January 27, 2014
Federal Court of Appeals for the Fifth Circuit Holds that Successor Note Holder had Proper Authority to Initiate Foreclosure Under Texas State Law
Federal Court of Appeals for the Fifth Circuit Holds that Successor Note Holder had Proper Authority to Initiate Foreclosure Under Texas State Law
In Hall v. BAC Home Loans Servicing, L.P., the United States Court of Appeals for the Fifth Circuit rejected a homeowner’s challenge to a foreclosure action finding that the note holder had proper authority to initiate the foreclosure and that the homeowner had filed an invalid restraining order to block the foreclosure.
In 2007, Raphael Hall (“Hall”) bought a home in Texas with a mortgage from First Magnus Financial Corporation (“First Magnus”). Two years later in 2009, MERS (the deed beneficiary), sold the mortgage to BAC Home Loans (“BAC”). By October 2010, Hall had fallen behind in his mortgage payments and received a default notice because he had an overdue amount on his mortgage. By June 2011, he was still in default on the mortgage and received a notice of a trustee sale and a scheduled foreclosure for August 2011 that was later delayed. In September 2011, Hall sought a restraining order in Texas state court to stop the foreclosure proceedings, but the foreclosure sale still proceeded on September 6, 2011 and Fannie Mae purchased Hall’s property. After the purchase, BAC removed the case from state court to federal district court and filed a motion for summary judgment. The district court granted BAC’s summary judgment motion and Hall appealed.
On appeal, Hall raised three particular issues related to two of his causes of action. The causes of action were for wrongful foreclosure and suit to quiet title and void substitute trustee’s deed. Hall’s first issue was that summary judgment was improper because the temporary restraining order he sought in state court voided the foreclosure sale and that the sale was therefore a wrongful foreclosure. However, the Fifth Circuit applied Texas state law and rejected this argument because it found that Hall’s restraining order was void under Texas state law and therefore could not have stopped the foreclosure sale.
Hall’s second argument was that BAC was not the note holder, in that MERS only transferred the property deed and not the not, and that BAC could not enforce the foreclosure on the note. The Fifth Circuit rejected this argument as well because it found that under Texas state law, MERS had properly transferred its rights to BAC that allowed it to initiate a foreclosure action on Hall’s property. The Court therefore found that BAC had proper authority to initiate the foreclosure action.
Hall raised a final argument on appeal challenging the validity of the foreclosure notice because of an incorrect designation about BAC’s ownership status. However, the Court did not consider this argument because Hall raised it for the first time on appeal. As the Court rejected each of Hall’s arguments, the Fifth Circuit therefore affirmed the district court’s summary judgment ruling against Hall.
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