New Millennium Homes, Inc., Michael C. Owen and Tiffany Owen v. Texas Community Bank, N.A.

In The
Court of Appeals
Ninth District of Texas at Beaumont
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NO. 09-12-00073-CV
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NEW MILLENNIUM HOMES, INC., MICHAEL C. OWEN
AND TIFFANY OWEN, Appellants
V.
TEXAS COMMUNITY BANK, N.A., Appellee
_________________________________________________________________ _
On Appeal from the 9th District Court
Montgomery County, Texas
Trial Cause No. 10-03-03048 CV
_________________________________________________________________ _
MEMORANDUM OPINION
Debtor, New Millennium Homes, Inc., and Guarantors, Michael C. Owen
and Tiffany Owen, appeal a summary judgment granted to Lender, Texas
Community Bank, N.A., based on a deficiency balance that remained on Debtor’s
note following the sale of the collateral securing the note. Debtor and Guarantors
appeal, raising three issues: (1) the trial court failed to make a judicial
determination of the deficiency and then denied their statutory right to an offset,
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(2) the trial court failed to give appellants credits against the deficiency judgment
for other alleged collateral as well as unfunded loan amounts, and (3) the trial court
failed to consider the appellants’ claim for additional credits, which they first
raised by amended answer filed after the summary judgment hearing occurred.
We conclude that Debtor and Guarantors, through the loan documents
governing Debtor’s note, waived their right to a judicial determination and
statutory offset based on the fair market value of the properties on which Lender
foreclosed; therefore, the trial court properly used the foreclosure sales price in
calculating the deficiency. We further conclude the trial court did not err in
refusing to consider Debtor’s and Guarantors’ additional offset claims. Debtor’s
and Guarantors’ additional offset claims were not before the court on the date of
the summary judgment hearing, and Debtor and Guarantors failed to obtain the
trial court’s permission to file their amended answer.
In 2009, Lender loaned Debtor $797,486.56. Debtor’s president, Tiffany
Owen, signed a promissory note and a deed of trust to secure the 2009 loan. 1 Each
of the Guarantors, in a separate agreement, guaranteed Debtor’s payment of the
2009 note. In 2010, after Debtor and Guarantors defaulted on their respective
1
In 2008, Debtor obtained another loan, secured by another deed of trust,
granting Lender a continuing security interest in a separate tract also sold at
foreclosure.
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contracts, Lender foreclosed on the properties securing the 2009 loan. Lender, the
sole bidder at the foreclosure sale, purchased the properties for $465,010.00. The
trial court used the foreclosure sales price in calculating the net amount that Debtor
and Guarantors owed Lender.
“We review a summary judgment de novo.” Mann Frankfort Stein & Lipp
Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). The party filing a
traditional motion for summary judgment has the burden to show that no genuine
issue of material fact exists and that it, as the party moving for summary judgment,
is entitled to judgment as a matter of law. Tex. R. Civ. P. 166a(c); Mann Frankfort,
289 S.W.3d at 848. When a plaintiff moves for a traditional summary judgment,
the plaintiff has the burden to conclusively prove all elements of its claims as a
matter of law. See MMP, Ltd. v. Jones, 710 S.W.2d 59, 60 (Tex. 1986). In
resolving whether the movant met its burden to establish that it was entitled to
have the trial court grant its traditional motion for summary judgment, we resolve
every reasonable inference in favor of the non-movant and take all evidence
favorable to the non-movant as true. See Nixon v. Mr. Prop. Mgmt. Co., Inc., 690
S.W.2d 546, 548-49 (Tex. 1985).
In their first issue, Debtor and Guarantors argue the trial court failed to
determine the fair market value of the properties sold at foreclosure and then failed
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to calculate the deficiency using the fair market value of the properties sold. See
Tex. Prop. Code Ann. § 51.003(b), (c) (West 2007).2 Lender contends that the loan
documents governing the 2009 note contain provisions that waive the right that
Debtor and Guarantors claim they had to a statutory fair market value
determination and offset of their deficiency.
When construing a written contract, a court is to determine and give effect to
the intent of the parties as expressed in the instrument. See Coker v. Coker, 650
S.W.2d 391, 393 (Tex. 1983). Terms in a written contract are given “their plain,
ordinary, and generally accepted meaning unless the instrument shows that the
parties used them in a technical or different sense.” Heritage Res., Inc. v.
NationsBank, 939 S.W.2d 118, 121 (Tex. 1996). “‘If the written instrument is so
worded that it can be given a certain or definite legal meaning or interpretation,
then it is not ambiguous and the court will construe the contract as a matter of
2
With respect to a foreclosure involving real property, section 51.003 of the
Texas Property Code allows a lender to seek a deficiency judgment calculated by
using the foreclosure sales price. See Tex. Prop. Code Ann. § 51.003 (West 2007).
