the-bank-of-new-york-mellon-fka-the-bank-of-new-york-as-trustee-for-the ( 2013 )

Reversed and Remanded and Opinion filed June 13, 2013.
In The
Fourteenth Court of Appeals
NO. 14-11-01113-CV
THE BANK OF NEW YORK MELLON F/K/A THE BANK OF NEW YORK
AS TRUSTEE FOR THE CERTIFICATE HOLDERS OF THE CWALT,
INC. ALTERNATIVE LOAN TRUST 2006-OA17, MORTGAGE PASS-
THROUGH CERTIFICATES, SERIES 2006-OA17 AND BAC HOME
LOANS SERVICING, LP, Appellants
V.
SONIAVOU BOOKS, LLC, Appellee
On Appeal from the 215th District Court
Harris County, Texas
Trial Court Cause No. 2011-05095
OPINION
A bank and a mortgage servicer bring this restricted appeal from a trial
court’s order granting final default judgment. The bank challenges service of
process as being improper and the mortgage servicer challenges whether a live
controversy exists between the parties, whether the pleadings support the
judgment, and whether the trial court’s award of attorney’s fees to the plaintiff was
proper. We conclude that service of process on the bank was improper. Regarding
the mortgage servicer, we conclude that a live controversy exists and that the trial
court erred in granting relief not requested in the petition. Accordingly, we reverse
the trial court’s default judgment as to both defendants and remand for further
proceedings.
I. FACTUAL AND PROCEDURAL BACKGROUND
Appellee/plaintiff Soniavou Books, LLC (hereinafter “Books”) filed suit on
January 26, 2011, against appellants/defendants The Bank of New York Mellon
f/k/a The Bank of New York as Trustee for the Certificate Holders of the CWALT,
Inc. Alternative Loan Trust 2006-OA17, Mortgage Pass-Through Certificates,
Series 2006-OA17 (hereinafter, the “Bank”) and BAC Home Loans Servicing, LP
(hereinafter the “Mortgage Servicer”). Books alleged it was the owner of a
condominium unit that Books acquired in November 2010 (the “Property”). Books
asserted that the Bank and its Mortgage Servicer were attempting to conduct a
foreclosure sale on the Property based upon a deed of trust executed in July 2006
(the “Deed of Trust”) and that the foreclosure sale was scheduled for February 1,
2011. In its petition, Books sought injunctive relief against the foreclosure sale,
money damages based upon various claims, declaratory relief, and attorney’s fees.
In its petition Books did not ask the trial court to order or declare that the Deed of
Trust is void and of no force or effect. Nor did Books ask the trial court to order or
declare the Deed of Trust “removed from the title to [the Property].”
On the same day it filed suit, Books obtained a temporary restraining order
in which the court ordered the Bank and the Mortgage Servicer (collectively, the
“Bank Parties”) not to conduct a foreclosure sale on the Property. The Bank
Parties did not answer or make an appearance. After filing returns of service,
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Books filed a motion for default judgment and asked the trial court to render a final
default judgment declaring that the Deed of Trust is void and of no force or effect
and ordering the Deed of Trust “removed from the title to [the Property].” Books
also sought reasonable attorney’s fees but did not seek any money damages. The
motion was submitted to the trial court without oral argument, and the trial court
granted Books the relief requested. The Bank Parties have filed restricted appeals
from this final default judgment.
II. ISSUES AND ANALYSIS
To prevail on a restricted appeal, a party must establish that (1) it filed a
notice of restricted appeal within six months after the judgment was signed; (2) it
was a party to the underlying suit; (3) the party did not participate in the hearing
that resulted in the challenged judgment and did not file timely any postjudgment
motions or requests for findings of fact and conclusions of law; and (4) error is
apparent on the face of the record. Alexander v. Lynda’s Boutique, 134 S.W.3d
845, 848 (Tex. 2004). The record reflects that the first three elements are satisfied
as to the Bank Parties. Thus, we address whether error is apparent on the face of
the record.
