Homeowners Have Standing To Challenge Faulty Mortgage Assignments From One Bankster To Another, But Only Where Defects Render Conveyance Absolutely Void, Not Merely Voidable
A recent ruling by a Texas Federal court addressed such a gimmick and, in applying Texas law, said that homeowners do, in fact, have standing to challenge defective assignments to which they were not a party, but only when the defects render the assignments absolutely void, and not merely voidable.
From the ruling:
- Defendants argue alternatively that plaintiffs have no standing to challenge an assignment of the security interest because they were not parties to the assignment. In support of their argument defendants cite nine recent decisions from federal district courts in this state (six of which were issued by the same magistrate judge), which do indeed affirm that proposition.
However, none of these decisions cite any Texas case law or statute, and all but one explicitly rely upon a single federal case, Eskridge v. Fed. Home Loan Mortgage Corp, 2011 WL 2163989, at *5 (W.D. Tex. Feb. 24, 2011), which cites no authority at all, state or federal.
In fact, Texas has long followed the common law rule which permits a debtor to assert against an assignee any ground that renders the assignment void or invalid. See Tri-Cities Const., Inc. v. American Nat. Ins. Co., 523 S.W. 2d 426, 430 (Tex. Civ. App.-Houston [1st Dist. 1975, no writ); Glass v. Carpenter, 330 S.W. 2d 530, 537 (Tex. Civ. App.-San Antonio 1959, writ ref'd n.r.e.). The Glass court endorsed as authoritative the following summary of the rule, which still appears in the current version of Corpus Juris Secundum:
"A debtor may, generally, assert against an assignee all equities or defenses existing against the assignor prior to notice of the assignment, any matters rendering the assignment absolutely invalid or ineffective, and the lack of plaintiffs title or right to sue; but if the assignment is effective to pass legal title, the debtor cannot interpose defects or objections which merely render the assignment voidable at the election of the assignor or those standing in his or her shoes."
6A C.J.S. Assignments § 132 (database updated May 2012) (emphasis added). The current edition of American Jurisprudence states the same rule more succinctly, while adding the rationale:
"The obligor of an assigned claim may defend a suit brought by the assignee on any ground that renders the assignment void or invalid, but may not defend on any ground that renders the assignment voidable only, because the only interest or right that an obligor of a claim has in the assignment is to ensure that he or she will not have to pay the same claim twice."
6 Am.Jur. 2d Assignments § 119 (database updated May 2012). Examples of "voidable" defenses include the statute of frauds, Harding Co. v. Sendero Res., Inc., 2012 Tex.App. LEXIS 1754, *33 n.28 (Tex. App.-Texarkana 2012); fraud in the inducement, Kansas Life Ins. Co. v. First Bank of Truscott, 78 S.W. 2d 584, 587 (Tex. 1935); lack of capacity as a minor, Dairyland County Mut. Ins. Co. v. Roman, 498 S.W. 2d 154, 158 (Tex. 1973); and mutual mistake, Chase, Inc., v. Bostick, 551 S.W. 2d 116, 119 (Tex. Civ. App.-Texarkana 1977, writ ref'd n.r.e.).
Plaintiffs here do not assert these or any other "voidable" defenses to Mellon's assignment. Instead, plaintiffs assert that, standing alone, this single assignment from a third party is ineffective to establish a right to foreclose, because it does not show a proper assignment of the original security instrument to the third party.
Texas courts routinely allow a homeowner to challenge the chain of assignments by which a party claims the right to foreclose. See Martin v. New Century Mortgage Co., 2012 Tex. App. LEXIS 4705 (Tex. App Houston [1st Dist.] 2012); Austin v. Countrywide Home Loans, 261 S.W. 3d 68 (Tex. App.-Houston [1st Dist.] 2008); Leavings v. Mills, 175 S.W. 3d 301 (Tex. App.-Houston [1st Dist.] 2004, no pet.); Shepard v. Boone, 99 S.W.3d 263 (Tex. App.-Eastland 2003); Priesmeyer v. Pacific Southwest Bank, F.S.B., 917 S.W. 2d 937 (Tex. App.-Austin 1996).
Federal district courts in this state have also entertained chain of title claims by mortgage debtors challenging foreclosure proceedings. See Millet v. JP Morgan Chase, N.A., 2012 WL 1029497, *4 (W.D. Tex. 2012); Norwood v. Chase Home Finance LLC, 2011 WL 197874 (W.D. Tex. 2011). Nor is Texas alone among non-judicial foreclosure states in permitting such suits. U.S. Bank Nat'I Ass'n v. Ibanez, 941 N.E.2d 40, 53 (Mass. 2011).
Defendants' final (and weakest) argument is that homeowners like plaintiffs "will not be prejudiced" if the chain of assignments from original lender to foreclosing entity were immune to debtor challenge. After all, the argument apparently goes, the Millers owe the money to somebody. In truth, the potential prejudice is both plain and severe — foreclosure by the wrong entity does not discharge the homeowner's debt, and leaves them vulnerable to another action on the same note by the true creditor.
Banks are neither private attorneys general nor bounty hunters, armed with a roving commission to seek out defaulting homeowners and take away their homes in satisfaction of some other bank's deed of trust. MasterCard has no right to sue for debts rung up on a Visa card, and that remains true even if MasterCard has been assigned the rights of another third party like American Express. Unless and until a complete chain of transactions back to the original lender is shown, MasterCard remains a stranger to the original transaction with no claim against the debtor. And that is a fair description of this case in its present posture.
In sum, a standing issue is lurking here, but only as to the defendants, not the plaintiffs. The court concludes that under Texas law homeowners have legal standing to challenge the validity or effectiveness of any assignment or chain of assignments under which a party claims the right to foreclose on their property.
Accordingly, plaintiffs have properly stated claims for declaratory and injunctive relief based on wrongful foreclosure, trespass to try title and quiet title.
Thanks to Deontos for the heads-up on the ruling.