Friday, February 28, 2014

Waiver as a Defense or Counterdefense: When does it apply? When not?


What is waiver, legally speaking, in the context of litigation?


“Waiver is the intentional relinquishment of a right actually known, or intentional conduct inconsistent with claiming that right.” Ulico Cas. Co. v. Allied Pilots Ass’n, 262 S.W.3d 773, 778 (Tex. 2008).


The elements of waiver are: (1) an existing right, benefit, or advantage held by a party; (2) the party’s actual knowledge of its existence; and (3) the party’s actual intent to relinquish the right held or intentional conduct that is inconsistent with the right. Id.

SOURCE: HOUSTON COURT OF APPEALS - 01-12-00168-CV – 2/27/2014


Monday, February 24, 2014

Attorneys Fees not recoverable as damages

Attorneys' Fees are not considered damages and not recoverable as such; contract or statute must authorize fee award

Texas law distinguishes between the recovery of attorneys' fees as actual damages and recovery of attorneys' fees incident to the recovery of other actual damages. Worldwide Asset Purchasing, L.L.C. v. Rent-a-Center East, Inc., 290 S.W.3d 554, 570 (Tex. App.-Dallas 2009, no pet.). A party may recover attorneys' fees only as provided by contract or statute. Id.; Burnside Air Conditioning & Heating, Inc. v. T.S. Young Corp., 113 S.W.3d 889, 898 (Tex. App.-Dallas 2003, no pet.). As a general rule, attorneys' fees are not recoverable as damages in and of themselves. See, e.g., Tana Oil & Gas Corp. v. McCall, 104 S.W.3d 80, 82 (Tex. 2003); Imagine Automotive Group, Inc. v. Boardwalk Motor Cars, L.L.C., 356 S.W.3d 716, 718 (Tex. App.-Dallas 2011, no pet.); Haden v. David J. Sacks, P.C., 332 S.W.3d 503, 521 (Tex. App.-Houston [1st Dist.] 2009, pet. denied); Worldwide Asset Purchasing, 290 S.W.3d at 570; see also Quest Communications Int'l, Inc. v. AT & T Corp., 114 S.W.3d 15, 35-36 (Tex. App.-Austin 2003) (damages measured by plaintiff's attorneys' fees recoverable only under certain exceptions not implicated here), rev'd in part on other grounds, 167 S.W.3d 324 (Tex. 2005) (per curiam).

A party relying on assertions of non-recoverable damages alone, such as attorneys' fees and expenses sustained in defending a lawsuit and prosecuting a counterclaim, has presented a legal barrier to any recovery. See Tana, 104 S.W.3d at 82 (damages described in terms of "value of time spent" and "costs incurred" in defending lawsuit were non-recoverable, even if party seeking such damages could have proven all other elements of claim for tortious interference); Eberts v. Businesspeople Personnel Servs., Inc., 620 S.W.2d 861, 863 (Tex. Civ. App.-Dallas 1981, no writ) ("[e]xpenses of litigation are not recoverable as damages unless expressly provided by statute or contract," and "[t]his rule applies to a litigant's loss of time"); Phillips v. Latham, 523 S.W.2d 19, 27 (Tex. Civ. App.-Dallas 1975, writ ref'd n.r.e.) ("the only time lost from work by either of the plaintiffs . . . was time lost because of the pendency of the lawsuit, such as that required for depositions and attendance at the two trials in this case. This loss is an expense of litigation. We know of no authority supporting recovery of actual damages for such a loss . . . ."); see also Haden v. David J. Sacks, P.C., 222 S.W.3d 580, 597 (Tex. App.-Houston [1st Dist.] 2007 (op. on reh'g), rev'd on other grounds, 266 S.W.3d 447 (Tex. 2008) (per curiam). This is true even if all other elements of the party's claim are proven. See Tana, 104 S.W.3d at 82; Consumer Portfolio Servs, Inc. v. Obregon, No. 13-09-00548-CV, 2010 WL 4361765, at *9 (Tex. App.-Corpus Christi Nov. 4, 2010, no pet.) (mem. op.).

