REVERSE and REMAND; Opinion issued March 28, 2013




                                                           S      In The
                                          Court of Appeals
                                   Fifth District of Texas at Dallas
                                        ────────────────────────────
                                               No. 05-10-00235-CV
                                        ────────────────────────────

                                             WILLIAM MARTIN, Appellant
                                                                     V.

                                          PLAINSCAPITAL BANK, Appellee

  ═════════════════════════════════════════════════════════════
                  On Appeal from the 429th District Court
                           Collin County, Texas
                   Trial Court Cause No. 429-01773-2008
  ═════════════════════════════════════════════════════════════

                                                             OPINION

                                    Before Justices Bridges, Murphy, and Richter 1
                                             Opinion By Justice Bridges

         William Martin appeals the trial court=s judgment awarding PlainsCapital Bank

$332,927.27 in damages and $127,558.24 in attorney=s fees on PlainsCapital=s counterclaim for

damages resulting from Martin=s default under residential construction loan documents. In three

issues, Martin contends the trial court erred in rendering judgment in favor of PlainsCapital

because PlainsCapital was limited to a claim for a deficiency under section 51.003 of the Texas



    1
        The Honorable Martin E. Richter, retired Justice, sitting by assignment.




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Property Code; the evidence is legally and factually insufficient to support the award of

$332,927.27; and the trial court erred in awarding attorney=s fees because PlainsCapital was not

entitled to judgment on its counterclaim. We reverse the trial court=s judgment and remand for

further proceedings consistent with this opinion.

       The parties stipulated to the following facts: on September 15, 2006, Martin and

PlainsCapital entered into a construction loan agreement. In connection with the agreement,

Martin signed a note in the original amount of $790,400. PlainsCapital is the legal owner and

holder of the note. Martin=s obligations under the note were secured by a deed of trust, security

agreement, and financing statement executed on September 15, 2006. The deed of trust gave

PlainsCapital a secured interest in Martin=s real estate and improvements in the City of McKinney.

On September 15, 2007, Martin and PlainsCapital entered into a loan modification agreement

extending the maturity date of the note to March 15, 2008. Martin defaulted on the note and deed

of trust by failing to timely pay the amounts owed under the terms of the note. PlainsCapital sent

a demand letter to Martin on April 28, 2008, and a notice of foreclosure on May 9, 2008. Martin

failed to cure his default, and the property was sold at public auction on June 3, 2008.

PlainsCapital purchased the property at the public auction for $539,000. Immediately prior to the

foreclosure sale, Martin owed $770,757.45 in outstanding principal, $15,791.02 in interest, and

$2705.52 in attorney=s fees incurred to foreclose on the property.

       Martin sued PlainsCapital in June 2008, alleging causes of action for fraud, monies had and

received, and wrongful foreclosure; he also sought the imposition of a constructive trust on the

underlying property. PlainsCapital answered and asserted a counterclaim seeking damages for

breach of the underlying note, construction loan agreement, and deed of trust. Martin later

dismissed his claims pursuant to an agreed order, and the case was tried to the court on




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PlainsCapital=s counterclaim.

       The focus of the trial was the fair market value of the property. Martin introduced the

testimony and appraisal of Kyle Hollowell, a state-certified residential real estate appraiser with

more than eighteen years= experience, who had performed an appraisal for PlainsCapital on June

10, 2008, seven days after the June 3 foreclosure. Hollowell testified the property had a fair

market value of $825,000 and his opinion would be the same for both June 3 and June 10.

Cheryl Massey, a state-certified real estate appraiser with twenty years= experience, testified she

reviewed Hollowell=s appraisal, the $825,000 fair market value was Aadequately supported,@ it was

a Agood appraisal,@ and she found no reason to disagree with Hollowell=s conclusion. She agreed

with Hollowell that the assessment required an evaluation of exposure time and anticipated

marketing time. She also testified that the $825,000 value included built-in holding costs, costs of

sale, and time value of money, but later said the value was only the sales price. Additionally,

Martin testified to his belief as the owner of the property that the fair market value on the date of

foreclosure was $850,000.

