James Hall Takes On Reverse Mortgage Funding in Harris County Court

As a threshold matter, we determine if the bank’s motion to dismiss should be granted for the reason that after the suit was filed GRI allegedly assigned all of its rights and interests in the cause of action to Graco, Inc.

There was testimony that such an assignment had been made, but no assignment was offered in evidence.

A litigant may assign his claim or interest in a pending action.

TEX.PROP.CODE ANN. § 12.014 (Vernon 1984 Supp. 1996).

Although an assignor may not maintain in his own right a claim he assigned after suit is brought on it, the assignee may maintain the suit in the assignor’s name, and the assignee is not even a necessary party.

Texas Machinery Equip. Co. v. Gordon Knox Oil Exploration Co., 442 S.W.2d 315 (Tex. 1969); Ferguson-McKinney Dry Goods Co. v. Garrett, 252 S.W. 738 (Tex.Comm’n App. 1923, judgm’t adopted); see also Bay Ridge Util. Dist. v. 4M Laundry, 717 S.W.2d 92 (Tex.App. — Houston [1st Dist.] 1986, writ ref’d n.r.e.); Fort Worth Denver Ry. Co. v. Ferguson, 261 S.W.2d 874 (Tex.Civ.App. — Fort Worth 1953, writ dism’d).

The rule is not changed by TEX.PROP.CODE ANN. § 12.014.

That statute simply provides that an assignment may be made and that a record of it may be filed with the papers of the case.

See Mitchell, Gartner Thompson v. Young, 135 S.W.2d 308, 311 (Tex.Civ.App. — Fort Worth 1939, writ ref’d) (relating to predecessor statute). Nor does the holding in River Consulting, Inc. v. Sullivan, 848 S.W.2d 165 (Tex.App. — Houston [1st Dist.] 1992, writ denied), conflict with the rule.

The rule applied in that case was that after an assignment the assignor may not bring or maintain suit in its own right.

Moreover, the case of Duke v. Brookshire Grocery Co., 568 S.W.2d 470 (Tex.Civ.App. — Texarkana 1978, no writ), involved an assignment before suit was brought.

Thus, this case is properly maintained, and the motion to dismiss is overruled.

Graco Robotics v. Oaklawn Bank, 914 S.W.2d 633, 639 (Tex. App. 1995)

In this case, the turnover order effected an assignment to Cavazos of all the claims that Garza had against Old American.

An assignee may file suit and recover either in his own name or in the name of the assignor.

Tex. Mach. & Equip. Co. v. Gordon Knox Oil & Exploration Co., 442 S.W.2d 315, 317 (Tex. 1969); Ochoa, 19 S.W.3d at 464-65; Graco Robotics, Inc. v. Oaklawn Bank, 914 S.W.2d 633, 639 (Tex. App.—Texarkana 1995, writ dism’d w.o.j.).

Whatever name chosen to sue under, when a cause of action is assigned or transferred, the assignee becomes the real party in interest with the authority to prosecute the suit to judgment. Ochoa, 19 S.W.3d at 464-65.

The assignee, being the real party in interest and in control of the lawsuit, is also in privity with the nominal party such that the judgment therein will bind it as a party. See HECI Exploration Co. v. Neel, 982 S.W.2d 881, 890 (Tex. 1998); Ochoa, 19 S.W.3d at 464-65.

In re Old Am. Cnty. Mut. Fire Ins. Co., No. 13-13-00644-CV, at *14-15 (Tex. App. Apr. 23, 2014)

A lessee cannot collaterally estop royalty owners in a suit against an adjoining operator for damages to the reservoir absent an assignment by the royalty owner to the lessee or an agreement that the lessee will represent the royalty owner.

Collateral estoppel binds only the party against whom estoppel is sought or those in privity.

See Benson v. Wanda Petroleum., 468 S.W.2d 361, 362 (Tex. 1971).

A lessee and royalty owners are not in privity for purposes of collateral estoppel.

Although the circumstances of each case must be examined, generally, parties are in privity for purposes of collateral estoppel when: (1) they control an action even if they are not parties to it; (2) their interests are represented by a party to the action; or (3) they are successors in interest, deriving their claims through a party to the prior action. Id.;

see also Getty Oil Co. v. Insurance Co. of N. Am., 845 S.W.2d 794, 800-01 (Tex. 1992); Benson, 468 S.W.2d at 363 (discussing privity in the context of res judicata).

There is no privity between HECI and the Neels with regard to their claims against AOP because, as the court of appeals correctly recognized, a lessee has no inherent right to sue on behalf of royalty owners. See 942 S.W.2d at 217. A royalty interest is an interest in real property that is a distinct part of the mineral estate. See generally Altman v. Blake, 712 S.W.2d 117, 118 (Tex. 1986).

