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Date: 08-17-2022

Case Style:

Covenant Clearinghouse, LLC v. Christa J. Foster

Case Number: 02-21-00334-CV

Judge: Mike Wallach


Court of Appeals Second Appellate District of Texas at Fort Worth

On appeal from 211th District Court Denton County, Texas

Plaintiff's Attorney: David G. Gamble

Defendant's Attorney:

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Fort Worth, Texas – Real Estate lawyer represented Appellee with invoking the procedure to have a “notice of claims” concerning her property.

This suit began when appellee Christa J. Foster filed a motion to challenge an
alleged lien on her property in Denton County. The motion alleged that in 2009,
Robert and JoAnn Shelton had executed a declaration that created a restrictive
covenant encumbering the property. The declaration of covenant provided that in the
event the property was conveyed, a transfer fee of 1% of the total consideration for
the sale could be collected from the seller. It further provided that a transfer fee, if
not paid when due, would give rise to a lien on the property.
Foster alleged that in 2011, the Sheltons had executed and filed a “Termination
of Declaration of Covenant” with the Denton County clerk. Foster alleged that this
document terminated the restrictive covenant, “nullifying” the obligation to pay a
transfer fee in the event of a property sale. Under the declaration of covenant, the
Sheltons had the right to terminate the covenant, and the declaration specified how
they were to effect the termination.
However, in 2021, appellant Covenant Clearinghouse, LLC recorded with the
county clerk a notice of claims concerning the property. The notice of claims stated
that the property “may be subject to an assessment of one percent (1%) of the sales
price . . . payable in connection with transfers of title.”
Foster explained that the goal of her motion was to challenge Covenant
Clearinghouse’s notice of claims using the procedure provided by Chapter 51 of the
Government Code, which offers a mechanism designed to easily dispose of fraudulent
documents that purport to create liens. She argued that the proof attached to her
motion demonstrated that the notice of claims was presumptively fraudulent under
the meaning of Chapter 51.
Attached to her motion were a string of emails in which JoAnn Shelton stated
her belief that the termination documents that she and her husband had signed in
2011 “should still be binding.” In the emails, JoAnn wrote that she had never heard of
Covenant Clearinghouse, that she had never signed anything giving Covenant
Clearinghouse a right to collect the transfer fees, and that Covenant Clearinghouse’s
claim was likely an illegal “scam.” Also attached to the motion were the declaration of
covenant, the termination documents, and the notice of claims.
Within days, the trial court rendered an ex parte order declaring that the notice
of claims was invalid and did not give rise to a valid lien or claim. Covenant
Clearinghouse appealed.
Covenant Clearinghouse argues that the trial court exceeded the permissible
bounds of Chapter 51 when it declared the notice of claims to be fraudulent.
Covenant Clearinghouse contends that the notice of claims did not satisfy the
statutory test for what may be considered presumptively fraudulent under Chapter 51.
“The Texas Government Code provides an expedited proceeding for
challenging a fraudulent lien or claim against real or personal property, the foundation
of which is found in section 51.903.” In re Hai Quang La, 415 S.W.3d 561, 564 (Tex.
App.—Fort Worth 2013, pet. denied); see Tex. Gov’t Code Ann. § 51.903. Section
51.903 was enacted as part of a statutory scheme to quickly identify and remove liens
and encumbrances that are patently without basis in recognized law. David Powers
Homes, Inc. v. M.L. Rendleman Co., Inc., 355 S.W.3d 327, 338 (Tex. App.—Houston [1st
Dist.] 2011, no pet.). That section allows a purported debtor to ask for a judicial
determination of the legitimacy of a filed or recorded document or instrument
purporting to create a lien or interest in real or personal property. Hai Quang La,
415 S.W.3d at 564. “A motion under that section requests the court to review the
subject document and determine ‘whether it should be accorded lien status.’” Id. at
564–65 (quoting Tex. Gov’t Code Ann. § 51.903(a)). The trial court’s finding may be
made solely on a review of the documents attached to the motion for judicial review
and without hearing testimony. Id. at 565. “The court’s review may be made ex parte
without delay or notice of any kind.” Id. (quoting Tex. Gov’t Code Ann. § 51.903(c)).
“[A] proceeding under section 51.903 is limited in scope.” Id. “A trial court may
only determine whether the subject document is fraudulent as defined by section
51.901(c)(2); it may not rule on any underlying claims of the parties involved.” Id. The
trial court also may not rule on any substantive evidentiary claim. Tu Nguyen v. Bank of
Am., N.A., 506 S.W.3d 620, 624 (Tex. App.—Houston [1st Dist.] 2016, pet. denied).
We review the trial court’s ruling de novo. In re Purported Lien or Claim Against 1124 N.
Knowles Dr., No. 02-20-00246-CV, 2021 WL 1323429, at *2 (Tex. App.—Fort Worth
Apr. 8, 2021, no pet.) (mem. op.).
For purposes of a Section 51.903 action, a document or instrument is
presumed to be fraudulent if:
(2) the document or instrument purports to create a lien or assert a claim
against real or personal property or an interest in real or personal
property and:
(A) is not a document or instrument provided for by the
constitution or laws of this state or of the United States;
(B) is not created by implied or express consent or agreement
of the obligor, debtor, or the owner of the real or personal
property or an interest in the real or personal property, if
required under the laws of this state, or by implied or
express consent or agreement of an agent, fiduciary, or
other representative of that person; or
(C) is not an equitable, constructive, or other lien imposed by a
court with jurisdiction created or established under the
constitution or laws of this state or of the United States.