       PlainsCapital introduced the testimony of Doug Cook, the president of PlainsCapital=s

North Dallas branch.     Cook testified regarding the residential broker opinion PlainsCapital

requested from Rik Massengale. The opinion was admitted as an exhibit and estimated the

property would sell for $770,000. In determining the amount of its bid at foreclosure, $539,000,

PlainsCapital bid seventy percent of Massengale=s estimate because the Abank=s history with the

foreclosed properties seems to imply what we=re going to end up with.@               Cook testified

PlainsCapital was prepared to bid more for the property than the initial $539,000 bid, but no one

bid more for the property. Cook testified PlainsCapital was prepared to bid A$20,000 short of@

$807,000.    Following the foreclosure sale, PlainsCapital listed the property for sale.         On




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September 15, 2009, more than a year and three months after the date of foreclosure, the property

sold for $599,000.

       PlainsCapital calculated its damages for breach of the loan documents based, in part, on the

actual sales price of $599,000 over a year after foreclosure, arguing section 51.003 of the property

code regarding suits for deficiencies applied only when the deficiency was based on the

foreclosure price. It asserted that, Ain situations where a lender estimates it=s [sic] damages based

on the amount bid at the foreclosure sale, 51.003 [of the property code] applies,@ and Athat=s not

what we have here@; it claimed it was Aseeking its actual damages.@ PlainsCapital argued it was

Agiving a credit to Mr. Martin for every penny they received on the sale of the property . . . in

September of 2009,@ when the property sold for $599,000 and all it was trying to do was Abe made

whole.@

       In contrast, Martin argued PlainsCapital conducted a foreclosure sale under section 51.002

of the property code and, therefore, section 51.003 applied to PlainsCapital=s attempt to recover the

deficiency. PlainsCapital does not dispute that its foreclosure was pursuant to property code

section 51.002 regarding nonjudicial foreclosure sales.

       The trial court determined section 51.003 was inapplicable and rendered judgment

awarding PlainsCapital $332,927.27 in damages and $127,558.24 in attorney=s fees. The trial

court filed findings of fact and conclusions of law detailing the basis for its damage award. Those

included the court=s conclusion that section 51.003 did not apply in this case and that Martin was

entitled to a credit of $599,000 for the ASale Price of Property.@

       In his first issue, Martin contends the trial court erred in rendering judgment in favor of

PlainsCapital because PlainsCapital was limited to a claim for deficiency under section 51.003.

Specifically, Martin argues the only evidence of the fair market value of the property on the date of




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foreclosure was $825,000, which exceeded the amount of the secured debt and resulted in no

deficiency. In his second issue, Martin asserts the evidence is legally and factually insufficient to

support judgment in the amount of $332,927.27.

                                  Application of Section 51.003

       We first address as an issue of first impression the applicability of section 51.003 when the

noteholder sues for a deficiency based on the actual resale price of foreclosed property rather than

the foreclosure sale price. Statutory construction is a question of law that we review under a de

novo standard of review. State v. Shumake, 199 S.W.3d 279, 284 (Tex. 2006) (citing In re

Forlenza, 140 S.W.3d 373, 376 (Tex. 2004)). When construing a statute, we begin with its

language. Id. Our primary objective is to determine the Legislature=s intent which, when

possible, we discern from the plain meaning of the words chosen. Id. (citing City of San Antonio

v. City of Boerne, 111 S.W.3d 22, 25 (Tex. 2003)). If the statute is clear and unambiguous, we

must apply its words according to their common meaning without resort to rules of construction or

extrinsic aids. Id. (citing Fitzgerald v. Advanced Spine Fixation Sys., Inc., 996 S.W.2d 864,

865-66 (Tex. 1999)). If necessary, we may consider other matters in determining legislative

intent, including the objective of the law, its history, and the consequences of a particular

construction. City of Marshall v. City of Uncertain, 206 S.W.3d 97, 105 (Tex. 2006).

       Section 51.003 provides:

       (a) If the price at which real property is sold at a foreclosure sale under Section
       51.002 is less than the unpaid balance of the indebtedness secured by the real
       property, resulting in a deficiency, any action brought to recover the deficiency
       must be brought within two years of the foreclosure sale and is governed by this
       section.

