### T E X A S C O U R T O F A P P E A L S , T H I R D D I S T R I C T , A T A U S T I N

NO. 03-11-00644- CV

Ke vin B ierwirth, Appellan t

v. BAC Hom e Loans Servicing, L.P., Appellee

F ROM TH E DISTRI CT COURT O F TRAVIS CO UNTY, 201 ST JUDICI AL DISTRICT NO. D-1 -GN-1 0-0 0323 9, H ONO RAB LE GISELA D. TRI ANA-DO Y AL, JUDGE P RESIDING

M E M O R A N D U M O PI N I O N

In this appea l from a bench t ri al on an attempted rea l-estate fore closure, Kevin Bie rwirth challeng es the district court’s take- nothing judgme nt on his decla ratory-judg ment claim and the court’s awa rd of decla

ratory judgme nt to BA C Home L o an s S ervicing L .P. establishing its right to fore close. In three issues, Bie rwirth contends that the district court err ed in decla ring that BA C had the right to pursue nonjudicial fore closure afte r his defa ult on a promissory note beca use the assig nment of the note to BA C was not valid and beca use BA C was not a “holder in due course .” Be cause we conclude that BA C’s evidenc e established its right to fore close, we will aff irm the district court’s judgment.BACK GR OUND Kevin Bie rwirth purcha sed the rea l proper ty and improvements at 1321 2 Running Doe L ane in Cedar Park, Texas by borrowing $170,000 from Country wide Home L oans, Inc. 1 Bie rwirth agree d to repa

y his loan by executing a p rom issory note, and he secur ed the note by executin g a d ee d o f trust. Bie rwirth’s note and deed of trust wer e rec orded in the Travis County

rea l proper

ty rec ords. Both instruments identified Country wide Home L oans, Inc. as the “L ender .” The de ed of trust identified Mortga g e Electronic Reg istration Sy stems (MERS)—the nominee for the L ender (Country

wide Home L oans) and its succe ssors and assig ns—as benef iciary

. Bie rwirth’s

2 deed of trust specifie d that MERS had the right to exercise any or all of the interests that Bie rwirth g rante d in the deed of trust, including the right to fore close and sell the proper ty and to take any of the L ender ’s required actions. MERS subs equently assig ned B ierwirth’ s note and de ed of trust to BA C Home L oans Servicing and rec orded the assig nment in the Travis County rea l proper ty rec ords. The assig nment identified MERS (“a s nominee for L ender and L ender [’] s succe ssors and assig ns”)

as the assig nor and BA C Home L oans Serv ic in g L

. P. ( “ formerly known as Country wide Home L oans

BA C makes the uncontrove rted asser tion that Bie rwirth is a rea l-estate investor who 1 purcha ses proper

ty , lease s it, and “ca sh flows” the proper ty without pay

ing the mortg ag e. Bie rwirth has a history of rea l-estate fore closure and forc ible-deta iner litigation. See, e.g. , In re Bierwirth , No. 03-12- 0 0 4 8 8 -C V, 2012 Tex. App. L EXI S 6205 (Tex. App.—Austin J uly 26, 2012, orig

. proce eding ) (mem. op.); Bierwirth v. TIB-The Indep. Banke rsBa n k , N o . 0 3

- 1 1

- 0 0 3 3 6

- CV , 2 0 12 Tex. App. L EXI S 6681 (Tex. App.—Austin Aug

. 10, 2012, no pet. h.) (mem. op.); Bierwirth v . Fede ral Nat’l Mort

g . Ass’n a/k/a Fannie Mae , No. 03-12-00271- CV; see also Bierwirth v. Mortgage E l ec . R egis tration Sys ., No. 1:2011cv00758 (W.D. Tex.); Bierwirth v. Bank of Am., N.A. , No. 1:2012cv00112 (W.D. Tex.). The MERS sy stem is “an ele ctronic mortg ag e re g istration sy stem and clea ringhouse that 2 trac ks benef

icial owner ships in, and servicing rights to, mortg ag e loans.” In re Mortg. Elec. Registration Sys. (

MERS) Liti

g ., 659 F. Supp. 2d 1368, 1370 (J.P .M.L

. 2009); see also Campbell v. Mortgage Elec. Registration Sys ., No. 03-11-00429- CV, 2012 Tex. Ap p . L EXI S 4030, at *13 (Tex. App.—Austin May 18, 2012, pet. filed) ( mem. op.).

