Lease Agreement Extinguished by FDIC’s Takeover
December 2, 2013In 2007, LG Auto Laundry sold a .8-acre tract to Shammy Man Auto Wash, with Shammy Man purchasing the land by means of a mortgage from Millennium State Bank. At the same time, LG and Shammy signed a ground lease permitting LG to possess .06 acres of the property containing a cell phone tower. LG and Millennium signed a Subordination, Non-Disturbance and Attornment Agreement (SNDA) providing that, in the event of foreclosure, LG’s possession of the leased property would not be disturbed. Shammy defaulted, but before Millennium could foreclose, the FDIC took over Millennium and transferred the assets to the State Bank of Texas. The plaintiff purchased the property from the State Bank of Texas and filed this lawsuit to establish that the foreclosure extinguished LG’s ground lease.
Although a valid foreclosure on a lien terminates leases, here the ground lease specifically stated that it was subordinate to Millennium’s deed, but the SNDA provided that LG’s possession would survive the foreclosure. However, because the FDIC took over Millennium, federal law prohibited LG from enforcing the SNDA. As a result, the Court found that the plaintiff acquired the land free and clear of LG’s lease.