SOURCE: DALLAS COURT OF APPEALS - 05-11-01718-CV - 1/30/2014.
CASE STYLE: Woodhaven Partners Ltd v. Shamoun & Norman LLP

Thursday, February 20, 2014

The importance of reading the contract prior to signing it - Finding out in litigation the hard way

Read the contract: You are stuck with what you agree to by signing it. The court probably won't allow you to come up with a different "reading" when you later find that the wording does not suit you. 

Hagee cites no case law to support her contention that Felder had a duty to disclose his interpretation to her. Indeed, case law supports the opposite conclusion. See Pride Int'l, Inc. v. Bragg, 259 S.W.3d 839, 850 (Tex. App.-Houston [1st Dist.] 2008, no pet.) (holding director had no duty to disclose personal opinion regarding contract's interpretation during negotiations). "To the contrary, a person who signs a contract must be held to have known what words were used in the contract and to have known their meaning, and he must be held to have known and fully comprehended the legal effect of the contract." Tamez v. Southwestern Motor Transport, Inc., 155 S.W.3d 564, 570 (Tex. App.-San Antonio 2004, no pet.); see also Centella & Co. v. Goodwin, 924 S.W.2d 943, 944 (Tex. 1996) (referring to "legal presumption that a party who signs a contract knows of its contents").

Moreover, even when a court construes a contract to determine the intent of the parties, it is the objective intent that controls; the court does not consider the parties' personal interpretations or subjective intent. Neel v. Tenet HealthSys. Hosps. Dallas, Inc., 378 S.W.3d 597, 605 (Tex. App.-Dallas 2012, pet. denied); Weaver v. Highlands Ins. Co., 4 S.W.3d 826, 831 (Tex. App.-Houston [1st Dist.] 1999, no pet.).

SOURCE: SAN ANTONIO COURT OF APPEALS - No. 04-12-00434-CV - 1/22/2014

Tuesday, February 18, 2014

How to establish damages for temporary injury to real property

What is the proper measure of damages on a successful claim predicated on non-permanent injury to real property?

"In the case of a temporary injury to real estate, the measure of damages is ordinarily the cost and expense of restoring the land to its former condition, plus the loss or damages occasioned by being deprived of the use of same, with interest." Vaughn v. Drennon, 372 S.W.3d 726, 738 (Tex. App.-Tyler 2012, no pet.); see also Meridien Hotels, Inc. v. LHO Fin. P'ship I, L.P., 255 S.W.2d 807, 821 (Tex. App.-Dallas 2008, no pet.). Felder and Esperanza concede that the record contains no evidence to support the damage award, but appear to believe Esperanza is entitled to a remand for a new trial on this claim.

Because Hagee and Serengeti raised this issue in a motion for judgment notwithstanding the verdict and they assert a no evidence challenge on appeal, they are entitled to a rendition of the judgment, rather than a remand of the cause. See E-Z Mart Stores, Inc. v. Ronald Holland's A-Plus Transmission & Auto., Inc., 358 S.W.3d 665, 670 (Tex. App.-San Antonio 2011, pet. denied); but see Graves v. Tomlinson, 329 S.W.3d 128, 141 n.2 (Tex. App.-Houston [14th Dist.] 2010, pet. denied) (noting party entitled to remand rather than rendition if legal sufficiency issue preserved only by motion for new trial).

Accordingly, because there is no evidence to support the jury's damage award, the trial court's judgment regarding the trespass claim is reversed, and judgment is rendered that Esperanza take nothing as to the trespass claim.