2Servicing L P”) as the assig nee. See W arren v. Bank of

Am. , No. 3:11-CV-3603-M, 2012 U.S. Dist. L EXI S 102561, at *2-3 (N.D. T ex. J une 19, 2012) ( addre ssing a nalog ous fac ts). 3 Bie rwirth defa

ulted on his loan by failing to make the require d pay ments, then BA C initiated nonjudicial fore closure proce eding s under the terms of the deed of trust and in compliance with the proper

ty code. See Tex. Prop. Code Ann. § 51.002 (West Supp. 2012) (authorizing sale of

rea l proper

ty afte r defa

ult under power s g rante d in deed of trust); Star crest Trust v. Berry , 4 926 S.W .2d 343, 351 (Tex. App.—Austin 1996, no writ) (def ining “dee d of trust” as mortg ag e with power to se ll on default). B ierwirth responde d by filing a “dec laratory judg[]ment for verific ation of debt,” challeng ing BA C’s right to fore close. He obtained a temporar y injunction halting the fore closure, and the case was set for trial. After the district court denied Bie rwirth’s second motion for c ontinuance, the trial proce eded.

Actingpro se at trial, Bier wirth alleg ed that MERS lacked le g al authority to assign the note, that the assig nment from MERS to BA C “bifurc ate[d]” the note from the deed o f trust, “ca using the deed of trust to be null and void,” and that BA C was not a holder in due course wi th a right to forec lose. Bie rwirth also a rgued that his “be ing be hind on pay ment [wa]s irrele vant.” 5

Fe dera l authority is persuasive he re be cause a great amount of home-mortg ag e litigation 3 in Texas is tried in its fede ral courts, ap plying Texas fore closure law. See Robeson v. Mortgage Elec. Registratio n Sys. , No. 02-10-00227- CV, 2012 Tex. App. L EXI S 137, at *12 n.4 (Tex. App.—For

t Worth J an. 5, 2012, no pet.) (mem. op.). Be cause rec ent am en d ments to the proper ty code did not chang e the substance of the 4 statutes rele vant to this appeal, we cite to their c urre nt version. Bie rwirth obtained c ounsel for this appe al. 5 3BA C’s evidenc e admitted at tria l included:

• the orig inal “we t-ink” note, memorializing Bie rwirth’s promise to repa y $170,000 plus interest to Country wide Home L oans, Inc. in retu rn for the loan that Bie rwirth rec eived an d containing Bie rwirth’s acknow ledg ment that Country wide may transfe r it;

• the deed of trust betwee n Country wide and Bie rwirth, containing the right of fore closure;

• the assignment of the not e and de ed of trust by Country wide’s nominee MERS (ac ting on be half of Country wide and its succ essors or a ssigns) to B AC;

• BA C’s notice to Bie rwirth that his loan was in “serious defa ult beca use the require d pay

ments ha[d] not been made ”;

• BA C’s notice to Bie rwirth of a cce leration of the maturity of the de bt; and

• BA C’s notice to Bie rwirth of the substitut e trustee sale.

At the conclusion of the bench trial, the district court signe d a final judgme nt ruling that BA C w as the holder of the note, the benef iciary under the deed of trust, a nd entitled to pur sue nonjudi ci al fo re cl osure. The court filed finding s of fac t and conclusions of law in support of its judgme nt, and this appea l followed.

ANALYSIS

Bie rwirth’s appellate issues challeng e the leg al suffici e n c y o f th e e v id e n c e s u p p o r ting the j udgment. He argues spec ifically that there was no evidence demonstrating the validi ty of t he assig nment of the note from MERS to BA C nor was there any evidenc e that BA C was a “holder in due cour se” of

the note.

