In Reinagel v. Deutsche Bank Nat’l Trust Co., 2013 U.S. App. LEXIS 22133 (5th Cir. Tex. July 11, 2013), the U.S. Court of Appeals for the Fifth Circuit upheld the Texas district court’s decision to grant Deutsche Bank’s motion to dismiss the homeowners’ complaint alleging the loan assignments were invalid due to robo-signing. The Reinagels refinanced their property in 2006 with Argent Mortgage Company, LLC who sold the loan to Deutsche Bank where it was pooled and sold to investors. The sale of the loan to Deutsche Bank was not documented until 2008, when the assignment was executed. The first assignment of the deed of trust failed to reference the promissory note. A second assignment was executed in 2009, expressly naming the subject note.
After the homeowners defaulted on payments, the state court granted the order for foreclosure in 2010, naming Deutsche Bank as mortgagee with right to foreclose. The Reinagels brought this action for a temporary injunction alleging that the assignments were “robo-signed” and as such facially void. They further argued that the assignments violated the pooling and service agreement (“PSA”), which did not permit transfers into the Deutsche Bank trust after October 1, 2006. The case was removed to the district court on diversity grounds, where the court later granted Deutsche Bank’s motion to dismiss the complaint. The Fifth Circuit affirmed this decision on appeal, finding the Reingals’ challenge of the the assignments unconvincing. The court held that although a non-party to a contract cannot enforce said contract, the obligor may defend on any ground which renders the assignment void, giving homeowners standing as they assert the assignments are facially void. The first assignment was held valid, as the court notes “the transfer of a mortgage presumptively includes the note secured by the mortgage” even if it doesn’t expressly reference the note; the validity of the second assignment is irrelevant here. Additionally, the Reinagels cited no precedent to support invalidating the assignments solely on account of robo-signing, or that violations of the PSA would invalidate the assignments. Further, the court did not find sufficient evidence of robo-signing in regard to either assignment. The court is careful to note that its decision is a narrow one, and provides a warning to banks: “we merely reaffirm that under Texas law facially valid assignments cannot be challenged for want of authority except by the defrauded assignor. We do not condone ‘robo-signing’ more broadly and remind that bank employees or contractors who commit forgery or prepare false affidavits subject themselves and their supervisors to civil and criminal liability.” Id at 12.