A. Was the Bank properly served with citation?
In its first appellate issue, the Bank asserts that it was not properly served
with citation. In a restricted appeal, there are no presumptions in favor of valid
issuance, service, and return of citation. Primate Const., Inc. v. Silver, 884 S.W.2d
151, 152 (Tex. 1994). The Bank asserts that the citation directed to the Bank was
not served on its registered agent. See Tex. Civ. Prac. & Rem. Code Ann. §
17.028(b) (West 2008) (stating that, with an exception not applicable in the case
under review, “in an action against a financial institution, citation may be served
by . . . serving the registered agent of the financial institution . . . or . . . if the
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financial institution does not have a registered agent, serving the president or a
branch manager at any office located in this state”). On appeal, Books concedes
that citation was not served on the Bank’s registered agent and that the Bank was
not properly served. It is apparent from the face of the record that the trial court
erred in granting a default judgment against the Bank because the Bank had not
been properly served with citation. See Primate Const., Inc., 884 S.W.2d at 152.
Accordingly, we sustain the Bank’s first issue, reverse the trial court’s judgment
against the Bank, and remand for further proceedings.1
B. Does a live controversy exist between Books and the Mortgage Servicer?
In its first appellate issue, the Mortgage Servicer asserts that no live
controversy exists between the Mortgage Servicer and Books that would provide
the basis for declaratory relief. The Supreme Court of Texas has held that a
request for declaratory judgment is moot if the claim presents no live controversy.
See Tex. A&M Univ.-Kingsville v. Yarbrough, 347 S.W.3d 289, 290 (Tex. 2011).
In its petition Books asserted that the Mortgage Servicer was trying to conduct a
nonjudicial foreclosure sale on the Property, and Books requested that the trial
court declare that such a nonjudicial foreclosure sale is not proper unless the Bank
has possession of the original note with the proper endorsements. The Mortgage
Servicer asserts that it has no controversy with Books as to whether the Deed of
Trust is void because the Mortgage Servicer owns no interest in the Property or the
Deed of Trust. As discussed in more detail below, in its petition, Books did not
request the declarations made by the trial court in the judgment. As to the relief
requested in the petition, we conclude there is a live controversy between Books
and the Servicer. See Rodarte v. Investeco Group, L.L.C., 299 S.W.3d 400, 408–
09 (Tex. App.—Houston [14th Dist.] 2009, no pet.). Accordingly, we overrule the
1
We need not and do not address the Bank’s remaining issues.
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Mortgage Servicer’s first issue.
C. Do the pleadings support the trial court’s judgment against the
Mortgage Servicer?
In its second issue, the Mortgage Servicer asserts that error is apparent on
the face of the record because the trial court’s judgment is not supported by
Books’s pleadings. A default judgment must be supported by the pleadings. See
Stoner v. Thompson, 578 S.W.2d 679, 682 (Tex. 1979). Likewise, the defendant
must have fair notice of the plaintiff’s claims and the relief sought by the plaintiff.
See id. at 683. Error is apparent on the face of the record if the trial court grants
relief in the default judgment that was not requested in the pleadings. See Mullen
v. Roberts, 423 S.W.2d 576, 579 (Tex. 1968); McKnight v. Trogdon-McKnight,
132 S.W.3d 126, 131–32 (Tex. App.—Houston [14th Dist.] 2004, no pet.).
In its petition Books made the following allegations:
This suit involves a dispute concerning the ownership of certain real
property located in Harris County, Texas.
On November 10, 2010, Books became the owner of the Property.
On July 14, 2006, Countrywide Bank, N.A. accepted and caused to
be recorded the Deed of Trust, signed by Israel and Bella Helprin as
grantors purporting to create a lien for security purposes on the
Property.
On or about December 22, 2010, Mortgage Electronic Registration
Systems, Inc. (“MERS”) assigned its beneficial interest under the
Deed of Trust to the Bank.
The Bank Parties are attempting to conduct a foreclosure sale of the
Property against Israel and Bella Helprin, the former owners of the
Property.
The foreclosure sale is scheduled for February 1, 2011, as shown by
the Notice of Substitute Trustee’s Sale attached to the petition.
The sale is to be conducted by Reconstruct Company, N.A., which has
been appointed Substitute Trustee by the Mortgage Servicer, the
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mortgage servicer for the Bank.
The purported Substitute Trustee will attempt to sell the Property by
public auction to the highest bidder for cash.
Books seeks to enjoin and restrain the Bank Parties from conducting a
foreclosure sale of the Property on February 1, 2011.
Upon information and belief, the Bank does not have authority under
a note or deed of trust or similar instrument conferring a valid non-
judicial power of sale with respect to the Property. Alternatively, if
the Bank does have a lawful non-judicial power of sale, the Bank was
negligent because it failed to notify Books of the foreclosure.
