Authored by: Andrew Thomison of Baker Botts
Notice to other lienholders required when exercising foreclosure rights.
In Deutsche Bank Nat’l Trust Co. v. Saihat Corp., No. 21-20002, 2021 WL 5830821, 2021 U.S. App. LEXIS 36131 (5th Cir. December 8, 2021) (unpublished opinion), the court held that a bank’s lien on a residence survived an HOA foreclosure action because the HOA failed to properly give notice to the bank and join the bank to the action. Deutsche Bank (the “Bank”) had a mortgage on a property within a homeowners’ association (the “HOA”). The HOA had the right to enforce payment of property fees through foreclosure, but its governing documents specified that any such lien would be secondary and subordinate to all other liens on the property. The property owners defaulted on their HOA fees, and the HOA proceeded with foreclosure proceedings, at which a bona fide purchaser (the “Purchaser”) purchased the property. The Bank sued the Purchaser and the HOA, arguing that its lien had survived the foreclosure sale and as such, it was entitled to foreclose on the property. The district court agreed, holding that, regardless of whether the Bank’s lien was senior or junior to the HOA’s lien, the Bank’s lien survived the foreclosure action. If the Bank’s lien was junior to the HOA’s, per Texas law and the operative documents of the HOA, the Bank should have been notified prior to the foreclosure proceeding and joined to the foreclosure action. Due to the failure of the HOA to provide notice or join the Bank, the Bank’s lien survived the foreclosure. Alternatively, if the Bank’s lien was senior to the HOA’s, the lien survived simply because of its senior status. The HOA settled with the Bank, but the Purchaser appealed. On appeal, the Fifth Circuit Court of Appeals affirmed the district court’s holding and concluded, without addressing the issue of seniority, that the Bank held a superior interest in the property over the interest of the Purchaser because the Bank had never received notice of the foreclosure proceeding.