The First Bank Roxton v. Shankles, 11-04217

Background

Debtor Mary Harp Shankles acquired record title to a 180-acre homestead after her husband’s death amid a will contest; the court found she had forged a 2004 will and later resolved title by settlement (transferring full title to her) that preserved the bank’s lien provision.
In June 2007 the bank made a $175,000 Texas home-equity loan secured by a surveyed 10-acre tract; debtor signed a borrower affidavit stating those 10 acres were not designated for agricultural use.
County appraisal records showed 8 of the 10 acres securing the loan retained agricultural-use (exempt) designation; debtor had requested removal of an 8-acre agricultural exemption earlier but the county’s reclassification did not identify which acres were changed.
The bank did not obtain a survey showing which acres had been reclassified until after the debtor’s exemption-removal request; litigation about title (lis pendens) was on the public record at the time of the loan but the bank did not investigate its nature.
Debtor defaulted; bank sought foreclosure and a nondischargeable judgment under §523(a)(2)(A) and (B). Trustee intervened seeking avoidance of the bank’s lien and disallowance of its claim as the loan allegedly violated the Texas Constitution’s home-equity rules.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Validity of bank's lien on 10 acres	Bank: after-acquired title doctrine and bona fide mortgagee status protect lien; loan was validly secured.	Debtor/Trustee: bank took a lien on agriculturally designated homestead land in violation of TX Const art XVI §50(a)(6); lien invalid.	Lien is invalid and unenforceable: after-acquired title does not save a loan that violates §50(a)(6); bank failed due diligence and cannot rely on debtor affidavit.
Statute of limitations defense to constitutional challenge	Bank: four-year residual limitations period bars challenge to lien under §50(a)(6).	Debtor/Trustee: counterclaims are logically related and defensive to bank’s foreclosure/claim; limitations does not bar them.	Timeliness: counterclaims not barred because they are logically related defensive claims; limitations defense rejected.
Remedy under Texas Constitution for agricultural-use violation	Bank: forfeiture may not apply or could be cured; bank invokes estoppel/affidavit and bona fide status.	Debtor/Trustee: inclusion of agriculturally designated acres voids home-equity lien and triggers constitutional forfeiture provisions.	Remedy: loan violated §50(a)(6)(I); defect is incurable under §50(a)(6)(Q); bank forfeits principal/interest and lien is void.
Nondischargeability under 11 U.S.C. §523(a)(2)(A)/(B)	Bank: debtor made knowing false statements and a materially false financial statement inducing credit; debt nondischargeable.	Debtor/Trustee: debtor lacked intent to defraud regarding acreage; bank did not reasonably rely on debtor’s statements; financial statement reliance unreasonable due to public litigation.	Held: Bank failed to prove false pretenses/actual fraud or materially false financial statement with reasonable reliance; debt is dischargeable and debtor not personally liable.

Key Cases Cited

Priester v. JP Morgan Chase Bank, N.A., 708 F.3d 667 (5th Cir. 2013) (four-year limitations applied to challenges under §50(a)(6))
Houston First Am. Sav. v. Musick, 650 S.W.2d 764 (Tex. 1983) (after-acquired title doctrine and warranty principles affecting subsequent-acquired title)
Dominguez v. Castaneda, 163 S.W.3d 318 (Tex. App. – El Paso 2005) (after-acquired title doctrine applied to liens on homesteads)
LaSalle Bank Nat’l Ass’n v. White, 217 S.W.3d 573 (Tex. App. – San Antonio 2006) (including agricultural-use designated land in home-equity loan can invalidate the loan)
Bank Nat’l Ass’n v. White, 246 S.W.3d 616 (Tex. 2007) (Supreme Court review concerning home-equity loan issues)
RecoverEdge L.P. v. Pentecost, 44 F.3d 1284 (5th Cir. 1995) (separate elements for actual fraud vs. false pretenses/representations under §523(a)(2)(A))