Dallas City Homes, Inc. v. Dallas County

• Court: Court of Appeals of Texas
• Decided: May 14, 2014
• Docket: 05-13-00033-CV
• Status: Published

Opinion

AFFIRM in part, REVERSE and RENDER; and Opinion Filed May 14, 2014.

S In The Court of Appeals Fifth District of Texas at Dallas No. 05-13-00033-CV

DALLAS CITY HOMES, INC., Appellant V. DALLAS COUNTY, CITY OF DALLAS, DALLAS INDEPENDENT SCHOOL DISTRICT, DALLAS COUNTY SCHOOL EQUALIZATION FUND, PARKLAND HOSPITAL DISTRICT, AND DALLAS COUNTY COMMUNITY COLLEGE DISTRICT, Appellees

On Appeal from the 44th Judicial District Court Dallas County, Texas Trial Court Cause No. 11-30230

MEMORANDUM OPINION Before Justices Lang-Miers, Myers, and Lewis Opinion by Justice Lewis Appellant, Dallas City Homes, Inc. (“DCH”), appeals the trial court’s award in favor of

appellees, Dallas County, City of Dallas, Dallas Independent School District, Dallas County

School Equalization Fund, Parkland Hospital District, and Dallas County Community College

(the “Taxing Authorities”). In three issues, DCH complains the trial court erred (1) by failing to

find DCH was subjected to an illegal tax, (2) by finding sovereign immunity barred DCH’s claim

to recover an illegal tax, and (3) by awarding the Taxing Authorities payment of their court costs

and abstractor’s fees. We affirm the trial court’s judgment in part, reverse the trial court’s award

of court costs and abstractor’s fees, and render judgment that the Taxing Authorities take

nothing. DCH is a non-profit corporation that develops low-income housing. In 2004, DCH

granted a deed of trust for real property located at 400 & 404 N. Lancaster Road in Dallas, Texas

(the “Property”), to secure a real estate lien note payable to the City of Dallas (the “City”), for

the purpose of creating federally funded affordable housing. The deed of trust with the City was

executed pursuant to the Dallas Community Housing Development Organization Program. DCH

agreed to begin construction on or before December 1, 2004, and complete construction by

March 31, 2006.

In September 2010, the City notified DCH it was in default for failure to complete

construction on the Property by the agreed deadline. The amount outstanding under the loan was

in dispute. After discussions between the parties, DCH decided it should allow the City to

foreclose on the loan.

In February 2011, the Taxing Authorities initiated this underlying suit to collect

delinquent tax pursuant to section 33.41 of the Texas Tax Code. The petition claimed DCH owed

$8,187.36 in taxes for failure to pay taxes on the Property between 2006 and 2010. According to

testimony provided by Karen Brooks-Crosby, president of DCH, the receipt of notice of this suit

was the first time DCH became aware it was delinquent on the taxes. The Taxing Authorities

introduced evidence of delinquent tax statements that showed taxes were paid on the Property

while it was owned by DCH between 2004 and 2006.

During the pendency of this suit, in September 2011, the City foreclosed on its lien on the

Property and the City bought the Property at the foreclosure sale. After the foreclosure, DCH

filed a motion for summary judgment claiming the City had taken possession of the Property and

could no longer seek the allegedly delinquent taxes because the taxes should have been

–2– accounted for when the Property was foreclosed upon. The trial court ultimately denied DCH’s

motion for summary judgment. 1

In June 2012, Dallas County (the “County”) began withholding Section 8 funds relating

to other properties from DCH pursuant to a signed Dallas County Department of Health and

Human Services Administration’s Housing Choice Voucher Program (the “Voucher Program”)

which states:

Withholding for Tax Delinquent Landlords: Payments to landlords that are delinquent on their property taxes will have their payments withheld to satisfy the debt to the County. Payments withheld will be applied to the debt and will commence in full once the debt is satisfied.

DCH subsequently filed a counter-claim asking for declaratory judgment that the

delinquent taxes were extinguished when the City purchased the Property at the foreclosure sale

and the County’s withholding of DCH’s Section 8 funds was an “illegal tax.” DCH also sought

to recover the “illegal taxes” that were withheld pursuant to the Voucher Program. In response to

DCH’s counter-claims, the Taxing Authorities filed a special appearance, joint plea to the

jurisdiction, and motion to dismiss for lack of jurisdiction claiming the Taxing Authorities were

protected under sovereign immunity which were ultimately denied by the trial court.

