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Griffin Parc Residential Association, Inc. v. King

Court of Appeals of Texas, Second District, Fort Worth

April 25, 2019

Griffin Parc Residential Association, Inc., Appellant
v.
John C. King, Appellee

          On Appeal from the 158th District Court Denton County, Texas Trial Court No. 17-3380-158

          Before Sudderth, C.J.; Pittman and Bassel, JJ.

          MEMORANDUM OPINION

          BASSEL, JUSTICE

         I. Introduction

         Appellant Griffin Parc Residential Association, Inc. (the HOA) raises one issue challenging a summary judgment obtained by Appellee John C. King (Owner). Owner owns a lot in the Griffin Parc subdivision administered by the HOA. The trial court rendered judgment that the HOA acted in violation of the Bankruptcy Code's automatic stay when it sent Owner notice of the amount of the HOA's annual maintenance assessment. The trial court found that the notice was a part of the collection process for unpaid assessments, that the notice was a necessary act to create an assessment lien against Owner's property, and that the bankruptcy stay in effect when the notice was sent made the notice void because it was a part of the lien-creation process.

         We disagree. Both the lien and the debt that obligated Owner to pay the assessment existed long before the notice was sent. The notice merely quantified the debt that Owner was previously obligated to pay as a result of his ownership of a lot in the subdivision administered by the HOA. Thus, the notice did not create or enforce a lien and did not violate the automatic stay. We reverse the judgment of the trial court and render judgment in favor of the HOA.

         II. Procedural Background

         The HOA filed an "Application for Expedited Foreclosure Proceeding Pursuant to Rule 736 of the Texas Rules of Civil Procedure" in which it sought to foreclose its lien on a lot in the subdivision that the HOA administered. See Tex. Prop. Code Ann. § 209.0092; Tex.R.Civ.P. 736.1. Owner resided on the lot. The lien that the HOA sought to foreclose allegedly was defaulted after Owner failed to pay the HOA's 2016 maintenance assessment.

         Owner responded to the HOA's foreclosure action by filing a suit for declaratory judgment. That suit stayed the foreclosure action because it "put[] in issue . . . [the] enforcement of the . . . lien" that was the basis of the HOA's suit. See Tex. R. Civ. P. 736.11. Owner alleged that he had filed a bankruptcy proceeding under Chapter 7 of the United States Bankruptcy Code before the HOA sent notice of the 2016 annual maintenance assessment. Though Owner conceded that the lien that the HOA sought to foreclose had its origins in the Declaration governing the subdivision filed in 2001, he contended that the notice was "necessary" to enforce the lien that the HOA sought to foreclose. Specifically, Owner alleged that

the 2001 lien, while forming a basis for Griffin Parc's claim of its lien rights, and without which it could not, fifteen years later, claim a right of foreclosure, was merely necessary but not sufficient to enforce an assessment. Other things had to take place, namely: Assessment of the amount due for 2016, notice of the . . . annual assessment, non-payment on or before the due date, the assessment lien which arose on the delinquency date, and later a notice of assessment lien.

         Allegedly, "[these] additional, necessary steps [were required] to make the 2001 lien effective [but] were void ab initio" because the Bankruptcy Code stayed the ability of any creditor to create a lien against property that was part of a bankruptcy estate. See 11 U.S.C.A. § 362(a) (West 2015).

         The parties filed cross-motions for summary judgment. The trial court granted Owner's motion for summary judgment and denied the HOA's. The summary-judgment order included a finding that the HOA had sent notice of the assessment that was the basis for its foreclosure claim during the time that a creditor's actions were stayed by the Bankruptcy Code. For this reason, the judgment decreed that the notice "was ineffective notice, necessary to create an assessment lien which assessment lien was essential to [the HOA's] enforcement action." Owner nonsuited other claims made in his declaratory-judgment action, making the trial court's summary-judgment order a final judgment. The HOA appealed.

         III. Factual Background

         The legal effect of the notice sent by the HOA to Owner and the nature of the HOA's lien are hotly contested, and we will deal with the factual details of the notice and lien during our discussion of the document in which they have their origin. But this appeal also turns on the timing of certain events because they establish the framework of the two underlying questions that we must resolve: (1) when did the HOA's lien and the debt to pay the assessment come into existence, and (2) during what period did the provisions of the Bankruptcy Code impact the HOA's actions.