HECI Exploration Co. v. Neel, 982 S.W.2d 881, 889-90 (Tex. 1998)

13. Nothing in this Final Order or these bankruptcy cases precludes Celink from performing its duties and obligations to deposit, transfer and remit funds in accordance with

(i) the Nomura Repo Facilities,

(ii) the Credit Suisse Repo Facilities;

(iii) the TIAA Repo Facility;

and

(iv) the Barclays Repo Facility,

and in each case of the foregoing (i) though (iv),

all contracts, agreements or other documents (including, without limitation, all guarantees, schedules and exhibits thereto) in connection with such facilities.

The stay imposed by section 362(a) of the Bankruptcy Code shall not apply to the activities of Celink.

Celink may comply with all warehouse lender exercise of rights and remedies consistent with the underlying agreements pursuant to the safe harbor protections under section 559 of the Bankruptcy Code.

Bankruptcy judge approves Celink stipulation in RMF bankruptcy case

The presiding bankruptcy judge approved the stipulation that would resolve Celink’s claims against the estate of RMF, with the agreed payment amount falling by more than 75%

The presiding judge in the ongoing bankruptcy case of Reverse Mortgage Funding (RMF) has approved a stipulation that would resolve an administrative claim made against the company’s estate by reverse mortgage servicing company Celink, authorizing both companies to consummate the agreement.

The new agreement

The agreement, stemming from a proof of claim filed against RMF by Celink in May 2023, originally sought $361,726 from the lender based on a subservicing agreement entered between both companies in late 2016.

According to the court filing reviewed by RMD, both parties engaged in “good-faith negotiations” and settled on a figure of $78,195, or only 21.6% of the originally sought amount.

The new figure is considered an “administrative expense claim,” according to the stipulation, and is expected to be paid by the RMF estate to Celink 10 calendar days following the approval of the revised figure.

“No other amount or claim shall be allowed or payable to Celink as an administrative expense or allowed unsecured claim in these cases solely with respect to the [relevant claim],”

the order said.

“For the avoidance of doubt, nothing in this stipulation shall affect the allowance or payment of Celink’s remaining claims as an administrative expense or allowed unsecured claim.”

Under the terms of the stipulation, Celink and RMF also agreed that this settles any and all related issues stemming from this specific claim, and that the newly-agreed payment “shall fully resolve and satisfy all claims that Celink has, has had, may have or may claim to have against [RMF], wind-down debtors, or the [RMF bankruptcy] plan administrator arising from or relating to [this specific claim].”

Celink reserves the right to newly-discovered claims

The agreement does not preclude Celink from bringing other additional claims against the estate of RMF in the future during the bankruptcy’s post-petition period, however. Nor does it preclude the bankruptcy plan administrator from challenging any additional claims that may arise at that time.

Presiding Judge Mary Walrath approved the stipulation in an official order on Jan. 5, which would place the deadline for the estate’s payment to Celink on Jan. 15.

When the company originally announced its intention to file for bankruptcy at the end of 2022, the RMF case became a leading reverse mortgage industry story, maintaining its significance for more than a year.

In addition to removing a major player from the industry, the bankruptcy also ultimately forced Ginnie Mae to assume control over its extensive portfolio of Home Equity Conversion Mortgage (HECM)-backed Securities (HMBS), straining the government-owned corporation’s resources as well as reverse mortgage industry liquidity in the secondary market.

The ongoing story of the RMF bankruptcy

RMF’s former portfolio continues to take up a sizable portion of total outstanding HMBS, and Ginnie Mae’s own actions in extinguishing the lender from the HMBS issuer program and assuming the portfolio have also exposed the U.S. Department of Housing and Urban Development (HUD) to greater risk this year according to a report from the HUD Office of the Inspector General (OIG).

The HUD OIG has also opened an inquiry into the specifics of RMF’s extinguishment from the HMBS program.

RMD reviewed a complaint that names Celink and RMF as defendants in other ongoing litigation, including a case alleging “systemic violations by Celink and RMF of borrower protections provided by standard HECM loan agreements, federal laws, and New York State laws.”

Another case alleges that Celink and RMF improperly paid property taxes for reverse mortgage borrowers before they became due without legal justification or notice.

RMF’s bankruptcy status complicates both cases according to court filings. Celink continues to defend itself in both cases.

Every loan in the MERS database has a unique 18-digit mortgage identification number, or MIN.

No matter what happens with the loan, the number stays with it forever, even after it’s deactivated. The database also records the “MIN status” of every loan. In most cases, a MIN status of “inactive” means that the debt has been paid in full.

Mortgages are deactivated when you make all the payments but also when you refinance.

In a refinance, the original loan is listed as “Inactive — Paid in Full,” and you get a new active loan with a new MIN. Lender-approved short sales also go into MERS as paid in full.

There’s more than one way to deactivate a loan, though.

If the loan gets reassigned to a party that doesn’t participate in MERS — and some don’t (E.G. OCWEN/PHH) — it will get a status of “Inactive — Transferred out of MERS.”

That’s not really bad, although the buyer will now have to deal with updating county records; you don’t have to do anything.

