Resolution Trust Corp. v. Kemp
| Decision Date | 28 January 1992 |
| Docket Number | 91-1653,Nos. 91-1162,s. 91-1162 |
| Citation | 951 F.2d 657 |
| Parties | RESOLUTION TRUST CORPORATION, as Receiver for Chisholm Federal Savings and Loan Association and as Conservator for Chisholm Federal Savings Association, Plaintiff-Appellee, v. Carl Lee KEMP, Dena Lee Kemp, Robert Roberts, Mary Roberts, Unified Mortgage Company, Jerry Wayne Baese, Jennie Faye Baese, Kraft Employees Credit Union, Defendants-Appellants, and Commonwealth Land Title Insurance Company and Fidelity National Title Insurance Company of Texas, Appellants. CHISHOLM FEDERAL SAVINGS AND LOAN ASSOCIATION, Plaintiff-Appellee, v. Carl Lee KEMP, et al., Defendants, Robert Roberts, Mary Roberts, Unified Mortgage Company, Jerry Wayne Baese, Jennie Faye Baese, Kraft Employees Credit Union, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Susan J. Foster, Larry F. Amerine, Biggers, Beasley, Amerine & Earle, Dallas, Tex., for defendants-appellants.
W. Ralph Canada, Jr., Daena G. Ramsey, Hopkins & Sutter, Dallas, Tex., for plaintiffs-appellees.
Appeals from the United States District Court for the Northern District of Texas.
Before GOLDBERG, SMITH, and DUHE, Circuit Judges.
This case concerns the integrity of the public records system in Texas. We decide three property law issues: first, whether recordation of a partial release provision in a subordination agreement between two lenders entitled the third-party Appellants to enforce the release provision and thus preclude judicial foreclosure; second, whether the existence or disposition of litigation between the two lenders regarding the superiority of their liens on the property justified abating this action or granting a new trial; and, third, whether the Appellants constituted "good faith purchasers" entitled to the value of improvements on the property upon foreclosure.
In 1986, Whittle Development ("Whittle") executed two promissory notes payable to Kingfisher Savings and Loan Association ("Kingfisher") to finance Whittle's development of a subdivision in Rockwall County, Texas. Deeds of trust covering real property in Rockwall County ("Property") and recorded in the deed records of Rockwall County secured the notes. Needing more funds to complete development of the subdivision, Whittle later executed a promissory note payable to Hiawatha Savings and Loan Association ("Hiawatha"), secured by a deed of trust on the same Property ("Hiawatha Lien"). This lien on the Property was also recorded in the deed records of Rockwall County.
Whittle's two lenders, Kingfisher and Hiawatha, had executed several "Subordination, Indemnification and Release Agreements," wherein Kingfisher subordinated its liens on the Property to Hiawatha's lien ("Subordination Agreements"). The Subordination Agreements were also recorded in the Rockwall County deed records. As Whittle sold a lot out of the Property, the Subordination Agreements contemplated that Kingfisher would release its lien on that lot after receiving notice from Hiawatha of the pending sale of the lot by Whittle ("Partial Release Provisions"). 1 The Subordination Agreements did not entitle Kingfisher to any of the proceeds from sales of lots out of the Property until Whittle paid the Hiawatha loan in full.
In late 1988, the Federal Savings and Loan Insurance Corporation transferred part of Kingfisher's assets, including the aforementioned notes ("Chisholm Notes") and deeds of trust covering the Property ("Chisholm Liens"), to Chisholm Federal Savings and Loan Association ("Chisholm"). 2 In September 1989, Chisholm filed a Notice of Lis Pendens ("NLP"), which referenced a suit filed by Chisholm against Hiawatha regarding the superiority of Chisholm's liens on the Property and the enforceability of the Subordination Agreements ("Hiawatha Litigation").
Whittle had defaulted on its obligations under the Chisholm Notes. In November 1989, several owners of lots in Rockwall County sued in state district court to enjoin Chisholm from foreclosing on property purchased from Whittle to satisfy Whittle's debt. 3 The owners claimed entitlement to the partial releases envisioned in the Subordination Agreements. Chisholm removed the action to federal district court based on diversity jurisdiction. Chisholm also counterclaimed for judicial foreclosure of its liens on the property. The district court dismissed the owners' suit against Chisholm.
At this point in the litigation, the district court realigned the parties, with Chisholm as the plaintiff pursuing its judicial foreclosure claims against the owners and their lenders ("Defendants" or "Appellants"). Defendants counterclaimed for the value of the improvements made to the Property.
