Texas Court of Appeals for the First District Court Holds Mortgagors Have Standing to Challenge “Void” Assignment

By: Joshua A. Huber

On July 24, 2014, the First District Court of Appeals of Texas issued an opinion holding that mortgagors have standing to challenge a void assignment in certain circumstances. In Vazquez v. Deutsche Bank Nat. Trust Co., N.A., —S.W.3d—, 2014 WL 3672892 (Tex. App—Houston [1st Dist.] Jul. 24, 2014, no pet.), the mortgagor filed suit to quiet title contending, among other things, that the assignment of her deed of trust was invalid. The trial court found the mortgagor lacked standing to contest the assignment and granted summary judgment in favor of the mortgagee. [1] The mortgagee’s standing defense was premised on the general Texas rule that “a non-party to a contract cannot enforce the contract unless she is an intended third-party beneficiary.”[2]

On appeal, the Court rejected the mortgagee’s argument, noting that this general rule does not apply when a non-party to a contract alleges that the contract was void from the outset.[3] The Court based its determination on its prior decision, which held that “[t]he law is settled that the obligors of a claim may defend the suit brought thereon on any ground which renders the assignment void, but may not defend on any ground which renders the assignment voidable only . . . .”[4] 

Thus, the Court clarified that a mortgagor has standing to contest an assignment of his deed of trust, so long as the petition includes allegations which, if true, would render the assignment void, as opposed to merely voidable.[5] In Vazquez, the borrower alleged that the assignment was invalid because the signature appearing thereon was a forgery. The Court determined that the borrower met the standard of sufficiently alleging that the assignment is void, because a forged deed is void.[6] 

As a result of the Court’s decision, it appears that, under certain limited circumstances, borrowers may be able to contest the assignment of their deeds of trust, provided that such allegations, if true, would render the assignment absolutely void. The standing defense should still be an effective tool, however, against allegations which would merely render an assignment voidable by the parties, such as allegations of fraud or lack of authority.[7]

[1] Id. at *1.

[2] Reinagel v. Deutsche Bank Nat. Trust Co., 735 F.3d 220, 224-25 (5th Cir. 2013) (citing S. Tex. Water Auth. v. Lomas, 223 S.W.3d 304, 306 (Tex. 2007).

[3] Vazquez, 2014 WL 3672892, at *3.

[4] Id. at *2 (quoting Tri–Cities Construction, Inc. v. American National Insurance Co., 523 S.W.2d 426 (Tex. Civ. App.-Houston [1st Dist.] 1975, no writ).

[5] Id. at *3.

[6] See Dyson Descendant Corp. v. Sonat Exploration Co., 861 S.W.2d 942, 947 (Tex. App.—Houston [1st Dist.] 1993, no writ).

[7] See, e.g., Nobles v. Marcus, 533 S.W.2d 923 (Tex. 1976) (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).

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