What is bad, though, is when a mortgage is deactivated because of bankruptcy or foreclosure.

In such cases, the lender, or whoever has claim to the house now, has taken back the property because the borrowers have defaulted on their payments. With the home having been seized, no mortgage payments are being made, so MIN status goes inactive.

It is helpful to first explain the MERS Corporation and how it operates.

As our sister circuit has explained, the recording process in many states is often cumbersome to the mortgage industry, especially when companies seek to bundle mortgage-backed securities together for sale.

Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034, 1039 (9th Cir. 2011).

By designating MERS Corporation as the beneficiary holding legal title to the security interest, the lender is free to sell or assign the beneficial interest to other MERS members without recording in the local records;

all that is required is that the transfer be recorded in MERS Corporation’s online registration system because MERS Corporation continues to hold the deed in the public records—it just does so on the new lender’s behalf. Id.

The simplicity of this system has clear advantages for lenders; they can transfer as many times as they would like to other MERS members without recording a single transfer. Id.

It is only when the loan is sold to a nonmember or when foreclosure is necessary that recording is required.

In that latter case, which is the situation here as the result of a loan default, MERS Corporation assigns its publicly-held nominal interest to the current lender in its system (that is, the true party in interest), which is recorded according to state law prior to foreclosure. See id.

The Burtons’ wrongful foreclosure challenge rests on the alleged invalid transfer of the deed of trust from MERS Corporation to Ocwen.

They contend that if the initial transfer was invalid, so too was the subsequent transfer to Nationstar and its foreclosure on their home.

The Burtons argue that only the original lender can make assignments because MERS Corporation is not an in-fact beneficiary and its legal title under the deed limits its authority to actions that are “necessary to comply with law or custom or required of the lender.”

The Defendants counter that MERS Corporation, as the named beneficiary of the deed of trust, had the authority to make the initial transfer and that the foreclosure on the Burtons’ home was therefore valid.

The deed of trust provides that:

The beneficiary of this Security Instrument is MERS (solely as nominee for Lender and Lender’s successors and assigns) and the successors and assigns of MERS. . . . Borrower [Plaintiffs] understands and agrees that MERS holds only legal title to the interests granted by the Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument.

A separate provision permits the deed to be “sold one or more times without prior notice to the borrower.”

The deed of trust thus gives MERS Corporation legal title to the home as the beneficiary and the inherent power to make successive assignments of the mortgage.

This comports with industry custom—in fact, it’s the very purpose of the system.

The Burtons’ main argument thus appears to be that despite the plain language of the deed of trust and industry custom, MERS Corporation cannot exercise these rights because it is not the in-fact beneficiary.

But as the district court rightly noted, the effect of this contractual language is well established. Courts in this circuit and throughout the country have held that similar—if not identical—language does permit MERS Corporation to make subsequent assignments, even though it is only a nominal beneficiary.

See, e.g., Brisby v. Moynihan, 2014 WL 2940874, at *3 (S.D. Miss. June 30, 2014) (holding that deed of trust authorized MERS to make assignments); Hudson v. Citimortgage, Inc., 2013 WL 6284045, at *3 (N.D. Tex. Dec. 2, 2013) (holding that “[a]s the beneficiary of the [d]eed of [t]rust, MERS held legal title to the Property and had the right to foreclose and sell the Property upon default, and therefore MERS had the inherent authority to assign the [n]ote and [d]eed of [t]rust.”), aff’d, 582 F. App’x 537 (5th Cir. 2014); Hobson v. Wells Fargo Bank, N.A., 2012 WL 505917, at *5 (D. Idaho Feb. 15, 2012) (holding that as the designated beneficiary of a deed of trust, MERS had the authority to assign its interest); Espeland v. OneWest Bank, FSB, 323 P.3d 2, 12 (Alaska 2014) (“As nominee, MERS had the authority to take any action that the actual beneficiary could have taken, including transferring its nominal beneficial interest to another party.”); Lane v. Vitek Real Estate Indus. Grp., 713 F. Supp. 2d 1092, 1099 (E.D. Cal. 2010) (holding that under California law MERS has standing to foreclose as the nominee for the lender and beneficiary of the deed of trust and may assign its beneficial interest to another party).

Burton v. Nationstar Mortg., L.L.C., 642 F. App’x 422, 2-5 (5th Cir. 2016)

U.S. District Court
SOUTHERN DISTRICT OF TEXAS (Houston)
CIVIL DOCKET FOR CASE #: 4:22-cv-02441

Scheduling Order.

Joint Discovery/Case Management Plan

NOTICE of Resetting re: 4 Order for Initial Conference – FORM,. Parties notified. Initial Conference reset for 9/29/2022 at 11:00 AM in by video before Magistrate Judge Sam S Sheldon, filed. (JessicaVillarreal, 3) (Entered: 07/29/2022)

U.S. District Court
SOUTHERN DISTRICT OF TEXAS (Houston)
CIVIL DOCKET FOR CASE #: 4:22-cv-02441

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