Revised January 11, 2002

UNITED STATES COURT OF APPEALS

FIFTH CIRCUIT

____________

No. 00-50985

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NORWIN H. VOGEL; ELRINE E. VOGEL,

Plaintiffs - Appellants,

versus

ANN VENEMAN, Secretary of the US Department of Agriculture,

Defendant - Appellee.

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No. 01-50058

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NORWIN H. VOGEL; ELRINE E. VOGEL,

Plaintiffs - Counter Defendants - Appellants,

versus

ANN VENEMAN, Secretary of the U S Department of Agriculture,

Defendant - Counter Claimant - Appellee.

Appeals from the United States District Court

for the Western District of Texas

January 9, 2002-2-

Before EMILIO M. GARZA, PARKER, and DENNIS, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

Norwin H. Vog el and Elrine E. Vogel (the “Vogels”) appeal the district court’s grant of

summary judgment in favor of the United States of America, acting by and through Ann Veneman,

on behalf of the Farm Service Agency (FSA), declaring the FSA’s lien on the Vogels’ property to be

valid. The Vogels raise t wo issues on appeal: (1) the district court’s calculation of the total lien

amount violates the common law prohibition on lien spreading; and (2) the district court’s application

of payments made by the Vogels was in error, because the payments should have been first allocated

to the porti on of the loan secured by the homestead, rather than the unsecured portion. We reject

both arguments.

I

This case concerns a parcel of land in Guadalupe County, Texas (the “property”). The Vogels

have resided on this parcel continuously since 1972, operating it as a family-run farm and ranch. The

Vogels purchased th is land in two segments in 1972 and 1973. The first segment, purchased for

$80,000 in 1972, consists of 139.021 acres. The Vogels obtained purchase money financing in the

amount of $55,000 for this parcel from Westside Bank (“Westside”). In return for its note, Westside

received a vendor’s lien and a deed of trust lien on the property

. In 1973, the Vogels purchased the

second segment of the property

, consisting of an adjoining 18.65 acres, for $11,000. Once again, the

Vogels obtained purchase money financing from Westside, this time in th e amount of $7,300.

Westside received a vendor’s lien and a deed of trust lien on the second segment as well.

In late 1973, the Vogels refinanced the Westside no t es with The Federal Land Bank. The

balances due on the two notes were $57,364.20 and $7,781.80, respectively, for a total of $65,146.-3-

The total loan amount of $68,500 included $605 for the payment of taxes due on the property. In

conjunction with the refinancing, Westside transferred and assigned the deeds of trust and vendor’s

liens to The Federal Land Bank.

In 1976 the Vogels obtained a $120,000 loan secured by the property from Travis Savings

& Loan Association of San Antonio (“Travis”), a federally insured savings and loan association. In

order to receive approval for the loan, Travis required the Vogels to furnish an affidavit which stated

that the property was not their homestead. At closing, The Federal Land Bank note was paid, and

the note was endorsed to Travis, carrying forward the lien to secure payment. The Travis deed of

trust also included representations that the property was not a homestead. The Vogels used $67,005

of the proceeds of the Travis loan to pay off The Federal Land Bank not e and $828.01 to pay

property taxes due. The Vogels used the remaining $49,891 for operating expenses.

In January/February 1977, the Vogels formed a wholly-owned corporati on, Vogel Farms, and

conveyed the property to Vogel Farms by warranty deed. The Vogels formed this corporation at the

request of Travis to circumvent the restri ct io ns impo sed by Texas law on mortgaging homestead

property. Vogel Farms expressly assumed all existing debt on the property.

Also in 1977, Vogel Farms obtained a $75,000 loan from Mercantile Bank (“Mercantile”)

secured by the property. The Mercantile note and lien were secondary to the existing Travis liens.

After the loan proceeds were received, the Vogels dissolved Vogel Farms and reconveyed the

property back to themselves as individuals.

In 1978, Vogel Farms obtained an additional operating capital loan from the Small Business

Association (SBA) in the amount of $50,000, secured by a deed of trust on the property

, but subject

to the Travis and Mer cantile notes. As a condition to closing, SBA required the Vogels to revive-4-

Vogel Farms and reconvey the property back to the corporati on. The Vogels subsequently paid this

lo an in full.

In 1979, Vogel Farms refinanced the Travis and Mercantile debt with the Farmers Home

Administration (now known as the Farm Service Agency, or FSA), in conjunction with a loan totaling

$205,000. The loan was secured by a deed of trust lien on the property. From the loan proceeds,

the FSA paid the balances due on both the Travis and M ercantile notes ($125,462 and $62,510

respectively). In addition, the proceeds were used to pay property taxes due in the amount of

$1448.18, and to pay off other unrelated debt owed by the Vogels. The Vogels made payments on

this loan until 1986, after which time they went into default. It is this final lien that the Vogels seek

to invalidate. In 1993, Vogel Farms reconveyed the property back to the Vogels individually, after

f iling a “Designation of Homestead” in the property records of Guadalupe County . The Vogels

contend that any lien on the property is an impermissible encumbrance on their homestead.