4In an appeal from a judgme nt rende red after a bench t rial, t he trial court’s findings

of fac t serve the same function as the jury ’s verdic t. See Catali na v. Blasdel , 881 S.W .2d 295, 297 (Tex. 1994); Davis v. Johnston , No. 03-10-00712- CV, 2012 Tex. App. L EXI S 5249, at *36 (Tex. App.—Austin J une 28, 2012, no pet. h.) (mem. o p . ). When conducting a leg al-suff iciency revie w, we deter

mine whether the evidenc e at trial would enable rea sonable and fair- minded people to rea ch the verdic t under revie w by considering the evidenc e in the light m o s t favor able to the judgme nt, “cr editing favor able evidenc e if rea sonable jurors could, disreg arding contra ry evidenc e unless rea sonable jurors could not,” and indulging ever y rea sonable infere nce that would support the district court’s finding s. City of Keller v. W

ilson , 168 S.W .3d 802, 822, 827 (Tex. 2005). Evidence is leg ally insufficient if (1) there is a complete absenc e of evidenc e of a vital fac t; (2) the rules of law

or of ev i dence preve nt g iving weight to the only evidenc e offe red to prove a vital fac t; (3) the evidenc e offe red to prove a vi tal fac t is no more than a mere scintilla; or (4) there is conclusive evidenc e of the opposite of the vital fac t. Id. at 810; see Jelinek v. Casas , 328 S.W .3d 526, 532 (Tex. 2010). More than a scintilla of evidenc e exis ts when the evidenc e “rises to a level that would enable

rea sonable and fair- minded people to differ in their conclusions,” Merre ll Dow Pharms., Inc. v. Havne r , 953 S.W .2d 706, 711 (Tex. 1997), but “less than a scintilla of evidenc e exis t s wh en the evidenc e is ‘so wea

k as to do no more than cre ate a mere surmise or suspicion’ o f a fac t.” King Ranch, Inc . v. Chapman , 118 S.W .3d 742, 751 (Tex. 2003).

In this case , Bie rwirth contends only that the evidenc e is leg ally insufficient to prove the validity of BA C’s assignment from MERS and that BA C was a holder in due course of the note.

5In his first issue, Bie rwirth contends that MERS lacke d leg al authority to assig n the

note because MERS was identified only in the d ee d o f t ru s t

. The deed of trust that undisputedly 6 identifies MERS as “the benef iciary under this Security Instrument” and “nominee for L ender” also sets forth the pa

rties’ a g ree ment g rantingMERS all of the L ender ’s rights under the de ed of trust:

Bor rowe r [Bierwirth] understands and agree s that MERS holds only leg al title to the int er es t s g rante d by Bor

rowe r in this Security Intere st, but, if nece ssary to comply with the law or custom, MERS (as nominee for L ender [C ountry wide Home L oans, Inc.] and L ender ’s succe ssors and assig ns) has the right: to exercise any or all of those interests, including, but not limit ed to, the right t o fo re close and sell the Property ; and to take a

ny action re quired of L ender

. . . .
In Bie rwirth’s view, the provisions in his de ed of trust are meaning less beca use the a ssignment by MERS to BA C of a note that did not identify MERS and a deed of trust that did i d en t i fy M E RS resulted in “bif

urcation” of the note f

rom the dee d of trust, nullifying both instruments. This bifurca

tion theory orig inates in the concept that a note has no separ ate exis tence from its security , and an assig nment of the security alone is a nullity

. See McCarthy v. Bank of Am., N.A. , No. 4:11-CV-356-A, 2011 U.S. Dist. L EXI S 147685, at *8 (N.D. Tex. Dec

. 22, 2011). Under this theory , the holder of the deed of trust must also own or hold the note, otherwise the deed of trust is ineffe ctive and cannot be used to fore close on the proper ty described in the deed of trust. Id

. at *8- 9. This theory

—which beca

me kn o wn as “show-me -the-note ”—beg an circ ulating in Americ an courts in 2009. Reardean v. C i tiMortgage, Inc ., No. A-11-CA- 420-SS, 2011 U.S. Dist. L EXI S 87567, at *7 (W.D. Tex. J uly 25, 2011) (citing W ells v. BAC Home Loans Servic ing, L.P. , No. W-10- Although B ierwirth doe s not state so specific ally , his first issue appea rs to challeng e the 6 district court’s finding that “[t] he Note and Dee d of Trust wer e subsequently assig ned to BA C Home L oans Servicing , L P pursuant to an Assignme nt eff ective August 1 6 , 2 0 1 0 and rec orded as Document No. 2010144375 in the r eal pr operty rec ords of Tr avis County , Texas.” 6CA-00350, 2011 U.S. Dist. L EXI S 615 2 9 , at *4-5 (W.D. Tex. Apr. 26, 2011); Hornbuck le

