Opinion
04-21-00206-CV
06-15-2022
CR+ ENTERPRISES, INC. and Barco Realty, L.P., Appellants v. DEUTSCHE BANK NATIONAL TRUST COMPANY, as Trustee for Morgan Stanley ABS Capital I Inc. Trust 2006-NC4, Mortgage Pass-Through Certificates, Series 2006-NC4, Appellee
From the 407th Judicial District Court, Bexar County, Texas Trial Court No. 2017CI19332 Honorable Peter A. Sakai, Judge Presiding
Sitting: Patricia O. Alvarez, Justice, Liza A. Rodriguez, Justice, Lori I. Valenzuela, Justice
MEMORANDUM OPINION
Lori I. Valenzuela, Justice
In a prior proceeding, appellants' predecessor-in-interest obtained a default judgment extinguishing appellee's interest in real property. In the proceeding below, the trial court granted appellee's bill of review asserting the default judgment was void due to defective service of process. In this appeal, appellants assert the trial court erred in granting appellee's bill of review and denying appellants' motions for summary judgment. We affirm.
Background
This title dispute concerns residential real property located in San Antonio, Texas. In 2008, appellee Deutsche Bank National Trust Company, as Trustee for Morgan Stanley ABS Capital I Inc. Trust 2006-NC4, Mortgage Pass-Through Certificates, Series 2006-NC4 ("Deutsche Bank") acquired a senior lien on the purchase of a home. In November 2015, after the homeowner apparently failed to pay homeowners' association assessments, the homeowners' association foreclosed on its junior lien. At the foreclosure sale, Kingman Holdings ("Kingman") acquired the property subject to "each and every superior lien."
On January 7, 2016, Kingman sued Deutsche Bank seeking a declaration that the senior lien was "void and extinguished" based on Deutsche Bank's alleged failure to assert an interest in the property. Kingman alleged (1) Deutsche Bank is a foreign company with principal offices in California that was sued in its capacity as trustee; and (2) since Deutsche Bank is not registered in Texas and its principal offices are not located in Texas, service is proper upon the Secretary of State, who should forward process to an address provided by Kingman. Notably, the address provided by Kingman was an outdated address Deutsche Bank vacated nearly five years earlier. Yet, as a nationally chartered banking association, public records accessible from the Office of the Comptroller of Currency and the Federal Financial Institutions Examination Council provided Deutsche Bank's then-current address. Deutsche Bank never actually received service of the citation and petition in the original lawsuit. The Texas Secretary of State certified non-receipt by Deutsche Bank.
Thereafter, Kingman obtained a default judgment against Deutsche Bank declaring Deutsche Bank's senior lien "void as extinguished." The Bexar County District Clerk's office mailed written notice of the default judgment to the outdated address provided by Kingman, and it was returned marked "Return to Sender" and "Insufficient Address."
In November 2016, appellant CR+ Enterprises, Inc. purchased the property from Kingman using a purchase money loan made by appellant Barco Realty, L.P. On June 6, 2017, Deutsche Bank foreclosed under the terms of the senior lien and purchased the property at the foreclosure sale. That month, CR+ Enterprises, Inc. filed a lawsuit against Deutsche Bank seeking judgment for title and possession of the property premised on the default judgment. In response, Deutsche Bank filed a bill of review in a separate proceeding seeking to invalidate the default judgment on the basis of failure of service of process. The trial court consolidated the two proceedings.
Deutsche Bank moved for summary judgment on its bill of review, and the trial court granted Deutsche Bank's summary judgment and set aside the default judgment. After setting aside the default judgment, Deutsche Bank subsequently moved for summary judgment as to all of appellants' claims, asserting: (1) Deutsche Bank derived title from the foreclosure of its senior lien, divesting appellants of their interests in the property; and (2) appellants derived their title from a void default judgment that had been set aside. Appellants filed cross-motions asserting their interests in the property. The trial court granted Deutsche Bank a take-nothing summary judgment as to all claims asserted by appellants and denied appellants' cross-motions. This appeal followed.
Standard of Review
We review a grant of summary judgment de novo. Nall v. Plunkett, 404 S.W.3d 552, 555 (Tex. 2013). In a traditional motion, the party moving for summary judgment has the burden to prove there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Tex.R.Civ.P. 166a(c); Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548 (Tex. 1985). When both sides move for summary judgment and the trial court grants one motion and denies the other, as here, we review both sides' summary judgment evidence, determine all questions presented, and render the judgment that the trial court should have rendered. FM Properties Operating Co. v. City of Austin, 22 S.W.3d 868, 872 (Tex. 2000).
Analysis
In two issues, appellants assert the trial court erred in (1) setting aside the default judgment for failure of service of process; and (2) rejecting appellants' bona fide purchaser defenses.
