MORTGAGE CORPORATION INC v. BOBBY STOVALL AND LINDA LAHOOD (2011)

MEMORANDUM OPINION

Opinion By Justice Lang

21st Mortgage Corporation, Inc., defendant below and appellant in this court, appeals the trial court's summary judgment concluding it has no lien on a home located on real estate owned by appellees Bobby Stovall and Linda Lahood.   Stovall and Lahood owned real estate on which a former tenant, Patricia Kennedy, installed a structure, referenced sometimes as manufactured housing and other times as a modular home. 21st Mortgage claims a purchase money security interest in the home which it asserts precludes appellees from claiming any interest in the home.   The summary judgment granted by the trial court included declarations that the home installed on appellees' land is a “modular home” erected or installed on a permanent foundation system as set forth in section 1202.002 of the Texas Occupations Code, is part of the real property, and 21st Mortgage does not have a lien against the real property “or any improvements thereon,” including the home in question.

21st Mortgage raises four issues on appeal.   Specifically, 21st Mortgage asserts the trial court erred in granting summary judgment because (a) the trial court denied a motion for leave to file a third party action against Kennedy, and (b) 21st Mortgage raised genuine issues of material fact.

We conclude genuine issues of material fact remain to be decided and appellees are not entitled to summary judgment as a matter of law.   Accordingly, we reverse the trial court's judgment and remand for further proceedings consistent with this opinion.   Because the law to be applied in this case is well settled, we issue this memorandum opinion.   See Tex.R.App. P. 47.4.

I. FACTUAL AND PROCEDURAL BACKGROUND

A modular, or industrialized, home is defined under section 1202.002(a) as

a residential structure that is:  (1) designed for the occupancy of one or more families;  (2) constructed in one or more modules or constructed using one or more modular components built at a location other than the permanent site;  and (3) designed to be used as a permanent residential structure when the module or the modular component is transported to the permanent site and erected or installed on a permanent foundation system.

See Tex. Occ.Code Ann. § 1202.002(a) (West Supp.2010).   Although constructed at one location and moved to another for use, the law distinguishes between what is considered a modular home and what is considered a manufactured home.   Generally, a modular home is regulated by the Industrialized Housing and Buildings Program (IHB) of the Texas Department of Licensing and Regulation (TDLR), is constructed to the same codes as site built housing, and must be installed on a permanent foundation system.   A manufactured home, on the other hand, generally is constructed to federal manufactured home code standards and regulated by the Texas Department of Housing and Community Affairs.

The home involved in this case was installed by Kennedy in early 1999 on a three-and-a-half acre commercial tract of land in Hunt County, Texas owned by appellees and leased at the time to Summit Housing, with whom Kennedy was affiliated for selling houses like the one at issue in this case.   The record contains a technical description of how the home was attached to its foundation.   That description stated the floor frame of the home was bolted to a steel beam carriage frame which was supported by steel piers bolted to the beams and anchored into a transverse concrete foundation that is a common foundation system for modular homes.   The foundation itself is permanent in nature as required by section 1202.002.   The home was improved by the addition of decks and porches attached on the front and rear.   Kennedy used the home as her office and her residence.

At the time she purchased the home, Kennedy executed a “Manufactured Home Retail Installment Contract/Security Agreement” (contract) that granted Associates Housing a security interest in the home.   Associates Housing subsequently recorded with the county clerk a “Title Lien Statement” covering the home and then assigned the contract to 21st Mortgage. 21st Mortgage in turn filed with the Texas Secretary of State a UCC–1 financing statement showing a security interest in and covering, in relevant part, “[a]ll inventory, new and used and repossessed units ․ presently owned ․ including but not limited to manufactured homes.”

In the summer of 2007, shortly after 21st Mortgage filed the financing statement, the lease was terminated by Summit Housing's successor to the lease.   Although the written lease between Summit Housing and Summit Housing's successor provided that improvements to the land by the tenant remained the tenant's property and could be removed at the end of the tenancy, Summit Housing's successor did not remove any improvements.   Wanting to continue the business she had with Summit Housing and Summit Housing's successor, Kennedy approached Stovall about leasing the land herself, and the two orally agreed to a month-to-month lease.   Kennedy defaulted under both the oral lease and contract in February 2008 and abandoned the home.   Having located the UCC financing statement, Stovall contacted 21st Mortgage and asked for notification of any claims 21st Mortgage had to the home. 21st Mortgage responded by attempting to repossess the home.   Then, Stovall obtained a letter from the TDLR's IHB Program administrator Katherine Vaughan stating, among other things, that the home was a modular home manufactured in accordance with state requirements, “[t]itles are not issued for modular homes,” and “[o]nce installed the home becomes part of the real property.”

