Court Opinion

ID: 1040273
Source: CourtListenerOpinion
Date Created: 2013-09-10 05:29:35.8356+00
Date Added: 2024-06-11T15:27:29.151625
License: Public Domain

Case: 12-51039    Document: 00512365377    Page: 1   Date Filed: 09/06/2013

         IN THE UNITED STATES COURT OF APPEALS
                  FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                  Fifth Circuit

                                                                FILED
                                                           September 6, 2013
                               No. 12-51039
                                                               Lyle W. Cayce
                                                                    Clerk

LARRY R. WILEY; TINA N. WILEY,

                                        Plaintiffs–Appellants,

versus

DEUTSCHE BANK NATIONAL TRUST COMPANY,
as Trustee for Soundview Home Loan Trust 2006-NCL1,
Asset Backed Certificates Series 2006-NC1;
OCWEN LOAN SERVICING LLC;
MORTGAGE ELECTRONIC REGISTRATION SYSTEMS,
INCORPORATED;
MERSCORP INCORPORATED; CHANCE OLIVER;
JUANITA STRICKLAND; JANE MUCHA;
SOUNDVIEW HOME LOAN TRUST 2006-NLC1;
ANGEL REYES AND ASSOCIATES, P.C.,

                                        Defendants–Appellees.

                Appeal from the United States District Court
                     for the Western District of Texas
                              No. 1:12-CV-303
     Case: 12-51039       Document: 00512365377         Page: 2     Date Filed: 09/06/2013

                                       No. 12-51039

Before SMITH, DENNIS, and HIGGINSON, Circuit Judges.
PER CURIAM:*

       Larry and Tina Wiley ceased repaying on their mortgage loan, and when
the holder of the deed of trust attempted to effect a non-judicial foreclosure, the
Wileys sued to prevent the sale. The district court opined that “[t]he Wileys do
not deny that they are in default, nor do they allege any equitable basis why
they should be allowed to keep their property without paying for it. Rather, they
invite the Court to scrutinize and second-guess various assignments from
assorted lenders and services, in hope some technical defect will render that
change of assignment invalid.” The district court therefore dismissed, and we
affirm.

                                              I.
       The Wileys bought a property in 2002 with a purchase-money mortgage
of $195,000. In 2006, after they had paid that loan off and the lien had been
released, they took out a mortgage on a portion of the property for $215,100 with
a note payable to First NLC Financial Services, LLC. The deed of trust accom-
panying the note named Mortgage Electronic Registration Systems, Inc.
(“MERS”), the “beneficiary” of the security instrument and the “nominee for
Lender and Lender’s successors and assigns.” On December 15, 2009, MERS
assigned “all of the right, title, and interest owned or held” by First NLC
“together with any and all notes and obligations” and the “debt respectively
secured thereby” to Deutsche Bank retroactively effective to November 30, 2006.
MERS created an allonge to the note assigning the note from First NLC to

       *
         Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.

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                                      No. 12-51039

Deutsche Bank and stating that First NLC had no further interest in the note,
again effective November 30, 2006. The transfer to Deutsche Bank was recorded
with the county clerk on March 29, 2010.
       The Wileys paid their installments to Ocwen, Deutsche Bank’s loan ser-
vicer, until October 1, 2011, when they defaulted. They were notified of the
default and the possibility of foreclosure on January 26, 2012, and, on Febru-
ary 10, they were served notice of the acceleration of the debt and the foreclosure
sale to occur on March 6. The Wileys sued in state court to halt the foreclosure,
then the action was removed. The Wileys claimed breach of contract, fraud,
fraudulent lien, and negligence per se. After allowing the Wileys to amend their
complaint, the district court granted defendants’ motion to dismiss under Fed-
eral Rule of Civil Procedure 12(b)(6).

