Pineridge Associates v. Ridgepine Llc

• Decision Date: 17 March 2011
• Docket Number: No. 02–09–00308–CV.,02–09–00308–CV.
• Citation: 337 S.W.3d 461
• Parties: PINERIDGE ASSOCIATES, L.P. and LAC Properties Operating Partnership, L.P., Appellants,v.RIDGEPINE, LLC, Appellee.
• Court: Texas Court of Appeals

337 S.W.3d 461

PINERIDGE ASSOCIATES, L.P. and LAC Properties Operating Partnership, L.P., Appellants,

v.RIDGEPINE, LLC, Appellee.

No. 02–09–00308–CV.

Court of Appeals of Texas, Fort Worth.

March 17, 2011.

Locke Lord Bissell & Liddell LLP, Kirsten M. Castaneda, Arent Fox LLP, Michael L. Turrill (pro hac vice), Los Angeles, CA, for Appellants.Higier Allen & Lautin PC, Timothy P. Woods and Stacy R. Welch, Addison, TX, for Appellee.PANEL: GARDNER and McCOY, JJ; and DIXON W. HOLMAN (Senior Justice, Retired, Sitting by Assignment).

OPINION

ANNE GARDNER, Justice.

I. Introduction

Appellants Pineridge Associates, L.P. and LAC Properties Operating Partnership, L.P. (collectively, Appellants) ¹ appeal the trial court's judgment in favor of Appellee Ridgepine, L.L.C. (Ridgepine) following a bench trial. Appellants contend in nine issues that the trial court erred by incorrectly interpreting a note and deed of trust, by finding that an event of default triggered Appellants' personal liability for a deficiency on the note and deed of trust, by finding that a deficiency existed, and by awarding attorney's fees to Ridgepine. We affirm.

II. Background

A. The Note, Deed of Trust, and Default

The dispute in this case concerns the mortgage for an apartment complex in Arlington, Texas, known as the Pineridge Apartments (the Property). Pineridge executed a Multi–Family Note (Note) on June 11, 2001, in the original principal amount of $2,700,000. The Note was secured by a Multi–Family Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing (Deed of Trust). ² That same day, the Pineridge Mortgage was assigned to Federal Home Loan Corporation (Freddie Mac). In 2003, Freddie Mac consented to the replacement of Pineridge's operating general partner through a reaffirmation of the Pineridge Mortgage, and LAC Properties executed a limited guaranty in connection with the reaffirmation.

Pineridge defaulted on the Pineridge Mortgage on January 1, 2007, by failing to pay the December 2006 installments of principal and interest. In addition, Pineridge's financial difficulties led to the filing of approximately $127,000 in mechanic's liens against the Property between August 2006 and May 2007.

In April 2007, Ridgepine paid Freddie Mac $2,500,000 to purchase the Pineridge Mortgage, and Freddie Mac assigned the Pineridge Mortgage to Ridgepine. Ridgepine then filed suit against Pineridge on May 1, 2007, seeking a temporary restraining order and the appointment of a receiver pending Ridgepine's attempt to sell the Property at foreclosure.³ Ridgepine then foreclosed on the Property and placed the highest bid for the property—$2,752,827.50—at the June 5, 2007 foreclosure sale.

B. Nonrecourse Loan with Exceptions Creating Personal Liability

The Note and Deed of Trust was a nonrecourse loan with limited exceptions that, if applicable, made Appellants personally liable for any deficiency. In this regard, Paragraph 9(a) of the Note stated:

Except as otherwise provided in this Paragraph 9, [Appellants] shall have no personal liability under this Note, the Security Instrument or any other Loan Document for the repayment of the Indebtedness or for the performance of any other obligations of [Appellants] under the Loan Documents, and [Ridgepine]'s only recourse for the satisfaction of the Indebtedness and the performance of such obligations shall be [Ridgepine]'s exercise of its rights and remedies with respect to the Mortgaged Property and any other collateral held by [Ridgepine] as security for the Indebtedness.

Relevant to this appeal, Paragraph 9(e) provided:

[Appellants] shall become personally liable to [Ridgepine] for the repayment of all of the Indebtedness upon the occurrence of any of the following Events of Default: ... (2) a Transfer (including, but not limited to, a lien or encumbrance) that is an Event of Default under Section 21 of the [Deed of Trust].

Section 21(a) of the Deed of Trust in turn defined an “Event of Default” as, among other things, “a transfer of all or any part of the Mortgaged Property or any interest in the Mortgaged Property.” However, the Deed of Trust excepted certain transfers and, in Section 21(b), specifically stated:

The occurrence of any of the following events shall not constitute an Event of Default under this Instrument, notwithstanding any provision of Section 21(a) to the contrary:

....

(6) the creation of a mechanic's, materialman's, or judgment lien against the Mortgaged Property which is released of record or otherwise remedied to [Ridgepine]'s satisfaction within 30 days of the date of creation. [Emphasis added.]

