Stephens v. Mortgage

• Decision Date: 01 July 2010
• Docket Number: No. 03-09-00097-CV.,03-09-00097-CV.
• Parties: Maurice STEPHENS a/k/a Maurice Wayne Stephens, Individually and as Testamentary Trustee u/w/o Jess M. Stephens, Deceased, and as Trustee of the Jess M. Stephens and Alice Abernathy Stephens Irrevocable Trust; and Lisa Price, Appellantsv.LPP MORTGAGE, LTD., Appellee.
• Court: Texas Court of Appeals

316 S.W.3d 742

Court of Appeals of Texas,
Austin.

Maurice STEPHENS a/k/a Maurice Wayne Stephens, Individually and as Testamentary Trustee u/w/o Jess M. Stephens, Deceased, and as Trustee of the Jess M. Stephens and Alice Abernathy Stephens Irrevocable Trust; and Lisa Price, Appellants
v.
LPP MORTGAGE, LTD., Appellee.

No. 03-09-00097-CV.

July 1, 2010.

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COPYRIGHT MATERIAL OMITTED

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Jeffrey S. Levinger, Brett D. Kitnick, Hankinson Levinger, L.L.P., Dallas, TX, Colton P. Johnson, Albany, TX, for appellee.

George S. Finley, Smith, Rose, Finley, P.C., San Angelo, TX, for appellant.

Before Justices PURYEAR, WALDROP and HENSON. OPINIONG. ALAN WALDROP, Justice.

This is a case involving judicial foreclosure of a lien on real estate. Appellee LPP Mortgage, Ltd., the lienholder under the terms of a deed of trust securing payment of a promissory note, filed this suit to foreclose its lien on the real property securing the debt. LPP Mortgage filed this suit after first securing a judgment on the debt in a separate, previously filed suit and unsuccessfully attempting to collect on that judgment. Appellants-Maurice Stephens a/k/a Maurice Wayne Stephens, individually and as testamentary trustee u/w/o Jess M. Stephens, deceased, and as trustee of the Jess M. Stephens and Alice Abernathy Stephens Irrevocable Trust, and Lisa Price-owned the property at issue and challenge LPP Mortgage's ability to foreclose its lien in this manner. The

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district court entered judgment in favor of LPP Mortgage.

Appellants assert that LPP Mortgage's suit is barred by res judicata and waiver, based on the prior lawsuit in which LPP Mortgage sued on the note, but did not pursue foreclosure of its lien either judicially or non-judicially. The previous lawsuit culminated in a judgment in LPP Mortgage's favor on the debt. We hold that LPP Mortgage's current suit to foreclose its lien is not barred by res judicata or waiver. The judgment on the note has not been satisfied, and the recovery of a judgment on a note secured by a lien does not preclude foreclosure on the lien in a subsequent suit instituted for that purpose. Appellants also assert that LPP Mortgage's suit is barred by limitations, based on the application of the Texas statute of limitations applicable to debts. However, LPP Mortgage obtained the note and deed of trust via transfer from the U.S. Small Business Administration (the “SBA”), a federal agency. The deed of trust contains express contractual provisions establishing the choice of federal law relating to limitations. We hold that, based on the plain language of the deed of trust, and in accordance with the principle that an assignee receives the full rights of the assignor, LPP Mortgage received the benefit of the deed of trust provisions calling for the application of federal law relating to limitations on debts owed to the SBA. We affirm the judgment of the district court.

Factual and Procedural Background

LPP Mortgage is the beneficiary-by assignment-under a deed of trust encumbering real property owned by appellants in Concho County and securing repayment of a certain promissory note of which LPP Mortgage is the holder-also by assignment. When appellants' predecessors in interest originally executed the note and deed of trust at issue in this suit on October 21, 1980, the SBA was the holder of the note and the beneficiary under the deed of trust. On August 3, 2000, before the note matured, the SBA assigned the note and deed of trust to LPP Mortgage. The note matured pursuant to its terms on October 15, 2000. It was not fully paid.

LPP Mortgage filed suit to collect on the note on November 1, 2001, in Tom Green County (the county of residence of the individuals obligated to pay under the note). The 2001 lawsuit involved claims only with respect to the note. LPP Mortgage did not pursue foreclosure of its lien under the deed of trust, or otherwise place the deed of trust at issue. On October 20, 2003, the district court entered judgment on the promissory note in favor of LPP Mortgage. Under the judgment, LPP Mortgage was entitled to recover the sums due and owing under the terms of the note. A writ of execution was issued on the judgment. However, the writ was returned “Nulla Bona,” and the judgment remains unsatisfied.