       (b) Any person against whom such a recovery is sought by motion may request that
       the court in which the action is pending determine the fair market value of the real
       property as of the date of the foreclosure sale. The fair market value shall be
       determined by the finder of fact after the introduction by the parties of competent




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       evidence of the value. Competent evidence of value may include, but is not
       limited to, the following: (1) expert opinion testimony; (2) comparable sales; (3)
       anticipated marketing time and holding costs; (4) cost of sale; and (5) the necessity
       and amount of any discount to be applied to the future sales price or the cashflow
       generated by the property to arrive at a current fair market value.

       (c) If the court determines that the fair market value is greater than the sale price of

       the real property at the foreclosure sale, the persons against whom recovery of the

       deficiency is sought are entitled to an offset against the deficiency in the amount by

       which the fair market value, less the amount of any claim, indebtedness, or

       obligation of any kind that is secured by a lien or encumbrance on the real property

       that was not extinguished by the foreclosure, exceeds the sale price.

TEX. PROP. CODE ANN. ' 51.003 (West 2007).

       Martin argues, and PlainsCapital does not contest, that property code section 51.002

applies to the nonjudicial foreclosure elected by PlainsCapital. It follows, according to Martin,

that PlainsCapital=s damage claim for a deficiency is governed by section 51.003. Martin relies

on the language of subsection 51.003(a) providing that A[i]f the price at which real property is sold

at a foreclosure sale under section 51.002 is less than the unpaid balance of the indebtedness

secured by the real property, resulting in a deficiency, any action brought to recover the deficiency

must be brought within two years of the foreclosure sale and is governed by this section.@

(Emphasis added).      Without argument or authority, PlainsCapital dismisses Martin=s claim in

one sentence, stating that Awhere, as here, a lender does not base its deficiency under a promissory

note on the foreclosure sales price,@ section 51.003 does not govern.           It then assumes the

applicability of section 51.003 and argues the trial court=s judgment must be affirmed because the

fair market value was less than the foreclosure bid of $539,000. We conclude the issue of section

51.003=s applicability is relevant to our disposition of this appeal and therefore turn to the legal




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principles we apply in determining the legislature=s intent.

       The express language of subsection 51.003(a) suggests at least two things: a nonjudicial

foreclosure has occurred and the sale price at foreclosure was less than the debt. Additionally, an

action must have been brought to recover Athe deficiency.@ Deficiency is not specifically defined

in chapter 51 of the property code. Read generally, a deficiency would be the amount owing on a

debt after application of the collateral=s value regardless of whether the value was determined

based on the foreclosure price or the fair market value of the property on the date of the

foreclosure. See generally Smith v. Town N. Bank, No. 05-11-00520-CV, 2012 WL 5499406, at

*2 (Tex. App.CDallas Nov. 13, 2012, pet. filed) (mem. op.) (noting the borrower requested the

trial court Ato determine the alleged deficiency on the basis of the fair market value of the

properties rather than the sales prices paid at the foreclosures@). PlainsCapital=s president Cook in

fact testified that the company proceeded with the lawsuit Abecause of the amount of deficiency.@

       Reading the subsection 51.003(a) language strictly, the word Adeficiency@ appears to be the

difference between the debt and the foreclosure price.      See generally Branch Banking & Trust

Co. v. TCI Luna Ventures, LLC, No. 05-12-00653-CV, 2013 Tex. App. LEXIS 1745, at *14-15

(Tex. App.CDallas Feb. 21, 2013, no pet. h.); Bass Drum Invs., Inc. v. First Nat=l Bank, Nos.

13-10-00602-CV, 13-10-00603-CV, 2012 WL 3133875, at *2 (Tex. App.CCorpus Christi Aug. 2,

2012, no pet.) (mem. op.) (noting that, A[f]or a deficiency to exist, the price at which the real

property is sold at a foreclosure sale must be less than the unpaid balance of the indebtedness

secured by the real property@). Under that interpretation, PlainsCapital would be correct that it

did not bring an action for Athat@ deficiency.        PlainsCapital=s interpretation in the context

presented by this appeal leaves questions, including the one posed by Martin: Whether a

mortgagee can elect a nonjudicial foreclosure under section 51.002 and then Aopt in@ or Aopt out@ of




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section 51.003 by suing for a deficiency based on an amount different from the foreclosure price.

