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Click here for the full text of this decision FACTS:Tesher Corp., a short-lived insurance entity, was formed in January 2001. After only 18 months in business, the 345th Judicial District Court of Travis County placed Tesher into receivership. Upon being appointed receiver, James A. Howard discovered that in October 2001, Rebecca J. McLain, a Tesher employee involved in an “intimate personal relationship” with Tesher’s president and sole shareholder, John Tesseyman, obtained $144,500 of Tesher’s funds to purchase a piece of real property located in Tyler. The company also purchased a 2001 Volvo for McLain using $31,808.11 in company funds, despite the fact that the car was titled in McLain’s name. In addition, the company paid $10,000 in cash to McLain from Tesher’s premium “trust” account. After uncovering these questionable transactions, Howard sued McLain in August 2003, alleging that McLain had borrowed money from Tesher on an oral promise to repay when she refinanced the Tyler property. Howard pleaded the following causes of action in his original petition: common law fraud, constructive fraud, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, breach of contract, conversion and negligence. Howard sought a judgment awarding actual damages of $185,300 and an unspecified amount of exemplary damages and, in the alternative, prayed for a judgment decreeing a constructive trust on the Tyler property and Volvo with McLain as the constructive trustee for the benefit of Tesher and a judgment ordering McLain to convey the property to Tesher. Shortly after filing the lawsuit against McLain, on Sept. 5, 2003, Howard filed a notice of lis pendens in the real property records of Smith County, where the Tyler property was located, stating that he had filed an action that “ultimately seeks title to the property via a constructive trust.” On Sept. 25, 2003, McLain borrowed $100,000 from Aames Funding Corp. using the Tyler property as collateral. A week later, Aames assigned the loan to Countrywide. Neither Aames nor Countrywide searched the Smith County real property records; neither had actual notice of Howard’s claim against the property. On June 28, 2005, Countrywide intervened in Howard’s suit against McLain, requesting a declaratory judgment that its lien on the Tyler property securing the $100,000 loan to McLain had priority over any rights that Howard could acquire in the property. Countrywide argued that because the claims made by Howard did not authorize the filing of a notice of lis pendens, the notice of lis pendens did not provide constructive notice to Countrywide of Howard’s claim against the property. Howard also requested a declaratory judgment that his rights in the property had priority over Countrywide’s lien. Both parties filed summary judgment motions. The trial court found that Howard’s rights in a piece of real property had priority over Countrywide’s lien on the same property, because Howard had filed a notice of lis pendens, which provided constructive notice to Countrywide of Howard’s interest in the property. Countrywide appealed. HOLDING:Reversed and rendered in part, reversed and remanded in part. A lis pendens, the court stated, is a “notice, recorded in the chain of title to real property . . . to warn all persons that certain property is the subject matter of litigation.” The purposes of a notice of lis pendens are to put those interested in a particular tract of land on inquiry about the facts and issues involved in the suit and to put prospective buyers on notice that they acquire any interest subject to the outcome of the pending litigation. To satisfy Texas Property Code �12.007, the court stated, the suit on which the lis pendens is based must claim a direct interest in real property rather than a collateral interest. In other words, the property against which the lis pendens is filed must be the subject matter of the underlying lawsuit. If the suit seeks a property interest only to secure the recovery of damages or other relief that the plaintiff may be awarded, the court stated that the interest is merely collateral and will not support a lis pendens. First, the court agreed with Countrywide that the validity of a filing of a notice of lis pendens is judged by the pleadings on file at the time the transaction with respect to the property occurred. This meant that only Howard’s original petition, the pleading on file at the time the loan was made to McLain, was operative. To determine whether Howard’s filing of a notice of lis pendens was proper, the court examined “the nexus . . . between the underlying suit against McLain and the property in question.” The crux of the claim against McLain, the court stated, is that she illegally obtained corporate funds and used those funds to buy real property. It was not a case, the court stated, where the corporation owned certain real property and McLain tricked or deceived the company into transferring the real property to her. Moreover, the court stated, Howard in the case sought a constructive trust on McLain’s real property to secure payment of a judgment. Thus, the court found “an insufficient nexus between the subject matter of the claim and the real property to authorize the filing of a notice of lis pendens.” Accordingly, the court held that the notice of lis pendens did not impart constructive notice of Howard’s claim to Countrywide. The court reversed the trial court and rendered judgment that Countrywide’s lien on the Tyler property had priority over any rights in the property that Howard acquired in his suit against McLain. The court then suggested that the trial court on remand reconsider its award of attorneys’ fees to Howard. OPINION:Henson, J.; Law, C.J., and Puryear and Henson, JJ.

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