Opinion issued May 19, 2011.
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-10-00948-CV
———————————
WMC MorTgage Corporation, Appellant
V.
Abe Ham Moss, Katherine MiKes, and JPMorgan Chase Bank, N.A., Appellees
On Appeal from the 189th District Court
Harris County, Texas
Trial Court Case No. 0921138
MEMORANDUM OPINION
Appellant WMC Mortgage Corporation brought this declaratory judgment action to adjudicate the validity of a tax lien transfer and tax foreclosure sale of property on which WMC held a preexisting lien. On cross-motions for summary judgment, the trial court granted summary judgment in favor of appellees Katherine Mikes and JPMorgan Chase Bank, N.A. on the basis of their affirmative defenses. The trial court declared that Mikes is the owner of the property, JPMorgan has the first lien against the property, and WMC has no legal interest in the property. By agreement of the parties and order of the trial court, this interlocutory appeal ensued. See Tex. Civ. Prac. & Rem. Code Ann. § 51.014(d) (West 2008). We conclude that the trial court properly granted summary judgment on the basis of the bona fide purchaser and mortgagor defense and affirm.
I. Factual and procedural background
After graduating from college, Mikes decided to purchase her first home. Through a licensed real estate agent, she found and purchased a condominium at Reata at River Oaks for $154,900. To pay for the home, she obtained a mortgage from JPMorgan. Approximately one year after Mikes purchased the property, WMC sued Mikes, JPMorgan, and others, asserting that a previous tax foreclosure sale of the property was invalid and that Mikes’s and JPMorgan’s interests in the property were subject to WMC’s lien, which it had obtained from a pre-foreclosure owner of the property, Matt Parker.
The relevant ownership history of the property is as follows: When Parker purchased the property, he executed a deed of trust granting Mortgage Electronic Registration Systems, Inc. (“MERS”), acting as nominee for WMC, a lien on the property. MERS assigned all rights in the deed of trust to WMC. Parker’s subsequent failure to pay his maintenance fees to the condominium association resulted in a lien against the property. The condominium association foreclosed on its lien, selling the property to Texas Realty Holdings, LLC. In order to pay outstanding taxes on the property, Texas Realty entered into a transaction authorized under Chapter 32 of the Tax Code whereby Texas Realty nominated Dampkring, LLC to pay the taxes on the property and, upon payment of the taxes by Dampkring, the tax lien on the property was transferred from the taxing authorities to Dampkring. When Texas Realty failed to repay Dampkring the amount paid in taxes, Dampkring foreclosed on the tax lien, selling the property to Abe Moss. Mikes subsequently bought the property from Moss.
When Dampkring sold the property to Moss, it sent notice of the foreclosure sale to WMC at “3100 Thorton Avenue, Burbank, CA 91504.” This address is the address for WMC found in WMC’s deed of trust from Parker, which states that notices to WMC must be given at that address unless WMC designates another address. The notice provision in the deed of trust further provides that, for any notice required by the deed and by applicable law, the notice requirement imposed by applicable law is satisfied by notice in accordance with the deed of trust. However, a different address for WMC is found in its assignment from MERS, which was recorded after the deed of trust. The assignment does not contain a notice provision and identifies the address for WMC therein only as “assignee’s mailing address.” Both the deed of trust and the assignment were recorded in Harris County public records. The certified mail delivery receipt in the record shows the foreclosure notice was successfully delivered at the Thornton Avenue address, and WMC does not expressly deny actual receipt of the notice at that address.
WMC filed this suit seeking judicial declarations that: (1) the transfer of the tax lien from Texas Realty to Dampkring was invalid, (2) the subsequent sale to Moss was void, (3) Texas Realty remains the record owner of the property, and (4) WMC’s deed of trust is the first lien against the property. Mikes and JPMorgan filed motions for summary judgment on WMC’s claims against them on four grounds: (1) they are shielded by bona fide purchaser and mortgagor defenses, (2) WMC’s claims are barred by the applicable statute of limitations, (3) WMC failed to deposit funds into the registry of the trial court pursuant to Section 34.08(a) of the Tax Code, a prerequisite for bringing its claims, and (4) WMC’s claims are barred by waiver or estoppel. WMC filed a cross-motion for partial summary judgment against Mikes and JPMorgan. The trial court granted Mikes and JPMorgan’s motion for summary judgment and denied WMC’s cross-motion.