The Vogels sought a declaratory judgment in the district court declaring the FSA lien invalid.

The district court granted FSA’s second motio n for summary judgment, finding that FSA was

subrogated to the valid purchase money liens against the property, despite its homestead character,

and that FSA had a valid lien against the property in the amount of $151,921.80 as of April 1, 2000,

together with interest at $17.08 per diem thereafter. V ogel v. Glickman

, 117 F. Supp. 2d 572, 580

(W.D. Tex. 2000). The Vogels now appeal this judgment.

II

We review the district court’s grant of summary judgment as a matter of law de novo. See

Rogers v. Int’l Marine Terminals, Inc.

, 87 F.3d 755, 758 (5th Cir. 1996). Summary judgment is

proper only “if the pleadings, depositions, answers to interrogatories, and admissions on file, together-5-

with the affidavits, if any, show that th ere is no genuine issue as to any material fact and that the

moving party is entitled to judgment as a matter of law.” F E D

. R. C IV

. P. 56(c). In deciding whether

an issue of material fact is presented, we must view the facts and inferences in the light most favorable

to the nonmoving party. Olabisiomostosho v. City of Houston

, 185 F.3d 521, 525 (5th Cir. 1999).

A

The Vogels first contend that the district court erred in calculating the total lien amount

because the aggregation of the original purchase money liens on the two parcels violates the common

law prohibition on lien spreading. The doctrine against lien spreading prohibits an existing lien on

one part of homestead from extending to another part of the homestead. S ee Baxter v. Crow

, 133

S.W.2d 187, 188 (Tex. Civ. App.

- San Antonio 1939, writ dism’d judgm’t cor.); Hayes v. First Trust

Joint Stock Land Bank of Chicago

, 111 S.W.2d 1172 (Tex. Civ. App.

- Fort Worth 1937, writ dism’d

w.o.j .). The Vogels argue that because the property was purchased in two pieces, the district court

should have segregated the total lien amount of $151,912.80 between the two original segments of

the property

.

We find that the Vogels are precluded from raising this argument because they failed to make

it before the district court. Except in cases o f “extraordinary circumstances,” we do not consider

issues raised for the first time on appeal. N

. Alamo Water Supply Corp. v. City of San Juan

, 90 F.3d

910, 916 (5th Cir. 1996). A party must have raised an argument “to such a degree that the trial court

may rule on it.” Fairchild Aircraft Corp. v. Whyte, 6 F.3d 1119, 1128 (5th Cir. 1993).

The doctrine of lien spreading is not mentioned in the Vogels’ briefs to the district court. The

Vogels contend that their argument is subsumed by the homestead exemption, and that by raising the

affirmative defense of homestead, they effectively raised the issue of lien spreading a s well. To1 It should also be noted that Texas courts have permitted liens to be spread across separate

parcels in accordance with the terms of a deed of trus t

, even in the case of purchase money. S ee

Bielss v. Moeller

, 83 S.W.2d 1098 (Tex. Civ. App.

- Austin 1935); Lanham v. West

, 209 S.W.2d 258

(Tex. Civ. App. - Austin 1919). Here, the deeds of trust clearly aggregate the parcels.

-6- support this argument, the Vogels rely on Hayes v. First Trust Joint Stock Land Bank of Chicago

,

where the court held that a lien could not be applied to a porti on of a homestead when the purchase

money lien on that porti on had already been extinguished. H ayes, 111 S.W.2d at 1177. We are not

persuaded by the Vogels’ argument. The facts of H ayes are distinguishable from this case. In H ayes

,

the court never specifically addressed the issue of waiver or of lien spreading, and instead focused

on the fact that a homestead cannot be encumbered once a valid lien is extinguished ( a n argument

concerning the homestead exemption, as o ppo sed to lien spreading). Here, none of the purchase

money on either segment has been paid off, and no unencumbered homestead property is at risk.

The do ct rine against lien spreading is sufficiently distinct from the general homestead

exemption that it must be pleaded separately. In F airchild

, we held that a doctrine cannot be asserted

“by implication.” I

d. at 1128 (rejecting appellant’s attempt to raise the part performance doctrine on

appeal through the citation of relevant cases). There, we rejected an argument on appeal “not even

identified by name, much less advocated,” before the trial court. I d. The two segments of the

Vogels’ property have been combined in the loan documents as one total parcel since 1973, when the

Vogels obtained financing from The Federal Land Bank. Each successive deed of trust refers to the

property’s total aggregated acreage, and makes no attempt to differentiate between the two original

segments. 1 The Vogels have had nearly 20 years to protest the aggregation of the purchase money

liens, and to request that any new liens be separately allocated between the parcels.

