Several recent cases in Texas continue to develop the rules for lender (and lenders’ assignee) recovery against borrowers or guarantors. The Texas appellate court in Houston set out, in Ho v. Saigon Nat’l Bank, 438 S.W. 3d 871 (Tex. App.-Houston [14th Dist.] 2014), four specific items that a collecting creditor must show in its suit on the note: “(1) the note in question; (2) the party sued signed the note, (3) the plaintiff is the holder or owner of the note, and (4) a certain balance is due and owing on the note.” In that case, the plaintiff bank failed to prove ownership of the note on which it sought recovery–it was not possible from its evidence to determine that the plaintiff bank was the current owner or holder.
In the same broad vein, Vazquez v. Deutsche Bank National Trust Co., 441 S.W. 3d 7783 (Tex. App-Houston [1st Dist.] 2014), held that a borrower/obligor has standing to assert that, by reason of forgery, a purported transfer of a note from one lender to another did not occur and therefore the purported transferee would not have the right to pursue remedies for nonpayment of the note (in the instant case, foreclosure on property securing the note.
But as to other possible defects, Deutsche Bank fared better in Jones v. Deutsche Bank Nat’l Trust Co, No. 3:12-CV-3929, ____, F. Supp. 3d ______, 2014 WL 3457716, (N. D. Tex. July 10, 2014), where the court addressed a situation in which a mortgage note had been transferred purportedly in violation of a Purchase and Sale Agreement (to which the borrower was not a party), and the nominee for the original lender assigned the note to the bank which took action to foreclose on the collateral securing the note following delinquency. There was no apparent change in the servicer, but the court held that the assignee had the right to foreclose on the collateral. This result is consonant with rules in Texas that identify rights of the “owner” of a note being independent of the rights of a “holder” of that note. And it buttresses the depth of positions taken by the Fifth Circuit. See Reinagel v. Deutsche Bank Nat’l Trust Co., 735 F.3d 220, 228 (5th Cir. 2013); see also Covey v. Ocwen Loan Servicing, Inc., 574 F. App’x 421, 2014 WL 2925152, at *2 (5th Cir. June 30, 2014)
But when collateral proves insufficient to satisfy the borrower’s obligations, and the borrower has, by contract no other obligations to the lenders, a right of a lender to proceed against a guarantor will be affected by inconsistencies between the language of the note (and its description of the scope of the guaranty) and the language of the guaranty itself. In JRG Capital Investors v. Doppelt, 580 F. App’x 242 (5 Cir. 2014), the court read the guaranty as being limited to the borrower’s recourse obligations and therefore limited the recovery against the guarantor.
Finally, and more generally, in Moayedi v. Interstate 35/Chisam Road, L.P., 438 S.W. 3d (Tex. 2014), the Texas Supreme Court took an opportunity to identify when the guarantor’s waiver of right to limit its obligations is adequately waived. In this case, under a provision in the Texas Property Code (section 51.003), which can in some circumstances be waived, there can be an offset to deficiency liability by the amount by which the fair market value of foreclosed land exceeded the foreclose sale price of that land. This guaranty waived any, each and every defense against payment (other than full payment); the court took the guarantor at its word and enforced a waiver of the offset right. (As a side note, the Texas Supreme Court has recently clarified the meaning of “fair market value” as defined in Section 51.003 In Plains National Bank v. Martin, No. 13-0337, ____ S.W.3d ____ , 2015 WL 1477904 (Tex. March 27, 2015), the court held: “the term ‘fair market value’ in § 51.003 does not equate precisely to the common, or historical, definition…[Rather, it] means the historical definition as modified by evidence § 51.003(b) authorizes the trial court to consider in its discretion, to the extent such evidence is not subsumed in the historical definition.”
