Opinion
No. 10-05-00041-CV
Opinion delivered and filed January 4, 2006.
Appeal fromthe 66th District Court, Hill County, Texas, Trial Court No. 40580.
Affirmed.
Before Cheif Justice GRAY, Justice VANCE, and, Justice REYNA.
MEMORANDUM OPINION
After default of a retail installment contract, Amerigo, Inc., foreclosed on its lien secured by Donnie and Mary Jean Wesley's property and purchased the property for the amount of the Wesleys' debt. After discovering that there had been a prior foreclosure on the property, Amerigo sought and obtained a money judgment against the Wesleys. Because we find that Amerigo's foreclosure was void, we affirm.
Background
In September of 1993, the Wesleys entered into a mechanic's lien with Universal Home Care. This lien was secured by the Wesleys' property in Hillsboro and was the first lien on that property. In June of 2001, the Wesleys entered into a retail installment contract with Amerigo secured by a mechanic's and materialman's lien contract and deed of trust on the Wesleys' Hillsboro property. In August 2002, Universal Home Care foreclosed on the Wesleys' property. In October, the Wesleys defaulted on their obligations with Amerigo, and Amerigo accelerated the note and conducted another foreclosure sale on the Wesleys' property. At the foreclosure sale, Amerigo purchased the property for the balance that the Wesleys owed on the note. Subsequently, Amerigo discovered that the property had been previously foreclosed upon by Universal Home Care. Amerigo filed a lawsuit against the Wesleys seeking a judgment for the amount owed under the retail installment contract and executed its Affidavit to Purge Real Property Records. At a bench trial, the trial court found that the foreclosure on the property by Amerigo was a nullity and entered judgment for Amerigo for the remaining balance on the note, $10,412.27, plus $3,634.74 of accrued interest.
On appeal, the Wesleys argue that the trial court erred in finding (1) that Amerigo's foreclosure was a nullity, that there was a mutual mistake between the Trustee and Amerigo concerning the status of the property, and that the Trustee and Amerigo rescinded the foreclosure sale; (2) that Amerigo's note had a principle balance of $10,412.27 with accrued interest of $3,634.74; and (3) that Amerigo is entitled to recover from the Wesleys $10,412.27 with accrued interest of $3,634.74.
Analysis
Amerigo's Foreclosure Sale is Void.
The Wesleys argue in their first issue that the trial court erred in finding that (1) the foreclosure sale was a nullity; (2) there was a mutual mistake between the Trustee and Amerigo concerning the status of the property; and (3) the Trustee and Amerigo rescinded the foreclosure sale.
A trial court's conclusions of law are not binding on an appellate court. Rather they are reviewed de novo, with the court exercising its own judgment and analyzing each conclusion for its correctness. Byrd v. Est. of Nelms, 154 S.W.3d 149, 155 (Tex.App.-Waco 2004, pet. denied) (citing BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 794 (Tex. 2002)). Conclusions of law will be upheld if the judgment can be sustained on any legal theory supported by the evidence. McAllen Police Officers Union v. Tamez, 81 S.W.3d 401, 404-05 (Tex.App.-Corpus Christi 2002, pet. dism'd). Even if the conclusions of law are incorrect, the error will not require reversal if the controlling findings of fact support a correct legal theory. State Farm Life Ins. Co. v. Martinez, 174 S.W.3d 772, 784 n. 7 (Tex.App.-Waco 2005, pet. filed); Byrd, 154 S.W.3d at 155; Tamez, 81 S.W.3d at 405.
Whether a trustee's deed at a foreclosure sale is void or voidable depends on its effect upon the title at the time it was executed and delivered. Diversified, Inc. v. Walker, 702 S.W.2d 717, 721 (Tex.App.-Houston [1st Dist.] 1985, writ ref'd n.r.e.). If the deed is a mere nullity, passing no title and conferring no rights whatsoever to Amerigo as the purchaser, then it is void ab initio. However, if the deed passed title to Amerigo, subject only to the rights of the Wesleys to have it set aside because it was improperly made, then the deed is voidable. Id. (citing Slaughter v. Qualls, 139 Tex. 340, 162 S.W.2d 671, 674 (1942)). "That which is void is without vitality or legal effect. That which is voidable operates to accomplish the thing sought to be accomplished, until the fatal vice in the transaction has been judicially ascertained and declared." Slaughter, 162 S.W.2d at 674.