II. Standard of review
We review a trial court’s decision to grant summary judgment de novo. Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009); Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). We review the summary judgment evidence in the light most favorable to the party against whom the summary judgment was rendered, crediting evidence favorable to that party if reasonable jurors could and disregarding contrary evidence unless reasonable jurors could not. Fielding, 289 S.W.3d at 848; City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). “Issues not expressly presented to the trial court by written motion, answer or other response shall not be considered on appeal as grounds for reversal.” Tex. R. Civ. P. 166a(c).
Mikes and JPMorgan sought traditional summary judgment on their affirmative defenses. On a motion for traditional summary judgment, the movant bears the burden of demonstrating that no genuine issue of material fact exists and it is entitled to judgment as a matter of law. Tex. R. Civ. P. 166a(c); KPMG Peat Marwick v. Harrison Cnty. Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex. 1999). A defendant may meet this burden by conclusively establishing each element of an affirmative defense. Sci. Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex. 1997). Because the trial court’s judgment does not identify the ground upon which it was granted, WMC has the burden to negate each ground presented. State Farm Fire & Cas. Co. v. S.S., 858 S.W.2d 374, 381 (Tex. 1993).
III. Analysis
Mikes and JPMorgan sought summary judgment on the basis of a bona fide purchaser and mortgagor affirmative defense. WMC contests Mikes and JPMorgan’s right to summary judgment on the bona fide purchaser/mortgagor defense on two grounds: First, WMC contends that the prior sale was void and therefore the bona fide purchaser defense does not apply. Second, WMC contends that Mikes and JPMorgan do not qualify for the defense because they had constructive notice of WMC’s claim on the property. We conclude that the deficiencies asserted by WMC may render the foreclosure sale voidable but do not render it void, such that the bona fide purchaser/mortgagor defense is applicable. We also conclude that Mikes and JPMorgan did not have constructive notice of WMC’s claim on the property. We therefore hold that the trial court properly granted summary judgment on this ground and do not reach alternative grounds upon which the trial court’s summary judgment may also rest.
A. Bona fide purchaser/mortgagor defense
A bona fide purchaser is one who acquires property in good faith, for value and without notice of any prior third-party claim or interest. Madison v. Gordon, 39 S.W.3d 604, 606 (Tex. 2001); Colvin v. Alta Mesa Res., Inc., 920 S.W.2d 688, 691 (Tex. App.—Houston [1st Dist.] 1996, writ denied); see also Tex. Prop. Code Ann. § 13.001(a) (West 2003). A bona fide mortgagor is a lender who takes a lien in good faith, for valuable consideration, and without actual or constructive notice of outstanding claims. Hue Nguyen v. Chapa, 305 S.W.3d 316, 323 (Tex. App.—Houston [14th Dist.] 2009, pet. denied). Bona fide purchasers and mortgagors are generally shielded from a third party’s prior claims against the property. See Cnty. of Burleson v. Gen. Elec. Capital Corp., 831 S.W.2d 54, 59 (Tex. App.—Houston [14th Dist.] 1992, writ denied) (holding lien holder’s rights were cut off when purchaser at tax sale and his subsequent purchasers were bona fide purchasers); see also Slaughter v. Qualls, 139 Tex. 340, 345–46, 162 S.W.2d 671, 675–76 (1942) (holding that trustee’s foreclosure sale of property to lender was void as between previous owner and lender-purchaser who wrongfully caused sale of property when no default on loan had occurred, but concluding lender’s subsequent good faith purchaser and lien holder were nonetheless shielded against previous owner’s claims on property).