v. Co u n trywide Home Loans, Inc ., No. 02-09-00330- CV, 2011 Tex. App. L EXI S 3857, at *9 (Tex. App.—For

t Worth May 19, 2011, no pet.) (mem. op.). S ince then, courts have “roundly reje cted” the “show-me -the-note ” theory and dismiss ed claims rely ing upon it beca

use “for eclosure statutes simply do not require possession or production of the orig inal note.” Reardean , 2011 U.S. Dist. L EXI S 87567, at *7; Hornbuck le , 2011 Tex. App. L EXI S 3857, at *9. 7 Simi larly , this Court reje cted the argument that a note and its security are insepara ble by re co gn i z i ng that the note and the deed- of-trust lien aff ord distinct reme dies on separ ate obligations—the note ag ainst the borrowe r and th e l i en against the rea l proper ty

. See Stephens

v. LPP Mortg. , 316 S.W .3d 742, 747 (Tex. App.—Austin 2010, pet. denied)

. For this rea son, a lien

cre ditor may

pursue f orec losure of a

lien ag ainst rea l property under the deed of trust independent of any perso n al ac t i o n ag ainst the borrowe r for collection on the note. See id. ; see also Kramer

v. Fannie Mae , No. A-12-CA- 276-SS, 2012 U.S. Di s t. L EXI S 105878, at *16-19 (W.D. Tex. M ay 15, 2012) (re

jecting McCarthy ’s require ment that holder of deed of trust must als o o wn o r hold note to be entitled to f orec lose and rec og nizi ng that “author ity to conduct a fore closure under Texas law is g overne d by an entit y ’s re l at i o n s hip to the deed of trust, rathe r than the associate d

Texas fede ral courts have reje cted use of the “bifurc ation” theory as an at t em pt to 7 invalidate MERS’s assig nment of fore closure rights in a deed of trust. See, e.g. , Odum v. Mortgage Elec. Registration Sys. , No.4:12-cv- 959, 2012 U.S. Dist. L EXI S 86893, at *5-9 (S.D. Tex. J une 22, 2012); Kramer v. Fannie Mae , No. A-12-CA- 276-SS, 2012 U.S. Dist. L EXI S 105878, at *16-19 (W.D. Tex. May 15, 2012); Reardean v. Citi Mortgage, Inc ., No. A-11-CA- 420-SS, 2011 U.S. Dist. L EXI S 87567, at *7-9 (W.D. Tex. J uly 25, 2011); Allen v. C h a se Home Fin. , LLC , No. 4:11-CV-223, 2011 U.S. D ist. L EXI S 74340, at * 6-11 (E.D. Tex. J une 10, 2011); DeFranc heschi v. W ells Fargo Bank, N.A ., 837 F. Supp.2d 616, 623 (N.D . Tex. 2011). 7note”) (citing Carter v. Gray , 81 S.W .2d 647, 648 (Tex. 1935); Aguero v. Ramirez , 70 S.W .3d 372,

374 (Tex. App.—Corpus Christi 2002, pet. denied)). As one court re cently explained:

Texas law differ entiates betwee n enfor ceme nt of a prom i s s o ry note and fore closure. For eclosure enfor ces the deed of trust, not the underly ing not e. For eclosure is an independe nt action ag ainst the collater al and may be conducte d without judicial supervision. Enforc ement of the n o t e, o n the other hand, is a persona l action ag ainst the signatory and require s a judi cial procee ding. .

. . Texas courts h av e re fu s ed t o conflate foreclosure with enfor ceme nt of a promissory note.

Reardean , 2011 U.S. Dist. L EXI S 87567, at *7-8 (interna l citations omit ted).

