Noble Mortgage & Investments Llc v. D & M Vision Investments Llc

• Decision Date: 17 March 2011
• Docket Number: No. 01–09–00987–CV.,01–09–00987–CV.
• Citation: 340 S.W.3d 65
• Parties: NOBLE MORTGAGE & INVESTMENTS, LLC, Appellant,v.D & M VISION INVESTMENTS, LLC, Danny K. Whitfield, Sr., and Mary W. Whitfield, Appellees.D & M Vision Investments, LLC, Danny K. Whitfield, Sr., and Mary W. Whitfield, Appellant,v.Noble Mortgage & Investments, LLC, Appellees.
• Court: Texas Court of Appeals

340 S.W.3d 65

NOBLE MORTGAGE & INVESTMENTS, LLC, Appellant,
v.
D & M VISION INVESTMENTS, LLC, Danny K. Whitfield, Sr., and Mary W. Whitfield, Appellees.D & M Vision Investments, LLC, Danny K. Whitfield, Sr., and Mary W. Whitfield, Appellant,
v.
Noble Mortgage & Investments, LLC, Appellees.

No. 01–09–00987–CV.

Court of Appeals of Texas, Houston (1st Dist.).

March 17, 2011.

[340 S.W.3d 67]

Larry E. Meyer, Jones Gill LLP, Houston, for Appellant.Constance O. Barnes, Boyer & Ketchand a Professional Corp., Houston, for Appellees.Panel consists of Chief Justice RADACK and Justices ALCALA and BLAND.

[340 S.W.3d 68]

OPINION

SHERRY RADACK, Chief Justice.

This is an appeal following a bench trial from a judgment adjudicating title and encumbrances to real property. We reverse the trial court's judgment.

BACKGROUND

This dispute involves property located at 1923 Blodgett in Houston. (“Blodgett Property”). Danny Whitfield (“Whitfield”) purchased the Blodgett Property at an execution sale held to satisfy a county court judgment against the then owner, Kenneth Banks (“Banks”). Plaintiff D & M Vision Investment (“D & M”), a company owned by Whitfield and an assignee of title to the Blodgett Property, filed a trespass to try title action against Noble Mortgage (“Noble”), another party claiming later-acquired title to the same property. Noble counterclaimed against D & M and filed cross-claims against Whitfield and his wife, seeking title to the property or, alternatively, a subrogation lien. Because the timing of various transactions and filings are germane to this appeal, we first set forth several relevant transactions and their dates.

In March 2005, Houston Kaco, Inc.—a company owed by Banks—purchased the Blodgett Property. The purchase was financed by a mortgage from Statewide Capital Investments (“Statewide”) and secured by a deed of trust properly recorded in the real property records in favor of Statewide. This mortgage and deed of trust were later transferred from Statewide to International Bank of Commerce (“IBC”), which recorded the assignment in the real property records.

On March 23, 2006, Houston Kaco transferred title to the Blodgett Property to Banks personally. In October 2007, Banks sought refinancing of a portion of the Statewide/IBC mortgage debt and applied for a mortgage loan with Noble. As part of this refinancing transaction, Banks conveyed the Blodgett Property back to Houston Kaco on October 9, 2007. On the same date, Noble loaned $172,250.00 to Houston Kaco, secured by a deed of trust on the property. The Noble mortgage deed of trust was recorded in the real property records of Harris County on November 2, 2007.

Out of the new loan proceeds supplied by Noble, three pre-existing liens were paid off and released: (1) $130,000.00 towards balance due to IBC (as assignee of Statewide's lien recorded in the real property records on May 3, 2005), (2) $2,545.40 for balance due on a judgment in favor of Unovate Inc. evidenced by an abstract of judgment recorded in the real property records on October 5, 2004, and (3) $9,982.39 to satisfy unpaid property taxes, secured by superior tax liens.

Unbeknownst to Noble, on October 30, 2006, Financial Holdings, Inc. had obtained a default judgment against Banks in the County Civil Court at Law No. 2 of Harris County, Texas. Financial Holdings did not file an abstract of that judgment in the real property records. It did, however, obtain an execution and order of sale on July 5, 2007, which resulted in a constable's sale of the property on September 4, 2007. The high bidder of $18,000.00 was Whitfield. The sale was documented in the litigation records of Case No. 866,463 in the County Civil Court at Law No. 2 by the constable's filing of a “return of execution” on September 11, 2007. On November 14, 2007, the constable prepared a deed transferring the Blodgett Property to Whitfield, which Whitfield recorded in the real property records on December 31, 2007. That December 31, 2007 filing was the first time any reference to the Financial Holdings Judgment, lien, or sale to

[340 S.W.3d 69]

Whitfield appeared in the real property records, and it was after Noble's interest was recorded in the real property records. On January 14, 2008, the Whitfields transferred title of the Blodgett Property to their company D & M.

