years from that date, it is conclusively presumed that the lien debt is paid. See TEX. REV. CIV. STAT. ANN. art. 5520 (Vernon 1958) (repealed 1985); TEX. CIV. PRAC. & REM. CODE ANN. § 16.035(d) (Vernon 1997). The effect of such conclusive presumption of payment, like the effect of actual payment, is to terminate the superior title retained by the vendor, and consequently to terminate all remedies for the enforcement of such superior title. Yates v. Darby, 133 Tex. 593, 131 S.W.2d 95, 99 (Tex. Comm'n App. 1939, opinion adopted). A bona fide third person is entitled to the statutory presumption that the debt was paid and that the lien became void and ceased to exist. Mercer, 676 S.W.2d at 582; see also First Nat. Bank v. Gamble, 134 Tex. 112, 132 S.W.2d 100, 103 (1939); Yates, 131 S.W.2d at 99; Jasper State Bank v. Braswell, 130 Tex. 549, 111 S.W.2d 1079, 1085 (Tex. Comm'n App. 1938, opinion adopted)."

Cadle Company v. Butler involved a situation in which a vendor brought a declatory judgment action to determine that his deed of trust lien was superior to a judgment lien. Alternatively, he sought a declara tion that the judgment creditor was not a bona fide purchaser of the real property affected by the lien. In November 1987, the Weaklys signed a note in favor of Butler secured by a deed of trust. The note matured in November 1988, but, contrary to the common practice in Texas, the ma turity date of the note was not shown in the deed of trust. There were a number of oral extensions of the maturity date, but no written extension signed by both parties was entered into until October 1993.

Cadle obtained a judgment against the Weaklys in March 1993 and abstracted it in May of that year. In the "battle of the liens" that ensued, Cadle argued that limitations on the Butler lien had expired before the Cadle judgment lien had attached and that subsequent attempts to extend it were ineffective. Butler argued that, since the deed of trust contained no maturity date, limitations on the deed of trust were determined only by the underlying note, whose maturity was extended by oral agreements.

The court held that the note and deed of trust were to be construed as one agreement. Sections 16.036 and 16.037 of the Texas Civil Practice and Remedies Code require extensions of lien debts to be signed by both parties to the transaction and recorded in order to suspend the running of limitations. If a bona fide purchaser (BFP) acquires an interest in the property when no renewal or extension agreements are recorded and when the lien debt appears to be four years past due, the lien debt is void as to the BFP. Where there is no recorded, properly executed extension agreement, the maturity date stated in the original instrument is conclu sive evidence of the maturity date of the debt.

Butler argued that Cadle could have acquired notice of the oral exten sions of the debt and lien. In essence, if Cadle had inquired about the maturity set out in the original note, he would have learned about the extensions of that maturity. Basically, Butler's argument was that the ability to discover the existence of an oral extension is sufficient to satisfy the notice requirements of section 16.036 of the Texas Civil Practice and Remedies Code.

The court, in a lengthy analysis, disagreed. The purpose of the statute of limitations would be totally defeated if lienholders could assert an out standing interest in real property against all third parties by refusing to record extension or renewal agreements and then claiming parol exten sion agreements had been made. The purpose of requiring recording of renewals and extensions is to protect BFPs against the evils of secret liens and the subsequent frauds.

If a RE loan has a five year maturity defined in the Note and the Deed of Trust does not have a maturity date indicated, at the end of the fourth year is it in the best interest of the lender to then do a modification of the DOT for the fifth year?

I don't understand your question. Why would you do this? If it is a balloon note, there would be advantages to modifying the note before it matures because at maturity, you could no longer modify, you'd have to refinance. And, with refinance, you have to give all the disclosures and it could become a higher priced mortgage loan, thereby requiring escrow ... and the upcoming rules on mortgage lending could affect it. But I can't think of a reason in the world that you would modify the DOT. Maybe I'm missing something.

I think they are stuck on the four year statute of limitations outlined in the court case you provided and their original DOT has no maturity date on it and it is a five year loan.

Wow, that was 10 years ago. I just read the question in the email notification I received. I clicked on the link and answered the question. I didn't bother to check to see if there was a discussion above it. I don't have time to look at this right now.

Would appreciate a response when you have the time to review.

Sorry for the confusion! Thank you!