Stovall and Lahood filed suit for a determination, inter alia, of whether the home was an improvement to and had become a part of their land and whether 21st Mortgage held a valid lien.   They moved for summary judgment and asserted two arguments:  (1) no genuine issue of material fact existed as to whether the home was a modular home placed on a permanent foundation common for modular homes as required by section 1202.002 and as such, was “of a permanent nature” and an improvement to their realty;  and (2) 21st Mortgage did not hold a valid lien or have any other claim to the home.

In arguing no genuine issue of material fact existed as to whether the home was a modular home and a permanent improvement to their land, appellees maintained the dispositive issue was the permanency of the foundation.   They supported their argument with the affidavit of registered professional engineer J. Martin Montgomery who testified he conducted an on-site inspection of the home, “it [was] clear the home is affixed to a permanent in-ground concrete foundation constructed specifically for this home,” and he found “no evidence ․ to indicate that this home's installation, foundation or installation [sic] was intended to be temporary in nature.”   Also, they relied on IHB program administrator Vaughan's statement in her letter to Stovall that modular homes become part of the real property upon which they are installed.

In arguing that 21st Mortgage did not hold a valid lien or otherwise have any other claim to the home, appellees contended that the title lien statement and the UCC–1financing statement were insufficient because neither specifically identified the home as collateral nor provided a description of the real property on which it was located.   They also contended neither the contract nor the written lease gave 21st Mortgage a claim to the home.   Appellees asserted the contract did not establish any rights, title, or interest in their realty because they were not parties to the contract.   They asserted the written lease did not give 21st Mortgage any right to the home because Kennedy was not a party to that lease.   In support of these arguments, appellees relied on the affidavit testimony of Stovall.

Stovall testified in relevant part that he was unaware of the contract and was not a party to it, he had no written lease with Kennedy, and in February 2008 she defaulted on the lease and abandoned the home at issue here.   Also, he testified that after Kennedy's default and abandonment of the premises, he became aware of the UCC–1 financing statement on file with the Texas Secretary of State's office and the claims made by 21st Mortgage to the home.   Stovall attached the financing statement to his affidavit and stated he was “unclear ․ what personal property or fixtures were the subject of” the financing statement.   Further, he stated the financing statement “did not identify any real property.”

In its response to the motion for summary judgment, 21st Mortgage did not dispute the home was a modular home in accordance with section 1202.002.   Instead, 21st Mortgage argued fact issues existed as to whether (i) the home was easily removable from the land;  (ii) the home was a trade fixture;  (iii) under the written lease, the home remained Kennedy's property and could be removed;  and (iv) the “Title Lien Statement” recorded with the Hunt County Clerk and/or the UCC–1 Financing Statement recorded with the Secretary of State provided 21st Mortgage with an enforceable and superior right of recovery of the home itself or a lien enforceable against appellees' real property.

In support of its arguments in opposition to appellees' motion for summary judgment, 21st Mortgage presented a copy of the written lease and the title lien statement.   Also, 21st Mortgage presented deposition and affidavit testimony of several witnesses including Kennedy, Donna Lipke, an IHB program manager, 21st Mortgage's remarketing manager, a structural engineer, and an independent mobile home mover.   Kennedy testified in her deposition she believed she retained the right to remove the home, and she purchased and installed the home on the land for use in the mobile home business she operated.   The IHB program manager, Donna Lipke, testified in her affidavit that Vaughan's statement that “[o]nce installed the home becomes part of the real property” was not a position by TDLR that the home on Stovall and Lahood's property was in fact part of their property.   The manager, engineer, and mobile home mover all stated in their affidavits that the home could easily be removed from the foundation that was on Stovall and Lahood's property. 21st Mortgage contended that section 1202.002 could not “overrule” any written lease agreements or law regarding trade fixtures and the rights of purchase money security interest lienholders.

In granting summary judgment, the trial court specifically declared that the home was “a modular home as defined by the Texas Occupations Code Section 1202.002(a);  that said modular home was erected or installed on a permanent foundation system and is part of the real property;  and that Defendant, 21st Mortgage, does not have a valid lien against the real property or any improvements thereon.”

II. SUMMARY JUDGMENT

A. Joinder of Necessary and Indispensable Party

In its first issue, 21st Mortgage argues the trial court erred in granting summary judgment because the trial court improperly denied its motion for leave to file a third-party claim against Kennedy. 21st Mortgage argued Kennedy was necessary for the adjudication of the parties' interest to the home because she was liable for the indebtedness owing in connection with the home.   Further, 21st Mortgage argued Kennedy had a substantial interest in the home having purchased the home and having intended to use it as collateral for the outstanding debt.   Appellees opposed the motion on two grounds, asserting (1) 21st Mortgage did not exercise due diligence in bringing its claims against Kennedy;  and (2) Kennedy asserted no claim of right to possession or ownership in the home after abandoning the business.   Without stating a reason for its ruling, the trial court denied 21st Mortgage's motion.

