Henke v. First Southern Properties, Inc.

Rule of Law:

The doctrine of a good faith purchaser for value without notice does not apply to a purchase at a void foreclosure sale. A purchaser at such a sale acquires only the title the trustee had authority to convey, and if the trustee lacked the power to sell because the underlying debt was not in default, the sale is void and the purchaser acquires no title.

Facts:

• Charles L. Henke purchased a property in 1971, assuming a first lien note held by Gibraltar Savings Association.
• The property served as the Henke family's homestead.
• In September 1974, Henke was in arrears on the note, and Gibraltar posted the property for a foreclosure sale to occur on October 1, 1974.
• Gibraltar agreed with Henke that if he paid $2,156 (covering past due amounts and fees) before the sale, the loan would be reinstated and the foreclosure stopped.
• Henke paid the required $2,156 to Gibraltar by the deadline on September 30, 1974, and was advised the loan was reinstated.
• Despite the reinstatement, Gibraltar assigned the note to Continental Bank, which then assigned it to Harold E. Bro.
• On October 1, 1974, Bro proceeded with the foreclosure sale, where the property was sold to First Southern Properties, Inc. for $76,000.
• First Southern Properties was unaware of the reinstatement agreement between Henke and Gibraltar at the time of its purchase.

Procedural Posture:

• Charles L. Henke and his wife sued First Southern Properties and others in a Texas trial court to recover title and possession of their property.
• First Southern counterclaimed for title and possession, arguing it was a bona fide purchaser for value.
• After the plaintiffs dropped their damages claims, the trial proceeded between the Henkes and First Southern.
• A jury found that Gibraltar had agreed to reinstate the loan but also that First Southern was a good faith purchaser without notice of that agreement.
• The trial court disregarded the jury's finding regarding First Southern's status as a good faith purchaser.
• The trial court rendered judgment awarding title and possession to the Henkes but also ruled that First Southern was entitled to be subrogated to the rights of the original lienholder on the reinstated note.
• Both the Henkes (plaintiffs-appellants) and First Southern Properties (defendant-appellant) appealed the trial court's judgment to the Court of Appeals of Texas.