Bank of America NA v. Schwartz, et al

*Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
United States Court of Appeals
Fifth Circuit
F I L E D
August 17, 2006
Charles R. Fulbruge III
Clerk
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 05-50080
IN RE ELIZABETH HAYES,
Debtor,
BANK OF AMERICA, N.A.,
Appellant,
VERSUS
HELEN G. SCHWARTZ, Trustee, JOHN HENDERSON, AND ELIZABETH HAYES,
Appellees.
Appeal from the United States District Court for the
Western District of Texas, San Antonio Division
( SA-03-CA-1228 )
Before DeMOSS, BENAVIDES, and PRADO, Circuit Judges.
PER CURIAM:*
This bankruptcy appeal presents a dispute over the priority of
two interests in residential real property located in San Antonio,
Texas. Bank of America, successor to NationsBank, appeals the
district court’s order affirming the bankruptcy court’s conclusion
that the bank’s secured interest on a mortgage to the real property

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does not take priority over Mr. John Henderson’s equitable interest
in the real property. Henderson’s equitable interest was based
upon his purchase of the property by oral contract with the prior
owner, Debtor Elizabeth Hayes, as well as upon Henderson’s
subsequent residence in and improvement of the property and home.
Bank of America alleged a lien against the property based upon a
deed of trust that was executed by Hayes in favor of NationsBank,
after Henderson purchased and took possession of the property. The
deed of trust secured a promissory note in the amount of $62,990.00
and was based upon Hayes’s representation to the bank that the
property was her homestead. The bankruptcy and district courts
concluded that Bank of America had notice of Henderson’s prior
interest in the property by virtue of his open, exclusive, and
unequivocal possession and accordingly that Bank of America was not
a bona fide purchaser without notice.
In February 1997, Henderson and Hayes made an oral contract
for Henderson’s purchase of Hayes’s home in Bexar County, Texas for
$105,144.14. Henderson paid Hayes the following month in two cash
installments. Henderson requested, but never received, a General
Warranty Deed from Hayes. No instrument regarding the sale of the
property was recorded. Henderson occupied the property, and no
other residence, from April 1997 until May 1998. Henderson lived
alone in the home on the property, parked his car in the driveway,
completed improvements to the property (including external
improvements, such as installing security bars on windows and

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installing a new external air conditioning unit), and interacted
with neighbors and local police as the owner of the property.
In May 1998, Hayes and NationsBank executed a promissory note
secured by a deed of trust on the property. NationsBank conducted
a title search on the property and determined that Hayes was the
owner of record, but NationsBank did not inspect the property.
Bank of America contends on appeal that its “Desktop Appraisal”
method of title review prior to execution of the note was
sufficient because it comported with industry standards. Henderson
testified that he did not discover the existence of the bank’s loan
to Hayes until July 1999.
Hayes filed a Chapter 7 bankruptcy petition on September 11,
2002, and Helen Schwartz was subsequently appointed trustee. Bank
of America filed a Motion for Relief from Stay, claiming that it
was owed approximately $52,500 in unpaid principal on the note
executed by Hayes, and Henderson filed an opposition, asserting his
equitable lien in the property. The bankruptcy court ordered
filings to determine the validity, extent, and priority of the
liens.
Henderson ultimately filed a motion for summary judgment
seeking declaration of the priority of his interest in the
property. The bankruptcy court granted the motion, concluding that
Bank of America was on inquiry and constructive notice of
Henderson’s visible, open, exclusive, and unequivocal occupation of
the property and that the bank was not a bona fide purchaser for

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value without notice of the prior claim. See Madison v. Gordon, 39
S.W.3d 604, 606-07 (Tex. 2001). The bankruptcy court noted that
Henderson’s payment for, occupation of, and improvements to the
property satisfied the exception to the statute of frauds and
relied upon Henderson’s visible, open, exclusive, and unequivocal
possession of the property to trigger Bank of America’s duty of
inquiry. Bank of America appealed to the district court, which
affirmed the bankruptcy court’s order granting summary judgment to
Henderson. The district court declared, again, that Henderson’s
possession of the property was visible, open, exclusive, and
unequivocal, giving constructive notice of title equivalent to the
constructive notice that deed recordation would have provided.
Accordingly, the district court concluded that Bank of America was
not a subsequent purchaser without notice and that Henderson’s
interest took priority.
This Court reviews the bankruptcy court’s rulings under the
same standards used by the district court on its appellate review:
conclusions of law are reviewed de novo, findings of fact are
reviewed for clear error, and mixed questions of fact and law are
reviewed de novo. In re CPDC, Inc. (Zer-Ilan v. Frankford), 337
F.3d 436, 441 (5th Cir. 2003). The grant of summary judgment is
reviewed de novo, applying the same standards as the district
court. Id. (citing, among others, FED. R. CIV. P. 56(c)).
Bank of America raises multiple challenges to the orders; its

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primary arguments are equitable in nature. Bank of America argues
that Henderson’s possession was not open, visible, or unequivocal,
but it does not dispute that he alone possessed the property. Bank
of America simply argues that nothing about his possession was
inconsistent with Hayes’s possession. Bank of America also argues
that the lower courts imposed an effective duty of inquiry that
exceeds industry standards; however, it provides no Texas law, and
our independent review reveals none, that requires or permits
banking industry standards to dictate the law of interests in real
property. We decline to read any such rule into the law of the
State of Texas.
After a careful review of the briefs and oral arguments of the
parties, we AFFIRM the district court’s opinion for essentially the
reasons that court provided.
AFFIRMED.

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