1. Applicable Law

The Uniform Declaratory Judgments Act is a remedial statute designed “to settle and afford relief from uncertainty and insecurity with respect to rights, status, and other legal relations.”  Tex. Civ. Prac. & Rem.Code Ann. § 37.002(b) (West 2008);  Bonham State Bank v. Beadle, 907 S.W.2d 465, 467 (Tex.1995).   Under the Act, “all persons who have or claim any interest that would be affected by the declaration [sought] must be made parties.”   Tex. Civ. Prac. & Rem.Code Ann. § 37.006(a).   A trial court determines whether to require joinder of parties in a declaratory action by applying rule 39 of the Texas Rules of Civil Procedure.   See Brooks v. Northglen Ass'n, 141 S.W.3d 158, 162 (Tex.2004).  Rule 39 provides for joinder of any person who is subject to service of process and (1) whose presence is necessary to accord complete relief to those already parties;  or (2) who claims an interest in the matter and is so situated that the disposition of the action in his absence may (i) impair or impede his ability to protect that interest or (ii) leave any existing party subject to a substantial risk of multiple or inconsistent obligations.  Tex.R. Civ. P. 39(a).

2. Standard of Review

A trial court's decision as to joinder of a party is reviewed for abuse of discretion.  Longoria v. Exxon Mobil Corp., 255 S.W.3d 174, 180 (Tex.App.—San Antonio 2008, pet. denied).   An appellate court will conclude an abuse of discretion occurred if the trial court acted in an unreasonable and arbitrary manner or without reference to any guiding rules or principles.  Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241–42 (Tex.1985).

3. Analysis

21st Mortgage's position in the trial court was that it held a purchase money security interest in the home that precluded appellees from claiming any interest in the home.   Appellees' position was that the home became a permanent part of their land because the house is a “modular home” under section 1202.002 and 21st Mortgage did not hold a valid lien. 21st Mortgage has not demonstrated that Kennedy's presence was necessary for the parties to be able to obtain the relief they sought or that her presence was necessary to protect 21st Mortgage or appellees from multiple or inconsistent obligations.   Finally, the record does not reflect Kennedy asserted any claim of right of possession or ownership in the home after abandoning the home.   Even assuming, without deciding, 21st Mortgage exercised due diligence in bringing its claims against Kennedy, we cannot conclude the trial court abused its discretion in denying 21st Mortgage leave to file a third-party claim.   We decide 21st Mortgage's first issue against it.

B. Material Issues of Fact

The crux of appellees's summary judgment argument is that they have proven the home is a “modular home” as defined in section 1202.002 and that it is installed on a permanent foundation common for modular homes.   Therefore, it is a permanent improvement to their realty. 21st Mortgage contends here, as it did in the trial court, that the trial court erred in granting summary judgment because of the existence of genuine issues of material fact as to whether 21st Mortgage had a lien on the real property entitling it to remove the home, the home is removable and a trade fixture, and the written lease allowed for the home's removal.

1. Standard of Review

An appellate court reviews declaratory judgments under the same standards as other judgments.  Tex. Civ. Prac. & Rem.Code Ann. § 37.010;  City of Galveston v. Tex. Gen. Land Office, 196 S.W.3d 218, 221 (Tex.App.-Houston [1st Dist.] 2006, pet. denied).   When a trial court resolves an action for declaratory relief on motion for summary judgment, the propriety of the declaratory judgment is reviewed de novo—the same standard followed in reviewing a summary judgment.  City of Galveston, 196 S.W.3d at 221;  see also Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex.2003).

A traditional summary judgment under 166a(c) is properly granted when the movant establishes that no genuine issue of material fact exists and he is entitled to judgment as a matter of law.  Tex.R. Civ. P. 166a(c);  Knott, 128 S.W.3d at 215–16.   When the movant is the plaintiff, he must conclusively prove all essential elements of his claim.  M.D. Anderson Hosp. & Tumor Inst. v. Wilrich, 28 S.W.3d 22, 23 (Tex.2000) (per curiam).   If the plaintiff discharges his burden, the burden shifts to the nonmovant defendant to present to the trial court any issues that would preclude summary judgment.   See Hackberry Creek Country Club, Inc. v. Hackberry Creek Homeowners Ass'n, 205 S.W.3d 46, 50 (Tex.App.-Dallas 2006, pet. denied).   In reviewing a grant of summary judgment, an appellate court takes as true evidence favorable to the nonmovant, making every reasonable inference and resolving all doubts in the nonmovant's favor.  Knott, 128 S.W.3d at 215.   Summary judgments must stand on their own merits and, on appeal, the movant still bears the burden of showing no genuine issues of material fact exist and he is entitled to judgment as a matter of law.  Rhone–Poulenc, Inc. v. Steel, 997 S.W.2d 217, 223 (Tex.1999).

