MEMORANDUM OPINION
This mortgage-foreclosure case is unusual because it begins with a foreclosure rather than ending with one. And it is the lender, not the borrower, challenging the foreclosure.
Deutsche Bank and Ocwen Loan Servicing LLC (collectively, “Deutsche Bank”) sued Gonzalez Financial Holdings, Abe Moss, and D & Y Investments, alleging wrongful foreclosure and seeking a quiet-title judgment that it owned the property at issue. Deutsche Bank was assigned a security interest in the property in 2009, arising from a 2003 deed of trust. The land purchasers fell behind on their property tax payments in 2006. That gave rise to a tax lien in favor of Gonzalez Financial. After Deutsche Bank recorded its lien with the Harris County Office of Public Records, Gonzalez Financial foreclosed on the tax lien and sold the property tó Abe Moss. Gonzalez Financial gave notice to the original mortgage servicer, which had assigned the lien to Deutsche Bank, but not notice to Deutsche Bank, which learned of the tax sale several years later. Moss had sold the property to D & Y Investments (“D & Y”), a company in which he is the sole shareholder.
After discovery, Deutsche Bank moved for partial summary judgment on its quiet-title claim, (Docket Entry No. 27), the defendants responded, (Docket Entry Nos. 29, 30), and Deutsche Bank replied, (Docket Entry No. 31). Based on the motion, the briefs, the arguments, the record, and the applicable law, the court grants Deutsche Bank’s motion for partial summary judgment.
1. Background
On November 10, 2003, Ismael Rodarte and his wife, Gladys Castro, bought the property at issue through a home-equity loan from Argent Mortgage Company, LLC, secured by a Deed of Trust. Argent held a security interest in the property as a trustee. Over the next three years, Ro-darte and Castro stopped paying their school district property taxes. This created a tax lien on the property. On December 1, 2006, Rodarte and Castro authorized Gonzalez Financial to pay the delinquent property taxes, (Docket Entry No. 28, Ex. B), and consented to transferring the school district’s tax lien to Gonzalez Financial. (Id., Ex. C, D).
Over two years later, in February 2009, Argent assigned the Deed of Trust to Deutsche Bank, which recorded it five days later. (Id., Ex. E).
In August 2013, after learning of the foreclosure,
II. The Applicable Legal Standards
A. Summary Judgment
Summary judgment is appropriate if no genuine disputes of material fact remain and- the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). “The movant bears the burden of identifying those portions of the record it believes demonstrate the absence of a genuine [dispute] of material fact.” Triple Tee Golf, Inc. v. Nike, Inc.,
When, as here, the burden of proof at trial lies with the moving party, the mov-ant must demonstrate through its summary judgment submissions that there are no genuine disputes of material fact as to each of the elements essential to its case. The movant may satisfy its initial burden of production “by ‘showing’ — that is, pointing out to the district court — that there is an absence of evidence to support the non-moving party’s case.” Celotex,
When the moving party has met its Rule 56(a) burden, the nonmoving party cannot survive a summary judgment motion by resting on the mere allegations of its pleadings. The nonmovant must identify specific evidence in the record and explain how that evidence prevents summary judgment on the movant’s claim. Baranowski v. Hart,
B. Quiet-Title
“A suit to clear title or quiet title — also known as a suit to remove cloud from title — relies on the invalidity of the defendant’s claim to the property.” Essex Crane Rental Corp. v. Carter,
A plaintiff has the burden of supplying the proof necessary to establish-superior equity and right to relief. “The plaintiff must prove, as a matter of law, that he has a right of ownership and that the adverse claim is a cloud on the title that equity will remove.” Essex Crane,
C. The Texas Tax Code
Section 32.06 enables a real-property owner to authorize another to pay the taxes assessed against the property. The tax hen against the property may be transferred to the party paying the taxes. Tex. Tax Code § 32.06(a-1) (2006); Genesis Tax Loan Servs., Inc. v. Kothmann,
A lien-transferee may foreclose after one year “in the manner specified in Section 51.002, Property Code and Section 32.065 of [the Tax Code]” when, as here, “the property owner and the transferee enter into a contract that is secured by a hen on the property.” Tex. Tax Code § 32.06(c) (2006); (Docket Entry No. 28, Exs. B & C). These sections require the transferee to fulfill certain conditions before foreclosing on the property, including serving notice by certified mail at least 21 days before the sale to the last known address of the mortgage servicer or holder of all recorded real property liens encumbering the property. Tex. Tax Code § 32.065(b)(5-6) (2006); Tex. Pkop. Code. § 51.002(b) (2006).
