Biodun Atu v. Kristi A. Slaugher, Trusteee ( 2007 )

Affirmed in Part and Reversed and Rendered in Part and Remanded in Part and Memorandum Opinion filed September 13 2007

Affirmed in Part and  Reversed and Rendered in Part and Remanded in Part and Memorandum Opinion filed September 13 2007.

In The

Fourteenth Court of Appeals

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NO. 14-06-00771-CV

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BIODUN ATU, Appellant

V.

KRISTI SLAUGHTER, TRUSTEE FOR THE TERRACE OWNERS ASSOCIATION, INC., AND SHAHROKH RAZI, Appellees

On Appeal from the County Court at Law Number 2

Harris County, Texas

Trial Court Cause No. 855171

M E M O R A N D U M   O P I N I O N

Appellee, Kristi Slaughter, Trustee for the Terrace Owner=s Association, Inc., (ASlaughter@), filed an interpleader action against appellant, Biodun Atu, and appellee Shahrokh Razi (ARazi@), to determine the ownership of $10,389.64 in excess funds resulting from Slaughter=s foreclosure sale of appellant=s condominium.  For the reasons stated below, we affirm in part, reverse and render in part, and remand for further proceedings consistent herewith.

Factual and Procedural Background 

Appellant was the owner of a condominium in the Terrace Condominiums located in the Alief area of Harris County, Texas.  For reasons not disclosed in the appellate record, appellant fell behind in his payment of assessments to the condominium owners= association.  On November 14, 2005, Slaughter, acting as trustee for the association, posted the condominium for foreclosure sale.  The sale notice stated:

Notice is given that on the Date of Sale and Time of Sale, Trustee will offer the Property for sale at public auction at the Place of Sale to the highest bidder(s) for cash.  The sale, pursuant to this Notice shall be made subject to any and all taxes, any other liens (which may or may not be in default) having priority over the Lien in favor of the Association, subject to all matters of record affecting the above described property, and with no warranty of title whatsoever.

On December 6, 2005, Slaughter held the sale and sold the property to Razi for $12,100.00.  In exchange for the $12,100.00, Razi received a Trustee=s Deed that provides the following:

To have and to hold the above described property, together with all and singular the rights and appurtances thereto in anywise belonging unto said Grantee, its heirs, successors and assigns, forever, in fee simple; with no warranties, express or implied, and subject to any and all liens, encumbrances, restrictions, or reservations, ad valorem taxes, or other matters of record.

From the sale proceeds, Slaughter paid the Terrace Condominium=s owners= association $1,710.36 for past-due assessments, attorneys= fees and related costs, leaving $10,389.64 in excess proceeds (Athe excess proceeds@) from the foreclosure sale.  Slaughter then received competing claims to the excess proceeds from Razi and appellant.  Razi asserted he had an equitable right to the excess proceeds to pay past due ad valorem taxes on the condominium. Appellant contended Slaughter should pay him all of the excess proceeds because Razi purchased the condominium subject to all liens and ad valorem taxes.

Faced with these competing claims, Slaughter filed an interpleader action naming appellant and Razi as defendants and paid the excess funds into the registry of the court.  There were no disputed facts and the trial court resolved the case through the entry of three orders that paid out all of the excess proceeds.  First, the trial court entered an order that paid Slaughter $1,819.50 out of the excess proceeds for her attorneys= fees and costs, and discharged her from the suit.  Next, the trial court granted Razi=s Motion for Release of Excess Proceeds and ordered that $2,236.48 be paid directly to the Harris County Tax AssessorBCollector (AHarris County@), and that $1,421.36 be paid directly to the Alief Independent School District (AAISD@) to pay back taxes, penalties, and interest owed on the condominium.  Finally, the trial court ordered that the remaining balance, a total of $4,912.30 be paid to appellant. This appeal followed the entry of the trial court=s orders.