2. Analysis

We first address the declaration in the summary judgment that the home “is part of the real property.”   In their motion for summary judgment, appellees' contention that the home meets the requirements for a “modular home,” was “installed on common foundation and installation methods for modular homes,” and is “of a permanent nature” is made in reliance upon the letter of TDLR's IHB program administrator Katherine Vaughan that says, in part, that a modular home is installed “on a permanent foundation system” and, “once installed the home becomes part of the real property.”   Appellees also rely on the affidavit testimony of professional engineer J. Martin Montgomery that “no evidence was found to indicate that this home's installation, foundation or installation [sic] was intended to be temporary in nature.”   However, 21st Mortgage responded with the affidavit of another IHB program manager, Donna Lipke, who testified in direct contradiction to Vaughan's letter that it “is not a position by TDLR that the modular home, which is the subject of the above-referenced litigation, is part of the Plaintiff's real property;  to the contrary, TDLR takes no position whatsoever as to whether or not the subject modular home is part of Plaintiffs' real property.”   Additionally, 21st Mortgage presented affidavit testimony from its remarketing manager, a structural engineer, and an independent mobile home mover that the home could easily be removed from appellees' real property.

The summary judgment states a legal conclusion that the home is a “modular home as defined by” section 1202.002.   It is on that premise that the summary judgment makes an additional conclusion;  that is, the home “was erected or installed on a permanent foundation system and is part of the real property.”   It is not contested that the home is a “modular home” under section 1202.002 and is attached to a “permanent foundation.”   There is nothing in the statute, however, that says the home, although attached to a “permanent foundation” is, itself, permanently affixed to the real estate.   Section 1202.002's definition of a “modular home” does not address appellees' contention that the home “is of a permanent nature” nor is appellees' contention supported by uncontroverted evidence.   We conclude the record demonstrates the existence of a material issue of fact respecting whether the home is permanently affixed to the real property and, accordingly, whether it is “part of the real property.”   Summary judgment is precluded on that declaration.

Next, we consider whether summary judgment was proper as to the declaration that 21st Mortgage “does not have a valid lien against the real property or any improvements thereon.”   In the trial court, appellees again relied on the affidavit testimony of Stovall and registered professional engineer J. Martin Montgomery in support of their contentions that 21st Mortgage's lien claim based upon its contract, title lien statement, and the UCC–1 financing statement, and the claim that Kennedy was a successor to the written lease that provided for removal of improvements at the end of the lease were without merit.

We conclude that, on this record, appellees did not meet their burden of proof and material issues of fact remain to be decided.   First, although appellees argued that the written lease gave 21st Mortgage no claim to the home because Kennedy was not a party to that lease, Stovall testified only that he had an oral lease with Kennedy.   He did not controvert Kennedy's deposition testimony offered by 21st Mortgage to the effect that she understood she could remove the home at the end of her tenancy.   Second, appellees' argument that 21st Mortgage's lien claim based on the contract was without merit because it did not establish any rights, title or interest in their realty presupposes a conclusion that the home was a permanent part of the realty by virtue of meeting the statutory definition of a “modular home.”   However, we have already concluded a fact issue remains as to whether the home is permanently affixed to the real property.   Third, appellees contend the UCC–1 financing statement and the Title Lien Statement did not perfect 21st Mortgage's lien.   They assert neither document specifically identified the home as the covered collateral nor the real estate “on which it is located.   However, this assertion is based on the Uniform Commercial Code's requirements for “fixture filings.”   See Tex. Bus. & Com.Code Ann. §§ 9.102(a)(41) (West 2011) (fixtures are “goods that have become so related to particular real property that [a property] interest in them arises”), (44) (goods are “all things that are movable when a security interest attaches”);  9.502(b)(1), (3) (to be sufficient, a financing statement that covers goods that are or are to become fixtures must, among other requirements, “indicate that it covers this type of collateral” and “provide a description of the real property to which the collateral is related”).   A key point in appellees' dispute that the home is a fixture is that the home is a permanent part of the realty.   However, a fact issue remains as to the permanency of the home.   Accordingly, the declaration in the summary judgment that 21st Mortgage did not hold a valid lien against the home and their real property is precluded by the existence of issues of material fact.

We conclude the trial court erred in granting summary judgment.   We decide 21st Mortgage's second through fourth issues in their favor.

III. CONCLUSION

The trial court erred in granting summary judgment in Stovall and Lahood's favor.   Accordingly, the trial court's judgment is reversed and this cause is remanded for further proceedings consistent with this opinion.

091416F.P05

DOUGLAS S. LANG JUSTICE