Court Opinion

ID: 9775054
Source: CourtListenerOpinion
Date Created: 2023-08-29 18:42:17.946916+00
Date Added: 2024-06-11T07:32:19.544727
License: Public Domain

MIRABAL, Justice,
concurring.
I concur.
In a wraparound note transaction, the debtor signs a note that includes, or “wraps around,” the principal balance of an underlying indebtedness. In most cases, the debtor expressly does not assume responsibility for the underlying indebtedness. In the present case, however, Beach, the wraparound note debtor, is responsible for the underlying indebtedness, the Chapman note that was “wrapped” around.
The Chapman note was secured by a lien on 90 acres. When Beach, along with two other men (the “Beach group”), subsequently borrowed money from American, and American wanted a lien on the same 90 acres, the Beach group did not simply sign a note to American for the amount they borrowed from American, secured by a second lien deed of trust on the 90 acres; rather, the Beach group signed a note in the combined principal amount of the sum borrowed from American plus the principal balance of the Chapman note. Beach signed a deed of trust granting American a lien on the 90 acres to secure the combined principal amount represented by the wraparound note.
When American foreclosed on its deed of trust, it was the highest bidder with its bid of $200,000, and American received title to the 90 acres through a substitute trustee’s deed. American took title “subject to” the Chapman first lien; American has not assumed” the Chapman note.
Beach urges us to apply the “true debt” approach in determining whether a deficiency existed after American’s foreclosure. Beach is concerned that American has not paid Chapman any of the foreclosure sale proceeds. Beach believes American does not intend to pay Chapman the first lien note balance, even though American now owns the land and intends to collect the deficiency, in cash from the Beach group, based on the “outstanding balance” approach. Beach fears, under the “outstanding balance” formula, he will pay American a deficiency based on the “combined” amount owed under the wraparound note (which includes the Chapman balance), yet Beach remains directly liable to the Chapmans, separately, for the balance due on their note. Beach is concerned he will have to pay twice for the same debt.
I agree with the majority that, even though this case does not present the typical wraparound mortgage arrangement, the “outstanding balance” method of calculating the amount of the deficiency after foreclosure is the proper method to apply. I reach this conclusion because the law implies a covenant into the parties’ agreement requiring the trustee under the deed of trust to apply the foreclosure sale proceeds first to the satisfaction of the preexisting debt, the Chapman note, before making any distribution to American. Summers v. Consol. Capital Special Trust, 783 S.W.2d 580, 583 (Tex.1989). Although Beach is concerned that American has not paid Chapman any of the foreclosure sale proceeds, Beach did not plead, as an affirmative defense or as a counterclaim, that American, through its trustee, has breached its covenant to satisfy the Chapman debt; therefore, this issue was not before the trial court. It is clear under Summers that American’s right to a deficiency judgment under the “outstanding balance” method is tied to its corresponding duty to apply the foreclosure sale proceeds, and other amounts collected, to the satisfaction of the full wraparound note debt, which includes the balance owing on *246the Chapman note. If American collects the deficiency, based on the “outstanding balance” formula, and yet breaches its duty to satisfy the Chapman note, Beach will have a cause of action for appropriate damages.
I agree with the overruling of point of error one.
Beach contends in his second point of error that there was no evidence the 90 acres was foreclosed upon in accordance with the notice requirements of the deed of trust and of Tex.PROP.Codb Ann. § 51.002 (Vernon Supp.1991). The majority opinion considers it unnecessary to reach point of error two, and therefore, declines to do so. I would sustain point of error two.
American sought, and obtained, a deficiency judgment based on the formula applicable to the determination of a deficiency after a valid foreclosure sale, to wit: the note balance at the time of foreclosure minus the amount received at the foreclosure sale Tarrant Sav. Ass’n v. Lucky Homes, Inc., 390 S.W.2d 473, 475-76 (Tex.1965); Maupin v. Chaney, 139 Tex. 426, 430-33, 163 S.W.2d 380, 382-84 (1942). American had the burden to prove, as an essential element of its cause of action, that the foreclosure sale was valid, i.e., that it was conducted in accordance with the terms of the deed of trust and the laws of Texas. Williams v. Henderson, 580 S.W.2d 37, 39 (Tex.Civ.App.—Houston [1st Dist.] 1979, no writ); see also W. Dorsaneo, L. Knippa & B. Bentley, 11 Texas Litigation Guide § 255.101 (1991). Beach specifically pled in his first amended answer that American failed to dispose of the secured real estate in accordance with the terms of the deed of trust and applicable state law, so American was on clear notice that Beach contested American’s ability to prove this essential element of its cause of action.
The trial court’s findings of fact include a finding that the secured real property was foreclosed on in accordance with the terms of the deed of trust.
In reviewing a “no evidence” point, we are to consider only the evidence and inferences that tend to support the finding of the trial court, and we disregard all evidence and inferences to the contrary. King v. Bauer, 688 S.W.2d 845, 846 (Tex.1985). If there is any evidence of probative force to support the finding, the point must be overruled and the finding upheld. In re King’s Estate, 150 Tex. 662, 663, 244 S.W.2d 660, 661 (1951).
At trial, American presented one witness, its senior vice-president, who identified the note, the deed of trust, and the security agreement, and testified to the fact of default, the fact there were foreclosure sales of the real estate and the collateral note, and that American was the highest bidder at each sale. American’s witness additionally testified about the amount due under the note at the time of foreclosure, and the credit applied as a result of the foreclosure sales. American presented no evidence describing the conduct of the foreclosure sales, and no evidence about the posting and sending of notices about the sales. The substitute trustee’s deed was not admitted into evidence.1
I would hold American failed to produce any evidence showing the real estate foreclosure sale was valid. Therefore, I would hold American did not prove its entitlement to a deficiency judgment based on the difference between the note balance and the bid price at foreclosure.2
I would sustain Beach’s point of error two.
I concur in the balance of the majority opinion, including the order of reversal and rendition.

. As in Koehler v. Pioneer American Insurance Co., 425 S.W.2d 889, 892 (Tex.Civ.App.—Fort Worth 1968, no writ), the substitute trustee’s deed's introduction into evidence would have provided prima facie proof that all prerequisites for the real estate foreclosure sale had been complied with.

. Of course, American could be entitled to a deficiency judgment even if the foreclosure sale was invalid; however, a different formula would apply to compute the deficiency. See Lucky Homes, 390 S.W.2d at 475; Maupin, 139 Tex at 430-33, 163 S.W.2d at 382-84.