Deutsche Bank Natl Trust Co. v. Joanna Burke, et a
655 F. App'x 251
| 5th Cir. | 2016Background
- Joanna (borrower) and John Burke executed a $615,000 Texas home equity note (Joanna signed the note; both signed the deed of trust) with IndyMac in 2007; MERS was named beneficiary of the deed of trust.
- IndyMac failed and its assets moved through IndyMac Federal, FDIC receivership, and sale to OneWest; the Burkes defaulted and stopped paying in December 2009.
- MERS assigned the Burkes’ deed of trust to Deutsche Bank by an Assignment dated January 20, 2011 (listing an effective date of April 9, 2010); OneWest serviced the loan and later accelerated the mortgage.
- Deutsche Bank sued in federal court for a declaratory judgment authorizing a non-judicial foreclosure under Texas Property Code § 51.002; the magistrate judge held for the Burkes, finding Deutsche Bank never possessed rights in the note or security interest.
- The Fifth Circuit reviewed de novo the magistrate’s legal conclusions, vacated the judgment for the Burkes, and remanded to determine whether Deutsche Bank met remaining statutory requirements to foreclose.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Deutsche Bank had authority to initiate a non-judicial foreclosure under the deed of trust | Burkes: Assignment from MERS to Deutsche Bank was void/invalid, so Deutsche Bank lacked a foreclosure right | Deutsche Bank: MERS validly assigned the deed of trust to Deutsche Bank, making Deutsche Bank the mortgagee entitled to foreclose | Court: Vacated magistrate’s ruling—MERS’s assignment validly transferred the power of sale; Deutsche Bank may be the proper mortgagee; remanded to assess remaining statutory prerequisites |
| Whether MERS could transfer foreclosure rights when it acted “as nominee for” the lender | Burkes: MERS’s phrasing and the lender’s insolvency meant MERS lacked authority to validly assign rights | Deutsche Bank: MERS, as named beneficiary and a book-entry system, had authority to assign the security instrument and power to foreclose | Court: Precedent allows MERS to assign its interest; the “as nominee” formulation does not negate MERS’s authority |
| Whether retroactive/backdated assignment invalidates transfer | Burkes: The backdating suggests an attempt to obscure chain of title and renders the assignment invalid | Deutsche Bank: Texas law permits assignments with retroactive effective dates absent a restriction in the instrument | Court: Backdating does not, by itself, invalidate the assignment under Texas law; prior Texas decisions permit retroactive effective dates |
| Whether absence of possession of the note is required to foreclose under the deed of trust | Burkes: Because Deutsche Bank allegedly never had the note, it could not foreclose | Deutsche Bank: Under Texas law, the deed of trust’s holder may foreclose even if it does not hold the note; note and lien are distinct | Court: Note and deed of trust are separate; a holder of the security instrument may have foreclosure rights independent of possession of the note |
Key Cases Cited
- Rabo Agrifinance, Inc. v. Terra XXI, Ltd., 583 F.3d 348 (5th Cir.) (standard of review for bench trials)
- Harris Cty. Tex. v. MERSCORP Inc., 791 F.3d 545 (5th Cir.) (distinguishing note and deed of trust; MERS and assigns can bring foreclosure under Texas law)
- Martins v. BAC Home Loans Servicing, L.P., 722 F.3d 249 (5th Cir.) (note and lien are separate obligations; holder of deed can foreclose)
- Farkas v. GMAC Mortg., L.L.C., 737 F.3d 338 (5th Cir.) (definitions of mortgagee under Tex. Prop. Code and assignment principles)
- Transcon. Realty Inv’rs, Inc. v. Wicks, 442 S.W.3d 676 (Tex. App.—Dallas) (assignments may have retroactive effective dates)
- Aguero v. Ramirez, 70 S.W.3d 372 (Tex. App.—Corpus Christi) (recognizing separation of note and lien)