                                             II.
       Dismissal under Rule 12(b)(6) is reviewed “de novo, accepting all well-
pleaded facts as true and viewing those facts in the light most favorable to the
plaintiff.” Toy v. Holder, 714 F.3d 881, 883 (5th Cir. 2013) (internal quotations
omitted). “To survive a motion to dismiss, a complaint must contain sufficient
factual matter, accepted as true, to ‘state a claim to relief that is plausible on its
face.’”1

                                            III.
       The Wileys claim that Deutsche Bank did not have authority to foreclose
on their house because it possessed only the deed of trust and not the underlying

       1
         Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007)). See generally 2 JAMES W. MOORE ET AL., MOORE’S FEDERAL PRACTICE
§ 8.04[1][b] (3d ed. 2012).

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note.2 That argument rests on the murky legal theory, and mortgage defaulters’
claim du jour, known as the “split-the-note” theory. See Martins v. BAC Home
Loans Servicing, L.P., 722 F.3d 249, 254–56 (5th Cir. 2013). The Wileys’ conten-
tion, like that of many others before, is that the “transfer of [the] deed of trust
by way of MERS ‘splits’ the note from the deed of trust, thus rendering both null.
In order to foreclose, the theory goes, a party must hold both the note and the
deed of trust.” Id. at 254. The Wileys argue that MERS did not have the authori-
ty to transfer either the note or the deed of trust and that, even if it did validly
transfer only the deed of trust, that transfer “split” it from the note and thus
rendered it invalid.
       Texas law, as stated both by statute and in the courts, including our prece-
dent, debunks the Wileys’ claim. Under the Texas Property Code, a mortgagee
includes the “the grantee, beneficiary, owner, or holder of a security instrument”
as well as a “book entry system.” TEX. PROP. CODE § 51.0001(4). The Code
defines a “book entry system” as “a national book entry system for registering
a beneficial interest in a security instrument that acts as a nominee for the

       2
         One of the bases of the dismissal was that the Wileys do not have standing to chal-
lenge the assignment and transfer of the note and deed of trust to Deutsche Bank. As we held
in Reinagel v. Deutsche Bank Nat’l Trust Co., 12-50569, 722 F.3d 700, 2013 WL 3480207 (5th
Cir. July 11, 2013), however, that is not the case.

        Where a party challenges the validity of a transfer and the authority of the transferee
to foreclose, it must have standing to bring that challenge; the result would otherwise be
absurd that any party could fraudulently foreclose and the homeowner would have no recourse
to challenge that foreclosure. See Reinagel, 722 F.3d at ___, 2013 WL 3480207, at *3. “Though
‘the law is settled’ in Texas that an obligor cannot defend against an assignee’s efforts to
enforce the obligation on a ground that merely renders the assignment voidable at the election
of the assignor, Texas courts follow the majority rule that the obligor may defend “‘on any
ground which renders the assignment void.’” Id. (quoting Tri–Cities Constr., Inc. v. Am. Nat’l
Ins. Co., 523 S.W.2d 426, 430 (Tex. Civ. App.SSHouston [1st Dist.] 1975, no writ)). Although
the district court’s holding to the contrary was error, the dismissal was based primarily on the
issue of authority to foreclose, not on lack of standing, and, moreover, “it is an elementary
proposition, and the supporting cases too numerous to cite, that this court may affirm the dis-
trict court’s judgment on any grounds supported by the record.” Palmer ex rel. Palmer v. Wax-
ahachie Indep. Sch. Dist., 579 F.3d 502, 506 (5th Cir. 2009) (citation omitted).