B. Effect of tax foreclosure sale
WMC asserts that the tax foreclosure sale to Moss was void on two grounds: First, WMC contends that the tax lien transfer was not effective to transfer the lien to Dampkring and, therefore, Dampkring lacked authority to foreclose. Second, WMC contends that certain deficiencies in the foreclosure procedure and documentation rendered the sale void. We determine that the tax lien transfer was valid and the tax foreclosure sale may have been voidable but was not void.
1. Validity of tax lien transfer
The process by which Dampkring obtained the tax lien on the property is authorized by Section 32.06 of the Tax Code. See Tex. Tax Code Ann. § 32.06; see also Genesis Tax Loan Servs., Inc. v. Kothmann, No. 09–0828, 2011 WL 1820886, at *1 (Tex. May 13, 2011) (“Section 32.06 of the Texas Tax Code provides that a tax lien on real property, which takes priority over many other liens, may be transferred, under specified conditions, to a person who pays the taxes with the owner’s permission.”). The tax lien transfer occurred in August 2007 and is governed by the statute as it existed prior to the 2007 amendments. See Act of May 25, 2007, 80th Leg., R.S., ch. 1329, §§ 1, 4, 5, 2007 Tex. Gen. Laws 4484–88 (current version at Tex. Tax Code Ann. § 32.06).[1] Section 32.06 enables an owner of real property to authorize another party to pay the taxes assessed against the property and contemplates that the tax lien against the property will then be transferred to the party who pays the taxes. Id. § 1, sec. 32.06(a–1) & (a–2), 2007 Tex. Gen. Laws at 4484. When the transferee pays the taxes, the tax collector certifies that the taxes have been paid by the transferee and that the tax lien has been transferred to the transferee. Id. § 1, sec. 32.06(b), 2007 Tex. Gen. Laws at 4485. Under the statute as it existed at the time, the sworn document authorizing payment of the taxes under Section 32.06(a–1) (herein, the “sworn authorization”) and tax collector’s certified statement of payment and transfer pursuant to Section 32.06(b) (herein, the “certified statement”) must be recorded in the county where the property is located for the tax lien transfer to be enforceable. Id. § 1, sec. 32.06(d), 2007 Tex. Gen. Laws at 4485. A holder of a preexisting lien on the property may have the transferred tax lien released by paying the amount owed by the property owner to the transferee within six months after the date on which the tax lien is recorded. Id. § 1, sec. 32.06(f), 2007 Tex. Gen. Laws at 4486. The transferee of the tax lien may foreclose on the lien after one year, or less if permitted by the contract between the owner and the transferee. Id. § 1, sec. 32.06(i), 2007 Tex. Gen. Laws at 4486.
WMC contends that the tax lien transfer to Dampkring did not comply with Section 32.06(b) because:
the collector for the Taxing Units was required to certify “on the [S]worn [D]ocument that payment of taxes, [etc.] has been made by [Dampkring] on behalf of [Texas Realty] and that [its] tax lien is transferred to [Dampkring]. . . . In addition, the collector for the Taxing Units was required to “attach to the [S]worn [D]ocument [its] seal of office or sign [the Sworn Document] before a Notary Public.”
(Bracketed material and emphasis in original.) In support of this argument, WMC references Texas Realty’s sworn authorization of Dampkring to pay the taxes on the property, rather than the tax collector’s certified statement that the taxes were paid and the tax lien was transferred. The tax collector’s certified statement in the record contains the required statements regarding payment of taxes and the transfer of the tax lien and is marked with the tax collector’s seal of office, as required under Section 32.06(b). See Act of May 25, 2007, 80th Leg., R.S., ch. 1329, § 1, sec. 32.06(b), 2007 Tex. Gen. Laws at 4485; see also Kothmann, 2011 WL 1820886, at *2 (holding that tax collector’s sworn statement made before a notary satisfied requirements of Section 32.06(b) when the tax collector had no seal and therefore failed to attach his seal of office to the authorization). Section 32.06(b), as it existed at the time, expressly permitted that “the sworn document, tax receipt and affidavit attesting to the transfer of the tax lien may be combined into one document,” but it did not require that they be combined into one document. See Act of May 25, 2007, 80th Leg., R.S., ch. 1329, § 1, sec. 32.06(b), 2007 Tex. Gen. Laws at 4485.