Fur ther, Bie rwirth’s asser t i o n that the assig nment from MERS to BA C resulted in “bifurc at i o n ” betwee n the note and the deed of trust is contra ry to the Restatement (Third) of P ro p er t y , which provides that, with cer tain exceptions inapplicable here , “a transfe r of a mortg ag e also transfe rs the obligation that the mortg ag e secur es.” Restatement (Third) of Property (Mortg ag es) § 5.4(b) & cmt. b (1997) (noting that “own er s h i p of a contra ctual obligation can g ener ally be tra nsfer red by a docume nt of assig nment”); Kramer , 2012 U.S. Dist. L EXI S 105878, at *14-15 (noting that there is “substantial authority” for principle that transfe r of deed of trust likewise transfe rs note). Although Bie rwirth’s note containing the express right to transfe r did not identify MERS, Bie rwirth’s deed of trust did identify MERS, and beca use the note and deed of trust must be rea d toge ther when evalua ting their provisions, MERS had the authority to assig n the note and the deed of trust. See W arren , 2012 U.S. Dist. L EXI S 102561, at *12-13; Kramer , 2012 U.S. Dist. L EXI S 105878, at *14-15; Helms v. Mortgage Elec. Registration Sy s. , No. H-11-3298, 2012 U.S. Dist. L EXI S 2034, at *6-7 (S.D. Tex. J an. 9, 2012).

8Her e, under the express terms of Bie rwirth’s deed of trust, MERS—acting on

behalf of the L ender (Country wide) and its succe ssors and assigns—had authority to exercise any or all of the L ender ’s rights, “including but not limit ed to, the right to fore close and sell the proper ty .” The L ender ’s rights incl u d e t h e right of assignment, as stated i n the provisi ons of t he note, which is rea d with the deed of trust. Bie rwirth’s asser tion that t h ere was leg ally insufficient evidenc e demonstrating the validity of the assig nment of the note from MERS to BA C is not supported by this

rec ord. Thus, we overr

ule B ierwirth’ s first issue.

Holder-in-due-course argum ents

In his second and third i s s u es , Bie rwirth contends that there was no evidenc e that BA C was a “holder in due course ” of the note beca use the note was in defa

ult befor e the assig nment from MERS, and BA C could have no right to fore close on a note secur ed by proper ty without holder-in- due-c ourse status. Howe v er , as stated in our discussion of Bie rwirth’s first issue, 8 Texas law does not require that one be a holder of the note and the deed of trust to be enti t l ed to fore close, much less a holder-in- due-c ourse of the note. See, e.g. , Carter , 81 S.W .2d at 648 (“It is

so well settled as n o t to be controve rted that the right to rec over a persona l judgme nt for a debt

secur ed by a lien on land and the right to have a fore closure of lien are sever able, and a plaintiff may

Although Bie rwirt h does not state so specific ally , his second and third issues appea r to 8 challeng e two of the district court’s leg al conc lusions drawn fr om the fac ts in the record: (1) “De fenda

nt BA C Home L oans Servicing , L P is the corr ect holder of the Promissory Note”; and (2) “De fenda

nt BA C Home L oans Servicing , L P beca me the holder of the Promissory Note and benef iciary o f t h e Dee d of Trust by way of an Assignme nt, which was eff ective as of August 16, 2010 and rec orded as Document No. 2010144375 in the re al p ro p erty rec ords of Travis County , Texas.” 9elec t to seek a persona l judgme nt without fore cl o s i n g the lien, and even without a waiver of the

lien.”); Stephens , 316 S.W .3d at 747 (“When a debt is memorialized by a note that is sec ured by

a lien, the note and lien constitute separ ate obligations.”) (citing Aguero , 70 S.W .3d at 374); see also Kramer , 2012 U.S. Dist. L EXI S 105878, at *17-1 9 (r ec o gnizi ng that “author ity to conduct a fore closure under Texas law is g overne d by an entity ’s relationship to the deed of trust, rathe r than the associate d note”)

. BA C seeks to enfor ce its reme dy , i

. e. , n o n j u dicial fore closure, under Bie rwirth’s de ed of trust, not the note.

Bie rwirth’s assertion that an entity must own or hold a promiss ory note t o conduct

a fo rec losure under the associate d deed of trust runs afoul of the proper ty code provisio n s g overning fore closure under a deed of trust. See Tex. Prop. Code Ann. §§ 51.0001(4), .002 (West Supp. 2012); Kramer , 2012 U.S. Dist. L EXI S 105878, at *17-18. Chapter 51.002 of t he property

co d e au th o ri zes a mortg ag ee to sell rea l proper ty under a “powe r of sale confe rre d by a deed o f t ru s t

. ” T ex . Prop. Code Ann. § 51.002; see 15 W. Mike Ba g g ett, Texas Practice Series : Texas For eclosure : L aw & Practice § 2.02 (2002). The statutory definition of a “mortg ag ee” who is authorized to forec lose includes:

• the grante e, bene ficiar y , owner , or holder of

a sec urity

instrument; and

• a book entry sy stem that acts as a nominee for the g rante e, benef iciary , owner , or holder of the security

instrument and its successor s and assigns.