Service of Process
In their first issue, appellants assert that Deutsche Bank was served as a matter of law when the Texas Secretary of State received process under section 5.251 of the Texas Business Organizations Code or, alternatively, under section 505.004 of the Texas Estates Code. Deutsche Bank contends process was not properly served under either provision.
Only briefly mentioned by the parties, section 17.028 of the Texas Civil Practice and Remedies Code sets forth particular requirements for service of process on "financial institutions." At the time of briefing, the intermediate courts of appeals were divided on whether section 17.028 is the exclusive method to serve a financial institution. After the close of briefing in this case, the Supreme Court of Texas issued an opinion in U.S. Bank Nat'l Ass'n as Tr. for Residential Asset Mortgage Products, Inc., Mortgage Asset-Backed Pass-Through Certificates Series 2005-EFC2 v. Moss, No. 20-0517, ___ S.W.3d ___, 2022 WL 587607, at *1 (Tex. Feb. 25, 2022). In Moss, the Court resolved the intermediate courts' disagreement in holding (1) section 17.028 is the exclusive method of service a financial institution; and (2) service on the Secretary of State is not service on a financial institution's "registered agent." Id. at *3-6. Consequently, Moss is dispositive of appellants' first issue.
Section 17.028(b) provides that "citation may be served on a financial institution by: (1) serving the registered agent of the financial institution; or (2) if the financial institution does not have a registered agent, serving the president or a branch manager at any [Texas] office." Id. § 17.028(b). Construing the entire statutory scheme, the Court held plaintiffs must comply with service requirements under section 17.028 when serving financial institutions. See Moss, 2022 WL 587607, at *3 ("[T]he Legislature intended for section 17.028 to provide the exclusive methods of service on financial institutions. We therefore hold . . . that compliance with section 17.028 is mandatory when the defendant is a financial institution.").
As a nationally chartered bank, Deutsche Bank is a financial institution for purposes of section 17.028. See Tex. Civ. Prac. & Rem. Code § 17.028(a); Tex. Fin. Code § 201.101(1). It is uncontested that Deutsche Bank did not appoint a registered agent in Texas. And for purposes of service under section 17.028, the Texas Secretary of State is not Deutsche Bank's registered agent. See Moss, 2022 WL 587607, at *5 ("[A]lthough the Secretary of State is a valid agent for service of process in some contexts, it does not occupy the role of a foreign corporation's 'registered agent' as defined in the Business Organizations Code. In a case against a foreign financial institution, therefore, service on the Secretary pursuant to Chapter 505 of the Estates Code does not constitute service on the institution's registered agent as required by section 17.028.").
Applying Moss, the question before us is whether Kingman served the president or a branch manager at any office located in Texas. Tex. Civ. Prac. & Rem. Code § 17.028(b)(2). In its motion for summary judgment, Deutsche Bank conclusively demonstrated this was not done. Therefore, Kingman's attempted service on Deutsche Bank through the Secretary of State was defective as a matter of law. Accordingly, Deutsche Bank was entitled to have the default judgment set aside. Tex. Civ. Prac. & Rem. Code § 17.028(d) ("If citation has not been properly served as provided by this section, a financial institution may maintain an action to set aside the default judgment . . . entered against the financial institution."). We overrule appellants' first issue.
Bona Fide Purchaser Defense
In their second issue, appellants assert that, even if service was defective, they were entitled to summary judgment on their bona fide purchaser defense. Deutsche Bank responds that appellants cannot be bona fide purchasers under a void default judgment. The primary contention between the parties turns on whether the default judgment was void or merely voidable.
Bona fide purchaser status is lost when an underlying judgment in the chain of title is void. See Wall v. Lubbock, 118 S.W. 886, 888 (Tex. Civ. App.-Austin 1908, writ ref'd) ("One holding under a void title cannot claim protection as an innocent purchaser."); Tex. Dep't of Transp. v. A.P.I. Pipe & Supply, LLC, 397 S.W.3d 162, 168 (Tex. 2013) (approving same). Mere technical defects in service render default judgments voidable; however, a complete failure or lack of service violates due process and results in a void judgment. PNS Stores, Inc. v. Rivera, 379 S.W.3d 267, 274 (Tex. 2012). This case clearly falls within the latter category. The record conclusively demonstrates that Deutsche Bank was never served with process by the sole method prescribed by the Legislature. See Moss, 2022 WL 587607, at *3. We overrule appellants' second issue.
Conclusion
Kingman wholly failed to serve Deutsche Bank, rendering the default judgment void, and appellants cannot claim bona fide purchaser protections under the void default judgment. Having overruled appellants' issues, the judgment of the trial court is affirmed.