After filing D & M's deed in the real property records, Whitfield posted “No Trespassing” signs at the Blodgett Property. Around the same time, Noble foreclosed on Houston Kaco's note secured by the Blodgett Property. Upon finding Whitfield's signs on the property, Noble's owner, Darrell Daik, called Whitfield and, for the first time, the parties discovered that they had competing claims to title of the Blodgett Property.

THE TRIAL COURT PROCEEDINGS

D & M filed a trespass to try title suit against Noble, requesting that D & M be declared the fee simple owner of the property. Noble asserted, as an affirmative defense, that it was a bona fide mortgagee and/or bona fide purchaser of the Blodgett Property and, as such, its interest was taken free and clear of D & M's unrecorded claims.

Noble also asserted a counterclaim against D & M and asserted third-party cross-claims against Whitfield and his wife, requesting the court quiet title to the property by extinguishing the deeds transferring the Blodgett Property to Whitfield and D & M. Alternatively, if title remained vested in D & M, Noble requested that the court grant it a $142,527.79 subrogation lien, to reimburse Noble the liens it satisfied when it refinanced the Blodgett Property, i.e., $130,000 to IBC, $9,982.39 to taxing authorities, and $2,545.40 to extinguish the Unovate Judgment lien. In answering these claims, D & M argued that Noble knew, or should have known, of its and Whitfield's ownership of the Blodgett Property because the underlying judgment, though unrecorded in the real property records, nonetheless was of public record in the Harris County Civil Court civil court records. D & M further denied that Noble is subrogated to any prior liens.

The case was tried to the bench with Whitfield, Daik, and Banks testifying.

A. Whitfield's testimony

Whitfield testified that he first located the Blodgett Property on a constable office's list of properties to be auctioned. Before bidding on the property, Whitfield did not commission a professional title search, but he did research himself to determine what liens might burden the property by looking at (1) the real property records, (2) tax records, and (3) the County Court at Law No. 2 docket of the Financial Holdings lawsuit giving rise to the constable's foreclosure sale. The only lien he located in the real property records was the abstract of the Unovate Judgment, although he stipulated at trial that Statewide's mortgage lien was properly filed and of record at the time he bought the property putting him on notice of that lien. The tax records, according to his research, revealed taxes to be “fairly current.” Finally, he testified that, while there was no abstract or other reference to the Financial Holdings Judgment in the real property records, he believed that “by giving Financial Holdings the right to foreclose on Kenneth Banks' property at 1923 Blodgett,” the county court at law “had already decided that Banks was the owner of the property.” Whitfield knew at the time of the foreclosure sale that he would be responsible for satisfying any outstanding liens if he bought the Blodgett Property, and he testified that he was unsure whether he would have bid on the property had he known about the approximately $196,000 deed of trust to Statewide Mortgage.

[340 S.W.3d 70]

After submitting the winning bid of $18,000 for the Blodgett Property at the constable's sale on September 4, 2007, Whitfield paid with a cashier's check and received a receipt.¹ He testified about several follow-up conversations he had with the constable's office over the next couple of months requesting his deed. The first deed produced by the constable in November 2007 misspelled Whitfield's name. He later received a corrected “Deed Under Execution,” dated November 14, 2007, which he filed in the real property records on December 31, 2007. A couple of weeks later, he executed and filed in the real property records a deed transferring the Blodgett Property to D & M, an investment company owned by him and his wife.

Whitfield testified that, shortly after purchasing the Blodgett Property, he walked around the property and spoke with neighbors who indicated that someone lived there. Although he could tell the property was occupied, he was never able to speak to the occupants because they would not answer the door. After filing D & M's deed, he left “No Trespassing” notices at the property stating that the property was under D & M's ownership pursuant to an execution sale. These notices were torn down two or three times. Finally, in March 2008, Daik called him claiming that Noble owned the Blodgett Property.

B. Banks's Testimony

Banks—the prior owner of the Blodgett Property—owns Houston Kaco, a construction renovation company that also purchases property for resale. He testified that he did not receive notice of the Financial Holdings default judgment against him and that he did not learn about it or the resulting judgment execution sale until he found one of D & M's “No Trespassing” signs in his yard well after he had closed his refinancing loan with Noble. While he agrees that his correct address is listed on the constable records, he did not receive or cash the $390.35 check that constable's records reflect were disbursed to him as surplus from the foreclosure sale. When he signed documents at the closing of his refinancing with Noble attesting that no pending litigation or undisclosed liens or encumbrances existed, he believed those statements to be true.

C. Daik's Testimony

Daik owns Noble Mortgage. Noble is primarily in the business of making short-term loans—for a year or less—to...