SOURCE: SAN ANTONIO COURT OF APPEALS - No. 04-12-00434-CV - 1/22/2014

Monday, February 17, 2014

Mitigation in the context of default on real estate note and foreclosure

Mitigation in the foreclosure and breach of real estate note context: Bank not required to accept offer/consent to sale of secured property that would not have covered the entire indebtedness and would have precluded it from enforcing the note and obtain deficiency judgment against debtors

The doctrine of mitigation of damages prevents a party from recovering for damages resulting from a breach of contract that could be avoided by reasonable efforts on the part of the plaintiff. Great Am. Ins. Co. v. N. Austin Mun. Utility Dist. No. 1, 908 S.W.2d 415, 426 (Tex. 1995). In other words, where a party is entitled to the benefits of a contract and can save himself from the damages resulting from its breach at a trifling expense or with reasonable exertions, it is his duty to incur such expense and make such exertions. Id. (quoting Walker v. Salt Flat Water Co., 96 S.W.2d 231, 232 (Tex. 1936)). Although an injured party is required to exercise reasonable efforts to minimize damages, it is not required to mitigate its losses "by accepting an arrangement with the repudiator if that is made conditional on [its] surrender of [its] rights under the repudiated contract." Cook Composites, Inc. v. Westlake Styrene Corp., 15 S.W.3d 124, 135 (Tex. App.-Houston [14th Dist.] 2000, pet. dism'd) (quoting Publicker Chemical Corp. v. Belcher Oil Co., 792 F.2d 482, 488 (5th Cir. 1986)).

Here, the Williams parties, as the breaching parties, had the burden of proving that damages could have been mitigated. See Copenhaver v. Berryman, 602 S.W.2d 540, 544 (Tex. App.-Corpus Christi 1980, writ ref'd n.r.e.). The Williams parties base their failure to mitigate affirmative defense on testimony from Donald Williams, who found a buyer who was willing to pay "approximately $1,400,000" for one of the parcels at issue, but the Bank refused to give Williams its permission for the sale. If the Bank accepted this side arrangement with the Williams parties, it would have required the Bank to surrender its rights and remedies under the promissory notes, as well as the Agreement with regard to this particular parcel. Because the notes were in default, and the Williams parties failed to pay their indebtedness by June 7, 2011, the Bank was not required to mitigate its damages by forgoing its rights and remedies under the notes and the Agreement. See Cook Composites, 15 S.W.3d at 135. Without other evidence that damages could have been mitigated, the Williams parties failed to raise a question of fact on the Bank's failure to mitigate.[3]


To recover a debt due and owing under a promissory note, a party must establish that it is the legal holder of an existing note, the debtor's execution of the note, and that an outstanding balance is due and owing. Austin v. Countrywide Homes Loans, 261 S.W.3d 68, 72 (Tex. App.-Houston [1st Dist.] 2008, pet. denied).

SOURCE: CORPUS CHRISTI-EDINBURG COURT OF APPEALS - No. 13-12-00704-CV - 1/16/2014 - Williams v. Compass Bank (creditor can't be forced into short sale under duty-to-mitigate-damages doctrine and give up its claim).

Footnote 3: We also note that the Bank had a right under the promissory notes to foreclose on the properties prior to the Agreement reached in 2011 because the Williams parties were in default. The Agreement, by itself, is further conclusive proof of the Bank's attempt to exercise reasonable efforts to minimize damages by forbearing its collection efforts and allowing the Williams parties to pay back its indebtedness.  

Sunday, February 16, 2014

Discretionary nature of attorney fee awards in declaratory judgment actions

Fee Awards under the Texas DJA

Under the Uniform Declaratory Judgments Act, "the court may award costs and reasonable and necessary attorney's fees as are equitable and just." TEX. CIV. PRAC. & REM. CODE ANN. § 37.009 (West 2008). A grant or denial of attorney's fees in a declaratory judgment action lies within the sound discretion of the trial court. Oake v. Collin Cnty., 692 S.W.2d 454, 455 (Tex. 1985). The court's judgment will not be reversed on appeal absent a clear showing that it abused its discretion. Id.; A & L Eng'g & Consulting, Inc. v. Shiloh Apollo Plaza, Inc., 315 S.W.3d 928, 930 (Tex. App.-Dallas 2010, no pet.).


Here, the parties stipulated to the amounts for reasonable and necessary attorney's fees through trial and if the case is appealed. Based on our resolution of Wells Fargo's appellate issues and this opinion affirming the trial court's judgment, we cannot conclude the trial court abused its discretion by awarding Leath his fees. We overrule Wells Fargo's fourth issue.

