Niland, In re
| Decision Date | 12 August 1987 |
| Docket Number | No. 86-1005,86-1005 |
| Citation | 825 F.2d 801 |
| Parties | Bankr. L. Rep. P 71,664 In re John Hugh NILAND, Debtor. Tim TRUMAN and John Niland, Plaintiffs-Appellees, v. Darwin DEASON, Defendant-Appellant, v. CONTINENTAL SAVINGS ASSOCIATION, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Appeal from the United States District Court for the Northern District of Texas.
(Opinion February 10, 5th Cir.1987, 809 F.2d 272)
Before POLITZ, RANDALL and JOLLY, Circuit Judges.
ON PETITION FOR REHEARING
John H. Niland petitions for panel rehearing in this case. Niland argues that the original panel opinion in this case, reported at 809 F.2d 272, is in error in holding that, under Texas law, Niland is estopped from claiming his Texas homestead exemption. Upon further reflection, the panel agrees. Hence, we grant rehearing, withdraw the original panel opinion, and substitute the following opinion in its place.
Darwin Deason appeals from the judgment of the district court, which, in an unpublished opinion, affirmed in part and reversed in part the decision of the bankruptcy court, reported at 50 B.R. 468 (Bankr.N.D.Tex.1985). For the reasons that follow, we affirm.
The material facts in this case, as found by the bankruptcy court, are not in serious dispute. In September of 1971, John Niland and his wife, Naomi Niland, purchased a home and lot located at 4717 Miron Drive, in Dallas County, Texas ("the property"), for $90,000, paying $20,000 in cash and obtaining a $60,000 loan from Dallas Federal Savings & Loan Association ("Dallas Federal"), and owing the sellers $10,000. The loan from Dallas Federal was secured by a first lien deed of trust on the property, and the $10,000 owed the sellers was secured by a second lien deed of trust.
The Miron Drive property is shaped in an irregular rectangle consisting of 1.5714 acres, and is bordered on the east by Miron Drive, on the west by another single-family lot, and on the north by Bachman Creek. A three bedroom brick home is on the property. The Nilands lived on the property and maintained the house as their residence until their separation in 1980, after which time only John Niland lived on the property. Pursuant to a divorce agreement entered into by the Nilands, Naomi Niland conveyed her interest in the property to John Niland by warranty deed on February 10, 1983. The bankruptcy court found that Niland lived in open, actual, and obvious possession of the property from September 1971 to the present, but that Niland rented the property to several individuals between 1979 and 1982.
In September of 1977, the Nilands purchased a condominium unit in the Hollows North condominium development project ("the condominium"). The Nilands never maintained the condominium as their residence, nor did John Niland reside there after his separation from Naomi Niland. Mrs. P.D. Niland, John Niland's mother, lived in the condominium from its purchase in 1977 until her death in October of 1983.
Niland was the principal of a business called Video Information Network, Inc. ("VIN"). VIN was not successful, and required frequent cash advances from Niland to stay in business. In 1982, in order to obtain cash for VIN, Niland sought to borrow $113,500 from Richardson Savings & Loan Association ("Richardson"), with the property as security for the loan. Prior to obtaining the loan, and in order to induce Richardson to loan the money to Niland, Niland executed an affidavit stating that the condominium was his homestead. The affidavit was filed in the deed records in Dallas County. Richardson loaned Niland the money, and Niland gave Richardson a deed of trust covering the property. Niland used the proceeds of the loan to pay off the note and first lien on the property held by Dallas Federal, and loaned the remainder of the money to VIN.
In order to obtain additional financing for VIN, Niland approached Continental Savings Association ("CSA") in late 1982 for a loan in the amount of $300,000, to be secured by a first lien on the property. In order to expedite the loan, Niland gave a $5,000 bribe to a CSA loan officer. In order to induce CSA to make the loan, Niland executed a false "Homestead Affidavit and Designation" which claimed the condominium as his homestead and stated that he did not reside upon or claim the property as his homestead. The affidavit also purported to disclaim, waive, and renounce any homestead right in the property, and stated that Niland did not plan to reside on the property or allow a member of his family to occupy the property. It is undisputed, however, that Niland was in fact living on the property at the time that he executed the affidavit. 1 In reliance on this affidavit, CSA loaned Niland $300,000 secured by a deed of trust on the property. Approximately $120,000 of the loan proceeds were used to pay off Richardson's first lien on the property, which was released on March 15, 1983, and the remainder of the money went to Niland.