The parties tried the case to the bench in a one-day trial and the trial court’s judgment

states, “the taxes, penalties, and interest which were the subject of this suit have been paid to the

Plaintiff(s) and any intervening taxing units but the costs and/or expenses of suit remain unpaid

in the amounts hereinafter adjudge[d] due.” The court further awarded the Taxing Authorities

court costs of $348.00 and abstractor’s fees of $700.00. The court further ordered the “Defendant

take nothing.” DCH now appeals the trial court’s judgment.

1 We note, the record does contain a copy of the September 7, 2011, foreclosure sale deed showing the City paid $85,185.06 for the Property. The record does not reflect what other liens may have been on the property at the time of foreclosure or what happened to those liens.

–3– DCH initially challenges the trial court’s findings of fact and conclusions of law and

contends the Taxing Authorities’ withholding of DCH’s Section 8 funds was an “illegal tax.”

Specifically, DCH asserts the withholding of the Section 8 funds was an illegal tax because (1)

the language in the deed of trust provided the City’s foreclosure of the property extinguished

DCH’s delinquent taxes, and (2) independent of the language contained in the deed of trust, the

City’s purchase price at the foreclosure included all delinquent taxes on the Property, thereby

extinguishing DCH’s obligations for delinquent taxes.

We review the legal or factual sufficiency of the evidence supporting a trial court’s

findings of fact by the same standard as applied by a court reviewing the legal or factual

sufficiency of the evidence supporting a jury’s answer to a special issue. Hall v. Villarreal Dev.

Corp., 522 S.W.2d 195, 195–96 (Tex. 1975); Okon v. Levy, 612 S.W.2d 938, 941 (Tex. Civ.

App.—Dallas 1981, writ ref’d n.r.e.). In reviewing a factual sufficiency challenge, we consider

and weigh all the evidence in support of and contrary to the finding and will set aside the verdict

“only if it is so contrary to the overwhelming weight of the evidence as to be clearly wrong and

unjust.” Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986) (per curiam). In evaluating the legal

sufficiency of the evidence to support a finding, we must determine whether the evidence as a

whole rises to a level that would enable reasonable and fair-minded people to differ in the

conclusions. Columbia Med. Ctr. Subsidiary, L.P. v. Meier, 198 S.W.3d 408, 414 (Tex.App.—

Dallas 2006, pet. denied) (citing City of Keller v. Wilson, 168 S.W.3d 802, 822 (Tex. 2005)).

Anything more than a “scintilla of evidence” is legally sufficient to support the finding. Cont'l

Coffee Prods., Co. v. Cazarez, 937 S.W.2d 444, 450 (Tex. 1996); Sharifi v. Steen Auto., LLC,

370 S.W.3d 126, 147 (Tex. App.—Dallas 2012, no pet.). We must now consider whether the

evidence supports the trial court’s findings.

–4– DCH argues the trial court erred by finding “[T]he delinquent ad valorem taxes remained

unpaid after the deed foreclosure sale took place” and the “City of Dallas did not have an

obligation to pay the delinquent taxes [at the foreclosure] as it purchased the property subject to

the outstanding tax lien.” DCH claims the taxes in this case were illegal because the Taxing

Authorities recovered the taxes twice utilizing two extra-judicial methods: first by foreclosure on

the Deed of Trust, and again by withholding DCH’s Section 8 funds. DCH argues that because

the taxes were “collected or extinguished” when the City foreclosed on the Property, the seizing

of the Section 8 funds was the equivalent of an “illegal fee” for which DCH should not be liable.

We find no evidence in the record showing the taxes were “collected or extinguished” by

the Taxing Authorities more than one time. There is evidence that the City foreclosed on the

Property under its deed of trust and the City bought the Property at the foreclosure sale. And we

agree with DCH, the language of the deed of trust does state the purpose of the deed is:

securing the payment of the indebtedness . . . [for] any further loans which may be made or have already been made by the City of Dallas to [DCH] or any Obligated Party, together with all other direct, indirect, contingent, primary or secondary indebtedness of any character now or hereafter owing or to be owing by [DCH] or any Obligated Party to the City of Dallas regardless of how evidenced or incurred . . . .