CASE: WELLS FARGO BANK, NA v. Leath, Tex: Court of Appeals, 5th Dist. 2014

Recovery under the Texas Declaratory Judgments Act in the presence of other claims 

In this case, all parties sought declaratory relief with regard to the construction and interpretation of the various agreements. Section 37.009 allows a trial court to award attorneys' fees in any declaratory judgment proceeding. TEX. CIV. PRAC. & REM. CODE ANN. § 37.009 (West 2008). Hagee contends that the declaratory relief was sought simply to recover fees that would not otherwise be recoverable in relation to the other claims that were asserted. In this case, however, the declaratory relief was not sought simply for that purpose. Instead, the interpretation of the release language in the CSA was a crucial component of the claims asserted by both parties, and the declaratory relief narrowed the issues for trial.


Saturday, February 15, 2014

Effect of Release of Judgment on pending appeal


Appeal cannot proceed after appellee files release of judgment. Houston Court of Appeal issues dismissal order. 

Appellant R. F. Bearden appeals from a judgment in favor of appellee Walton Houston Galleria Office, L.P. On November 21, 2013, appellee filed a release of judgment, which provides:

Plaintiff WALTON HOUSTON GALLERIA, L.P. hereby Releases, Relinquishes, and Discharges the Final Judgment signed by the Court in this case on April 17, 2013 ("judgment"), which judgment was in favor of the Plaintiff and against the Defendant R.F. BEARDEN, and Plaintiff WALTON HOUSTON GALLERIA, L.P. hereby Releases, Acquits, and Discharges the Defendant R.F. BEARDEN from that judgment.

On December 3, 2013, appellee filed a motion to dismiss the appeal as moot. "An unconditional release of judgment operates as a total relinquishment of all rights of the judgment creditor in the judgment. It is a complete discharge of the debt created by the judgment and a complete surrender of the judgment creditor's rights in the judgment." Rapp v. Mandell & Wright, P.C., 123 S.W.3d 431, 435 (Tex. App.-Houston [14th Dist.] 2003, pet. denied).

Because appellee unconditionally released the judgment, we do not have jurisdiction over appellant's appeal. See Crown Life Ins. Co. v. Casteel, 22 S.W.3d 378, 392 (Tex. 2000).

Appellant argues that this court has jurisdiction over his appeal because the judgment is void and therefore subject to appeal. See State ex rel. Latty v. Owens, 907 S.W.2d 484, 486 (Tex. 1995). However, a party affected by void judicial action need not appeal. State ex rel Latty v. Owens, 907 S.W.2d 484, 486 (Tex.1995). If the judgment is void, it cannot be enforced against appellant, just as it cannot be enforced due to appellee's release. See Custom Corporates, Inc. v. Sec. Storage, Inc., 207 S.W.3d 835, 837 (Tex. App.-Houston [14th Dist.] 2006, no pet.). Even if this court had jurisdiction over appellant's appeal and determined the judgment is void, the result to appellant is the same.

Accordingly, the appeal is dismissed.

SOURCE: HOUSTON COURT OF APPEALS - 14-13-00578-CV - 1/9/2014 Bearden v. Walton Houston Galleria Office LP

Friday, February 14, 2014

When is a lien filed in the county real estate records presumed fraudulent under the Texas Government Code?


Pursuant to Section 51.901 of the Government Code, a document is "presumed" to be fraudulent if:

[T]he document or instrument purports to create a lien or assert a claim against real or personal property or an interest in real or personal property and:

(A) is not a document or instrument provided for by the constitution or law of this state or of the United States;
(B) is not created by implied or express consent or agreement of the obligor, debtor, or the owner of the real or personal property or an interest in the real or personal property, if required under the laws of this state, or by implied or express consent or agreement of an agent, fiduciary, or other representative of that person; or
(C) is not an equitable, constructive, or other lien imposed by a court with jurisdiction created or established under the constitution or laws of this state or of the United States.

TEX. GOV'T CODE ANN. § 51.901(c)(2) (West 2013).

