The bank only found out when the receiver sued to block its foreclosure
A divorce court tried to sell off a bank’s collateral. Nobody told the bank.
On November 5, 2026, the Court of Appeals for the Second District of Texas at Fort Worth reversed a trial court order that had placed two tracts of real property in Palo Pinto County under a court-appointed receiver - property that served as collateral for a $1,000,000 loan held by Prosperity Bank.
The backstory is straightforward. In December 2024, an LLC owned by a married couple signed a promissory note agreeing to pay Prosperity Bank $1,000,000 plus interest, with the full balance due in December 2025. Both spouses personally guaranteed the debt, and the LLC pledged two parcels of real estate through a deed of trust.
The marriage did not last as long as the loan. The wife filed for divorce in August 2025. By January 2026, Prosperity Bank had notified the LLC and both spouses that they were in default - stating $995,518.45 was owed as of January 21, 2026 - and warned it could foreclose.
In February 2026, the husband asked the divorce court to appoint a receiver to manage the properties and head off foreclosure. The following month, the trial court appointed a receiver charged with selling them. Prosperity Bank got no notice. None.
The bank found out the next day - when the receiver filed a petition and a temporary restraining order application to stop Prosperity Bank from foreclosing. The bank responded and moved to dissolve the receivership, arguing the appointment violated Texas Rule of Civil Procedure 695, the rule that requires notice to adverse parties before a receiver is appointed over real estate.
The trial court denied the motion. Prosperity Bank appealed.
Writing for a three-justice panel, Justice Wade Birdwell held that real estate qualifies as “fixed and immovable property” under Rule 695, that a lienholder is an “adverse party” entitled to notice, and that the no-notice appointment was reversible error. The court reversed the trial court’s order and rendered judgment dissolving the receivership.
The opinion drew heavily on Nationwide Life Insurance v. Nations, a 1983 Houston appeals court decision where a receiver was appointed in a divorce case to sell liened property without notifying the lienholder. That receivership was also vacated on the same ground.
Justice Birdwell went further, noting the court described receivership as “an extraordinarily harsh remedy” and questioned why a less drastic measure - a temporary restraining order, for instance - could not have protected the divorcing spouses’ interests without shutting out the bank entirely. Neither spouse filed an appellate brief.
For lenders holding liens on property where borrowers are going through a divorce, the case is a clean reminder: Rule 695 means you get a seat at the table before a receiver touches your collateral, and Texas appellate courts have consistently enforced that