Discussion

Appellant, arguing the trial court misapplied the law to undisputed facts, challenges the trial court=s payments to Slaughter and on behalf of Razi.^[1] While appellant raises three issues, because the issues ultimately address only two subjects, the payments to Slaughter and on behalf of Razi, we address them in that manner.

A.      Did the Trial Court Err When it Paid Slaughter=s Attorneys= Fees and Costs Out of the Excess Proceeds?

Appellant argues the trial court erred when it paid Slaughter=s attorneys= fees and costs incurred in filing the interpleader action because there were no reasonable grounds to anticipate rival claims to the excess proceeds and also because Slaughter was not a disinterested stakeholder.  We disagree.

1.       Interpleader

Rule 43 of the Texas Rules of Civil Procedure authorizes a person who receives multiple claims to money in its possession to join the claimants in the lawsuit and deposit the disputed sums into the registry of the court.  Tex. R. Civ. P. 43.  The interpleader plaintiff asks only that she be released and discharged from any liability on account of the deposited funds, that she recover her attorneys= fees for bringing the interpleader action, and that she be paid her fees and costs out of the deposited funds.  Hanzel v. Herring, 80 S.W.3d 167, 173 (Tex. App.CFort Worth 2002, no pet.).  An interpleader plaintiff is entitled to interpleader relief if three elements are met: (1) she is either subject to, or has reasonable grounds to anticipate, rival claims to the same fund or property; (2) she has not unreasonably delayed filing her action in interpleader; and (3) she has unconditionally tendered the fund into the registry of the court.  Olmos v. Pecan Grove Municipal Utility District, 857 S.W.2d 734, 741 (Tex. App.CHouston [14th Dist.] 1993, no writ).  We review a trial court=s grant of interpleader relief for abuse of discretion.  Reid v. Uhlhorn, 359 S.W.2d 278, 281 (Tex. Civ. App.CSan Antonio 1962, writ dism=d).  Any reasonable doubt as to a stakeholder=s right to interpleader must be resolved in the stakeholder=s favor.  Bryant v. United Shortline Inc. Assurance Services, N. A., 972 S.W.2d 26, 31 (Tex. 1998).

2.       There Were Reasonable Grounds to Anticipate Rival Claims

Initially, appellant contends the trial court erred in awarding Slaughter her attorneys= fees and costs because there were no reasonable grounds to anticipate rival claims to the excess proceeds.  An innocent stakeholder is entitled to recover its attorneys= fees from the deposited funds if it has a reasonable doubt either of fact or law as to which claimant is entitled to the fund.  Olmos, 857 S.W.2d at 741.  The award of attorneys= fees is also within the sound discretion of the trial court.  Id.

Here, Slaughter was faced with two rival claims to the excess proceeds.  An interpleader action permits an innocent stakeholder facing rival claims, to allow the courts to decide who is entitled to the fund and thus avoid the peril of acting as judge and jury itself.  Union Gas Corp. v. Gisler, 129 S.W.3d 145, 153 (Tex. App.CCorpus Christi 2003, no pet.).  The purpose of the interpleader rule is to protect an innocent stakeholder from the vexation and expense of multiple litigation and the risk of multiple liability.  Dallas Bank & Trust Co. v. Commonwealth Dev. Corp., 686 S.W.2d 226, 230 (Tex. App.CDallas 1984, writ ref=d n.r.e.).  Here, Slaughter was faced with two parties, each citing legal authority, asserting their right to the excess proceeds. We find that the trial court did not abuse its discretion in determining that Slaughter was faced with two reasonable, rival claims to the excess proceeds.

3.       Slaughter Was a Disinterested Stakeholder

Appellant next contends Slaughter was not a disinterested stakeholder because she hired as her attorney in the interpleader action another attorney associated with the same law firm where she is employed. Appellant has pointed to no authority, and we have found none, that prohibits a trustee, such as Slaughter, from hiring an attorney associated with the same law firm as the trustee.  Accordingly, we hold the trial court did not abuse its discretion in finding that Slaughter was a disinterested stakeholder entitled to the recovery of her attorneys= fees and costs.^[2] We overrule appellant=s second and third issues.