Foreclosure of a lien on property causes legal and equitable title to merge. Conseco Fin. Servicing Corp. v. J J Mobile Homes, Inc., 120 S.W.3d 878, 883 (Tex.App.-Fort Worth 2003, pet. denied); see Flag-Redfern Oil Co. v. Humble Exploration Co., 744 S.W.2d 6, 9 (Tex. 1987). It is well established law that when a senior lienholder forecloses on property subject to its lien, all junior lienholders are divested of title to the property and their liens extinguished. Diversified Mort. Investors v. Lloyd D. Blaylock Gen. Contractor, Inc., 576 S.W.2d 794, 808 (Tex. 1978); Mays v. Bank One, N.A., 150 S.W.3d 897, 900 (Tex.App.-Dallas 2004, no pet.); Conseco, 120 S.W.3d at 883; Jones v. Bank United of Texas, 51 S.W.3d 341, 344 (Tex.App.-Houston [1st Dist.] 2001, pet. denied). Therefore, when a senior lienholder forecloses, the purchaser acquires title to the property free from the claims of any junior lienholders. Conseco, 120 S.W.3d at 883.
Consequently, when Universal Home Care, as the senior lienholder, foreclosed upon the Wesleys' Hillsboro property, Amerigo's junior lien was extinguished. When Amerigo attempted a second foreclosure sale on the Hillsboro property, the Trustee of the sale had no title to transfer to Amerigo. Because title never passed to Amerigo, the foreclosure sale is void. Slaughter, 162 S.W.2d at 674; Diversified, Inc., 702 S.W.2d at 721. A purchaser obtains no greater interest in the property than the debtor himself could have conveyed at the time of the sale. Allied First Nat. Bank of Mesquite v. Jones, 766 S.W.2d 800, 804 (Tex.App.-Dallas 1988, no writ). Here, the Wesleys had no title to convey, and Amerigo had no lien upon which to foreclose. The trial court was correct in holding that Amerigo's foreclosure sale was a nullity. Martin v. Cadle Co., 133 S.W.3d 897, 904 (Tex.App.-Dallas 2004, pet. denied) ("Because the lien was released, there was no lien to foreclose, and the substitute trustee had no power to transfer title to the property."); Chale Garza Investments, Inc. v. Madaria, 931 S.W.2d 597, 600 (Tex.App.-San Antonio 1996, writ denied) ("When a foreclosure sale is void, the purchaser does not acquire title to the property."); Jones, 766 S.W.2d at 804 ("Jones had no valid lien because the record reflects that the purchase was made after Flanery had purchased the property from Shelton."); Diversified, Inc., 702 S.W.2d at 721 ("Since the conditions and limitations on the trustee's power to convey the land were never fulfilled, such power never lawfully came into being, and the foreclosure sale and trustee's deed were therefore void."); see also Sani v. Powell, 153 S.W.3d 736, 742 (Tex.App.-Dallas 2005, pet. denied) (finding that if the sheriff acts outside his authority in the foreclosure sale, the sale is void and title does not pass); Spring Branch Independent School Dist. v. Siebert, 100 S.W.3d 520, 524 (Tex.App.-Houston [1st Dist.] 2003, no pet.) (finding a foreclosure on a tax lien is void because it failed to describe a definite tract of land); Oles v. Curl, 65 S.W.3d 129, 131 (Tex.App.-Amarillo 2001, no pet.) (finding foreclosure sale void because it was conducted in violation of an automatic stay); Field Measurement Serv., Inc. v. Ives, 609 S.W.2d 615, 620 (Tex.App.-Corpus Christi 1980, writ ref'd n.r.e.) (void deed is neither title nor color of title for purposes of three-year statute of limitations).