A trial court may presume a document is fraudulent only if it makes one positive finding and three negative findings about the document; if the document is provided for by constitution or statute, created by agreement, or imposed by a court, then it is not "presumed fraudulent" under section 51.901(c)(2). See id.; In re Hai Quang La, No. 02-13-00110-CV, 2013 WL 5651746, at *3 (Tex. App.-Fort Worth Oct. 17, 2013, no pet. h.).

A trial court may base its finding solely on its review of the document itself and without hearing any testimonial evidence. TEX. GOV'T CODE ANN. § 51.903(c) (West 2013). A trial court may review the document ex parte and without delay or notice of any kind, but the trial court may make no finding as to any underlying claim. Id. § 51.903(c), (g); In re Purported Liens or Claims Against Samshi Homes, L.L.C., 321 S.W.3d 665, 667 (Tex. App.-Houston [14th Dist.] 2010, no pet.) (holding that trial court may not rule on validity of underlying lien). The trial court also may not rule on any substantive evidentiary claim. Samshi Homes, 321 S.W.3d at 668.

A document filed in the form of a mechanic's lien is "provided for by the . . . laws of this state" and thus cannot be presumed to be fraudulent under section 51.901(c)(2)(A) of the Government Code. Id. at 667-68; see also David Powers Homes, 355 S.W.3d at 339 (discussing and applying holding of Samshi Homes).

SOURCE: HOUSTON COURT OF APPEALS - 01-13-00509-CV - 1/14/2014

Texas Government Code authorizes action to attack fraudulent lien


Cardenas notified the Wilsons of his intent to file a mechanic's lien on Wilson's truck. Article 16, section 37 of the Texas Constitution and Chapter 53 of the Texas Property Code both provide a legal basis for a mechanic's lien. TEX. CONST. art. XVI, § 37 (West 1993); TEX. PROP. CODE ANN. Ch. 53 (West 2007). Cardenas' document is provided for by the laws of Texas and is thus not presumed to be fraudulent. See Samshi Homes, 321 S.W.3d at 667-68. The Wilsons respond that they adduced proof that Cardenas forged the repair authorization. The Wilsons' proof, however, does not refute the validity of a lien for a mechanical repair under Texas law, but rather attacks the merit of the underlying claim for payment for the repair.

Under the fraudulent lien statute, the trial court does not rule on the validity of the underlying claim creating the lien or rule on any substantive evidentiary claim. See id. at 667-68.


We hold that Cardenas' lien is not presumed fraudulent as defined by section 51.901 of the Texas Government Code. We therefore reverse and vacate the trial court's orders removing the lien and releasing the truck to the Wilsons.

SOURCE: HOUSTON COURT OF APPEALS - 01-13-00509-CV - 1/14/2014 - Cardenas v Wilson

Related earlier post: Remedy for fraudulent lien under the Texas Government Code

Wednesday, February 12, 2014

Mootness exception: Attorney fee claim may survive even though underlying dispute becomes moot


A court cannot decide a case that becomes moot during the pendency of the litigation. Heckman v. Williamson Cnty., 369 S.W.3d 137, 162 (Tex. 2012). A case is moot if "there has ceased to exist a justiciable controversy between the parties." Id. In a declaratory judgment action, a justiciable controversy exists concerning the rights and status of the parties when the controversy will be resolved by the declaration sought. Robinson v. Alief Indep. Sch. Dist., 298 S.W.3d 321, 324 (Tex. App.-Houston [14th Dist.] 2009, pet. denied). But no justiciable controversy exists if the issues presented are no longer "live" or if the parties lack a legally cognizable interest in the outcome. Heckman, 369 S.W.3d at 162.

However, a "live" issue in controversy exists when there is a question about whether a party has a legally cognizable interest in recovering attorney's fees and costs. Camarena v. Tex. Emp't Comm'n, 754 S.W.2d 149, 151 (Tex. 1988); see also Allstate Ins. Co. v. Hallman, 159 S.W.3d 640, 643 (Tex. 2005) (holding that party's interest in obtaining attorney's fees "breathe[d] life" into appeal of declaratory judgment where underlying claims had become moot).

SOURCE: SOURCE: TYLER COURT OF APPEALS - 12-13-00231-CV - 1/15/2014 Pate v. Edwards (public employment dispute with declaratory judgment claim alleging violation of state constitutional rights and seeking injunctive relief).


