The San Antonio Court of Appeals held that a lienholder could not foreclose on its collateral without trial court permission when the collateral was held in a receivership in Pratt v. Amrex, Inc., No. 04-11-00119-CV, 2011 Tex. App. LEXIS 6733 (Tex. App.—San Antonio August 24, 2011, no pet. history).
Curtis and Nancy Muecke borrowed $80,000 from Security Bank using real property as security. They executed a deed of trust encumbering that property. In 2003, another party filed a collection suit against Curtis in New Jersey. Shortly thereafter, Curtis executed a document purporting to convey to Nancy all of his community property, which included the real property. They did not file that agreement in the county where the property existed. Later, the New Jersey court entered a default judgment, and after it was domesticated in Harris County, Texas, a court there appointed a receiver for Curtis’s estate. The receiver executed a special warranty deed conveying the real property into the estate and recorded the deed in the county where the property existed. Later, without any approval from the court that created the receivership, Security Bank foreclosed on its deed of trust and issued a substitute trustee’s deed. The receiver then filed suit to declare that the substitute trustee’s deed was void. The trial court found for Security Bank, and the receiver appealed.
The court of appeals found that the district court in the county where the property existed did have jurisdiction over this suit. The court then noted that to be effective a partition agreement had to be recorded in the county in which the real property was located. Therefore, the court held that the agreement signed by Curtis was not effective because it was not filed. The receiver was authorized to convey the property into the receivership estate. The effect of that was to place the property in custodia legis. The court noted that without court permission no one, even a prior lienholder, has the right to sell property held in custodia legis, and any such transaction is void. The court also held that the result was the same even if the bank was a bona fide purchaser without notice of the pending receivership estate. Finally, the court held that the fact that Curtis had no equity in the property did not make the receiver’s deed void. Rather, the bank still had to go to court and seek leave to foreclose on the property. The court of appeals reversed and rendered for the receiver.