WMC next argues that the tax lien transfer was invalid because the sworn authorization and tax collector’s certified statement were not recorded contemporaneously. It is undisputed that both the sworn document and the tax collector’s certified statement were recorded in the county where the property is located. We find no requirement in Section 32.06 that these two documents must be recorded at the same time, so long as they are both timely recorded in the proper county records. We conclude that the tax lien transfer complied with the requirements of Section 32.06 and was effective to transfer the lien.
2. Validity of foreclosure sale
WMC next argues that the tax foreclosure sale to Moss was void on the basis of four purported deficiencies in the foreclosure sale and documentation: (1) Texas Realty failed to obtain a court order for foreclosure under Section 32.06(c), as amended in 2007; (2) the contract for foreclosure between Texas Realty and Dampkring did not comply with the requirements of Section 32.065(b); (3) the sale was premature under Section 32.06(f); and (4) WMC did not receive proper notice of the foreclosure sale under Section 51.002 of the Property Code. We conclude that a court order was not necessary, the sale was not premature, and the purported deficiencies in the notice and contract for foreclosure could render the foreclosure sale voidable but do not render it void.
a. Nonapplicability of statute requiring court order
A transferee of a tax lien under Section 32.06 is authorized to foreclose the lien either through a judicial sale or a non-judicial sale. See Act of May 25, 2007, 80th Leg., R.S., ch. 1329, § 1, sec. 32.06(c), 2007 Tex. Gen. Laws at 4485. Prior to the effective date of the 2007 revisions, a non-judicial foreclosure could be conducted under Section 51.002 of the Property Code and Section 32.065 of the Tax Code without a court order. Id. § 1, sec. 32.06(c)(2), 2007 Tex. Gen. Laws at 4485.[2] After the 2007 amendments became effective, a court order was necessary for any foreclosure sale. Id.[3] WMC argues that the amended statute governs the tax foreclosure sale, and Dampkring was therefore required to obtain a court order prior to the foreclosure. Mikes and JPMorgan argue that the pre-amendment statute governs, and no court order was necessary. We conclude that the prior version of the statute applies.
The effective date of the amendments to Sections 32.06 and 32.065 is September 1, 2007. Id. § 5, 2007 Tex. Gen. Laws at 4487. The enacting language of the 2007 amendments provides that the amended versions of the statutes apply to lien transfers and foreclosure sales that occur on or after September 1, 2007, except that foreclosure sales that occur after September 1, 2007 are governed by the previous statutes if they are pursuant to (1) a lien transfer that occurred before September 1 and (2) a contract that provides for specific foreclosure procedures under the law in effect at the time the contract was executed. Id. § 4, 2007 Tex. Gen. Laws at 4487. We conclude that the foreclosure sale here falls within that exception.
It is undisputed that the lien transfer from Texas Realty to Dampkring occurred before September 1, 2007. The “Consent to Transfer of Tax Lien Pursuant to Texas Property Tax Code Section 32.06 and Contract for Foreclosure of Tax Lien” between Dampkring and Texas Realty specifically authorizes Dampkring to foreclose the transferred tax lien “in the manner provided in Section 51.002 of the Texas Property Tax Code.” Section 51.002 of the Property Code was in effect at the time of the contract and lays out the specific procedures for sale thereunder. See Tex. Prop. Code. Ann. § 51.002 (West Supp. 2010). We conclude that the contract between Texas Realty and Dampkring is “a contract that provided for specific foreclosure procedures under the law in effect at the time the contract was executed.” Act of May 25, 2007, 80th Leg., R.S., ch. 1329, § 4(b), 2007 Tex. Gen. Laws 4484, 4487. The tax foreclosure sale is therefore governed by Section 32.06 and 32.065 as they existed prior to the 2007 amendments, and Dampkring was not required to obtain a court order prior to the foreclosure sale.