The Wesleys argue that the only way for Amerigo's foreclosure sale to be considered a nullity is for this Court to hold that Amerigo is not responsible for its own actions. The Wesleys refer to Amerigo's failure to check the real property records for evidence of the previous foreclosure by Universal Home Care and argue that because it failed to do so, Amerigo cannot now argue that the foreclosure sale is void. This argument implies that Amerigo is not a bona fide purchaser and that because a buyer should beware at a foreclosure sale, Amerigo is left with the result of a void deed in return for its relinquishment of the Wesleys' debt. However, when a foreclosure sale is void, whether the purchaser is a bona fide purchaser is irrelevant. Diversified, Inc., 702 S.W.2d at 721 ("The general effect of a "good faith purchaser for value without notice" does not apply to a purchaser at a void foreclosure sale.") (citing First Southern Properties, Inc. v. Vallone, 533 S.W.2d 339, 343 (Tex. 1976)). Because title never passes between parties in a void foreclosure sale, the remedy is to place the parties in the same position they were before, as if the foreclosure had never taken place. Silliman v. Gammage, 55 Tex. 365, 1881 Tex. LEXIS 127, **9-11 (1881); Diversified, Inc., 702 S.W.2d at 721 (after finding a void foreclosure sale, the court found that "the trial court properly sought to restore the parties to the same position that they would have been in but for the wrongful sale"). When a junior lienholder's lien is extinguished because of a senior lienholder's foreclosure sale, and the proceeds from the sale are not sufficient to satisfy the junior lien, the proper remedy is to pursue a judgment against the debtor for the unpaid amount of the lien. Diversified Mort. Investors, 576 S.W.2d at 808 ("[junior lienholder's] proper remedy [is] in the form of money judgment against [the debtor] for the unpaid amount of its lien on the property"). This is the remedy that Amerigo sought from the trial court.
A bona fide purchaser is a purchaser that acquires property in good faith, for value, and without notice of any third-party claim or interest. Madison v. Gordon, 39 S.W.3d 604, 606 (Tex. 2001).
The Wesleys argue that Amerigo is essentially arguing for rescission, a cause of action that was not pled, and that Amerigo cannot show itself entitled to such a remedy. "Rescission is an equitable remedy that operates to extinguish a contract that is legally valid but must be set aside due to fraud, mistake, or for some other reason to avoid unjust enrichment." Martin, 133 S.W.3d at 903; Humphrey v. Camelot Retirement Community, 893 S.W.2d 55, 59 (Tex.App.-Corpus Christi 1994, no writ). The trial court entered as a conclusion of law that there was a mutual mistake between Amerigo and the Trustee resulting in a rescission of the foreclosure sale. However, rescission is not an available remedy when a foreclosure sale is void because rescission requires a legally valid foreclosure sale. Martin, 133 S.W.3d at 903. As determined above, the foreclosure sale in this case is without legal effect. Therefore, we disregard the trial court's conclusions on mutual mistake and rescission and uphold the trial court's conclusion that the foreclosure sale is a nullity. Wells Fargo Bank, N.A. v. Citizens Bank of Tex., N.A., 2005 Tex. App. LEXIS 9844, *15 (Tex.App.-Waco Nov. 23, 2005, no pet. h.) ("A finding may be disregarded if it is not supported by the evidence or is immaterial."); Martinez, 174 S.W.3d at 784 n. 7 ("Incorrect conclusions of law do not require reversal if the controlling findings of fact support the judgment under a correct legal theory."); Byrd, 154 S.W.3d at 155; Tamez, 81 S.W.3d at 405. Accordingly, we overrule the Wesleys' first issue.
Amerigo is Entitled to Recover the Balance Owed on the Contract.
The Wesleys argue in their second and third issues that the trial court erred in finding that Amerigo had a principle balance owing of $10,412.27 plus $3,634.74 of accrued interest and that Amerigo is entitled to recover this sum.
While the Wesleys never stipulated that there was a balance owing on the contract because they believed the foreclosure sale to be valid, they did stipulate to the amount owed if the foreclosure sale is overturned. The Wesleys state in their brief that if the foreclosure sale is cancelled, then the balance owed is that stipulated by the parties. Therefore, due to the parties stipulations, we find that the trial court did not err in finding a balance owed on the contract and that Amerigo is entitled to recover this sum. Accordingly, we overrule the Wesleys' second and third issues.
Conclusion
Having overruled all of the Wesleys' issues, we affirm the judgment of the trial court.