77 F. Supp. 3d 584
S.D. Tex.2015Background
- In 2003 Rodarte and Castro granted a deed of trust to Argent; Argent assigned the deed to Deutsche Bank in February 2009 and Deutsche Bank recorded the assignment.
- Rodarte and Castro became delinquent on school taxes; Gonzalez Financial purchased the tax lien (with owners’ consent) and conducted a nonjudicial tax-foreclosure sale in September 2009, selling to Abe Moss.
- Gonzalez mailed foreclosure notices to several parties, including Argent, but did not mail notice to Deutsche Bank; Moss later conveyed to D & Y (his wholly owned entity).
- Deutsche Bank learned of the tax sale years later and sued Gonzalez, Moss, and D & Y in 2013 for wrongful foreclosure and to quiet title, seeking a declaration that its senior deed of trust survived the tax sale.
- The district court granted Deutsche Bank partial summary judgment, holding (as a matter of law) Deutsche Bank did not receive constitutionally adequate notice, the tax sale was void as to Deutsche Bank’s lien, and the Tax Code’s one-year limitations (§33.54) did not bar Deutsche Bank’s quiet-title claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Tax Code’s one-year limitations provision bars Deutsche Bank’s quiet-title claim | Limitations does not apply because the sale was void for lack of constitutionally adequate notice, so Deutsche Bank may collaterally attack it | §33.54 bars actions after one year; Moss/D&Y are bona fide purchasers with clear title | Limitations does not bar a due-process based collateral attack; statute cannot foreclose challenge to a void (notice-defective) sale |
| Whether Deutsche Bank received constitutionally adequate notice of the tax sale | Deutsche Bank (as recorded senior lienholder) did not receive mailed or personal notice reasonably calculated to apprise it of the sale | defendants relied on publication and notice to Argent; argued constructive/other notice was sufficient | Court held Deutsche Bank was identifiable in public records and mailing only to Argent was not reasonably calculated to provide notice; publication alone insufficient |
| Whether a failure of notice renders the tax sale void (not merely voidable) so a collateral attack is timely | Sale was void as to Deutsche Bank because due process requires actual mailed or personal notice to recorded mortgagees | Defendants argued the sale is final under Tax Code and Texas cases requiring compliance with statutory deadlines control | Court held lack of constitutionally adequate notice renders the sale void as to the lienholder, permitting collateral attack despite statutory time limits |
| Whether Moss and D & Y can take free-and-clear title as bona fide purchasers for value | Deutsche Bank asserted bona fide-purchaser defense is inapplicable to a void sale; defendants argued §34.08(b) and bona fide purchaser status prevail | Moss/D&Y claimed they relied on the tax sale and limitations/Tax Code protections | Court held bona fide-purchaser defense does not defeat title if the sale is void; additionally defendants failed to plead the affirmative defense, so it cannot defeat summary judgment |
Key Cases Cited
- Mennonite Bd. of Missions v. Adams, 462 U.S. 791 (U.S. 1983) (recorded mortgagee must receive mailed or personal notice reasonably calculated to inform it of pending tax sale)
- Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 (U.S. 1950) (due process requires notice reasonably calculated under the circumstances)
- Peralta v. Heights Medical Center, Inc., 485 U.S. 80 (U.S. 1988) (complete failure of notice may render judgment subject to collateral attack)
- Security State Bank & Trust v. Bexar County, 397 S.W.3d 715 (Tex. App.—San Antonio 2012) (applies Mennonite to vacate a tax sale where recorded lienholder lacked notice)
- In re E.R., 385 S.W.3d 552 (Tex. 2012) (state time limits unenforceable when they deny a party constitutionally required notice)
- Davis Oil Co. v. Mills, 873 F.2d 774 (5th Cir. 1989) (private parties who invoke state foreclosure procedures must provide notice reasonably calculated to apprise interested parties)
- Henke v. First Southern Properties, Inc., 586 S.W.2d 617 (Tex. App.—Waco 1979) (good-faith purchaser doctrine does not apply to purchases at a void foreclosure sale)
- Slaughter v. Qualls, 162 S.W.2d 671 (Tex. 1942) (if a deed is a mere nullity it conveys no title; distinction between void and voidable instruments)