b. Effect of the contract for foreclosure
WMC argues that Dampkring failed to comply with Section 32.065(b)(3), (4), and (6), which governs the contract for foreclosure between the property owner and the tax lien transferee under Section 32.06. See Act of May 25, 2007, 80th Leg., R.S., ch. 1329, § 2, sec. 32.065(b), 2007 Tex. Gen. Laws at 4487 (current version at Tex. Tax Code Ann. § 32.065 (West Supp. 2010)). The subsections identified by WMC require that such a contract for foreclosure contain provisions dictating:
· recording of “the contract,”
· recording of the sworn authorization and certified statement required by Section 32.06, and
· that the transferee serve a copy of the notice of sale on the mortgage services and lien holders containing the following language:
PURSUANT TO TEXAS TAX CODE SECTION 32.06, THE FORECLOSURE SALE REFERRED TO IN THIS DOCUMENT IS A SUPERIOR TRANSFER TAX LIEN SUBJECT TO RIGHT OF REDEMPTION UNDER CERTAIN CONDITIONS. THE FORECLOSURE IS SCHEDULED TO OCCUR ON THE (DATE).
Id. § 2, sec. 32.065(b)(3), (4), (6), 2007 Tex. Gen. Laws at 4487.
The record does not reflect a contract between Texas Realty and Dampkring containing the terms specified in Section 32.065(b)(3), (4), and (6).[4] However, Dampkring did record the property owner’s sworn authorization and the tax collector’s certified statement in the county records, and it sent WMC a notice of foreclosure sale containing the language prescribed by Section 32.065(b)(6). WMC asserts that “the Dampkring Agreement was not actually recorded in accordance with Section 32.065(b)(3).” Assuming “the contract” referenced in Section 32.065(b)(3) refers to the contract for foreclosure,[5] as WMC argues, Texas Realty and Dampkring did record a contract for foreclosure, but it does not contain all of the terms specified in Section 32.065(b). Although Section 32.065(b)(3) requires that the contract be recorded and contain certain provisions, it does not dictate that the foreclosure sale will be ineffective if the contract is missing a required term. Id. § 2, sec. 32.065(b)(3), 2007 Tex. Gen. Laws at 4487. By comparison, Section 32.06(d), as applicable at the time, does expressly list the documents that must be recorded in order for the tax lien transfer to be enforceable: “To be enforceable, a tax lien transferred as provided in this section must be recorded with the sworn statement and affidavit attesting to the transfer of the tax lien as described in Subsection (b) in the deed records of each county in which the property encumbered by the lien is located.” Id. § 1, 32.06(d), 2007 Tex. Gen. Laws at 4485. As previously noted, these requirements were satisfied.
