January 4, 2013
Exceptions for Mortgagee’s Lack of Standing to Challenge Assignments in Texas
In Kramer v. Federal National Mortgage Association, et al., No. A-12-CA-276-SS (W.D. Tex May 15, 2012), the Western District Court in Austin, the home owner sued Fannie Mae, MERS, and Countrywide to quiet title and for a fraudulent foreclosure. Although the case was initially in state court, it was removed to federal court because of the diverse jurisdiction (i.e. the different state residency) of the plaintiff and defendants. The Court listed exceptions to the general rule that mortgagees lack standing to challenge assignments of the deed of trust. However, it ultimately granted the defendant’s motion to dismiss the home owner’s claims.
Kramer alleged that the assignment of the note and deed by trust from MERS was signed by a “notorious robo-signer” who did not have authority to execute the assignment. As a result, no conveyance could have occurred and any subsequent actions should be void. The defendants argued that Kramer lacked standing to challenge the assignments because he was not a party to them. Kramer relied on a California District court case (Johnson v. HSBC Bank USA, National Association), which was distinguished based on Johnson’s reliance on California law and on the facts of the case (the Court distinguished the same case in Bridges v. JP Morgan Chase Bank, N.A., et al.).
However, the Court does list two exceptions to the general standing rule. The first exception is “where an assignee of a claim sues the obligor for performance.” This exception is done to ensure that the obligor does not have to pay the same claim twice. (See Tri-Cities Constr., Inc. v. Am. Nat’l Ins. Co., 523 S.W.2d 426, 430 (Tex. Civ. App. —Houston 1st Dist. 1975, no writ)). A second exception allows a defendant sued on a negotiable instrument to assert defenses and claims held by others if the other person is joined in the action and personally asserts the claim against the person entitled to enforce the instrument. (See Tex. Bus. & Com. Code § 3.305(c)).
In this case, the obligor of the instrument (the owner who signed the deed of trust and note) is not at risk of paying the loan obligation twice and he is the plaintiff, not the defendant. As a result, the exceptions do not apply to him.
Since the exceptions did not apply to Kramer, he did not have standing to challenge the assignments of the note and deed of trust. As a result, his claim was ultimately rejected and the defendant’s motion to dismiss the suit was granted.
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