Because we cannot construe a word or sentence in isolation, we must consider the language of the

entire statute and, if necessary, we may consider matters such as the objective of the statute, its

history, and the consequences of a particular construction. City of Marshall, 206 S.W.3d at 105.

       Chapter 51 of the Texas Property Code is titled AProvisions Generally Applicable to Liens@

and governs nonjudicial foreclosures (section 51.002); deficiency judgments following

nonjudicial foreclosures (section 51.003); deficiencies after judicial foreclosures (section 51.004);

and rights of offset by guarantors, as judgment-debtors, for subsequent judicial or nonjudicial

foreclosures (section 51.005). Chapter 51 also contains various provisions regarding trustees,

nonjudicial foreclosures affected by deeds in lieu of foreclosure, governmental liens, and the Aas

is@ status of purchasers at nonjudicial foreclosures under section 51.002 (sections 51.006-.009).

These provisions do not address expressly a situation in which a mortgagee seeks a deficiency

based on an amount other than the foreclosure price.

       The Legislature enacted sections 51.003 and 51.005 in 1991 with the purpose of protecting

borrowers and guarantors in deficiency suits arising from nonjudicial foreclosures on realty. See

Long v. NCNB-Tex. Nat=l Bank, 882 S.W.2d 861, 865-66 (Tex. App.CCorpus Christi 1994, no

writ). The enumerated provisions in chapter 51 address nonjudicial and judicial foreclosures, as

well as deeds in lieu of foreclosure. Section 51.003 did not create a right to sue for a deficiency;

Ait merely regulates a right that apparently existed at common law.@ Trunkhill Capital, Inc. v.

Jansma, 905 S.W.2d 464, 468 (Tex. App.CWaco 1995, writ denied) (citing Langever v. Miller, 76

S.W.2d 1025, 1027 (Tex. 1934)). That regulation includes providing borrowers and guarantors

protection in deficiency suits by allowing offsets when the fair market value of the property on

the date of foreclosure exceeds the foreclosure sales price. See TEX. PROP. CODE ANN. ''




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51.003(c), 51.004(c), 51.005(c). In that scheme, the property code does not provide lenders the

choice of seeking a deficiency judgment based on the foreclosure price or reselling the property

and seeking a deficiency judgment based on the resale price. Specifically, a lender is not given

the option of electing a nonjudicial foreclosure sale under section 51.002 and then opting out of

section 51.003 governing the borrower=s right to a determination, and offset, based on the fair

market value on the foreclosure date. Id. ' 51.003(a).

       PlainsCapital cites no authority and makes no argument supporting its claim it has the

option of invoking the provisions of section 51.002 and ignoring the provisions of section 51.003.

Instead, it dismisses Martin=s issue and relies on its analysis of the fair market value of the

property.   To accept PlainsCapital=s strict reading of section 51.003 disregards the express

language of the chapter 51 sections providing offsets for the fair market value of foreclosed

property and negates the legislative intent of protecting borrowers by allowing them offsets for the

fair market values of their foreclosed properties. That same strict reading of section 51.003

would provide a carve-out for lenders to avoid the protections expressly provided to borrowers and

guarantors and creates consequences never intended or contemplated. See City of Marshall, 206

S.W.3d at 105 (noting court may consider consequences of a particular statutory construction in

determining legislative intent).   Such an interpretation would also render meaningless the

provisions of section 51.003 because a lender could avoid the statute by conducting another sale

immediately following foreclosure. PlainsCapital does not defend its construction of section

51.003, and we conclude the trial court erred as a matter of law in determining section 51.003 did

not apply to PlainsCapital=s deficiency suit against Martin. We therefore sustain Martin=s first

issue on that basis.