By its plain language, Section 32.065 governs the contract between the property owner and the transferee of a tax lien, while Section 32.06 expressly dictates the requirements for enforceability of a tax lien transfer. Id. §§ 1, 2, secs. 32.06(d), 32.065(b), 2007 Tex. Gen. Laws at 4485, 4487. We conclude that when, as in this case, the actions required by Sections 32.06 and 32.065(b) have been performed and the only alleged defect is that the contract between the parties does not contain provisions expressly requiring those actions, the defect in the contract may render the foreclosure sale voidable but does not, alone, render the foreclosure sale void. See Slaughter, 139 Tex. at 345–46, 162 S.W.2d at 674–75 (explaining that sale is void if it is mere nullity, passing no title and conferring no rights whatsoever, while sale is voidable if it passes title subject to right of another party to have it set aside upon proof that sale was improperly made); cf. Davis v. Howe, 213 S.W. 609, 610 (Tex. Comm’n App. 1919, judgm’t adopted) (holding tax foreclosure sale that violated provision of statute prohibiting sheriff making sale from also purchasing property was voidable rather than void); Johnston v. Bennett, 176 S.W.3d 41, 45 (Tex. App.—Houston [1st Dist.] 2004, no pet.) (holding failure to comply with statutory Internal Revenue Code provisions for tax foreclosure sale rendered sale voidable rather than void). While WMC had the right to object to the tax foreclosure sale to Moss on the basis of the identified deficiencies, Mikes and JPMorgan are protected against those complaints if they qualify as bona fide purchasers in a subsequent sale. See Lighthouse Church of Cloverleaf v. Texas Bank, 889 S.W.2d 595, 601 (Tex. App.—Houston [14th Dist.] 1994, writ denied) (“Such a deed may be voidable as between grantor and grantee; it may nevertheless be effectual to convey title to an innocent purchaser from the grantee.”) (citing Link v. Page, 72 Tex. 592, 596, 10 S.W. 699, 701 (Tex. 1889); McCombs v. Abrams, 28 S.W.2d 584, 592 (Tex. Civ. App.—Galveston 1930), aff’d 48 S.W.2d 612 (Tex. Comm’n App. 1930)).
c. Timing of foreclosure sale
Under Section 32.06(f), prior to the 2007 amendments, the mortgage servicer of a preexisting lien on the property encumbered by a transferred tax lien has six months from the date the tax lien is recorded within which it may obtain a release of the transferred tax lien by paying the transferee the amount owed. Act of May 25, 2007, 80th Leg., R.S., ch. 1329, § 1, sec. 32.06(f), 2007 Tex. Gen. Laws at 4486. WMC admits that this provision does not expressly state that the transferred lien may not be foreclosed within six months of the date of recording but contends that such a time limit must be implied to give the provision its intended force. We disagree.
Section 32.06 has a specific provision that governs when a foreclosure may occur, stating that the foreclosure “may not be instituted within one year from the date on which the lien is recorded . . . unless the contract between the owner of the property and the transferee provides otherwise.” Id. § 1, sec. 32.06(i), 2007 Tex. Gen. Laws at 4486. The applicable version of this provision further states that the transferee of the tax lien “must notify the holders of all recorded liens on the property before foreclosure in the same manner and within the same time frame as the transferee must notify the owner of the property under Section 51.002, Property Code.”[6] Id. Thus, Section 32.06, prior to the 2007 amendments, expressly authorized the property owner and transferee to shorten the time during which foreclosure is precluded so long as the notice provisions of Section 51.002 of the Property Code are satisfied. See id.[7] The summary judgment evidence demonstrates that the foreclosure notices complied with the notice period required under Section 51.002.
d. Effect of allegedly inadequate notice to WMC
The applicable version of Section 32.06 requires that Dampkring provide WMC with the same notice of the foreclosure sale that the debtor is entitled to under Section 51.002 of the Property Code. Act of May 25, 2007, 80th Leg., R.S., ch. 1329, § 1, sec. 32.06(i), 2007 Tex. Gen. Laws at 4486. Section 51.002(e) requires that notice under the statute be served by certified mail, addressed to the debtor’s “last known address.”[8] Tex. Prop. Code Ann. § 51.002(e). The purpose of notice under Section 51.002 is to provide a minimum level of protection to the debtor, and actual receipt of the notice is not necessary. See Onwuteaka v. Cohen, 846 S.W.2d 889, 892 (Tex. App.—Houston [1st Dist.] 1995, writ denied); Houston Omni USA Co., Inc. v. Southtrust Bank Corp., N.A., No. 01-07-00433-CV, 2009 WL 1161860 (Tex. App.—Houston [1st Dist.] Apr. 30, 2009, no pet.) (mem. op.); see also WTFO, Inc. v. Braithwaite, 899 S.W.2d 709, 720 (Tex. App.—Dallas 1995, no writ); Hausmann v. Tex. Sav. & Loan Ass’n, 585 S.W.2d 796, 799 (Tex. Civ. App.—El Paso 1979, writ ref’d n.r.e.).