The Uniform Declaratory Judgments Act authorizes an award of attorney's fees on an equitable basis. See TEX. CIV. PRAC. & REM. CODE ANN. § 37.009 (West 2008). Thus, in a declaratory judgment action, a party need not "substantially prevail" in the litigation to receive attorney's fees. Barshop v. Medina County Underground Water Conservation District 925 S.W.2d 618, 637-38 (Tex. 1996). Instead, a trial court may award just and equitable attorney's fees to a nonprevailing party. Texas A&M Univ.-Kingsville v. Lawson, 127 S.W.3d 866, 874-75 (Tex. App.-Austin 2004, pet. denied).

Even though Edwards's underlying constitutional claims are moot, her claim for attorney's fees is a separate controversy that persists. See Camarena, 754 S.W.2d at 151. Further, Edwards obtained a ruling in her favor before the case was rendered moot. The trial court awarded her a temporary restraining order and a temporary injunction. Because there is a question about whether Edwards has a legally cognizable interest in recovering attorney's fees and costs, her claim for attorney's fees is a live controversy and not moot. See id.

We overrule Pate's sole issue as to Edwards's claim for attorney's fees.

SOURCE: Pate v. Edwards, Tex: Court of Appeals (Tyler), 12th Dist. 2014

Tuesday, February 11, 2014

When does a claim or appeal become moot?

Release can operate as an affirmative defense, but sometimes the invocation of mootness can even be more effective to quickly terminate a pending case or appeal. 


A case becomes moot when: (1) it appears that a party seeks to obtain a judgment upon some controversy, when in reality none exists; or (2) a party seeks a judgment upon some matter, which cannot have any practical legal effect upon a then existing controversy. Camarena v. Tex. Employment Comm'n, 754 S.W.2d 149, 151 (Tex. 1988); Robinson v. Alief Indep. Sch. Dist., 298 S.W.3d 321, 324 (Tex. App.-Houston [14th Dist.] 2009, pet. denied).


"An unconditional release of judgment operates as a total relinquishment of all rights of the judgment creditor in the judgment. It is a complete discharge of the debt created by the judgment and a complete surrender of the judgment creditor's rights in the judgment." Rapp v. Mandell & Wright, P.C., 123 S.W.3d 431, 435 (Tex. App.-Houston [14th Dist.] 2003, pet. denied).

SOURCE:  HOUSTON COURT OF APPEALS - 14-13-00467-CV - 1/9/2014


The mootness doctrine limits courts to deciding cases in which an actual controversy exists. Ex parte Flores, 130 S.W.3d 100, 104-05 (Tex. App.-El Paso 2003, pet. ref'd). When there has ceased to be a controversy between the litigating parties, which is due to events occurring after judgment has been rendered by the trial court, the decision of an appellate court would be a mere academic exercise and the court may not decide the appeal. Id. A case that is moot is normally not justiciable. Pharris v. State, 165 S.W.3d 681, 687-88 (Tex. Crim. App. 2005).


One of the exceptions to the general rule is when a claim is "capable of repetition, yet evading review." The United States Supreme Court has said that "the `capable of repetition but evading review' doctrine [is] limited to the situation where two elements combine: (1) the challenged action was in its duration too short to be fully litigated prior to its cessation or expiration, and (2) there was a reasonable expectation that the same complaining party would be subjected to the same action again." Weinstein v. Bradford, 423 U.S. 147, 149 (1975). The Texas Court of Criminal Appeals has adopted and applied this doctrine. See Pharris, 165 S.W.3d at 688.

SOURCE: HOUSTON COURT OF APPEALS FOR THE FOURTEENTH DISTRICT - 14-13-00647-CR - 2/6/2014 EX PARTE BRADSHAW, Tex: Court of Appeals, 14th Dist. 2014 (criminal case context)

Foreclosure under Deed of Trust (DoT) vs lawsuit to enforce the Promissory Note: Is there a difference, and if so, what's difference?

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 


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.



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).


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


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;[3] 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.


 "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").