Tex. Gov’t Code Ann. § 51.901(c)(2) (emphasis added).
Again, for the procedure of Section 51.903 to be successfully invoked, the
proceeding usually “must first involve a document or instrument that purports to
create a lien or assert a claim against real or personal property or an interest in real or
personal property.” Hai Quang La, 415 S.W.3d at 566. For example, “[c]ourts have
consistently struck down challenges to the assignment of mortgage documents
brought pursuant to § 51.903, on the basis that an assignment or transfer does not
create a lien.” Chau D. Ho-Huynh v. Bank of Am., N.A., No. CV G-14-69,
2014 WL 12599510, at *4 (S.D. Tex. Nov. 14, 2014) (collecting cases). Though these
assignments related to liens generally, courts nonetheless held Chapter 51 inapplicable
to them because an assignment “does not purport to create a lien or claim, it merely
purports to transfer an existing deed of trust from one entity to another.” In re
Campbell, No. 03-11-00524-CV, 2012 WL 1811616, at *2 (Tex. App.—Austin May 18,
2012, pet. denied) (mem. op.).
Likewise, in Hai Quang La, we rejected an attempt to dispose of a restrictive
covenant through Chapter 51 procedure, reasoning that the restrictive covenant did
not purport to create a lien and was thus beyond the statute’s scope. 415 S.W.3d at
566–67. We reviewed possible definitions of the term “lien,” drawing guidance both
from Texas law—“a claim in property for the payment of a debt and includes a
security interest”—and from Black’s Law Dictionary—“a legal right or interest that a
creditor has in another’s property, lasting usually until a debt or duty that it secures is
satisfied.” Id. at 566 (quoting Tex. Civ. Prac. & Rem. Code Ann. § 12.001(3) and Lien,
Black’s Law Dictionary (9th ed. 2009)); see also Harris Cnty. Flood Control Dist. v.
Glenbrook Patiohome Owners Ass’n, 933 S.W.2d 570, 577 (Tex. App.—Houston [1st
Dist.] 1996, writ denied) (op. on reh’g) (citing Migura v. Dukes, 770 S.W.2d 568,
569 (Tex. 1989)) (“[A] lien is not itself property[] but is a right to have satisfaction out
of property to secure payment of a debt.”). We held that the document did not meet
these definitions because there was no lien-creating element to the restrictive
covenant. Hai Quang La, 415 S.W.3d at 566.
Here, the document challenged is Covenant Clearinghouse’s notice of claims.
The initial question becomes whether this document purports to create a lien.1 We
hold that it does not.
Nothing about the 2021 notice of claims attempted to fashion a legal claim,
right, or interest in Foster’s property through which a debt or liability could be
satisfied. Rather, the function of the notice of claims was purely to preserve an
It should be noted that Covenant Clearinghouse has not offered a great deal of
argument concerning this question. However, we believe that this inquiry is fairly
included as a subsidiary question within the broader whole of Covenant
Clearinghouse’s issue on appeal, which concerns whether the statute’s definition of
presumptively fraudulent was satisfied—an essential part of that definition is the
question of whether the document purports to create a lien or assert a claim. An issue
statement “will be treated as covering every subsidiary question that is fairly
included.” St. John Missionary Baptist Church v. Flakes, 595 S.W.3d 211, 213–14 (Tex.
2020) (quoting Tex. R. App. P. 38.1(f)). We are reluctant to turn away claims based on
waiver or lack of preservation. Id. at 213. This is because “appellate courts should
reach the merits of an appeal whenever reasonably possible.” Id. at 214 (quoting Weeks
Marine, Inc. v. Garza, 371 S.W.3d 157, 162 (Tex. 2012)). We therefore proceed to
address the merits of this subsidiary question. See Ditta v. Conte, 298 S.W.3d 187,
190 (Tex. 2009).
existing potential liability—the prospect of transfer fees—which had already been
generated by the 2009 declaration of covenant. By law, Covenant Clearinghouse was
required to file a document like the notice of claims to retain any ability to collect a
transfer fee. In 2011, the Legislature amended the Texas Property Code to restrict the
use of private transfer fees in real estate transactions. Covenant Clearinghouse, LLC v.
Kush & Krishna, LLC, 607 S.W.3d 855, 856–57 (Tex. App.—Houston [14th Dist.]
2020, pet. denied). Under the amendments, private transfer fee obligations created on
or after June 17, 2011 were void and unenforceable against a subsequent owner or
subsequent purchaser of real property. Id. at 857 (citing Tex. Prop. Code Ann.
§ 5.202(a)). Any private transfer fee obligation created before that date was
grandfathered in but was “subject to rather austere notice requirements.” Id.
Recipients of transfer fees were required to file notices with specified content in the
real property records of each county in which the property is located. Id. (citing Tex.
Prop. Code Ann. § 5.203(a)). Any person who was required to file the initial notice
also had to refile the notice every three years thereafter. Id. (citing Tex. Prop. Code
Ann. § 5.203(d)). Failure to meet these notice requirements would leave the transfer
fee obligation void. Id. (citing Tex. Prop. Code Ann. § 5.203(f)).
Covenant Clearinghouse’s notice of claims was intended to satisfy this triennial
notice requirement, which tells us much about its function: it was designed to
maintain the ability to collect a transfer fee, not to create a lien. That is, the role of the
notice of claims was to preserve a potential liability, not to newly establish a
mechanism through which a liability could be satisfied, as a lien-creating instrument
would do. See Migura, 770 S.W.2d at 569. Because the notice of claims did not purport
to create a lien or assert a claim against property or property interests, Foster had no
right to rely on Chapter 51 as a means to have that document declared fraudulent. Her
recourse, if any, must be through another cause of action. See, e.g., Tu Nguyen,
506 S.W.3d at 625. We sustain Covenant Clearinghouse’s first issue

Outcome: We reverse the trial court’s judgment and remand for further proceedings
consistent with this opinion.

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