Section 33.54 of the Texas Tax Code states that “an action relating to the title to property may not be maintained against the purchaser of the property at a tax sale unless the action is commenced ... before the first anniversary of the date that the deed executed to the purchaser at the tax sale is filed of record.” Tex. Tax Code § 33.54(a)(1).
Under § 34.08, “[a] person may not commence an action challenging the validity of a tax sale after the time set forth in Section 33.54(a)(1) or (2), as applicable to the property, against a subsequent purchaser for value who acquired the property in reliance on the tax sale. The purchaser may conclusively presume that the tax sale was valid and shall have full title to the property free and clear of the right, title, and interest of any person that arose before the tax sale, subject only to recorded restrictive covenants and valid easements of record....” Id. § 34.08(b). A tax foreclosure sale extinguishes prior nontax liens, such as Deutsche Bank’s lien.
III. Analysis
The parties appear to agree that Gonzalez Financial foreclosed on the property under its tax lien, rather than under a standard “deed of trust” lien.
The defendants argue that Deutsche Bank’s claim is untimely under the Tax Code’s one-year limitations provision and that Moss and D & Y are therefore bona fide purchasers for value with clear title. Deutsche Bank responds that failure to provide it notice makes the foreclosure sale void (rather than voidable) so that limitations is no bar.
These arguments raise three issues. First, does the Tax Code’s limitations period bar a due-process based claim? If so, Deutsche Bank cannot proceed. Assuming this hurdle is passed, two more questions rise: Did the tax sale violate Deutsche Bank’s due-process rights? And, even if Deutsche Bank’s due-process rights were violated, does its quiet-title suit fail if Moss and D & Y are bona fide purchasers for value?
A. Whether the Tax Code’s Limitations Period Bars Deutsche Bank’s Quiet-Title Claim
The defendants argue that Deutsche Bank’s claim is barred under § 33.54(a)(1) of the Tax Code, which required Deutsche Bank to bring any “action relating to the title” within a year of the tax sale. Deutsche Bank does not dispute that it filed suit more than one year after Moss recorded the foreclosure purchase. Deutsche Bank does not contend that the statute’s tolling provision applies. It does not, because Deutsche Bank did not pay the taxes on the property. Instead, Deutsche Bank argues that because it was never given notice before the foreclosure sale, the federal Due Process Clause makes the sale void and the limitations period does not bar its quiet-title action. Putting the argument another way, because the foreclosure sale was void, rather than voidable, Deutsche Bank may collaterally attack the sale at any time (at least anytime reasonably soon after it learned of the sale), and that Moss and D & Y could not have taken the property free of all encumbrances as bona fide purchasers.
