April 12, 2013

Texas Court of Appeals Upholds MERS’ Authority to Conduct a Non-Judicial Foreclosure

By Gloria Liu

In Athey v. MERS, 314 S.W.3d 161 (Tex. Ct. App. 2010), the appellate court affirmed trial court’s grant of summary judgment to MERS, holding that MERS was the beneficiary of the deed of trust and, therefore, had authority to conduct a non-judicial foreclosure.

The homeowners executed a promissory note payable to Decision One Mortgage Company, LLC. The note was secured by 2.5057 acres, and the homeowners executed a deed of trust that named MERS as Decision One’s nominee and the mortgagee. The note was entitled:

TEXAS HOME EQUITY NOTE

(Cash Out—Adjustable Rate—First Lien)

(LIBOR Six-Month Index (As Published in the Wall Street Journal)— Rate Caps)

THIS NOTE CONTAINS PROVISIONS ALLOWING FOR CHANGES IN MY INTEREST RATE AND MY MONTHLY PAYMENT. THIS NOTE LIMITS THE AMOUNT MY INTEREST RATE CAN CHANGE AT ANY ONE TIME AND THE MAXIMUM RATE I MUST PAY.

In contrast to this language, the homeowners contended that an unnamed representative of Decision One told them at closing that the note had a fixed interest rate. The homeowners corroborated this contention with an affidavit from a disinterested person who was also present at closing. Two years later, Decision One raised the interest rate from 7.79% to 10.79%.The homeowners became delinquent, and HomEq Servicing Corporation, as servicer for MERS, accelerated the note when the delinquency was not cured and initiated foreclosure proceedings.

With regards to their allegation of fraud, the court found that the evidence did not establish the trickery, artifice, or device necessary to void a promissory note. The oral representation upon which they rely is directly, clearly, and conspicuously contradicted by the note’s heading and introductory paragraph. They rejected the argument that a fraudulent inducement cause of action can never lie merely because the operative oral representation is contradicted by a provision within the contract.

The court also rejected the argument that there is no evidence establishing that MERS is the owner and holder of the note. It reasoned that MERS never contended that it owned or held the note and the evidence established that Decision One was the owner and holder. The court found that it was the deed of trust that clearly gives MERS the authority to initiate foreclosure.

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