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grantee, beneficiary, owner, or holder of the security instrument and its succes-
sors and assigns.” Id. § 51.0001(1).
      MERS and its assigns were explicitly named as the beneficiaries of the
deed of trust and the nominee for the original note holder. MERS is also a book
entry system. It unquestionably qualifies as a mortgagee under Texas Law, and
it may foreclose as the beneficiary of the deed of trust.
      MERS may also transfer the deed of trust securing the underlying note.
Texas courts have explained on multiple occasions that a note and a deed of
trust constitute separate actions. “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.” Carter v. Gray, 125 Tex. 219, 81 S.W.2d 647, 648 (Comm’n
App.1935, writ dism’d). Where a debt is “secured by a note, which is, in turn,
secured by a lien, the note and lien constitute separate obligations.” Aguero v.
Ramirez, 70 S.W.3d 372, 374 (Tex. App.—Corpus Christi 2002, pet. denied). The
duality of the lien and the note means that the beneficiary of the lien can be
different from the holder of the note.
      Although the lien is an “incident” to the debt, to the extent that the lien
is extinguished by payment of the note, the Texas courts have “rejected the argu-
ment that a note and its security are inseparable by recognizing that the note
and the deed-of-trust lien afford distinct remedies on separate obligations.”
Bierwirth v. BAC Home Loans Servicing, L.P., No. 03-11-00644-CV, 2012 WL
3793190, at *3 (Tex. App.—Austin Aug. 30, 2012, no pet.). A deed of trust “gives
the lender as well as the beneficiary the right to invoke the power of sale” even
though it would not be possible for both to hold the note. Robeson v. MERS,
No. 02-10-00227-CV, 2012 WL 42965, at *6 (Tex. App.—Fort Worth Jan. 5, 2012,
pet. denied). If so authorized by the deed of trust, MERS or its assigns may

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                                       No. 12-51039

exercise its interests, including foreclosing on the property without being the
holder of the note. Id. at *5.
       Applying these same sources of Texas law, we held in Martins that “the
‘split-the-note’ theory is . . . inapplicable under Texas law where the foreclosing
party is a [mortgagee] and the mortgage has been properly assigned. The party
to foreclose need not possess the note itself.” Martins, 722 F.3d at 255. So long
as it is a beneficiary named in the deed of trust or an assign, that party may
exercise its authority even if it does not hold the note itself. That is contem-
plated in the deed of trust and by the statute allowing mortgagees and mortgage
servicers to foreclose. See TEX. PROP. CODE § 51.0025.
       In this case, the deed of trust unquestionably names MERS as its benefici-
ary; MERS transferred the deed of trust to Deutsche Bank and recorded that
transfer. The Wileys’ claim that a transferee in Deutsche Bank’s position does
not have the power to foreclose is incorrect as a matter of Texas law. They there-
fore did not state a claim upon which relief can be granted, and the district court
rightly dismissed the action under Rule (12)(b)(6).
       Moreover, included in its assignment of the deed of trust on December 15
was an assignment of the note, and the accompanying allonge attached to the
note transferring all interest in the note to Deutsche Bank; that transfer was
notarized, filed, and recorded. The Wileys offer vague allegations of fraud, but
they neither allege a fraudulent conveyance with the specificity required by Fed-
eral Rule of Civil Procedure 9 nor suggest that the recorded documents are
forged.3    They merely assert that there was some lack of clarity and

       3
         The Wileys make opaque allegations that the MERS vice-president who signed the
transfer documents was only “allegedly” a vice-president and that somehow the transfer was
improperly made by a non-MERS officer. As we explained in Reinagel, 722 F.3d at ___, 2013
WL 3480207, at *4, “the Texas Supreme Court clarified that a contract executed on behalf of
a corporation by a person fraudulently purporting to be a corporate officer is, like any other
unauthorized contract, not void, but merely voidable at the election of the defrauded
                                                                                 (continued...)

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                                       No. 12-51039

suspiciousness, given that the document was signed in 2009 but was stated to
be retroactive to 2006. Those imprecise and unsupported allegations are not
enough to defeat a motion to dismiss. See Iqbal, 556 U.S. at 678.4
       The Wileys’ claims are unsupported by Texas law, and the judgment of dis-
missal is AFFIRMED.

       3
        (...continued)
principal.” The signer’s “alleged lack of authority, even accepted as true, does not furnish the
[Wileys] with a basis to challenge the [ ] assignment.” Id.
       4
          As noted in the order of dismissal, the other allegations are based on the since-
abandoned contention that the 2006 lien was released or are premised on vague allegations
of fraud that do not comply with Rule 9. Because those challenges are premised on the faulty
split-the-note theory, they were properly dismissed.

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