WMC argues that the address to which Dampkring sent notice of the foreclosure was not WMC’s “last known address” and the foreclosure sale is therefore void. We do not decide whether WMC’s “last known address” under the statute is the address provided in WMC’s deed of trust—the address to which notice was sent—or the address provided in WMC’s assignment. Even assuming that Dampkring should have sent the foreclosure notice to WMC’s other address, such a deficiency in the notice would render the tax foreclosure sale voidable rather than void. See Elbar Invs., Inc. v. Wilkinson, No. 14–99–00297–CV, 2003 WL 22176624, at *2–3 & n.1 (Tex. App.—Houston [14th Dist.] Sept. 23, 2003, pet. denied) (mem. op.) (holding that junior lienholder lacked standing to challenge foreclosure sale on basis of irregularities in notice because such deficiencies rendered sale voidable rather than void); Fireman’s Fund Ins. Co. of Texas v. Jackson Hill Marina, Inc., 704 S.W.2d 131, 135 (Tex. App.—Tyler 1986, writ ref’d n.r.e.) (holding that foreclosure sale of building was rendered voidable rather than void by inadequate notice under provisions of security agreement and applicable law); cf. Pyles v. Young, No. 06–07–00066–CV, 2007 WL 4462738, at *3–4 (Tex. App.—Texarkana Dec. 21, 2007, no pet.) (mem. op.) (holding that allegations that foreclosure notices were sent to wrong address under Section 51.002 tended to show that foreclosure judgment was voidable, rather than void, such that res judicata applied). As noted above, a sale that is merely voidable is subject to the bona fide purchaser/mortgagor defense with respect to subsequent buyers like Mikes and JPMorgan. See Lighthouse Church of Cloverleaf, 889 S.W.2d at 601 (citing Link, 72 Tex. at 596, 10 S.W. at 701; McCombs, 28 S.W.2d at 592).
C. Constructive knowledge
WMC also asserts that Mikes and JPMorgan may not invoke the bona fide purchaser/mortgagor defense because they had constructive notice of WMC’s claim on the property. WMC contends that Mikes and JPMorgan had notice of its claim on the property because its preexisting vendor’s lien and deed of trust were properly recorded in the county records. The fault in WMC’s argument is that there is nothing in the county records that would put Mikes and JPMorgan on notice that those claims were not extinguished by the tax foreclosure sale. WMC’s lien is subordinate to the tax lien, and proper foreclosure of a tax lien extinguishes subordinate liens on the property. See Tex. Tax. Code Ann. § 32.05(b) (establishing superiority of tax lien); Saturn Capital Corp. v. City of Houston, 246 S.W.3d 242, 245 (Tex. App.—Houston [14th Dist.] 2007, pet. denied) (holding that tax foreclosure sale extinguishes preexisting subordinate liens on property); Nat’l Loan Invs., L.P. v. Spring Indep. Sch. Dist., No. 01–94–00659–CV, 1995 WL 489441 (Tex. App.—Houston [1st Dist.] Aug. 17, 1995, no writ) (not designated for publication) (noting that foreclosure of tax liens extinguished mortgage lien on property); see also Conseco Fin. Serv. Corp. v. J & J Mobile Homes, Inc., 120 S.W.3d 878, 881–82 (Tex. App.—Fort Worth 2003, pet. denied) (holding that tax foreclosure sale extinguished junior lien on mobile home); see also Kothmann, 2011 WL 1820886, at *2 (discussing the priority of tax liens).