On February 18, 1983, Technical Chemical Company ("TCC") recovered a judgment against Niland and VIN in state district court, and filed an abstract of judgment in the Dallas County judgment records. However, on October 14, 1983, the president of TCC executed a release of the judgment lien against the condominium based upon Niland's declaration that the condominium was his homestead.
In March of 1983, after seeking the advice of Clifford Sugarman, a financial advisor, Niland ceased making mortgage payments to CSA and listed the property for sale with Sandra Sugarman, a real estate agent. The initial asking price for the property was $545,000, but the asking price was subsequently lowered to $495,000. On June 9, 1983, CSA informed Niland that he was in default under the loan agreement and that the note was being accelerated. On July 12, 1983, CSA appointed a substitute trustee under the deed of trust on the property securing the loan.
At this point, Darwin Deason entered the picture. Deason and his wife were shown the property on July 30, 1983. Niland was present at the property when they arrived. Although Deason contacted Clifford Sugarman about purchasing the property, no agreement was reached between Deason and Sugarman for the sale of the property. Deason was later made aware that the property was posted for foreclosure, with the sale to be held on August 2, 1983. Deason attended the foreclosure sale and bid $320,000 for the property. He was the highest bidder, and paid for the property with a $320,000 cashier's check. The substitute trustee conveyed the property to Deason by a deed which contained the following warranty clause:
TO HAVE AND TO HOLD the Property, together with the rights, privileges and appurtenances thereto belonging unto the said DARWIN DEASON, his heirs and assigns, forever, and I, said substitute trustee, do hereby bind the said JOHN H. NILAND, his heirs, successors and assigns, to warrant and forever defend the said premises unto DARWIN DEASON, his heirs and assigns forever, against the claim or claims of all persons claiming or to claim the same or any part thereof.
Transcript, Vol. 1, at 55. The bankruptcy court found that neither the substitute trustee nor CSA made any oral representations at the sale concerning the property or title to the property, and that there was no evidence of any fraud or misrepresentation on the part of CSA in its dealings with Deason. The bankruptcy court found that the fair market value of the property at the time of the foreclosure sale was $370,000.
On August 4, 1983, Deason wrote a letter to Niland, agreeing to let him remain on the property. On October 30, 1983, Deason wrote Niland a letter giving Niland 30 days to vacate the property. On February 27, 1984, Deason wrote Niland a third letter, this time demanding that he vacate the property by March 11, 1984. Niland did not vacate the premises.
On March 12, 1984, Deason filed a forcible entry and detainer action against Niland in the justice court of Dallas County. On March 28, 1984, Deason filed suit against Niland and CSA in the state district court in Dallas County. On April 30, 1984, Niland filed for protection under Chapter 13 of the Bankruptcy Code. Niland and Tim Truman, the Chapter 13 trustee, instituted a bankruptcy adversary action against Deason, seeking to avoid the foreclosure sale as a fraudulent transfer under 11 U.S.C. Sec. 548, and stating a claim based on state law that CSA's lien on the property was invalid because the property was Niland's homestead. Deason's suit against Niland and CSA and the detainer action filed by Deason were removed to the bankruptcy court and consolidated with the adversary action. Deason answered, contending that the property was not Niland's homestead or, if it was his homestead, that he was estopped to claim it as such. Deason also filed a counterclaim against Niland based on breach of the warranties contained in the deed from the substitute trustee and common law fraud. Deason asserted a cross-claim against CSA alleging breach of the warranties contained in the substitute trustee's deed, common law fraud, and constructive trust. Niland declined to pursue his fraudulent transfer claim, and so the case proceeded to trial on Niland's remaining claim that the property was his homestead and Deason's claims. A trial on these issues was held to the bankruptcy court on February 12, 1985.
In a memorandum opinion, the bankruptcy court held: (1) the property was Niland's homestead; (2) Niland was not estopped from claiming the property as his homestead; (3) under Texas law Niland's homestead was limited to one acre, so Deason took good title to .5714 acres of the property, in effect becoming a cotenant with Niland in...
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