Pursuant to the terms of the deed of trust, the beneficiary had the right to take possession of or sell the secured property upon the borrower's failure to pay the indebtedness. On February 15, 2007, LPP Mortgage filed this suit for judicial foreclosure of its lien against appellants in Concho County district court, seeking to enforce the deed of trust with respect to the property securing the debt.¹ Following a bench trial, on January 28, 2009, the district court entered judgment in favor of LPP Mortgage, ordering foreclosure of

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LPP Mortgage's lien. Appellants appeal, alleging error in the district court's denial of their affirmative defenses of res judicata, waiver, and limitations.
Standard of Review

Appellants challenge the district court's conclusions of law that LPP Mortgage's right to foreclose the deed of trust is not barred by res judicata, waiver, or limitations. The facts of this case are not disputed. We conduct a de novo review of the district court's legal conclusions. See Reliance Nat'l Indem. Co. v. Advance'd Temps., Inc., 227 S.W.3d 46, 50 (Tex.2007); Hackenjos v. Hackenjos, 204 S.W.3d 906, 908 (Tex.App.-Dallas 2006, no pet.).

Res Judicata

Appellants contend that after suing on the promissory note and reducing that claim to judgment, LPP Mortgage was barred by res judicata from pursuing the remedy of foreclosure of the deed of trust lien securing repayment of the note. For res judicata to apply, there must be (1) a prior final judgment on the merits by a court of competent jurisdiction, (2) identity of parties or those in privity with them, and (3) a second action based on the same claims that were raised or could have been raised in the first action. Citizens Ins. Co. v. Daccach, 217 S.W.3d 430, 449 (Tex.2007). The doctrine of res judicata seeks to bring an end to litigation, prevent vexatious litigation, maintain stability of court decisions, promote judicial economy, and prevent double recovery. Id. Under the doctrine, if a plaintiff prevails in a lawsuit, his cause of action merges into the judgment and the cause of action dissolves. Jeanes v. Henderson, 688 S.W.2d 100, 103 (Tex.1985). The question, here, is whether LPP Mortgage was required to litigate its claim for judicial foreclosure of its lien as part of its prior suit on the promissory note.

It has long been the rule in Texas that “suit may be maintained on a note secured by lien without enforcement of the lien, and after judgment another suit can be brought to foreclose the lien.” Kempner v. Comer, 73 Tex. 196, 11 S.W. 194, 196 (1889).

It is so well settled as not to be controverted that the right to recover a personal judgment for a debt secured by a lien on land and the right to have a foreclosure of lien are severable, and a plaintiff may elect to seek a personal judgment without foreclosing the lien, and even without a waiver of the lien.

Carter v. Gray, 125 Tex. 219, 81 S.W.2d 647, 648 (1935). “[A] creditor can establish liability and thereafter bring a subsequent suit to foreclose his lien.” Lodal & Bain Eng'rs, Inc. v. Bayfield Pub. Util. Dist., 583 S.W.2d 653, 654-55 (Tex.Civ.App.-Houston [1st Dist.] 1979) rev'd on other grounds, 602 S.W.2d 262 (Tex.1980).

Appellants argue, however, that this longstanding rule was overruled by the Texas Supreme Court's decision in Barr v. Resolution Trust Corp., 837 S.W.2d 627 (Tex.1992). In Barr, the supreme court “reaffirmed” the transactional approach to res judicata, which relates to what claims could have been litigated in a prior lawsuit. See 837 S.W.2d at 631. Under the transactional approach, res judicata may apply if the subsequent suit arises out of the same subject matter as a previous suit and, through the exercise of diligence, could have been litigated in the previous suit. See id. A determination of what constitutes the subject matter of a suit requires an examination of the factual basis of the claims without regard to the form of action. See id. at 630.

Appellants rely on the principle that “in order to ascertain the entire agreement between contracting parties, separate documents executed at the same time, for the

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same purpose, and in the course of the same transaction are to be construed together.” See Jim Walter Homes, Inc. v. Schuenemann, 668 S.W.2d 324, 327 (Tex.1984). According to appellants, if the note and deed of trust should be construed together based on this principle, it follows that under the transactional approach to res judicata-as set out in Barr-a final judgment on the note will bar a subsequent suit to foreclose the lien.

We disagree. The fact that two documents should be viewed together for purposes of construing those documents' terms is not, by itself, sufficient to require all claims under either document to be brought together, particularly given that, here, the two documents create two separate and severable rights held by LPP Mortgage. When a debt is memorialized by a note that is secured by a lien, the note and lien constitute separate obligations. See Aguero v. Ramirez, 70 S.W.3d 372, 374 (Tex.App.-Corpus Christi 2002, pet. denied); Whittington v. Whittington, 853 S.W.2d 193, 195 (Tex.App.-Beaumont 1993, no writ). Such separate obligations may be litigated in separate lawsuits. See Carter, 81 S.W.2d at 648. Therefore, the holder of a note and security interest may bring suit and...