B.      Did the Trial Court Abuse Its Discretion When it Ordered a Portion of the Excess Proceeds Paid to the Taxing Authorities on Behalf of Razi?

In his first issue, appellant asserts the trial court abused its discretion when it paid, in response to Razi=s Motion for Release of Excess Proceeds, $2,236.48 directly to Harris County and $1,421.36 directly to AISD to pay back taxes, penalties, and interest owed on the condominium.  Appellant contends the trial court should not have made these payments  because Razi purchased the condominium subject to all liens and taxes on the property.  We agree with appellant.   

1.       Standard of Review

There are no disputed facts in this case.  Because a trial court has no discretion in determining what the law is or in applying the law to the facts, we apply a de novo review.  Ghidoni v. Stone Oak, Inc., 966 S.W.2d 573, 590 (Tex. App.CSan Antonio 1998, pet. denied) (citing Walker v. Packer, 827 S.W.2d 833, 840 (Tex. 1992)).

2.       Because the Taxing Authorities= Liens Were Senior to the Condominium Association=s Lien, the Trial Court Abused Its Discretion When it Paid a Portion of the Excess Proceeds to the Taxing Authorities

In general, the successful bidder at a foreclosure takes title subject to prior liens.  Frappier v. Apex Financial Corp., No. 05-98-01303-CV, 2001 WL 25914, at *2 (Tex. App.CDallas Jan. 11, 2001, no pet.) (not designated for publication) (citing Conversion Props., L.L.C. v. Kessler, 994 S.W.2d 810, 813 (Tex. App.CDallas 1999, pet. denied)).  A foreclosure does not terminate the senior interests in the foreclosed real estate.  Id.  Rather, the purchaser is charged with the primary liability for the payment of prior liens and must service them to avoid loss of the property.  Id.  As a result, a purchaser of the foreclosed real property will generally subtract the amount of any outstanding senior liens from the fair market value of the property when bidding on that property.  Id.  When a foreclosure sale generates surplus proceeds, these funds are distributed to inferior lienholders, and if there are none, to the holder of the equitable right of redemption. Id.  Surplus funds are not applied to satisfy a senior lien because the law presumes that the purchaser is aware of the senior lien and only pays for the property=s worth in excess of the prior debt.  Id.

The tax liens held by Harris County and AISD were senior to the foreclosed lien.  Tex. Tax Code Ann. ' 32.05 (Vernon Supp. 2006).  Therefore, the foreclosure sale did not terminate the interests of the senior lienholders in the condominium.  As the foreclosure purchaser, Razi was charged with the primary liability for the payment of the senior liens and should have taken them into consideration when bidding on the condominium. Therefore, the trial court abused its discretion in ordering the payment of the Harris County and AISD liens out of the excess proceeds.  We sustain appellant=s first issue on appeal.

Conclusion

As we have overruled appellant=s second and third issues, we affirm the trial court=s order paying Slaughter=s attorneys= fees and costs out of the excess proceeds and discharging her from the interpleader action.  In addition, having sustained appellant=s first issue, we reverse the trial court=s order paying the Harris County and AISD tax liens from the excess proceeds, render judgment for payment of the balance of the excess proceeds remaining after the payment of Slaughter=s attorneys= fees and costs to appellant, and remand this matter to the trial court for further proceedings in accordance with this opinion.

/s/      John S. Anderson

Justice

Judgment rendered and Memorandum Opinion filed September 13, 2007.

Panel consists of Justices Anderson, Fowler, and Frost.

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^[1]  Neither appellee filed a brief in this appeal.

^[2]  Appellant also asserts the trial court abused its discretion in awarding Slaughter her attorneys= fees because she created apparent rival claims to the excess proceeds to enable her law firm to collect attorneys= fees.  As we have concluded that the trial court did not abuse its discretion in determining that Slaughter was faced with two rival, reasonable claims to the excess proceeds, this contention by appellant is without merit.