Books petitions the court under the Declaratory Judgments Act,
Chapter 37 of the Texas Civil Practice and Remedies Code, for a
declaration of the rights held by the parties and the unenforceability of
certain documents and claims held by the Bank Parties.
Books petitions the court to order the Bank Parties to provide proof of
ownership of the note and superior lien to the Property and if so
proved to order the Bank Parties to provide Books with notice of
intent to foreclose.
On or about December 22, 2010, MERS assigned the Deed of Trust to
the Bank. But there is no information, proof, or evidence to show that
MERS was the holder of the Deed of Trust or had the right to transfer
the Deed of Trust. Therefore, Books challenges the Bank Parties’
right to foreclose on the Property.
A deed of trust is in legal effect a mortgage with power to sell on
default. Under Texas law, the existence of a debt is indispensable to
the existence of a mortgage, and without a debt, there can be no
mortgage. If the original real estate lien note with the proper
endorsements, if any, is not in the claimant’s possession, then the real
estate lien note cannot be enforced non-judicially upon default of the
note through the power of sale.
Unless the Bank Parties are the holder of the Deed of Trust and the
note, they do not have standing to foreclose. If the Deed of Trust and
note are not in the possession of the original note holder and there is
not a written endorsement and proof of the chain of title, the person in
possession is not entitled to the status of holder. The Bank must prove
that it is a holder in due course; otherwise, there is no right to non-
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judicially foreclose on the Property.
Rather, if the original note is not in the Bank’s actual possession, the
Bank has to judicially enforce the note by showing that (1) the note
exists and its terms; (2) the maker has signed the note; (3) the Bank is
the owner and holder of the note or is entitled to enforce a lost note;
and (4) a certain balance is due and owing on the note.
The power of sale set forth in the Deed of Trust, although appearing
valid on its face, is in fact unenforceable and “null and void” because
Books alleges that there is no debt that is secured by the Deed of
Trust. Books makes this allegation because, based upon information
and belief, the Bank does not possess the original real estate lien note
with proper endorsements, if any, and the note cannot be enforced
non-judicially upon default through the power of sale set forth in the
Deed of Trust. Rather, without possession of the original note,
enforcement of the note upon default has to be through judicial
proceedings.
Books is not alleging that the note was not executed or that the Deed
of Trust was not enforceable when it was executed and recorded.
Books alleges that upon default, the note cannot be enforced non-
judicially at the current time or in the future through the Deed of
Trust’s power of sale, unless the Bank has possession of the original
note with the proper endorsements.
For there to be a valid assignment for purposes of foreclosure, both
the note and Deed of Trust must be assigned. Thus, if the Bank
cannot affirmatively show that it has the original note with the proper
endorsements, then the note has been lost, misplaced, or is being held
by another, thereby causing the power of sale in the Deed of Trust to
be “null and void.” If the note has been lost or misplaced, the alleged
owner must judicially show the existence, execution, ownership, and
balance owing to enforce the note upon default.
A justiciable controversy exists as to who is the current holder in due
course of the Deed of Trust and the note.
Alternatively, the Bank Parties owed a duty to notify Books of their
attempted foreclosure on the Property. Books did not receive notice of
the pending foreclosure sale. The Bank Parties are attempting to
foreclose on the Property without any notice, which amounts to
negligence and violates federal due process guarantees.
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Alternatively, Books asserts a claim for private nuisance.
Based on the foregoing allegations, Books sought injunctive relief, including
a temporary restraining order, a temporary injunction, and a permanent injunction,
restraining the Bank Parties from conducting the threatened foreclosure sale on the
Property. Books also requested actual damages, declaratory relief, and attorney’s
fees under the Texas Declaratory Judgments Act. Books asked that the Bank
Parties be required to produce the original note and the original assignments and
letters of authority showing that they are entitled to non-judicially foreclose on the
Property.
In its default judgment, the trial court determined that Books is the owner of
the Property and declared that the Deed of Trust is void and of no force or effect.
The trial court also ordered the Deed of Trust “removed from the title to [the
Property].” Though Books alleged that the power of sale in the Deed of Trust was
“null and void” such that the Bank Parties could not proceed with a non-judicial
foreclosure, Books did not allege that the Deed of Trust is void, unenforceable, or
of no force or effect. In its petition Books did not ask the trial court for a
determination that Books is the owner of the Property or for an order or declaration
that the Deed of Trust is void and of no force or effect. Nor did Books make any
request in its pleadings that the trial court order or declare the Deed of Trust
“removed from the title to [the Property].”