In proceedings governed by section 51.003, the borrower may request the trial
court to determine the fair market value of the real property as of the date of
foreclosure. Id. § 51.003(b). If the fair market value exceeds the sales price at the
foreclosure sale, the borrower is entitled to an offset of the excess of the fair
market value against the deficiency. Id.§ 51.003(c). If no competent evidence of
fair market value is introduced, or if no request to determine the fair market value
is made, the sales price at the foreclosure sale shall be used to compute the
deficiency. Id.
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law.’” Enter. Leasing Co. of Houston v. Barrios, 156 S.W.3d 547, 549 (Tex. 2004)
(quoting Coker, 650 S.W.2d at 393).
The February 2009 Deed of Trust 3 includes the following provision:
7.8 WAIVER OF DEFICIENCY STATUTE.
(a) In the event an interest in any of the mortgaged property is
foreclosed upon pursuant to a judicial or nonjudicial foreclosure sale,
grantor agrees as follows, notwithstanding the provisions of sections
51.003, 51.004, and 51.005 of the Texas Property Code (as the same
may be amended from time to time), and to the extent permitted by
law, grantor agrees that beneficiary shall be entitled to seek a
deficiency judgment from grantor and any other party obligated on the
note equal to the difference between the amount owing on the note
and the amount for which the mortgaged property was sold pursuant
to judicial or nonjudicial foreclosure sale. Grantor expressly
recognizes that this section constitutes a waiver of the above-cited
provisions of the Texas Property Code which would otherwise permit
grantor and other persons against whom recovery of deficiencies is
sought or guarantor independently (even absent the initiation of
deficiency proceedings against them) to present competent evidence
of the fair market value of the mortgaged property as of the date of the
foreclosure sale and offset against any deficiency the amount by
which the foreclosure sale price is determined to be less than such fair
market value. Grantor further recognizes and agrees that this waiver
creates an irrebuttable presumption that the foreclosure sale price is
equal to the fair market value of the mortgaged property for purposes
of calculating deficiencies owed by grantor, guarantor, and others
against whom recovery of a deficiency is sought.
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Section 37(a) of the April 2008 Deed of Trust and sections 32 of the
Guaranty Agreements also include similar provisions waiving the application of
section 51.003 as well as other specific provisions of the Texas Property Code.
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The Guaranty Agreements at issue also contain provisions stating that Guarantors
waived, “any and all rights under Sections 51.003, 51.004 and 51.005 of the Texas
Property Code and any amendments, recodifications, supplements, or any
successor statute or law of or to any such statute or law.”
In several appeals challenging deficiency judgments, our sister courts have
enforced provisions contained in loan documents as a waiver of the debtor’s right
to a judicial determination of a property’s fair market value, a right granted by the
Property Code. See Interstate 35/Chisam Rd., L.P. v. Moayedi, 377 S.W.3d 791,
795-802 (Tex. App.—Dallas 2012, pet. filed); Tran v. Compass Bank, No. 02-11-
00189-CV, 2012 Tex. App. LEXIS 323, **2-7 (Tex. App.—Fort Worth Jan. 12,
2012, no pet.) (mem. op.); Kelly v. First State Bank Cent. Tex., No. 03-10-00460-
CV, 2011 Tex. App. LEXIS 10241, **21-27, *32 (Tex. App.—Austin Dec. 30,
2011, pet. granted, judgm’t vacated w.r.m.); Segal v. Emmes Capital, L.L.C., 155
S.W.3d 267, 277-81 (Tex. App.—Houston [1st Dist.] 2004, pet. dism’d).
Although the Debtor’s and Guarantors’ response to Lender’s motion for
summary judgment asserts a right to a judicial determination of the fair market
value in assessing their deficiency, they do not address the provisions of their
respective contracts waiving those rights. Also, Debtor’s and Guarantors’ brief
fails to address why the waiver provisions should not be enforced.
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Although Debtor and Guarantors argue the deficiency judgment failed to
account for the fair market value of the properties sold at foreclosure, if the sale
was legally and fairly made, a claim that the consideration received was inadequate
is generally not sufficient to justify a decision to set aside a trustee’s sale. See Am.
Sav. & Loan Ass’n v. Musick, 531 S.W.2d 581, 587 (Tex. 1975). Neither Debtor
nor Guarantors question Lender’s power or right to foreclose, nor do they suggest
any irregularity in the foreclosure proceedings. Additionally, if the sale is
conducted fairly and in accord with the deed of trust, a mortgagee may purchase
the property at the sale. See Donaldson v. Mansel, 615 S.W.2d 799, 802 (Tex. Civ.