Alternatively, the Vogels attempt to rely on an exception to the waiver doctrine. They point to an2 FSA argues that the Vogels waived their claim on this issue by not addressing it in the

district court. We disagree. The district court clearly addressed the issue of application of payments

in its decision; therefore, it has not been waived on appeal. S ee Vogel v. Glickman

, 117 F. Supp.2d.

572, 579 (W.D. Tex. 2000) (“Plaintiffs next argue defendant is not entitled to equitable subrogation

because the Vogels have already paid their debt attributable to purchase money and taxes.”).

-7- exception recognized by the Ninth Circuit to argue that even if they failed to raise lien spreading in

the district court, we should nevertheless entertain the issue on appeal. In United States v. Patrin

,

the court held that it would review claims not pressed before the trial court when the issue is “purely

one of law and either does not affect or rely upon the factual record developed by the parties.” 575

F.2d 708, 712 (9th Cir. 1978). The Vogels argue that the trial record is sufficient to support their

lien-spreading claim without the presentation of new evidence. We reject this argument, as the Fifth

Circuit does not recognize the broad exception of the N int h Circuit . The clear rule of this circuit

limits review of claims raised for the first time on appeal to claims involving purely legal questions

where our failure to consider them would result in a “miscarriage of justice.” N

. Alam o Water

Supply , 90 F.3d at 916. The Vogels have failed to meet this burden.

B

The Vogels also claim that the district court incorrectly applied the loan payments they made

between 1981 and 1986 by allocating them in accordance with the contractual provisions in the deed

of trust. 2 They contend that the deed of trust is invalid, and that equity demands any payments made

first be applied to the porti on of the loan secured by their homestead, rather than the unsecured

porti on.

The Vogels claim that th e co nveyance of the property to Vogel Farms in 1977 was a

“pretended sale,” and that this pretended sale voided the deed of trust executed by Vogel Farms in

favor of FSA. The doctrine of pretended sale pro vides that when a sale of a homestead occurs,-8-

whether by fraudulent representations or transfers, the sale will be treated as void and the homestead

owner will not lose the protecti ons afforded by the Texas Constitution. Rubarts v. First Gibraltar

Bank

, 896 F.2d 107, 115-16 (5th Cir. 1990) (“The people of Texas, through their constitution, have

determined that in circumstances such as those presented here, debtors may enjoy the benefits of the

homestead laws even where they employ devices designed to defeat the purposes of those laws.”).

The Vogels argu e t hat because the deed itself is void, none of its provisions, including those

governing the application of payments, are valid. T E X

. C ONST . art. XVI, § 50(c) (“All pretended

sales of the homestead invo lving any condition of defeasance shall be void.”); see also Firstbank v.

Pope

, 141 B.R. 115 (Bankr. E.D. Tex. 1992) ( vo iding lien on grounds of pretended sale where

homestead owners transferred property to wholly-owned corporati on in or d er to obtain loan);

McGahey v. Ford

, 563 S.W.2d 857 (Tex. Civ. App.

- Fort Worth 1978, writ ref’d n.r.e.) (sam e);

Rubarts

, 896 F.2d 107 (finding pretended sale sufficient to invalidate lien, but saving lienholder’s

interest on grounds of subrogation).

We need not reach the question of pretended sale. Even if the FSA deed of trust is void under

the doctrine of pretended sale, the original purchase money lien remains a valid encumbrance on the

property, and any subsequent lender is subrogated to this valid lien.

Although the Texas Constitution fiercely protects the homestead rights of Texas citizens, it

does permit encumbrances upon homesteads in certain instances. The constitution provides that a

homestead is protected from forced sale except for debts consisting of purchase money, taxes, and

construction costs. T E X

. C ONST

. art. XVI § 50(a) (emphasis added). The Vogels do not dispute that

they executed a valid purchase money lien on the property in 1973 with Westside.

The doctrine of subrogation provides that subsequent lenders will succeed to the ri ghts of-9-

prior lenders and become entitled to “all rights of the prior creditors in relation to the debt.” Means

v. United Fid. Life Ins. Co.

, 550 S.W.2d 302, 308 (Tex. Civ. App.

- El Paso 1977, writ ref’d n.r.e.).

Texas courts have long held:

[o]ne who pays a debt at the instance of the debtor, under such

circumstances that it appears to have been contemplated by the parties

that he should become entitled to the b enefit of the security for the

debt held by the creditor from the debtor, may, as against the debtor,

be subrogated to the benefit of such security, and of the debt which he

has discharged.

