Stephan Epstein v. U.S. Bank National Association

Case: 13-50047 Document: 00512385306 Page: 1 Date Filed: 09/25/2013
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
September 25, 2013
No. 13-50047
Summary Calendar Lyle W. Cayce
Clerk
STEPHAN B. EPSTEIN,
Plaintiff–Appellant,
versus
US BANK NATIONAL ASSOCIATION, as Trustee;
AURORA LOAN SERVICES, L.L.C.,
Defendants–Appellees.
Appeal from the United States District Court
for the Western District of Texas
USDC No. 1:12-CV-456
Before JOLLY, JONES, and SMITH, Circuit Judges.
PER CURIAM:*
Stephan Epstein defaulted on his mortgage loan, and when the holder of
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
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No. 13-50047
the deed of trust attempted to foreclose, Epstein sued to block the sale. The dis-
trict court dismissed on a Federal Rule of Civil Procedure 12(b)(6) motion. We
affirm.
I.
Epstein took a loan for $658,510 from First Mangus Financial Corporation
(“First Mangus”) on March 28, 2007. The note and deed of trust state that First
Mangus is the lender and that Mortgage Electronic Registration Services, Inc.
(“MERS”), is the “nominee for Lender and its assigns” and, along with its suc-
cessors and assigns, is a “beneficiary” of the deed of trust. The deed of trust pro-
vides that MERS may exercise any of the rights under it, including foreclosure
and sale. It also states that the note may be transferred without notice to
Epstein. The note and deed of trust were recorded on March 30.
On March 2, 2011, MERS transferred the deed of trust to Aurora Loan
Services, LLC (“Aurora”). That transfer was recorded on April 1, 2011. Epstein
ceased paying the loan, and, after adequate notification, a foreclosure sale was
set for June 2012.
Epstein challenged the sale, claiming that Aurora did not have authority
to foreclose, primarily because it did not possess the note and the transfer of the
deed of trust was somehow invalid. Epstein also made a quiet-title claim. The
district court dismissed for failure to state a claim upon which relief could be
granted.
II.
A Rule 12(b)(6) dismissal is reviewed “de novo, accepting all well-pleaded
facts as true and viewing those facts in the light most favorable to the plaintiff.”
Toy v. Holder, 714 F.3d 881, 883 (5th Cir. 2013) (internal quotations omitted).
“To survive a motion to dismiss, a complaint must contain sufficient factual mat-
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ter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”1
III.
Epstein claims that Aurora did not have authority to foreclose on his prop-
erty because it did not possess the underlying note and because MERS’s transfer
of the deed of trust to Aurora was faulty. Epstein’s first claim rests on the
“split-the-note” theory. In Martins v. BAC Home Loans Servicing, L.P., 722 F.3d
249 (5th Cir. 2013), we described that notion as asserting that the “transfer of
[the] deed of trust by way of MERS ‘splits’ the note from the deed of trust, thus
rendering both null. In order to foreclose, the theory goes, a party must hold
both the note and the deed of trust.” Id. at 254. Under Epstein’s logic, Aurora
would not be able to foreclose even if there were a valid transfer of the deed of
trust.
That claim fails as a matter of law. Under Texas law, a mortgagee or
mortgage servicer is permitted to foreclose on a house even without holding the
note. See TEX. PROP. CODE § 51.0025 (“A mortgage servicer may administer the
foreclosure of a property.”). A mortgage servicer is defined as “the last person
to whom a mortgagor has been instructed by the current mortgagee to send pay-
ments for the debt secured by a security instrument.” Id. § 51.0001(3). The
mortgagee includes the “the grantee, beneficiary, owner, or holder of a security
instrument” as well as a “book entry system.” Id. § 51.0001(4). The mortgagee
may also be the mortgage servicer.
There is no dispute that Aurora was the mortgage servicer—Epstein
admitted sending payments to it. Moreover, the transfer from MERS makes
Aurora the mortgagee. MERS was named as the beneficiary and was given the
1
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007)). See generally 2 JAMES W. MOORE ET AL., MOORE’S FEDERAL PRACTICE
§ 8.04[1][b] (3d ed. 2012).
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right to transfer its interests in the deed of trust, which it did in this case.
