Saving Nate Paul: Texas Attorney General Ken Paxton Issued Unusual and Rushed STOP Foreclosure Opinion

A rushed written legal opinion, ordered by Attorney General Ken Paxton and issued under unusual circumstances in August, raised a red flag for Paxton executives who were concerned about their boss’s relationship with an Austin businessman who was under federal investigation, according to two senior agency officials.

The informal opinion, issued by the attorney general’s office on a Sunday instead of a weekday as usual, did not bear Paxton’s name, but Paxton ordered it to be completed before the weekend ended and paid unusually close attention to its progress, the officials said.

“He said, ‘Do it, and get it out this weekend,'” one of the officials told the American-Statesman.

Multiple officials in the attorney general’s office were aware of Paxton’s demands and the compressed timeline, said the officials, who are familiar with but not authorized to discuss allegations that included bribery and official misconduct that were leveled last week in an internal letter signed by seven Paxton executives.

In setting and enforcing a compressed deadline for the opinion, Paxton showed an unusually high level of interest for a typically hands-off agency leader, the officials said.

The opinion, dated Aug. 1 and made public on the agency’s website on Aug. 2, concerned property foreclosure sales during the pandemic.

Written by Ryan Bangert, the deputy first assistant attorney general (and former law clerk to Judge Patrick Higginbotham), the opinion said property foreclosure sales should not proceed if potential bidders would be excluded by crowd limits imposed by state or local rules in response to the pandemic.

When the opinion was issued Aug. 1, Austin was operating under emergency rules that said no more than 10 individuals “may stand or gather together,” and those in control of a site must enforce limits on gatherings to 10 or fewer.

The opinion also stressed that it was not a formal attorney general’s opinion as set out by state law; “rather, it is intended only to convey informal legal guidance,” it said.

Bangert was one of the seven agency executives who signed an internal letter dated Oct. 1 that accused Paxton of official misconduct.

The agency officials who spoke to the American-Statesman said aides believed the opinion could possibly protect assets belonging to Nate Paul, an Austin investor.

Paxton’s opinion arrived at a potentially advantageous time for Paul, who was trying to stave off a lender’s claim that it was owed $8.6 million by a Paul-controlled entity named WC 4th and Colorado LP.

WC 4th and Colorado owns the building that houses the Capital Grille at 319 Colorado St., and the lender, an entity named Colorado Third Street LLC, had been pushing to foreclose on it since early June, according to court filings.

The Paul-controlled entity managed to stop a July 7 foreclosure sale by obtaining a temporary restraining order. On July 31, however, the court denied a request by WC 4th and Colorado for another such order, clearing the way for a foreclosure sale — this one set for Aug. 4 — to go forward.

But the foreclosure did not occur. Instead, WC 4th and Colorado filed for Chapter 11 bankruptcy on Aug. 4, just before the foreclosure proceedings.

Paxton and his office did not respond to detailed questions about the opinion and Paxton’s role in crafting it as described by the agency officials.

Paul’s lawyer did not return messages left Tuesday and Wednesday to address the timing of the AG opinion.

But Hughes said he requested the opinion at the behest of the attorney general’s office, which provided the wording for the request — something he had never experienced before.

“We weren’t aware of the issue before the AG’s office brought it to us, but when they did, we agreed that it was something that should be addressed,” Hughes said.

“When they told us what it was, it made sense to us,” he added. “The participation (of bidders) is obviously important in a process like that.”

Hughes said his office was first contacted by phone by Ryan Fisher, Paxton’s director of intergovernmental relations, who seemed to think Hughes already been approached about making a request for an opinion.

Hughes, however, said he did not recall being approached, something that is reflected in a text message exchange the senator provided to the Statesman.

In a message sent at 4:33 p.m. on July 31 — the day before the informal opinion was issued, and the same day court action cleared the Paul property for possible foreclosure — Fisher tells Hughes’ general counsel: “I just flipped the one-sentence over to you. Don’t need it on letterhead or anything. Thanks for popping it back.”

“Ok. About to talk to Hughes about it. He hadn’t heard from anyone,” the counsel, Drew Tedford, said in a reply text message.

Speaking to the Statesman, Hughes said the wording for the request was included in an email sent from the attorney general’s office, a copy of which no longer exists because the Senate system purges emails after 30 days. A copy of their reply could not be found either, Hughes said.

The Statesman has requested a copy of relevant emails to and from the attorney general’s office under the Texas Public Information Act.

Fisher directed questions about the opinion to the agency’s communications office, which did not respond.

According to the Texas State Law Library, which keeps a catalog of opinions since 1891, the attorney general issued informal “letter opinions” prior to 1999 on noncontroversial local issues.

“Letter opinions are no longer issued. All opinions are now ‘formal,'” the agency says on its website.