However, we do not find any evidence in the record of exactly what was owed under the

loan agreement between DCH and the City at the time of the foreclosure sale or any evidence of

what happened to any proceeds that may have been in excess of the balance owed on the loan

with the City. Also, the record is silent as to expenses incurred for foreclosure by the City. Under

the default and foreclosure provisions, the deed of trust provides:

any proceeds of any sale . . . shall be applied in the following order of priority: (i) first, to the payment of all costs and expenses of taking possession of the Property . . . including . . . the payment of any and all Impositions, liens, security interests or other rights, titles or interests equal or superior to the lien and security interest of this Deed of Trust . . . .

–5– Further, the only evidence in the record of any tax payments being made on the Property shows

the payments were made in June and July of 2012, which is when the County withheld the

Section 8 funds as allowed under the Section 8 Voucher Program Agreement. Given the record

in this case, we conclude the evidence supports the trial court’s finding the delinquent ad

valorem taxes remained unpaid after the deed foreclosure sale took place. Further, without any

evidence of any proceeds after the foreclosure sale, we cannot conclude the City had an

obligation to pay the delinquent taxes as it purchased the property subject to the outstanding tax

lien. Consequently, DCH has failed to meet its burden of establishing the money withheld from

the Section 8 funds was the equivalent of an illegal tax or fee collected by the Taxing

Authorities.

DCH further argues, “Even without the language of the Deed of Trust, Texas law barred

the City from seeking delinquent taxes after the foreclosure.” DCH provides this Court with case

law supporting its contention that a current mortgagee on a foreclosed property is responsible for

paying any delinquent taxes. See Smart v. Tower Land & Inv. Co., 597 S.W.2d 333, 339 (Tex.

1980); Wood v. Henry S. Miller Co., 597 S.W.2d 332, 333 (Tex. 1980); Jackson v. Stonebriar

P’ship, 931 S.W.2d 635, 639 (Tex. App.—Dallas 1996, writ denied). The cases that DCH relies

upon to argue the City was barred from withholding the Section 8 Funds are distinguishable. All

of the cases relied on by DCH are subrogation suits brought for the purpose of reimbursement for

taxes paid by a mortgagee after foreclosure. These cases all discuss first, whether or not a

contractual relationship between the mortgagor and mortgagee gave rise to a personal debt for

taxes and secondly, whether principles of equitable subrogation entitle the mortgagee to obtain a

personal judgment. This case is not a subrogation suit; appellees are not seeking a personal

judgment for reimbursement for taxes paid. Also, in each case relied on by DCH, the courts

determined no contractual relationship existed which gave rise to a personal debt by the

–6– mortgagor. However, the record in this case does support a contractual relationship allowing for

the alternative means to collect for delinquent taxes between DCH and the County. DCH does

not dispute the authority of the County to withhold Section 8 funding to satisfy delinquent taxes

under the Voucher Program. DCH only disputes that the taxes were still delinquent at the time of

the withholding and we have already addressed the lack of evidence tending to support DCH’s

argument. We therefore overrule DCH’s first issue complaining it was subject to an illegal tax.

Because we do not find the taxes to be an illegal tax or fee, we need not address whether illegal

taxes were paid under duress or whether DCH’s claims are barred by sovereign immunity. 2

In its third issue, DCH contends the Taxing Authorities are not entitled to payment of

their court costs and abstractor’s fees because the Taxing Authorities were not a “successful

party” as required by statute. The Taxing Authorities failed to respond to DCH’s assertion and

only claim, “[t]he suit was properly filed as taxes were due and owing at the time of filing. . . .

Any argument to the contrary is simply gibberish and nonsensical.” We review a trial court’s

allocation of costs under an abuse of discretion standard. Gumpert v. ABF Freight Sys., Inc., 312

S.W.3d 237, 239 (Tex. App.—Dallas 2010, pet. denied).

In its judgment, the trial court awarded $348 for court costs and $400 for abstractor’s

fees. The tax code allows for recovery of costs and expenses in a suit to collect a delinquent tax.