The transfer of the deed of trust, even in the absence of a transfer of the
note, is valid. Texas courts have explained on multiple occasions that a note and
a deed of trust constitute separate rights and obligations, even if they are linked
by the underlying debt. “It is so well settled as not to be controverted that the
right to recover a personal judgment for a debt secured by a lien on land and the
right to have a foreclosure of lien are severable, and a plaintiff may elect to seek
a personal judgment without foreclosing the lien, and even without a waiver of
the lien.” Carter v. Gray, 125 Tex. 219, 81 S.W.2d 647, 648 (Comm’n App. 1935,
writ dism’d). Where a debt is “secured by a note, which is, in turn, secured by
a lien, the lien and the note constitute separate obligations.” Aguero v. Ramirez,
70 S.W.3d 372, 374 (Tex. App.—Corpus Christi 2002, pet. denied).
Despite the fact that the lien secures the note,
the fact that two documents should be viewed together for purposes
of construing those documents’ terms is not, by itself, sufficient to
require all claims under either document to be brought together,
particularly given that, here, the two documents create two separate
and severable rights . . . . When a debt is memorialized by a note
that is secured by a lien, the note and lien constitute separate obli-
gations . . . [that] may be litigated in separate lawsuits. Therefore,
the holder of a note and security interest may bring suit and obtain
judgment on the note, andSSif . . . the holder did not request fore-
closure in that suit, the judgment on the note in the holder’s favor
is not satisfied, and no privisions of the note or deed of trust contrac-
tually alter the parties’ remediesSSthe lien-creditor may later bring
suit for judicial foreclosure of the lien.
Stephens v. LPP Mortg., Ltd., 316 S.W.3d 742, 747 (Tex. App.SSAustin 2010, pet.
denied) (citations omitted).2 A deed of trust “gives the lender as well as the
2
Accord Bierwirth v. BAC Home Loans Servicing, L.P., No. 03-11-00644-CV, 2012 WL
3793190, at *3 (Tex. App.—Austin Aug. 30, 2012, no pet.) (not designated for publication)
(stating that a deed of trust “gives the lender as well as the beneficiary the right to invoke the
power of sale” even though only one party may hold the note).
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beneficiary the right to invoke the power of sale” even though only one party
may hold the note.3 Where authorized by the deed of trust, MERS or its assigns
may foreclose without being the holder of the note. Id. at *5.
Examining Texas law in Martins, we held that “the ‘split-the-note’ theory
is [ ] inapplicable under Texas law where the foreclosing party is a [mortgagee]
and the mortgage has been properly assigned. The party to foreclose need not
possess the note itself.” Martins, 722 F.3d at 255. So long as it is a beneficiary
named in the deed of trust or an assign, that party may exercise its authority
even if it does not hold the note itself. That is contemplated in the deed of trust
and by the statute allowing mortgage servicers to foreclose. See TEX. PROP.
CODE § 51.0025.
The beneficiary of the deed of trust is MERS, and it assigned its rights to
Aurora, which received payments and qualified under Texas law as a mortgage
servicer. It had the right to foreclose, and Epstein’s arguments to the contrary
are wrong as a matter of Texas law.
Epstein’s second assertion is that the transfer from MERS to Aurora was
invalid. He suggests that Jan Walsh, the named vice-president of MERS on the
assignment, was not actually a vice-president or in some manner did not have
authority to make the assignment. Epstein does not have standing to assert
such a claim. As we explained in Reinagel v. Deutsche Bank Nat’l Trust Co., 722
F.3d 700, 706 (5th Cir. 2013), “the Texas Supreme Court clarified that a contract
executed on behalf of a corporation by a person fraudulently purporting to be a
corporate officer is, like any other unauthorized contract, not void, but merely
voidable at the election of the defrauded principal.” Therefore, only MERS has
standing to challenge the authority of its purported officer to make an assign-
ment from it to Aurora; it does not do so. The signer’s “alleged lack of authority,
3
Robeson v. MERS, No. 02-10-00227-CV, 2012 WL 42965, at *6 (Tex. App.—Fort Worth
Jan. 5, 2012, pet. denied) (not designated for publication).
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even accepted as true, does not furnish [Epstein] with a basis to challenge the
. . . assignment.” Id. Epstein’s claim was properly dismissed.
The same analysis dooms Epstein’s quite-title claim. He is required to
base his claim solely on the strength of his own title. Katz v. Rodriguez, 563
S.W.2d 627, 629 (Tex. App.SSCorpus Christi 1977, writ ref’d n.r.e.). As we have
explained, Aurora’s authority as to titleSShaving been assigned the rights under
the deed of trust by the original beneficiary of that instrumentSSappears in the
property records.
The judgment of dismissal is AFFIRMED.
6