Dampkring recorded its deed of trust and the “Consent to Transfer of Tax Lien Pursuant to Texas Property Tax Code Section 32.06 and Contract for Foreclosure of Tax Lien” in June 2007; Mikes purchased the property from Moss in April 2008. Prior to Mikes’s purchase, WMC had the opportunity to raise its complaints regarding lack of notice and deficiencies in the contract between Dampkring and Texas Realty and seek to have the tax foreclosure sale declared void. Because WMC failed to do so and because the documents that must be recorded for an enforceable tax lien transfer under Section 32.06—Dampkring’s deed of trust, the sworn authorization for payment of taxes and the tax collector’s certified statement—were in fact recorded and satisfied the statutory requirements, Mikes and JPMorgan were not on notice that the tax foreclosure sale arguably failed to extinguished WMC’s claims on the property. See Tex. Tax Code Ann. § 32.06(b), (d). We therefore conclude that the evidence put forth by Mikes and JPMorgan demonstrating lack of notice of WMC’s claims against the property was sufficient to satisfy their summary judgment burden.
We overrule WMC’s first issue. We do not reach WMC’s second issue—that the trial court should have granted its cross-motion for partial summary judgment against Mikes and JPMorgan—because we have concluded that the trial court properly granted summary judgment in favor of Mikes and JPMorgan.
Conclusion
We affirm the interlocutory order of the trial court.
Michael Massengale
Justice
Panel consists of Chief Justice Radack and Justices Bland and Massengale.
[1] Section 1 of the Act shows the statute before and after the 2007 amendments. Section 4 of the Act provides that the amendments to Section 32.06 apply only to a tax lien transfer occurring after the effective date of the Act. Section 5 of the Act provides the effective date of the amendments as September 1, 2007.
[2] Before the 2007 amendments, foreclosure could be conducted “in the manner specified in Section 51.002, Property Code and Section 32.065 of this code, if the property owner and the transferee enter into a contract that is secured by a lien on the property.” See Act of May 25, 2007, 80th Leg., R.S., ch. 1329, § 1, sec. 32.06(c)(2), 2007 Tex. Gen. Laws 4485 (current version at Tex. Tax Code Ann. § 32.06(c)(2) (West Supp. 2010)).
[3] Under the statute as amended, foreclosure could be conducted “in the manner specified in Section 51.002, Property Code and Section 32.065, after the transferee or a successor in interest obtains a court order for foreclosure under Rule 736, Texas Rules of Civil Procedure, except as provided by Subsection (c-1) of this section, if the property owner and the transferee enter into a contract that is secured by a lien on the property.” Tex. Tax Code Ann. § 32.06(c)(2).
[4] In a footnote, WMC states its belief that the “contract” referenced in Section 32.065 is the “Dampkring Agreement,” by which WMC references the document titled “Consent to Transfer of Tax Lien Pursuant to Texas Property Tax Code Section 32.06 and Contract for Foreclosure of Tax Lien.” In the text of its brief, however, WMC looks to Dampkring’s deed of trust to support the proposition that the contract for foreclosure does not contain the required terms. We do not read the statute as requiring that the terms therein appear in a deed of trust as opposed to another contract between the parties.
[5] An argument could be made that “the contract” referenced in Section 32.065(b)(3) refers to the contract giving rise to the transferee’s priority lien—in this case, the deed of trust, which was properly recorded—and the legislature has now amended that section to refer expressly to the instrument of security. We need not decide that issue here.
[6] Section 51.002 of the Property Code provides for a twenty-one day notice period. Tex. Prop. Code Ann. § 51.002 (West Supp. 2010).
[7] Both of these provisions were changed by the 2007 amendments. See Tex. Tax Code Ann. § 32.06(c-1).
[8] The Property Code defines the “debtor’s last known address” as (1) for a debt secured by the debtor’s residence, the debtor’s residence or (2) for a debt other than a debt secured by the debtor’s residence, the “last known address as shown by the records of the mortgage servicer of the security instrument” unless the debtor provided a written change of address. Tex. Prop. Code Ann. § 51.0001(2). This definition is not readily applicable to a notice provided to a preexisting lien holder under Section 32.06.