American-Statesman staff writers Ryan Autullo and Shonda Novak contributed to this report

August 1, 2020

Honorable Bryan Hughes
Texas Senate
P.O. Box 12068
Capitol Station
Austin, TX 78711

Dear Senator Hughes,

You ask whether local governmental bodies have authority to limit in-person attendance at a judicial or non-judicial foreclosure sale to 10 persons or fewer. Your question concerns local emergency orders restricting or delaying such sales during the current COVID-19 pandemic. We conclude that a foreclosure sale of residential or commercial real property that is conducted outdoors is subject to the limitation on outdoor gatherings in excess of 10 persons imposed by Executive Order GA-28. Accordingly, an outdoor foreclosure sale may not proceed with more than 10 persons in attendance unless approved by the mayor in whose jurisdiction the sale occurs, or if in an unincorporated area, the county judge. However, to the extent a sale is so limited, and willing bidders who wish to attend are not allowed to do so as a result, the sale should not proceed as it may not constitute a “public sale” as required by the Texas Property Code.

When a mortgage loan is in default, a mortgagee may elect to institute either a judicial foreclosure or, when permitted by the deed of trust, a non-judicial foreclosure.1

A judicial foreclosure begins with a lawsuit to establish the debt and fix the lien.2

The judgment in a foreclosure lawsuit generally provides that an order of sale issue to any sheriff or constable directing them to seize the property and sell it under execution in satisfaction of the judgment.3

After the sale is completed, the sheriff or other officer must provide to the new buyer possession of the property within 30 days.4

A non-judicial foreclosure, in turn, must be expressly authorized in a deed of trust.5

The Property Code prescribes the minimum requirements for a non-judicial sale of real property under a power of sale conferred by a deed of trust or other contract lien.6

The Code requires that a sale under a non-judicial foreclosure be “a public sale at auction held between 10 a.m. and 4 p.m. of the first Tuesday of a month,” unless that day is January 1 or July 4, in which cases the sale must be held on the first Wednesday of the month.7

The deed of trust or other loan document can establish additional requirements, and if such requirements are established, those requirements must likewise be satisfied in order for there to be a valid foreclosure sale.8

We understand that many foreclosure sales in Texas, both judicial and non-judicial, are held outdoors. Frequently, such sales occur on the steps of a courthouse.

With this background in mind, we address your question concerning attendance limitations.

Governor Abbott ordered in Executive Order GA-28 that “every business in Texas shall operate at no more than 50 percent of the total listed occupancy of the establishment.”9

This general limitation, however, is subject to several exceptions. One such exception is found in paragraph five of the order, which limits outdoor gatherings to 10 persons or fewer without approval by the mayor or, in the case of unincorporated territory, the county judge in whose jurisdiction the gathering occurs.10

Accordingly, to the extent a foreclosure sale occurs outdoors, attendance at the sale is limited to 10 persons or fewer unless greater attendance is approved by the relevant mayor or county judge.

While certain services are exempt from the outdoor gathering limitation in Executive Order GA-28, we do not conclude that foreclosure sales are included within them.

Executive Order GA-28 exempts from its limitations on outdoor gatherings services described in paragraphs 1, 2, and 4 of the order.

Relevant here, paragraph 1 exempts from capacity limitations, inter alia, “any services listed by the U.S. Department of Homeland Security’s Cybersecurity and Infrastructure Workforce, Version 3.1 or any subsequent version.”11 (CISA Guidance). Among the services listed in version 3.1 of

A court’s main objective in construing the law is to give effect to the intent of its provisions.13 And there is no better indication of that intent than the words that are chosen.14 One dictionary defines a “service” as “[w]ork that is done for others as an occupation or business.”15

A periodic foreclosure auction conducted at a courthouse— whether by an officer of the court, an attorney, an auction professional, or another person serving as trustee16—does not constitute the type of dedicated real estate service work contemplated by the CISA Guidance.

Accordingly, we conclude that outdoor foreclosure sales are not exempted from the 10-person attendance limitation imposed by paragraph 5 of Executive Order GA-28.

If a foreclosure sale is subject to, and not exempted from, the 10-person attendance limit imposed in Executive Order GA-28, it should not proceed if one or more willing bidders are unable to participate because of the attendance limit.

“[A] sale of real property under a power of sale conferred by a deed of trust or other contract lien must be a public sale at auction held between 10 a.m. and 4 p.m. of the first Tuesday of a month.”17

The purpose of the public sale requirement is to “secure the attendance of purchasers and obtain a fair price for the property.”18

Strict compliance with the Property Code is required for a trustee to properly make a foreclosure sale.19

If an attendance limit precludes the conduct of a public sale for the purpose of securing sufficient bidders to obtain a fair price, the propriety of a foreclosure auction may be called into question.

Accordingly, to the extent attendance at a foreclosure sale is limited to ten or fewer persons, and that limit precludes the attendance of one or more willing bidders who otherwise would have appeared in person, the sale should not go forward as it likely would not comport with the Property Code requirement that the sale be a “public sale.”

We trust this letter provides you with the advice you were seeking.

Please note this letter is not a formal Attorney General opinion under section 402.042 of the Texas Government Code; rather, it is intended only to convey informal legal guidance.

Sincerely, Ryan Bangert

Deputy First Assistant Attorney General