The district court denied the Defendants' motion for continuance and abatement pending disposition of the Hiawatha Litigation. Then, faced with cross motions for summary judgment, the district court granted Chisholm's motion for summary judgment and denied Defendants' motion for summary judgment. On December 31, 1990, the court entered its final judgment, not only ordering the foreclosure of Chisholm's liens on the property at issue, but also ruling that the Defendants should take nothing on their counterclaim for improvements. The district court subsequently denied the Defendants' motion to reconsider and to alter or amend the memorandum order, motion to alter or amend the final judgment and memorandum order, and motion for a new trial. 4
Finding no error, we affirm the district court's denial of Appellants' motion for continuance and abatement, grant of summary judgment for Chisholm, denial of Appellants' motions to alter or amend the judgment, and its denial of Appellants' motion for a new trial. 5
To affirm the district court's grant of summary judgment, this Court must be convinced, after an independent review of the record, that there is "no genuine issue as to any material fact" and that Chisholm was "entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see General Elec. Capital Corp. v. Southeastern Health Care, Inc., 950 F.2d 944, 947-48 (5th Cir.1991). No genuine issue of material fact exists " 'if the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party.' " Friou v. Phillips Petroleum Co., 948 F.2d 972, 974 (5th Cir.1991) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp. 475 U.S. 574, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986)). We construe the evidence and inferences drawn from that evidence " 'in the light most favorable to the party resisting the motion,' "--in this case, the owners and their lenders. General Elec., 950 F.2d at 947-48 (citation omitted). When "the only issue before the court is a pure question of law," however, "summary judgment is appropriate." Sheline v. Dun & Bradstreet Corp., 948 F.2d 174, 176 (5th Cir.1991) (citing International Shortstop, Inc. v. Rally's, Inc., 939 F.2d 1257, 1263 (5th Cir.1991)). Whether recordation of the Subordination Agreements between Chisholm and Hiawatha, which contained the Partial Release Provisions, entitled the third-party Appellants to enforce the provisions and thus preclude judicial foreclosure constitutes a purely legal question. 6
Basic Texas property law provides that "[a] purchaser is charged with knowledge of the provisions and contents of recorded instruments ... [and] with notice of the terms of deeds which form an essential link in their chain of ownership." Cooksey v. Sinder, 682 S.W.2d 252, 253 (Tex.1984) (per curiam) (citation omitted), cited in Inwood N. Homeowners' Assoc., Inc. v. Harris, 736 S.W.2d 632, 635 (Tex.1987). Texas Property Code section 13.002 provides that "[a]n instrument that is properly recorded in the proper county is notice to all persons of the existence of the instrument." Tex.Prop.Code Ann. § 13.002 (Vernon 1984). We do not find it surprising, then, that subsequent innocent purchasers are entitled to the benefit of releases of lien "placed upon public records." Moran v. Wheeler, 87 Tex. 179, 27 S.W. 54, 55, 56 (Tex.1894).
Appellants characterize their defense theory as one of "constructive notice and release." Appellants argue that Chisholm retains no liens on the Property for one of two reasons: either the Chisholm Liens were "automatically released" when Chisholm received notice of the sale of Appellants' property or, alternatively, the Chisholm Liens became "unenforceable" upon Chisholm's failure to execute the partial releases required by the Subordination Agreements. The success of both aspects of the Appellants' theory depends upon the effect the law gives the recordation of the Subordination Agreements.
We agree with Chisholm that mere notice of the Subordination Agreements, which contained the Partial Release Provisions, does not translate into an automatic release of the Chisholm Liens or the conclusion that the Chisholm Liens are unenforceable. Appellants rely upon the Texas Supreme Court case of Moran v. Wheeler. 7 As Chisholm notes, however, the Moran case involved the effect of recording a release of lien, not the recording of an agreement contemplating partial releases under certain conditions. Moran, 27 S.W. at 55 (). There, the Texas Supreme Court simply held that because the owner of the note had recorded the release of the lien and the assignee of the lien had failed to record the assignment, "there was nothing [in the record] to notify [the subsequent innocent purchaser] that any other person had become entitled to the lien." Id. 27 S.W. at 56. Unlike the situation in Moran, however, we emphasize that the public records in Rockwall County did not reflect that Chisholm had released its liens on the Property. Nor did the recordation of the Subordination Agreements serve to obliterate the Chisholm...
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