App.—Houston [1st Dist.] 1980, writ ref’d n.r.e.); Skeen v. Glenn Justice Mortg.
Co., Inc., 526 S.W.2d 252, 256 (Tex. Civ. App.—Dallas 1975, no writ). The deeds
of trust at issue allowed Lender to purchase the properties at issue.
Because Debtor and Guarantors waived their statutory right to a judicial
determination of the fair market value of the properties sold at foreclosure, the
deficiency “is calculated by subtracting the foreclosure sale price, not the fair
market value, from the amount owed under the note.” See Provident Nat’l
Assurance Co. v. Stephens, 910 S.W.2d 926, 929 (Tex. 1995). Debtor and
Guarantors waived their statutory appraisal rights; thus, they were not entitled to a
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judicial determination of the fair market value of the properties sold at foreclosure.
We overrule issue one.
In their second issue, Debtor and Guarantors contend that material issues of
fact exist regarding whether they were entitled to credits against the deficiency
judgment for other collateral allegedly pledged in the notes as well as unfunded
loan amounts for which the judgment did not give them credit. An allegation about
a right to these offsets was first raised in an amended answer filed three days after
the summary judgment hearing, held on December 30, 2011. In issue three, Debtor
and Guarantors argue that the trial court should have considered their additional
claims to offsets because Lender failed to claim surprise when the amended answer
was filed. We conclude the trial court was not required to consider these new
matters because they were not properly raised by a timely filed amended pleading.
A party may amend its pleadings without leave of court up to seven days
before a summary judgment hearing. Tex. R. Civ. P. 63; Goswami v. Metro. Sav.
and Loan Ass’n, 751 S.W.2d 487, 490 (Tex. 1988) (holding that a “summary
judgment proceeding is a trial within the meaning of Rule 63”); see also Sosa v.
Cent. Power & Light, 909 S.W.2d 893, 895 (Tex. 1995) (applying Rule 63 to
amendment filed before summary judgment hearing). For pleadings filed within
the seven-day period, leave of court may be presumed if the summary judgment
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order “states that all pleadings were considered, and when . . . the record does not
indicate that an amended pleading was not considered, and the opposing party does
not show surprise.” Cont’l Airlines, Inc. v. Kiefer, 920 S.W.2d 274, 276 (Tex.
1996). No presumption applies, however, when a party files an amended pleading
after the summary judgment hearing occurred, but before the judgment is signed,
unless the record affirmatively shows that the trial court granted leave. Tex. R. Civ.
P. 166a(c) (instructing that pleadings will be considered if filed after summary
judgment hearing but before judgment “with permission of the court”); 9029
Gateway S. Joint Venture v. Eller Media Co., 159 S.W.3d 183, 187 (Tex. App.—El
Paso 2004, no pet.) (“In this circumstance, we assume leave has been denied unless
the record affirmatively reflects that the court granted leave.”); see also DMC
Valley Ranch, L.L.C. v. HPSC, Inc., 315 S.W.3d 898, 902-03 (Tex. App.—Dallas
2010, no pet.); Mensa-Wilmot v. Smith Int’l, Inc., 312 S.W.3d 771, 778-79 (Tex.
App.—Houston [1st Dist.] 2009, no pet.). “Failure to obtain leave waives the
newly pleaded issues.” DMC Valley Ranch, 315 S.W.3d at 903; see also Mensa-
Wilmot, 312 S.W.3d at 778-79.
The record reflects that the summary judgment hearing occurred before
Debtor and Guarantors filed their amended answer. The record does not contain an
order giving Debtor and Guarantors permission to amend their answer, nor does
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the record reflect that Debtor and Guarantors asked the trial court for permission to
amend their answer after the summary judgment hearing. Because the record
shows that Debtor and Guarantors failed to obtain the trial court’s permission to
raise new defenses and reflects that the amended answer was filed after the date of
the summary judgment hearing, the additional defenses the amended answer
attempts to raise were waived. See Mensa-Wilmot, 312 S.W.3d at 778-79.
We conclude the trial court was not required to consider the additional
defenses that are raised in Debtor’s and Guarantors’ untimely amended answer.
Issues two and three are overruled. We affirm the trial court’s judgment.
AFFIRMED.
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HOLLIS HORTON
Justice
Submitted on November 6, 2012
Opinion Delivered February 21, 2013
Before Gaultney, Kreger, and Horton, JJ.
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