Oury v. Saunders

, 77 Tex. 278, 280 (1890). Texas courts have routinely upheld this doctrine, even

in cases where subsequent liens were executed with fr audulent misrepresentations by the

homeowners. S ee Rubarts

, 896 F.2d at 114-15 (upholding lien for the amount of debt ow ing on

homestead because lender was subrogated t o t he rights of the initial purchase money lender, even

when homestead owner had conveyed the property to a corporati on to avoi d the restri cti ons on

encumbering a homestead).

Texas law provides for both contractual and equitable subrogation. Equitable subrogation

is governed by principles of equity and occurs whenever a subsequent lender pays off an existing debt.

Contractual subrogation arises when “a person advances money to take up and extend indebtedness

secured by a vendor’s lien on land under an agreement that such person shall stand in the place of the

original holder of the indebtedness.” G lasscock v. Travelers Ins. Co.

, 113 S.W.2d 1005, 1009 (Tex.

Civ. App. - Austin 1938, writ ref’d) (emphasis added). A valid deed of trust executed by both the

borrower and lender establishes contractual subrogation. B enchmark Bank v. Crowder

, 919 S.W.2d

657, 662 (Tex. 1996) (holding a bank that advances money to pay taxes owing is contractually

subrogated to the government’s tax lien). The chain of financings from Westside to FSA, in which3 The other deeds of trust also included relevant payment application clauses:

(1) The Federal Land Bank deed of trust included this clause: “It is especiall y agreed by the

undersigned, that in the event any porti on of the indebtedness evidenced by the note referred to above

is not or cannot be secured by a valid lien under the terms of this contract deed of trust covering the

premises herein described, the mortagee is hereby directed to apply all payments received first to pay

and discharge in full that portion, if any, of such indebtedness which may be unsecured.”

(2) The Travis deed of trust included this clause: “In the event that any part of the indebtedness

cannot be properly and legally secured by the liens in this Deed of Trust, then it is agreed by Grantors

that the first payments on said indebtedness shall be allocated to the payment and discharge of that

particular part thereof, notwithstanding any prior application of payment, agreement, or rule of law

to the contrary .”

-10- each lender advanced money to extinguish prior amounts owing, and executed a deed of trust on the

pro perty, establish that FSA was both equitably and contractually subrogated to Westside’s valid

purchase money lien on the Vogels’ homestead.

When a party is contractually subrogated to another lender, the terms of the original contract

govern. Texas courts have repeatedly upheld the validity of payment application clauses in lending

documents. S ee Julian v. Fed. Deposit Ins. Corp.

, 163 B.R. 478 (Bankr. N.D. Tex. 1994) (finding

that the parties are free t o contract how the payments are to be applied, and upholding partial

invalidit y clause in deed of trust on homestead); Hughes v. Team Bank

, 172 B.R. 205 (Bankr. N.D.

Tex. 1993) (requiring payment application to unsecured porti on of debt first when deed of trust

contained partial invalidit

y clause); Moore v. Bank of Commerce , 110 B.R. 255 (Bankr. N.D. Tex.

1990) (outlining the application of payments according to an agreement). The Westside deed of trust

contained a payment application clause that provided “in the event that any part of the indebtedness

hereinabove described cannot be lawfully secured by this Deed of Trust lien on said real property

, it

is agreed that the first payments made on said indebtedness shall be applied to the discharge of that

porti on of said indebtedness.” All subsequent deeds of trust contained similar clauses. 3 These partial-11-

invalidit y clauses govern the application of the Vogels’ payments, and therefore the payments made

by the Vogels should first be applied to the unsecured portion of the debt.

We reject the Vogels’ claim that equit y requires that payment be applied first to the

homestead porti on of security. The Vogels incorrectly rely on P aschall v. Pioneer Savings & Loan

to support this argument. 47 S.W. 98 (Tex. Civ. App. 1898). In P aschall , in contrast to this case,

the parties did not contract for a specific allocation of payments. Here, we rely on the settl ed

proposition that “[i]n light of the parties’ contractual agreement, equitable principles do not control.”

Hughes

, 172 B.R. at 213 n.13; see also Am Jur. 2d Payment § 122 (1987) ( a bsent a specific

appropriation of payments by the parties

, the court wil l apply unappropriated payments to a debt

secured by a mortgage on a homestead) (emphasis added)). We hold that the district court correctly

determined the application of payments.

III

We hold that FSA has a valid lien in the amount of $151,921.80 plus $17.08 per diem as of

April 1, 2000, properly limited to the purchase money, property taxes, and accrued interest on the

property

. In accordance with the contractual provisions agreed to by the parties, any payments made

by the Vogels should be applied first to the unsecured porti on of the FSA loan. For the foregoing

reasons, we AFFIRM the decision of the district court.