“The distinction between void and voidable judgments is critical when the time for a direct attack has expired. Before then, the distinction is less significant because — whether the judgment is void or voidable — the result is the same: the judgment is vacated.” PNS Stores, Inc. v. Rivera,
“[F]ailure to give notice violates ‘the most rudimentary demands of due process of law.’” Id. (quoting Peralta). Notice must be “reasonably calculated, under the circumstances, to apprise interested parties of the pendency of the action.” Id. (quoting Peralta); see also Mullane v. Cent. Hanover Bank & Trust Co.,
One question raised here is whether a nonjudicial tax foreclosure and sale that is recorded, but not a judgment, may be similarly attacked as void. The Supreme Court’s decision in Mennonite Board of
In Mennonite, the lienholder, Mennonite Board of Missions (“MBM”), held a security interest in real property that it had sold to Alfred Moore under a mortgage in MBM’s favor. MBM recorded this interest in 1973. Under the mortgage, Moore agreed to pay all property taxes. Without MBM’s knowledge, Moore defaulted on his tax obligations. At the time, “Indiana law provide[d] for the annual sale of real property on which payments of property taxes [had] been delinquent for fifteen months or longer.” Id. at 792-93,
Adams, the new buyer, sued to quiet title. MBM responded that it “had not received constitutionally adequate notice of the pending tax sale and of the opportunity to redeem the property following the tax sale.” Id. The Indiana state courts rejected MBM’s arguments and ruled for Adams. See Mennonite Bd. of Missions, Inc. v. Adams,
The Supreme Court held that “the manner of notice provided to [MBM] did not meet the requirements of the Due Process Clause of the Fourteenth Amendment.” Mennonite Bd.,
a mortgagee possesses a substantial property interest that is significantly affected by a tax sale. Under Indiana law, a mortgagee acquires a lien on the owner’s property which may be conveyed together with the mortgagor’s personal obligation to repay the debt secured by the mortgage. Ind.Code § 32-8-11-7. A mortgagee’s security interest generally has priority over subsequent claims or liens attaching to the property, and a purchase money mortgage takes precedence over virtually all other claims or liens including those which antedate the execution of the mortgage. Ind.Code § 32-8-11-4. The tax sale immediately and drastically diminishes the value of this security interest by granting the tax-sale purchaser a lien with priority over that of all other creditors. Ultimately, the tax sale may result in the complete nullification of the mortgagee’s interest, since the purchaser acquires title free of all liens and other encumbrances at the conclusion of the redemption period.
Id. at 798,
Based on this reasoning, one Texas Court of Appeals has vacated a tax sale similar to the one at issue here. In Security State Bank & Trust v. Bexar Cnty.,
had a property interest that it was entitled to protect which would be, and in fact was, significantly affected by the tax suit and subsequent tax sale; thus, it was constitutionally entitled to notice in order to afford it an opportunity to protect its property interest. Mennonite Bd.,462 U.S. at 798-99 ,103 S.Ct. 2706 .
Id. at 722-23. Because “the Bank was not served with notice of the 2009 tax suit,” which was “complete lack of notice” that “constituted] a due process violation,” the Texas court held that “the tax judgment and tax sale [were] void as to the Bank and subject to being set aside through a collateral attack.” Id. at 723 (citing Peralta,
It is undisputed that Deutsche Bank had a recorded Deed of Trust and first lien against the property when Gonzalez Financial foreclosed on its junior tax lien. “A lienholder possesses a legally protected property interest.” Security State,
None of these cases, however, cited Mennonite, which rests on thé premise that if a tax sale has extinguished a record lienholder’s rights and has otherwise become final under state law, that sale may nonetheless be set aside as void for lack of due process. Nor did these cases squarely consider a due-process challenge based on the federal Constitution. See W.L. Pickens,
Moreover, as the Security State court concluded, “[t]hese cases are distinguishable ... because none involved a record lienholder with a prior lien against the property.” Id. at 724; Roberts,
Finally, following the defendants’ intermediate appellate authority would contravene Texas Supreme Court precedent that “[a] State law time limit is unenforceable when it violates due process.” In re E.R.,
The Tax Code’s limitations period does not preclude a quiet-title claim based on a constitutional due process notice violation.
B. Whether Deutsche Bank Was Given Constitutionally Adequate Notice
The next issue is whether, on this record, Deutsche Bank as a matter of law failed to receive notice to which it was constitutionally entitled. If no notice was given, the tax sale was void (not voidable) as to Deutsche Bank and limitations does not bar its quiet-title suit. See Security State,
Because the tax sale deprived Deutsche Bank of its “legally protected property interest, [it][was] entitled to notice reasonably calculated to apprise [it] of a pending tax sale.” Mennonite Bd.,
Deutsche Bank was not given notice reasonably calculated to apprise it of the pending tax sale. Publication notice was insufficient because Deutsche Bank was lienholder of record and reasonably, even readily, identifiable. The notice mailed to Argent’s last known address was not reasonably calculated to apprise Deutsche Bank of the pending tax sale. Although the defendants may have sent notice to Argent’s “last known available address,” they did not send notice to Deutsche Bank’s. A title search on the property would have quickly and easily discovered that Deutsche Bank had acquired the Deed of Trust from Argent in February 2009 and recorded it that same month, long before the September 2009 tax sale. Here, as in Mennonite, the “mortgage on file with the county recorder identified” the current mortgagee. Id. n. 4. Deutsche Bank was the mortgagee-assignee and its interest as senior lienholder of record was a matter of public record. Deutsche Bank’s “address could have been ascertained by reasonably diligent efforts.” Id. Merely sending notice to Argent, which formerly held a security interest in the property but no longer did based on the county recorder’s records, was not reasonably calculated to inform Deutsche Bank of the pending tax sale.