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                    Sufficiency of Evidence Regarding Fair Market Value

       We address together the remainder of Martin=s first issue (that the fair market value of the

property exceeded the debt on the date of foreclosure) and his second issue (regarding the legal and

factual sufficiency of the evidence to support the $332,927 in damages award) because resolution

of these issues involves an evidentiary review. Part of that analysis includes PlainsCapital=s

response to issue one that the property=s fair market value renders application of section 51.003

irrelevant based on its analysis of the evidence and requirements for determining fair market value.

       Section 51.003 is an affirmative defense because the borrower is seeking an offset.

Interstate 35/Chisam Rd., L.P. v. Moayedi, 377 S.W.3d 791, 799 (Tex. App.CDallas 2012, pet.

filed); Cabot Capital Corp. v. USDR, Inc., 346 S.W.3d 634, 639 (Tex. App.CEl Paso 2009, pet.

denied). Thus, Martin bore the burden to prove this defense.

       Martin, as the party challenging the legal sufficiency of the evidence on a matter for which

he bore the burden of proof, must demonstrate on appeal that the evidence establishes, as a matter

of law, all vital facts in support of the issue. Dow Chem. Co. v. Francis, 46 S.W.3d 237, 241

(Tex. 2001) (per curiam). Also, as the party attacking the factual sufficiency of an adverse

finding on an issue for which he had the burden of proof, he must demonstrate that the adverse

finding is against the great weight and preponderance of the evidence. Id. at 242. For factual

sufficiency, we consider and weigh all of the evidence, and we will set aside a verdict on the issue

only if the evidence is so weak or if the finding is so against the great weight and preponderance of

the evidence that it is clearly wrong and unjust. Id. If Martin offered no credible evidence on the

issue, we must overrule his challenges to the sufficiency of the evidence supporting the verdict

against him. Id.

       We first consider the legal sufficiency of the evidence to support the trial court=s award of




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$332,927.27 in damages. That amount is based on the actual sales price of the property of

$599,000 when it was sold more than a year after the foreclosure sale. We therefore must

determine whether any evidence supports that amount as the fair market value of the property on

the date of foreclosure, June 3, 2008.

       AFair market value@ is not defined in chapter 51, although subsection 51.003(b) provides

that A[c]ompetent evidence of value may include, but is not limited to,@ expert opinion testimony,

comparable sales, anticipated marketing time and holding costs, cost of sale, and the necessity and

amount of any discount to be applied to the future sales price or cashflow generated by the

property.   TEX. PROP. CODE ANN. ' 51.003(b). The historical definition of fair market value,

which has been applied to section 51.003 claims, is the price the property will bring when offered

for sale by one who desires to sell, but is not obliged to sell, and is bought by one who desires to

buy, but is under no necessity of buying. See Cabot Capital Corp., 346 S.W.3d at 639 (applying

definition in section 51.003 suit) (citing City of Pearland v. Alexander, 483 S.W.2d 244, 247 (Tex.

1972)); see also Preston Reserve, L.L.C. v. Compass Bank, 373 S.W.3d 652, 658 (Tex.

App.CHouston [14th Dist.] 2012, no pet.) (citing Exxon Corp. v. Middleton, 613 S.W.2d 240, 246

(Tex. 1981)).

       Evidence of what property sells for at foreclosure is not competent evidence of its fair

market value because the transaction is not between a willing seller and a willing buyer. Preston

Reserve, 373 S.W.3d at 663 (citing SPT Fed. Credit Union v. Big H Auto Auction, Inc., 761

S.W.2d 800, 801-02 (Tex. App.CHouston [1st Dist.] 1988, no writ)). Nor is the actual sale price

of property competent evidence of the fair market value when circumstances indicate that the sale

is out of the ordinary in some way. Id. (citing SPT, 761 S.W.2d at 801). For example, in Preston

Reserve, the court concluded the sale price of property a year after foreclosure was not competent




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evidence of the fair market value for purposes of applying section 51.003 because there was no

evidence regarding whether the market conditions were comparable to the conditions at the time of

the foreclosure sale, which was the relevant date for determining whether the fair market value

exceeded the debt on the date of foreclosure. Id. at 663, 669; see also Moore v. Bank Midwest

N.A., 39 S.W.3d 395, 400 (Tex. App.CHouston [1st Dist.] 2001, pet. denied) (noting fair market

value of property under section 51.003 must be determined as of date of foreclosure).