Error is apparent on the face of the record because the relief the trial court
granted to Books in the default judgment was not requested in Books’s petition.2
2
Books argues that the Mortgage Servicer has no standing to challenge the declaratory relief in
the default judgment because the Mortgage Servicer has no interest in the Property or the Deed
of Trust. We disagree. The trial court rendered judgment against the Mortgage Servicer, ordered
that the Deed of Trust the Mortgage Servicer was attempting to foreclose on behalf of the Bank
is void, and ordered the Mortgage Servicer to pay Books reasonable attorney’s fees. The
Mortgage Servicer has standing to challenge all of the relief awarded in the judgment.
8
See Cunningham v. Parkdale Bank, 660 S.W.2d 810 (Tex. 1983); Stoner, 578
S.W.2d at 683; Mullen, 423 S.W.2d at 579; Binder v. Joe, 193 S.W.3d 29, 33 (Tex.
App.—Houston [1st Dist.] 2006, no pet.); McKnight, 132 S.W.3d at 131–32.
Accordingly, we sustain the Mortgage Servicer’s second issue.3
D. Should this court reverse the award of attorney’s fees against the
Mortgage Servicer?
In its fourth issue, the Mortgage Servicer challenges the trial court’s award
of attorney’s fees to Books. The only basis in the petition for recovery of the
attorney’s fees is the Declaratory Judgments Act. See Tex. Civ. Prac. & Rem.
Code Ann. § 37.009 (West 2012) (stating that “[i]n any proceeding under this
chapter, the court may award costs and reasonable and necessary attorney’s fees as
are equitable and just”). The award of attorney’s fees in a declaratory-judgment
action is within the trial court’s discretion and is not dependent upon a finding that
a party substantially prevailed. See Barshop v. Medina, 925 S.W.2d 618, 637–38
(Tex. 1996); Chase Home Fin., L.L.C. v. Cal West. Reconveyance Corp., 309
S.W.3d 619, 634 (Tex. App.—Houston [14th Dist.] 2010, no pet.). On appeal, we
have concluded that the trial court erred in rendering all declaratory relief
contained in its judgment. Because our disposition on appeal substantially affects
the trial court’s judgment, reversal of the attorney’s fees award against the
Mortgage Servicer is warranted so that on remand the trial court can address what
costs and attorney’s fees, if any, should be awarded against the Mortgage Servicer
3
The Mortgage Servicer asserts that, because the Bank was not properly served with citation, the
trial court lacked jurisdiction over the Bank and the judgment is void as to both the Bank and the
Mortgage Servicer. Notably, the Mortgage Servicer is not asserting that it was not properly
served with citation and has not cited any authority for the proposition that the failure to obtain
proper service of citation on one defendant entitles a co-defendant who was properly served to a
reversal of a default judgment against the co-defendant. We reject the Mortgage Servicer’s
argument.
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under the Declaratory Judgments Act. See Barshop, 925 S.W.2d at 637–38; Chase
Home Fin., L.L.C., 309 S.W.3d at 634. Accordingly, we sustain the Mortgage
Servicer’s fourth issue to the extent the Mortgage Servicer seeks reversal of the
attorney’s fees award.4
III. CONCLUSION
It is apparent from the face of the record that the trial court erred in granting
a default judgment against the Bank because the Bank had not been properly
served with citation. It is also apparent from the face of the record that the trial
court erred in granting judgment against the Mortgage Servicer because the relief
granted in the judgment was not requested in Books’s petition and thus not
supported by the pleadings. Because our disposition on appeal substantially affects
the trial court’s judgment, the proper course is to reverse the attorney’s fees award
against the Mortgage Servicer and remand this case so that the trial court can
address what costs and attorney’s fees, if any, should be awarded under the
Declaratory Judgments Act after adjudication of the claims asserted in Books’s
petition. Accordingly, we reverse the trial court’s judgment against the Bank
Parties and remand for further proceedings consistent with this opinion.
/s/ Kem Thompson Frost
Justice
Panel consists of Justices Frost, Christopher, and Jamison.
4
We need not and do not address the Mortgage Servicer’s third issue.
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