Davis Oil, which rejected a due-process challenge by the assignee of a mineral interest, does not require a different result. The panel in Davis Oil “conclude[d] that the record amply supported] the district court’s finding that a search of the conveyance records to identify parties with mineral interests would be unduly burdensome and ‘is a task beyond the routine examination of land records that was involved in Mennonite.’ ” Id. (quoting
This holding is not inconsistent with Bonner and Portis which held, respectively, that a third possessor and a second mortgagee were entitled (with some qualifications in each case) to more than constructive notice of the seizure of property in a foreclosure by executory process. Bonner [v. B-W Utilities, Inc.], 452 F.Supp. [1295] at 1302 [(WD.La.1978)]; [Mid-State Homes, Inc. v.] Portis, 652 F.Supp. [640] at 645 [ (W.D.La.1987) ] ... [A] reviewing court could easily conclude that the search of property records required to identify a third possessor or second mortgagee is less burdensome than that required to identify parties with mineral interests in the same land.
Id. at 790 n. 24. Here, by contrast, even though Deutsche Bank was an assignee, it had duly recorded its interest in the property. The defendants did not have to look beyond the county property records to identify Deutsche Bank and learn its address for notice purposes. Like Mennonite, this case involved a “routine examination of land records,” not a complicated search of mineral-interest conveyance records. Id.
The defendants argue that Deutsche Bank should have been more diligent in protecting its rights in the property by making sure that the borrowers were not behind in their tax payments. The case law makes this argument unavailing. In Mennonite, “[t]he Supreme Court explained that notice by personal service or mail is required ‘even though sophisticated creditors have means at their disposal to discover whether property taxes have not been paid and whether tax sale proceedings are therefore likely to be initiated.’ ” Id. at 792,
C. Whether the Defendants May Defeat Deutsche Bank’s Quiet-Title Claim as Bona Fide Purchasers
The defendants argue that regardless of whether Deutsche Bank was deprived of its property interest without due process, its quiet-title claim fails because they are bona fide purchasers. That argument fails to acknowledge the difference between a void and a voidable foreclosure sale. The tax sale was void as to Deutsche Bank. In Henke v. First Southern Properties, Inc.,
the [common-law] doctrine of good faith purchaser for value without notice does not apply to a purchaser at a void foreclosure sale. One who bids upon property at a foreclosure sale does so at his peril. If the trustee conducting the sale has no power or authority to offer the property for sale, or if there is other defect or irregularity which would render the foreclosure sale void, then the purchaser cannot acquire title to the property.
Id. at 620. If a property transfer is void, rather than voidable, then it cannot be taken by a bona fide purchaser. See Slaughter v. Qualls,
Couching the argument in terms of § 34.08(b) of the Texas Tax Code rather than on common law also does not change the result. Section 34.08(b) turns on the limitations period in § 33.54. See Tex. Tax Code § 34.08(b) (“A person may not commence an action challenging the validity of a tax sale after the time set forth in Section SS.54-(a)(l) or (2), as applicable to the property, against a subsequent purchaser for value who acquired the property in reliance on the tax sale.” (emphasis added)). Because Deutsche Bank did not receive notice when the tax foreclosure and sale occurred, the § 33.54 limitation period did not begin to run.
Even if the defendants could defeat the quiet-title claim on this ground, “[s]tatus as a bona fide purchaser is an affirmative defense to a title dispute,” Madison v. Gordon,
D. Deutsche Bank is Entitled to Partial Summary Judgment
Based on the undisputed facts in the record, Deutsche Bank did not, as a matter of law, receive notice to which it was constitutionally entitled. The tax sale was void as to Deutsche Bank. The Texas Tax Code’s one-year limitations period does not bar Deutsche Bank’s suit.