       The trial court=s calculation of $332,927.27 in actual damages did not include a

determination of fair market value. Rather, the trial court deducted the 2009 actual sale price of

$599,000 from the debt. The trial court did, however, make a finding that, even if section 51.003

applied, the fair market value was $477,715.65, which it computed by taking the $599,000 sale

price and deducting holding costs and costs of sale. The trial court did not tie that amount to the

date of foreclosure and made no finding regarding fair market value on the foreclosure date. The

record also contains no evidence linking the resale amount of $599,000 to the fair market value of

the property on the date of foreclosure.

       Significantly, PlainsCapital does not argue $599,000 was the fair market value of the

property on the date of foreclosureCinstead, it argues section 51.003 contains a different formula

for determining fair market value based on the reseller=s future sales price. It relies on subsection

51.003(b)=s non-exclusive list of Acompetent evidence of value@ described above.            See TEX.

PROP. CODE ANN. ' 51.003(b) (West 2007). We conclude PlainsCapital=s construction of these

factors to establish a different definition of fair market value is contrary to the express wording of

subsection 51.003(b), which requires the calculation of fair market value as of the date of

foreclosure and provides only a non-exclusive list that a fact finder Amay@ consider in determining

fair market value. Id. Such a construction is also contrary to the analysis applied by other courts




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addressing competent evidence of fair market value under section 51.003. See, e.g., Preston

Reserve, 373 S.W.3d at 663; Cabot Capital Corp., 346 S.W.3d at 639; Moore, 39 S.W.3d at 400.

       For the reasons stated, we sustain Martin=s second issue in which he argues the evidence is

legally insufficient to support the trial court=s judgment awarding PlainsCapital $332,927.27 in

damages based on the $599,000 sale that took place more than a year after the date of foreclosure.

       As part of his first issue, Martin contends the trial court should have rendered a

take-nothing judgment in his favor because the only evidence of fair market value for the

foreclosed property was $825,000, which exceeded the debt. We can render judgment for Martin

only if there is no evidence to support the deficiency amount awarded and the evidence

conclusively establishes there was no deficiency.        Preston Reserve, 373 S.W.3d at 669.

Evidence regarding the property=s fair market value as of the date of foreclosure included

Hollowell=s and Massey=s testimony supporting the $825,000 appraisal and Martin=s testimony of

$850,000.    The evidence also included some evidence regarding PlainsCapital=s real estate

estimates and the Massengale broker=s opinion.        The evidence was challenged and is not

conclusive. Accordingly, a remand is necessary to allow the trial court, as fact finder, to resolve

the fact issues. Those issues also include whether holding costs and sales expenses are included

as part of the fair market value.

       Based on our resolution of Martin=s first and second issues, we do not reach his third issue

regarding the award of attorney=s fees.     Because it is not clear whether PlainsCapital will

ultimately prevail on its claim against MartinConly that the judgment awarding damages in the

amount of $332,927.27 is erroneousCwe leave the issue and amount of attorney=s fees for the trial

court=s determination on remand.

       We reverse the trial court=s judgment and remand for further proceedings consistent with




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this opinion.



                       /David L. Bridges/
                       DAVID L. BRIDGES
                       JUSTICE

100235F.P05




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                                      S
                              Court of Appeals
                       Fifth District of Texas at Dallas
                                      JUDGMENT

WILLIAM MARTIN, Appellant                         On Appeal from the 429th Judicial District
                                                  Court, Collin County, Texas
No. 05-10-00235-CV           V.                   Trial Court Cause No. 429-01773-2008.
                                                  Opinion delivered by Justice Bridges.
PLAINSCAPITAL BANK, Appellee                      Justices Murphy and Richter participating.

    In accordance with this Court’s opinion of this date, the judgment of the trial court is
REVERSED and this cause is REMANDED for further proceedings consistent with this opinion.

       It is ORDERED that appellant WILLIAM MARTIN recover his costs of this appeal from
appellee PLAINSCAPITAL BANK.


Judgment entered March 28, 2013.




                                                /David L. Bridges/
                                                DAVID L. BRIDGES
                                                JUSTICE




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