See Tex. Prop. Code Ann. §§ 51.0001(1), (4); Kramer , 2012 U.S. Dist. L EXI S 105 8 7 8 , at * 1 8

. Nothing in these statutory ref ere nces to fore closure under a deed of trust mentions any require ment about the assoc iated promissory note. Kramer , 2012 U.S. Dist. L EXI S 105878, at *18.

10Be cause the deed of trust identifies MERS as the benef iciary and the nominee for the L ender

(Country wide) a nd its succe ssors and assigns, MER S was a “mortg ag ee” as def ined in the proper

ty code. See Allen v. Chase Home Fin. , LLC , No. 4:11-CV-223, 2011 U.S. D ist. L EXI S 74340, at * 7-9 (E.D. Tex. J une 10, 2011). W h en M E R S ex ecuted the assignment t o BA C, BA C obtained all of MERS’s rights and interests in the deed of trust (orig inating fr o m th e L en der, Country wide), including the “r ight to for eclose and sell the Proper ty .” See Campbell v. Mortgage Elec. Registration Sys ., No. 03-11-00429- CV, 2012 Tex. App. L E XIS 4 030, at *15 (Tex. App.—Austin May 1 8 , 2 0 1 2 , p et. filed) (mem. op.) (citing Athey v. Mortgage Elec. Registration Sys ., 314 S.W .3d 161, 166 (Tex. App.—Eastland 2010, pet. denied) ). Bie rwirth’s deed of trust provided for the use of MERS and those provisions are enfor cea ble to the extent of the terms set forth in the documents. See id. Stated differ entl y , “whe re, as here , a deed of trust expressly g rants MERS the power of sale, then MERS has that power .” Id. (citing Athey , 314 S.W .3d at 166);

s ee also Kazmi v. BAC Home Loans Servic ing, L.P. , No. 4:11-CV-375, 2012 U.S. Di s t

. L E XIS 24620, at *17 (E.D. Tex. Feb. 3, 2012) (n o t i n g t h at as “mortg ag ee” under proper ty code, MERS could authorize BA C to fore close “re g ardle ss of whether MERS was the true owner of the Note”)

.

Finally , even if we wer e p er suaded that BA C’s right to fore close hinge d on establishing itself as a holder of Bie rwirth’s note, it made that showing below. A “holder” is define d in the Texas Business and Commerce Code as “the person in possession of a neg otiable instrument that is payable either to bear er or to an identified person that is the person in possession.” Tex. Bus. & Com. Code Ann. § 1.201(b)( 21)(A) (West 2009). Appar ently out of an abundanc e of caution, BA C introduced into evidenc e Bie rwirth’s orig inal note that was endorse d in blank. An instrument containing a blank endorse ment is payable to the bear er and may be neg otiated by transfe r o f

11possession a lone. See id. § 3.205 (West 2002). Acc ording ly , in addition to B AC being a statutory

“mortg ag ee” authorized to co nduct fore closure under chapte r 51 of the proper ty code (af

ter the assig nment from MERS), BA C was also the “holder” o f Bi erwi rth’s note beca use it was in possession of the note, a

neg otiable instrument that was e ndorsed pa yable to its bear er. Ba sed on this rec ord, we conclude that there was sufficie nt evidenc e supporting the district court’s determinations that BA C was the holder of the note, that B AC was the benefic iary under the deed of trust, and that BA C was entitled to pursue nonjudicial fore clo s u re under the terms of the deed of t rust and section 51.002 of t he property code. Thus, we overrule Bier wirth’s second a nd third issues.

CONCLUSION Havingoverr

uled B ierwirth’ s three issues, we a ffirm the district c ourt’s judg ment decla ring that BA C was the holder of the note, that BA C was the benef iciary under the deed of trust, and that BA C was entitled to pursue nonjudicial fore closure under the terms of the deed of trust and section 51.002 of the pr operty code.

J eff

Rose, J ustice Be fore Chief Justice Jones, J ustices Pemberton a nd Rose Affir med Filed: August 30, 2012

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