Foreclosure of mortgaged property under a deed of trust and suit to enforce note to obtain money judgment against borrower are separate and distinct creditor remedies
WHAT IS THE RELATIONSHIP BETWEEN FORECLOSURE AND SUIT ON PROMISSORY NOTE?
A lien creditor may pursue foreclosure of a lien against real property under the deed of trust independent of whether the creditor pursues personal action against the borrower to collect under the note. See Stephens v. LPP Mortg., Ltd., 316 S.W.3d 742, 747 (Tex. App.-Austin 2010, pet. denied). As a federal district court applying Texas law has explained:
Texas law differentiates between enforcement of a promissory note and foreclosure. Foreclosure is an independent action against the collateral and may be conducted without judicial supervision. Enforcement of the note, on the other hand, is a personal action against the signatory and requires a judicial proceeding (citations omitted).
Reardean v. CitiMortgage, Inc., No. A-11-CA-420-SS, 2011 WL 3268307, at *3 (W.D. Tex. July 25, 2011). Because Wells Fargo was the mortgagee by statute, it was entitled to enforce the deed of trust and, thus, begin nonjudicial foreclosure proceedings. Farkas's second and third issues are overruled. Because Wells Fargo was authorized to enforce the deed of trust, we need not address the fourth issue: whether Wells Fargo was entitled to enforce the note. Similarly, for the same reason, we need not address Farkas's first issue regarding the servicing rights to the loan under the note.
SOURCE: ELEVENTH COURT OF APPEALS IN EASTLAND, TEXAS - 11-12-00024-CV - 1/9/2014
ROLE OF MERS IN REAL ESTATE FINANCE AND SECONDARY MORTGAGE MARKET EXPLAINED
A federal judicial panel on multidistrict litigation gave the following explanation of how the MERS system purportedly operates:
When a home is purchased, the lender obtains from the borrower a promissory note and a mortgage instrument naming MERS as the mortgagee (as nominee for the lender and its successors and assigns). In the mortgage, the borrower assigns his right, title, and interest in the property to MERS, and the mortgage instrument is then recorded in the local land records with MERS as the named mortgagee. When the promissory note is sold (and possibly re-sold) in the secondary mortgage market, the MERS database tracks that transfer. As long as the parties involved in the sale are MERS members, MERS remains the mortgagee of record (thereby avoiding recording and other transfer fees that are otherwise associated with the sale) and continues to act as an agent for the new owner of the promissory note.
In re Mortg. Elec. Registration Sys. (MERS) Litig., 659 F. Supp. 2d 1368, 1370 n.6 (J.P.M.L. 2009).
DEED OF TRUST AND STATUS OF MORTGAGEE
If Wells Fargo was the mortgagee, then it was entitled to exercise the powers that Farkas granted in the deed of trust. The Property Code authorizes a mortgagee to sell real property under a "power of sale conferred by a deed of trust." PROP. § 51.002. The statutory definition of a mortgagee includes: (1) the grantee, beneficiary, owner, or holder of a security instrument; (2) a book entry system, which acts as a nominee for the grantee, beneficiary, owner, or holder of a security instrument and its successors and assigns; and (3) the last person to whom the security interest has been assigned of record. See id. § 51.0001(1), (4).
Here, the summary judgment evidence shows that Wells Fargo was the last person to whom the instrument had been assigned. According to the terms of the deed of trust, MERS was the beneficiary and the nominee for the lender (Jefferson Mortgage Services) and its successors and assignees. Thus, MERS was a mortgagee as defined in the Property Code. When MERS executed the assignment to Wells Fargo Bank, N.A. on December 1, 2009, Wells Fargo obtained all of MERS's rights and interest in the deed of trust (originating from the lender, Jefferson Mortgage Services), including the "right to foreclose and sell the Property." See Athey v. Mortg. Elec. Registration Sys., Inc., 314 S.W.3d 161, 166 (Tex. App.-Eastland 2010, pet. denied).
Farkas contends that Wells Fargo is not the mortgagee because "[t]he purported assignment of the Deed of Trust is ineffective to transfer the security interest to Wells Fargo as a matter of law" because "Wells Fargo does not hold the subject debt." Essentially, Farkas argues that Wells Fargo was not the holder of the note and, thus, could not exercise the powers granted by him under the deed of trust. Farkas seems to conflate the foreclosure with enforcing the note against the borrower.
SOURCE: EASTLAND COURT OF APPEALS - 11-12-00024-CV - 1/9/2014
EXCERPT FROM RECENT FEDERAL DISTRICT COURT IN TEXAS OPINION / ORDER
Texas law differentiates between enforcement of a promissory note and a deed of trust. "Where there is a debt secured by a note, which is, in turn, secured by a lien, the lien and the note constitute separate obligations." Aguero v. Ramirez, 70 S.W.3d 372, 374 (Tex. App. 2002). Thus, the right to recover on the promissory note and the right to foreclose may be enforced separately. See Stephens v. LPP Mortg., 316 S.W.3d 742, 747 (Tex. App. 2010) (finding that the promissory note and the lien which secures it are "separate legal obligations" that "may be litigated in separate lawsuits"); Carter v. Gray, 125 Tex. 219, 81 S.W.2d 647, 648 (Tex. 1935) ("It is so well settled as not to be controverted that the right to recover a personal judgment for a debt secured by a lien on land and the right to have a foreclosure of lien are severable, and a plaintiff may elect to seek a personal judgment without foreclosing the lien, and even without a waiver of the lien.").
Foreclosure is an independent action against the collateral and may be conducted without judicial supervision. Bierwirth v. BAC Home Loans Servicing, L.P., No. 03-11-00644-CV, 2012 WL 3793190, at *4 (Tex. App. Aug. 30, 2012) (citing Reardean v. CitiMortgage, Inc., No. A-11-CA-420, 2011 WL 3268307, at *3 (W.D. Tex. July 25, 2011)). Enforcement of the promissory note, on the other hand, is a personal action against the signatory and requires a judicial proceeding. Id.
Chapter 51 of the Texas Property Code, which governs non-judicial foreclosures, authorizes either a mortgagee or a mortgage servicer acting on behalf of a mortgagee to sell real property under a "power of sale conferred by a deed of trust." See Tex. Prop. Code. §§ 51.002, 51.0025. The Property Code defines a "mortgagee" as "(A) the grantee, beneficiary, owner, or holder of a security instrument; (B) a book entry system; or (C) if the security interest has been assigned of record, the last person to whom the security interest has been assigned of record." Tex. Prop. Code § 51.0001(4). Under Texas law, therefore, Defendant need not hold the Note in order to foreclose; it need only have the right to foreclose under the Deed of Trust.
SOURCE: Rodriguez v. Bank of America, NA, Dist. Court, WD Texas 2013 United States District Court, W.D. Texas, San Antonio Division. April 25, 2013.
LEGAL VS EQUITABLE TITLE IN RELATION TO MORTGAGED PROPERTY
"When a mortgagor executes a deed of trust the legal and equitable estates in the property are severed. The mortgagor retains the legal title and the mortgagee holds the equitable title. Texas has always followed this lien theory of mortgages." Green v. McKay, 376 S.W.3d 891, 899 n.9 (Tex. App.-Dallas 2012, pet. denied) (quoting Flag-Redfern Oil v. Humble Exploration Co., 744 S.W.2d 6, 8 (Tex. 1987)).
See Lighthouse Church of Cloverleaf v. Tex. Bank, 889 S.W.2d 595, 603 (Tex. App.-Houston [14th Dist.] 1994, writ denied) (stating that "[f]oreclosure transfers title from the debtor to another party").