Houston First American Savings v. Musick
26 Tex. Sup. Ct. J. 341, 650 S.W.2d 764, 1983 Tex. LEXIS 300 (1983)
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Rule of Law:
A trustee's foreclosure sale is invalid if the trustee fails to strictly comply with the notice requirements set forth in the deed of trust. A subsequent purchaser who is not a bona fide purchaser because they had notice of competing claims cannot claim superior title derived from the invalid sale.
Facts:
- In 1952, Vann Musick acquired an undivided interest in a 618.7-acre tract of land from her brothers, Ted and Levoy Musick.
- On March 14, 1961, Vann Musick and her brothers executed a deed of trust on the property to secure a note. This deed of trust required 21 days' posted notice prior to any foreclosure sale.
- TWI Development Company, a corporation owned by Levoy Musick, acquired the note and deed of trust.
- TWI appointed B.J. Brown as substitute trustee. Evidence indicated Brown was appointed after June 17, 1963.
- On July 2, 1963, less than 21 days after his appointment, Brown conducted a foreclosure sale, conveying the entire tract to TWI.
- In 1963, a notice of lis pendens was filed in the county records, giving public notice of ongoing litigation among the Musick family members concerning the property.
- On December 18, 1964, after a series of transactions, the property was conveyed to Meyer Jacobson and T.S. Kent, who executed a new deed of trust to secure a loan from Houston First American Savings Association (American).
- After Jacobson and Kent defaulted, American purchased the property at a trustee's sale on February 6, 1966.
Procedural Posture:
- Houston First American Savings Association (American) filed a trespass to try title suit against Vann Musick and C.C. Divine in a Texas trial court.
- The case was tried before a jury, which returned a verdict in favor of Musick and Divine.
- American filed a motion for judgment non obstante veredicto (JNOV), asking the judge to disregard the jury's verdict.
- The trial court granted American's JNOV motion and entered judgment in favor of American.
- Vann Musick and C.C. Divine, as appellants, appealed to the Texas Court of Appeals.
- The Court of Appeals reversed the trial court's judgment and remanded with instructions to enter judgment for Musick and Divine consistent with the jury's verdict.
- American, as petitioner, appealed to the Supreme Court of Texas.
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Issue:
Is a substitute trustee's foreclosure sale valid when conducted without the contractually required notice period, thereby conveying good title to a subsequent purchaser who had notice of pre-existing claims on the property?
Opinions:
Majority - Ray, Justice.
No. A trustee's foreclosure sale is invalid if the trustee fails to strictly comply with the notice requirements contained in the deed of trust. A subsequent purchaser with notice of defects or competing claims is not a bona fide purchaser and therefore takes no better title than their grantor. The court reasoned that the power of sale in a deed of trust is a harsh remedy, and the trustee must strictly adhere to the terms prescribed by the grantor, including notice provisions. The evidence showed that the substitute trustee was appointed sometime after June 17, 1963, and sold the property on July 2, 1963, making it impossible for the contractually and statutorily required 21-day notice to have been given. This failure rendered the sale to TWI invalid. The court rejected American's argument that it was a bona fide purchaser, finding that a lis pendens filed in 1963 put American on constructive notice of the Musick family litigation over the property before it acquired its interest in 1964. Because American was not a bona fide purchaser, it could not claim title superior to Vann Musick's, as its title was subject to the same invalidity as TWI's.
Analysis:
This decision reinforces the legal principle of strict compliance in non-judicial foreclosures, emphasizing that any deviation from the notice requirements specified in a deed of trust can void the sale. It also clarifies the procedural effect of a judicial admission, establishing that a party waives the right to rely on an opponent's admission by failing to object to contrary evidence and jury questions on the matter. The ruling underscores the power of a lis pendens to provide constructive notice, thereby preventing subsequent purchasers from achieving bona fide purchaser status and protecting the rights of litigants against intervening claims.
