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Who Can Challenge a Foreclosure of Texas Real Estate?

The  Texas Court of Appeals in Texarkana published an interesting decision in the case of  In re Estate of Hardesty, in which they discussed who had standing in Texas to challenge a foreclosure sale of real estate.


Carolyn Hardesty obtained a home equity loan for $500,000.00 from PrimeLending in 2004. The loan was secured by a lien classified as an extension of credit under Article XVI, Section 50(a)(6)(A) of the Texas Constitution. Carolyn signed a sworn fair market value agreement at closing stating that the value of the property was $625,000.00. Kenneth Hardesty, Carolyn’s son, assisted Carolyn in the loan process but was not a party to the transaction with PrimeLending. In October 2005, CitiMortgage began servicing the loan. The lien was assigned to CitiMortgage in April 2010.

Carolyn passed away in November 2007, leaving the property to Kenneth Hardesty in her will. Soon after Carolyn’s death, Kenneth and CitiMortgage entered into an oral agreement. Part of the agreement was that Kenneth would continue to pay the monthly mortgage payments during the probate of his mother’s will and CitiMortgage would pay the ad valorem taxes on the property until Hardesty received title to the property. Kenneth agreed that once he obtained title, he would repay CitiMortgage for the tax payments within ten days. Kenneth made monthly mortgage payments to CitiMortgage for over two years and CitiMortgage paid taxes on the property from 2007 to 2011.

CitiMortgage Foreclosure and Trial

In 2010, CitiMortgage began foreclosure proceedings under Section 306(e)(3) of the Texas Probate Code.  The trial court authorized foreclosure of the lien. In January 2011, Kenneth gave written notice to PrimeLending and CitiMortgage that the home equity loan and deed of trust were in violation of the Texas Constitution and invited them to cure the alleged defect. Neither CitiMortgage or PrimeLending attempted to cure the defect.

Kenneth obtained a temporary restraining order preventing CitiMortgage from foreclosing. Kenneth also requested a declaratory judgment that the loan violated Article XVI, Section 50(a)(6)(B) of the Texas Constitution because the loan amount exceeded 80% of the value of the home. Kenneth valued the property at $474,500.00 based on the Tarrant County Appraisal District’s records from 2003-2006. Kenneth’s petition alleged that he provided written notice to PrimeLending and CitiMortgage as required by Article XVI, Section 50(a)(6(Q)(x) and neither PrimeLending or CitiMortgage responded within the 60 period as required by Texas law. Kenneth asked the court to declare the lien void and for forfeiture of all principal and interest under the note.

PrimeLending responded that Kenneth lacked standing to bring suit on behalf of Carolyn’s estate, alleging that only the personal representative of the estate had exclusive right to bring the suit. PrimeLending also argued that Kenneth was a stranger to the loan transaction and that without a survival claim, Kenneth had no relationship with the proceedings and no interest in the outcome. The trial court found for PrimeLending. Kenneth appealed.

Court of Appeals

PrimeLending claimed that no privity of contract existed between Kenneth and PrimeLending because Kenneth was not a signatory of the note, deed of trust, or any other loan documents. PrimeLending asserted that Kenneth’s only connection to loan is based on his status as heir to the estate, citing Texas case law only the mortgagor or a party who is in privity with the mortgagor has standing to contest the validity of a foreclosure sale.

The Court of Appeals noted that there is an exception to that general rule if a third party that has a legal or equitable interest in the property that will be affected by the sale. That kind of party does have standing to challenge the sale if their rights will be affected. Furthermore, recent Texas cases have expanded the class of parties that have standing to dispute the validity of a foreclosure sale. The Court noted that “(u)nder the current approach, the [plaintiff] need only have established a property interest in the deed of trust realty to impute a flaw” in the sale.

Kenneth received a warranty deed from the executor of his mother’s estate for the property. As a result, the Court held that Kenneth had sufficient interest in the property and had standing to challenge the validity of the foreclosure sale.