The Business of Tax Liens

In Ovation Services v. Buckner Foods, the Fifth Court addressed basic issues in the business of tax loans, as follows:

1. Valid agreement. The Court held that the parties’ tax lien transfer and consolidation agreement was valid. It rejected arguments that the contract unlawfully created new liens for non-delinquent taxes or exceeded statutory limits on such contracts, explaining that the agreement “does not attempt to create a lien,” but instead relies on the transfer and subrogation to existing tax liens. Consolidating and refinancing multiple tax loans does not violate the Texas Tax Code so long as the underlying liens were originally created for delinquent taxes.
2. Equitable subordination. The Court confirmed the lender’s right to equitable subrogation for the prior tax liens it paid off. The opinion emphasized that “equitable-subrogation rights to prior liens become fixed at the time the proceeds from the refinancing loan are used to discharge the earlier lien,” meaning that the lender stepped into the shoes of the prior lienholder even if the prior liens were later released. The court also made clear that the lender was not a “mere volunteer” but acted at the property owner’s request and with the expectation of repayment and security
3. BFP. The Court held that the subsequent purchaser of the property was not a bona fide purchaser as to the lender’s liens. Because the relevant instruments were properly recorded in the real property records and specifically referenced the lender’s subrogation rights, the purchaser was on inquiry notice and could not claim to have acquired the property free of those liens.

Finally, the court declared the tax liens superior to any other interest in the property and enforceable by the lender, confirming the lender’s right to recover all amounts due under the property tax loan agreement and to pursue judicial foreclosure. No. 05-24-00496-CV, Sep. 11, 2025