IV. Conclusion
Deutsche Bank’s motion for partial summary judgment, (Docket Entry No. 27), is granted. The tax-lien foreclosure sale to
Lot 4, in Block 14, Williamsburg Settlement Section 2, a Subdivision in Harris County, Texas, According to the Map or Plat Thereof Recorded in Volume 272, Page(s) 95, of the Map Records of Harris County, Texas.
(Docket Entry No. 27, Ex. A, at 20).
Deutsche Bank’s claim for wrongful. foreclosure, (Docket Entry No. 16, at 6), Moss and D & Y’s counterclaim for attorney’s fees and costs, (Docket Entry No. 15, at 1-2), and Moss’s cross-claim against Gonzalez Financial, (id., at 2), remain. A status and scheduling conference is set for January 23, 2015, at 8:00 a.m. at 515 Rusk Avenue, Houston Texas, 77002, Courtroom 11-B.
Notes
. The defendants also moved to file a supplemental response to the plaintiffs' motion for partial summary judgment, (Docket Entry No. 37). The plaintiffs oppose that motion. (Docket Entry No. 39). The court grants the motion to file a supplemental response, (Docket Entry No. 37), and considers the material in that submission and the plaintiffs' opposition in reaching its conclusion below.
. In their notice of supplemental authority, (Docket Entry No. 37), the defendants argue
. The record does not reveal precisely when Deutsche Bank learned of the foreclosure, but Moss and D & Y admit that Deutsche Bank did not receive notice of the September 2009 sale, (Docket Entry No. 35, ¶ 1), and “had no clue that the taxes had not been paid" ”[s]till ... two (2) years” after the sale. (Docket Entry No. 19, at 11).
. Where applicable, the following description of Tax Code differs slightly from the current version because Gonzalez Financial acquired the tax lien on the property in 2006, and therefore that version controls this case. See Act of May 25, 2007, 80th Leg., R.S., ch. 1329, §§ 1, 4, 5, 2007 Tex Gen. Laws 4484-88 (current version at Tex Tax Code § 32.06) (providing that the 2007 amendments to § 32.06 apply only to tax lien transfers after September 1, 2007).
. Section 33.54 sets forth a two-year limitations period when the property involves "the residence homestead of the owner” or “land appraised or eligible to be appraised under Subchapter C or D, Chapter 23” of the Code. See Tex. Tax Code § 33.54(a)(2). Neither condition applies here.
. Indeed, as Deutsche Bank argues in the alternative, (Docket Entry No. 28, at 8-12), if Gonzalez Financial purported to foreclose by way of a standard deed of trust rather than tax lien, it would not have extinguished Deutsche Bank’s senior interest, which can be traced back to the 2003 deed of trust. See World Help v. Leisure Lifestyles, Inc.,
. Because the school district transferred its tax lien to Gonzalez Financial, a private entity, before the tax sale, the state-action issue is less straightforward than in Mennonite or Security State, which both involved tax sales by public entities. Although neither party addressed this issue, the Fifth Circuit has. See Davis Oil Co. v. Mills,
Gonzalez Financial set into motion the procedures for foreclosing Deutsche Bank's prop
. The defendants also ask the court to certify this question to the Texas Supreme Court, given the split in authority among the state's
. In re E.R. dealt with a court-imposed custody order outside the real estate context and did not address a fact pattern involving a subsequent good-faith purchaser for value. But the court did discuss the arguably stronger reliance interests present in the context of a child-custody determination. In re E.R.,
. The defendants did assert that the bank "failed to comply with § 34.08,” (Docket Entry No. 14, at 2), but that goes to § 34.08(a), which requires that plaintiffs first "deposit! 1. into the registry of the court an amount equal to the delinquent taxes, penalties, and interest” before "commencfing] an action that challenges the validity of a tax sale.” Tex. Tax.Code. § 34.08(a). Section 34.08(b), which prevents plaintiffs from invalidating sales to subsequent purchasers for value once the limitations period in § 33.54 runs, does not have a similar independent compliance requirement.
. This prejudice is particularly problematic when, as here, there is a serious question regarding constructive and actual notice due to the fact that Moss is the sole shareholder of D & Y, the purported bona fide purchaser.
.For similar reasons, the defendants’ reliance on the state’s four-year limitations period is unavailing. See Rivera,