Ridgepine's third amended petition alleged personal liability against Appellants for the deficiency because the mechanic's liens were not “released of record or otherwise remedied to [Ridgepine]'s satisfaction within 30 days of the date of creation.” Appellants defended the personal liability claim at trial by arguing that the foreclosure sale extinguished all mechanic's liens, that the mechanic's liens were therefore “released of record,” and that Ridgepine was prohibited from seeking personal liability because it had not invoked the Event of Default relating to the mechanic's liens “during the existence of [the] Event of Default.” ⁴

C. Trial Court's Findings of Fact, Conclusions of Law, and Judgment

Following a bench trial, the trial court signed a judgment in favor of Ridgepine and against Appellants for $146,615.40 and attorney's fees. The trial court also made findings of fact and conclusions of law. Among other things, the trial court found that: (1) Pineridge defaulted under the Note and Deed of Trust; (2) there was a deficiency of $146,615.40 following the foreclosure sale; (3) Pineridge “allowed numerous mechanic's liens to be placed on the Property prior to the foreclosure of the Property”; (4) the mechanic's liens “were not released of record or otherwise remedied to [Ridgepine's] satisfaction within 30 days of the date of creation as required by the Deed of Trust”; and (5) Appellants “are personally liable to [Ridgepine] in the amount of the deficiency after foreclosure of $146,615.40.” In addition, the trial court made a conclusion of law that “mechanic's liens are not automatically released of record after a foreclosure.” This appeal followed.

III. Event of Default

In their first five issues, Appellants contend that the trial court erred by incorrectly interpreting the Note and Deed of Trust, by finding that the mechanic's liens were not released of record by virtue of the foreclosure sale, by finding them personally liable for the deficiency, and by entering judgment against them. Because they are related, we address Appellants' first five issues together.

A. Standard of Review

The construction of an unambiguous contract is a question of law for the court to determine de novo. Chrysler Ins. Co. v. Greenspoint Dodge of Houston, Inc., 297 S.W.3d 248, 252 (Tex.2009). We examine the entire document and consider each part with every other part so that the effect and meaning of one part on any other part may be determined. Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex.1996). We interpret the contract by ascertaining the true objective intentions of the parties, based on the contract language, and presuming that the parties intended every clause to have some effect. SAS Inst., Inc. v. Breitenfeld, 167 S.W.3d 840, 841 (Tex.2005); Heritage Res., Inc., 939 S.W.2d at 121. We give words their plain, common, or generally accepted meaning unless the instrument shows that the parties used them in a technical or different sense. Heritage Res., Inc., 939 S.W.2d at 121.

B. Recourse and Nonrecourse Loans Distinguished

A recourse loan “allows the lender, if the borrower defaults, not only to attach the collateral but also to seek judgment against the borrower's (or guarantor's) personal assets.” Black's Law Dictionary 1021 (9th ed. 2009). Conversely, the maker of a nonrecourse loan “does not personally guarantee repayment of the note and will, thus, have no personal liability.” Fein v. R.P.H., Inc., 68 S.W.3d 260, 266 (Tex.App.-Houston [14th Dist.] 2002, pet. denied). “A nonrecourse note has the effect of making a note payable out of a particular fund or source, namely, the proceeds of the sale of the collateral securing the note.” Id. (citing Burns v. Resolution Trust Corp., 880 S.W.2d 149, 153 (Tex.App.-Houston [14th Dist.] 1994, no writ) and Hinckley v. Eggers, 587 S.W.2d 448, 450 (Tex.Civ.App.-Dallas 1979, writ ref'd n.r.e.)). In other words, under a true nonrecourse loan, the borrower has no personal liability beyond the loss of the collateral securing the note. Id. The Deed of Trust involved in this case is a nonrecourse loan with several exceptions that, if applicable, allow Ridgepine to seek personal liability against Appellants.

C. Analysis

Section 43 of the Deed of Trust provided that Ridgepine could “invoke the power of sale and any other remedies permitted by Texas law” or the Deed of Trust “[a]t any time during the existence of an Event of Default.” Relevant to this appeal, and as previously noted, one Event of Default triggering personal liability under section 21(b) of the Deed of Trust is a mechanic's lien that was not “released of record or otherwise remedied to Lender's satisfaction within 30 days of the date of creation.” The question presented is whether the mechanic's liens were “released of record” when they were extinguished by the June 2007 foreclosure sale. If the mechanic's liens were released of record by the foreclosure sale, then Appellants can have no personal liability under the Deed of Trust because the mechanic's liens were “released of record” before Ridgepine invoked them as an Event of Default.

1. Foreclosure Sale Did Not Release Liens “Of Record”

The parties do not dispute that the mechanic's liens were extinguished by the foreclosure sale or that they were thereafter unenforceable as a matter of law. See Diversified...