See TEX. TAX CODE ANN. § 33.48 (West Supp. 2013) (each expense “is a charge against the

property subject to foreclosure in the suit and shall be collected out of the proceeds of the sale of

the property.”). However, DCH argues the Taxing Authorities should not be allowed to recover

their fees because they were not a “successful party.” See TEX. R. CIV. P. 131 (“The successful

party to a suit shall recover of his adversary all costs incurred therein, except where otherwise

provided”). The trial court may, however, for good cause stated on the record, award costs other

2 See TEX. R. APP. P. 47.1.

–7– than as provided by law or the rules. TEX. R. CIV. P. 141. The trial court did not state on the

record any reason for awarding costs in this case to the Taxing Authorities.

When the Taxing Authorities initiated this suit to collect delinquent taxes in February

2011, they did so pursuant to the Texas Tax Code. In November 2011, the Taxing Authorities

filed a motion for continuance citing the reason for a continuance was “in order to rectify chain

of ownership and necessary party defendants.” Then, outside the realm of this suit, the City

foreclosed, bought, and became the owner of the Property in September 2011. Next, a joint

motion for continuance was filed in April 2012, requesting a continuance in order to “work

through the ownership issues regarding the property,” which at that time was owned by the City.

In June 2012, after the City became the owner of the Property, the County withheld Section 8

funds from DCH and paid the delinquent taxes on the property. It is clear from these facts the

Taxing Authorities did not need to initiate this suit in order to collect taxes owed by DCH. The

foreclosure of the Property was not conducted as a tax foreclosure, but a foreclosure pursuant to

the deed of trust with the City. Nor did the Taxing Authorities utilize this suit to satisfy the

delinquent taxes by DCH as required by the tax code. See TEX. TAX CODE ANN. § 33.48. A

“successful party” under the statute governing recovery of costs is one who obtains judgment of

a competent court vindicating a civil right or claim. In re Nalle Plastics Family Ltd. P’ship, 406

S.W.3d 168, 176 (Tex. 2013); see also TEX. R. CIV. P. 131. Because the Taxing Authorities did

not use this suit to foreclose on the property or to collect the funds from DCH to pay the

delinquent taxes, we conclude the trial court abused its discretion in awarding court costs,

whether pursuant to rule 131 of the Texas Rules of Civil Procedure or section 33.48 of the tax

code. See TEX. R. CIV. P. 131; see also TEX. TAX CODE ANN. § 33.48; Gano v. City of Houston,

834 S.W.2d 585, 587 (Tex. App.—Houston [14th Dist.] 1992, pet. denied) (taxing units not

–8– entitled to attorney’s fees when tax burden was satisfied prior to trial). We sustain appellant’s

third issue.

We reverse the trial court’s judgment awarding the Taxing Authorities court costs of

$348.00 and abstractor’s fees of $700.00, and we render judgment that the Taxing Authorities

take nothing. In all other respects, we affirm the trial court’s judgment.

/David Lewis/ DAVID LEWIS JUSTICE

130033F.P05

–9– S Court of Appeals Fifth District of Texas at Dallas JUDGMENT

DALLAS CITY HOMES, INC., Appellant On Appeal from the 44th Judicial District Court, Dallas County, Texas V. Trial Court Cause No. 11-30230. Opinion delivered by Justice Lewis. DALLAS COUNTY, CITY OF DALLAS, Justices Lang-Miers and Myers DALLAS INDEPENDENT SCHOOL participating. DISTRICT, DALLAS COUNTY SCHOOL EQUALIZATION FUND, PARKLAND HOSPITAL DISTRICT, AND DALLAS COUNTY COMMUNITY COLLEGE DISTRICT, Appellees

In accordance with this Court’s opinion of this date, we REVERSE that portion of the trial court’s judgment awarding court costs of $348 and abstractor’s fees of $700 and RENDER judgment that Appellees, DALLAS COUNTY, CITY OF DALLAS, DALLAS INDEPENDENT SCHOOL DISTRICT, DALLAS COUNTY SCHOOL EQUALIZATION FUND, PARKLAND HOSPITAL DISTRICT, AND DALLAS COUNTY COMMUNITY COLLEGE DISTRICT take nothing on their claim for court costs and abstractor’s fees. In all other respects, the trial court’s judgment is AFFIRMED. It is ORDERED that each party bear its own costs of this appeal. The District Clerk of Dallas County is directed to release the full amount of the balance of the cash deposit in lieu of cost bond to appellant DALLAS CITY HOMES, INC.

Judgment entered this 14th day of May, 2014.