         The timing of the four pivotal events in this case's chronology is undisputed. First, in 2001, the developer of the subdivision that included the lot at issue filed in the appropriate deed records a "Declaration Of Covenants, Conditions[, ] And Restrictions For Griffin Parc" (the Declaration) that created covenants to establish the rules and regulation of the HOA. Second, Owner purchased his lot in the subdivision in 2004. Third, Owner filed his Chapter 7 bankruptcy proceeding on November 3, 2015. Fourth, sometime in late December 2015 or early January 2016, the HOA sent Owner a notice of the 2016 annual maintenance assessment due the HOA.[1]

         All agree that the notice was sent during the time that the Bankruptcy Code stayed the ability of a creditor to create or enforce a lien. Other acts relating to the assessment lien, such as filing notice of the lien in the relevant deed records and the suit to foreclose the lien, occurred after Owner was discharged from bankruptcy and after the stay no longer was in effect.

         IV. The Standard of Review Governing Cross-Motions for Summary Judgment

         We apply a de novo standard of review to summary judgments. Travelers Ins. Co. v. Joachim, 315 S.W.3d 860, 862 (Tex. 2010). "When competing summary-judgment motions are filed, 'each party bears the burden of establishing that it is entitled to judgment as a matter of law.'" Tarr v. Timberwood Park Owners Ass'n, Inc., 556 S.W.3d 274, 278 (Tex. 2018) (quoting City of Garland v. Dallas Morning News, 22 S.W.3d 351, 356 (Tex. 2000)). "[I]f 'the trial court grants one motion and denies the other, the reviewing court should determine all questions presented' and 'render the judgment that the trial court should have rendered.'" Id. (quoting City of Garland, 22 S.W.3d at 356).

         V. Discussion

         A. How the provisions of the Bankruptcy Code overlay this appeal

         The Bankruptcy Code creates distinctions that frame this appeal. The distinctions begin with the principle that a creditor may have the right to pursue a debtor in bankruptcy personally and that a discharge in bankruptcy may not free the debtor from ongoing personal liability on the debt. But a complication arises if the creditor chooses the wrong time in the process to create a lien to secure the debt. The creditor may find that the Bankruptcy Code voids that attempt even though that creditor could otherwise pursue the debtor to collect the debt.

         Owner relies on these distinctions to argue that no matter whether he might have been personally liable for the 2016 annual maintenance assessment or whether the HOA might have pursued a judgment for the assessment, the HOA's attempt to create or to enforce a lien to secure that debt during the bankruptcy stay was void. His premise is that the notice created the lien because it was a precondition to the enforcement of the lien securing payment of the assessment and that the HOA sent the notice during the automatic bankruptcy stay that made its act void because the Bankruptcy Code stayed that action. This argument creates our starting point to describe the bankruptcy principles and the terms that govern here when we as a state court apply federal bankruptcy law to resolve a state-court foreclosure suit.

         The filing of a bankruptcy petition "operates as a stay" of certain actions, mostly of creditors against debtors who have filed bankruptcy. See 11 U.S.C.A. § 362(a). Whether the stay stops a creditor from taking an action against a debtor often turns on the time that the debt arises. Debts that arise after the filing of a bankruptcy petition, termed post-petition debts, may often be pursued and collected from a bankruptcy debtor. In re Zamora, No. 11-52138C, 2012 WL 4501680, at *1-2 (Bankr.W.D.Tex. Sept. 28, 2012) (mem. op.). The HOA and Owner agree that the annual maintenance assessment in this case was a post-petition debt because it became due after the filing of Owner's bankruptcy petition.[2]

         Though the stay does not prohibit collection efforts for a post-petition debt against the debtor personally, that does not mean the creditor may also take actions impacting property held by the bankruptcy estate. Once a bankruptcy is filed, the debtor and the bankruptcy estate exist in two separate entities. The bankruptcy estate usually consists of property owned by the debtor when he or she files bankruptcy. See 11 U.S.C.A. § 541(a)(1) (West 2016); R. Hassell Builders, Inc. v. Texan Floor Serv., Ltd., 546 S.W.3d 816, 827 (Tex. App.-Houston [1st Dist.] 2018, pet. denied) ("The Bankruptcy Code defines 'property of the estate' broadly to include 'all legal or equitable interests of the debtor in property as of the commencement of the [bankruptcy] case.'" (quoting Houston Pipeline Co. v. Bank of Am., N.A., 213 S.W.3d 418, 424 (Tex. App.-Houston [1st Dist.] 2006, no pet.))).[3] Some property, such as the lot that was Owner's homestead, can pass out of the bankruptcy estate while the bankruptcy case is pending.[4]

         The automatic stay prevents a creditor from taking certain actions against the property of the estate, even though the creditor is pursuing a post-petition debt. See Zamora, 2012 WL 4501680, at *2 ("However, 'the right to undertake collection activity, including filing a lawsuit, to collect a post-petition debt does not allow all collection activities.'" (quoting Montclair Prop. Owners Ass'n v. Reynard (In re Reynard), 250 B.R. 241, 245 (Bankr. E.D. Va. 2000))). The aspect of the automatic stay at issue in this case prevents "any act to create, perfect, or enforce any lien against property of the estate." See 11 U.S.C.A. § 362(a)(4). In other words, the stay may not impede a creditor from pursuing a debtor personally on a post-petition debt, but it may prevent the creditor from creating, perfecting, or enforcing a lien on property of the bankruptcy estate to secure that debt.[5] And if the attempt to create or enforce the lien occurs while the stay is in effect, that act has no effect; the Texas Supreme Court is clear that acts in violation of the stay are not merely voidable but void. See York v. State, 373 S.W.3d 32, 38 (Tex. 2012); Cont'l Casing Corp. v. Samedan Oil Corp., 751 S.W.2d 499, 501 (Tex. 1988).

         Further, not every debt is discharged in bankruptcy. One debt excepted from discharge in a Chapter 7 proceeding (such as Owner filed) is

for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor's interest in . . . a lot in a homeowners['] association, for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in . . . such lot . . . .

11 U.S.C.A. § 523(a)(16) (West 2016). Thus, Owner's discharge-the relief that bankruptcy gives for liability on the debt-did not include the debt for the post-petition assessment that began this controversy.

         The status of the debt and the fact that Owner did not receive a discharge from it has no impact on the question we face. Our question focuses on whether sending the notice of the assessment during the period the stay was in place "created" or "enforced" the lien that the HOA sought to foreclose. See id. § 362(a)(4). In its most general terms, the question is whether sending notice of the assessment created the lien because it was some type of precondition to the HOA's ability to claim a lien against the lot and whether the attempt to perform that precondition during the period of the stay effectively rendered the attempt void. This question is not impacted because Owner was not discharged for the underlying debt. As we have described, the bankruptcy scheme creates situations where even if the debt survives the process, a lien created during the period of time the stay is in place is void.

         As another point of clarification, the issue before us deals only with whether a lien secured the 2016 assessment. We do not deal with whether the owner of a lot would be liable for the assessments occurring after the discharge and whether the lot would stand as security for that debt.[6]

         B. A determination of the effect of the bankruptcy stay requires an examination of when the HOA's assessment lien came into existence.

         The outlined bankruptcy principles that mark a temporal boundary during which a lien cannot be created or enforced cause a quandary when applied to the lien at issue in this appeal-the lien the HOA sought to foreclose because Owner failed to pay the 2016 annual maintenance assessment. We must decide whether that lien was created when the Declaration governing the HOA was filed, more than fifteen years before the bankruptcy stay went into effect, or whether the lien is not fully created and enforceable until the HOA's notice was sent during the period the stay was in place. In other words, does the lien circle over the lot like the development's Griffin namesake, waiting to pounce if the assessment is not paid, or does it rise like a phoenix each year if a lot owner does not pay the annual maintenance assessment?[7]

         It is not clear from Owner's argument whether he is arguing that the acts of the HOA created or enforced a lien in violation of section 362(a)(4). We interpret his argument and the recitations in the trial court's judgment to mean that the notice created the debt to pay the assessment and that without that debt, the lien did not exist.

If there were no notice of assessment, there would be no due date, no delinquency date, no continuing debt, no lien, no notice of lien, and no foreclosure. [The HOA] would have us engage in a form of time travel, that in July of 2001 [Owner's] unpaid assessment, from fifteen years later, had already created an [enforceable] lien. It might have been a lien, but it lacked a piece to its effectiveness: the unpaid amount on the delinquency date. Notice and ...

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