foreclosure
Foreclosures

The Texas Death Warrant Detailed. Why Texas Citizens Should be Very Scared.

“We can’t do a capital punishment case, and one judge confessed to me that this is the closest thing that he has to a death warrant, is that we’re signing an order allowing someone’s house to be taken away…”

LIT COMMENTARY

With the current worldwide pandemic, the country will inevitably end up with millions of foreclosures, a repeat of the great recession. This should be a stark warning and hopefully educate homeowners as to the reality of their future in a courthouse.

After Trump Cabinet’s cash controller, Steve “Foreclosure” Mnuchin very recently announced a 1.5 trillion dollar bailout of the banks. Yes, they will stop foreclosures, evictions and help you ‘defer’ your mortgage payments.

But the greedy banks and non-banks like OCWEN are grinning from ear-to-ear as they know the next recession will make them billions of dollars.

Trust us when LIT predicts; this time round won’t be a repeat of the financial crisis – Texas courts, house-jackers and banks are now ready to execute the “Death Warrants” and steal your homes expeditiously.

 

READ THE REPORT

The following report and task force was created when the financial crisis exploded in 2007.  The Burkes have shared this in every case they have been a party to or appealed, all the way up to the US Supreme Court. It has been ignored.

It was blanked as recently as February 2020 by the Magistrate Judge Peter Bray, S.D. Tex. in Burke v. Hopkins Memorandum and Recommendation. The Judiciary, the State and Federal Government along with the Bankers and their entourage of house jackers and bounty hunters want it to go away. LIT is going to make sure it is preserved, forever in history that Texas aided and abetted in the illegal takings of homesteads.

Note; Michael Barrett (deceased) and Tommy Bastian of the BDF Law Group (as it is now known) operate a Foreclosure Mill based in Addison and Austin, Texas. It was the largest creditor rights business at that time in Texas (2007). They are members of the task force and  active lobbyists to change Texas laws to expedite foreclosures.

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As two judges on the task force say in the report (p. 52)

HONORABLE MARK DAVIDSON:

“With respect, no judge wants to have Marvin Zindler in their reception room when they get to the courthouse in the morning wanting to know why you threw the Widow Jones out of the house.”

HONORABLE BRUCE PRIDDY:

“I had one judge, one of my colleagues just — we’re civil judges…We just do civil cases, no criminal cases at all, so we don’t sign death warrants. We can’t do a capital punishment case, and one judge confessed to me that this is the closest thing that he has to a death warrant, is that we’re signing an order allowing someone’s house to be taken away…”

Yet the Texas courts and the State of Texas did execute these death warrants on millions of  homeowners, families, children and the elderly – and have continued to do so from 2007 – 2020.

Page 1

*  *  *  *  *  *  *  *  *  *  *  *  *  *  *  *  *  *  *  *

MEETING OF THE

TASK FORCE ON JUDICIAL FORECLOSURE RULES

November 7, 2007

*  *  *  *  *  *  *  *  *  *  *  *  *  *  *  *  *  *  *  *

Taken before D’Lois L. Jones, Certified Shorthand Reporter in and for the State of Texas, reported by machine shorthand method, on the 7th day of November, 2007, between the hours of 9:36 a.m. and 11:46 a.m., at the Winstead, Sechrest & Minick, 401 Congress, Suite 2400, Austin, Texas 78701.

 

Page 2

1         *-*-*-*-*.

2              MR. BAGGETT: Okay. Why don’t we get

3    started? We have lunch. I have no clue whether we’re

4    going to get there or not, and if we don’t get there, I

5    don’t care. If we get there, fine. It doesn’t make any

6    difference. We’ll do what we need to be doing. I first

7    of all want to thank all of you for giving of your time

8    and talent. We want both, and the billable hours and the

9    money you get out of this are zero, so don’t worry about

10    that. That’s not a good start, but we’re doing, I think,

11    good things.

12              I will tell you that my view of what lawyers

13    have to do to make the world work better for everybody and

14    what I hope this task force does is get deals done and

15    solve problems. If we’ll all bear in mind that’s what we

16    need to be doing, we’ll do just fine, and we had this task

17    force, some of you were in here in ’97 and ’99, and when

18    we got started we said we’re going to do this together for

19    the benefit of the State of Texas. There’s no winners or

20    losers, whatever position you come in here, just

21    contribute so we can all make an educated decision on

22    what’s the best for Texas. The only winners or losers are

23    this group if we all win together, so we’re not going to

24    come in here and argue points and all that.

25              We’re going to figure out how we make it

Page 4

1    that, open it up if people have particular issues, and

2    we’ll probably go around again and let you say what they

3    are, what you think about it, and what we need to be

4    doing, and then we’ll go from there. Probably after the

5    meeting, we’ll probably appoint some subcommittees that

6    will be — after we see what’s happening and so forth,

7    subcommittees that will deal with particular issues to

8    work between when we do and then report back and see if we

9    can’t do it that way. Last time Tommy got to do a lot of

10    drafting. This time Tommy is going to get to do a lot of

11    drafting because he did a good job last time, and he did

12    not get fired, and nobody fussed at him.

13              MR. BARRETT: Well, now wait a minute.

14              MR. BAGGETT: So that’s how —

15              MR. BASTIAN: I still carry scars.

16              MR. BAGGETT: Oh, now, Tommy, give these

17    people the right impression, not the wrong impression.

18              MR. TEMPLE: Mike, I think it’s more

19    accurate to say last time he did all the drafting and the

20    rest of us did the second-guessing.

21              MR. BAGGETT: I think that is probably

22    accurate, so I probably didn’t give him due credit. Tommy

23    is the one that came up with the idea, and in the

24    materials you’ve got what he did to put this together, and

25    the Court agreed, so that’s how we got here. Why don’t we

Page 3

1    work for everybody, and I don’t know whether this is

2    totally true, but I said it several times and nobody has

3    disagreed, so I’m going to keep on saying it. In ’97 and

4    ’99 when we got through with the rules and the task force,

5    we all agreed unanimously on it, and we all got along

6    great, and we had a good time doing it, went to the

7    Supreme Court and they approved it unanimously, and a

8    couple of the judges said, “This never happens like this,”

9    and I said, “Well, good. I’m glad we’re going to do

10    that.” So we’re all going to be winners because we’re

11    going to do that again. We’re going to come out where

12    everybody agrees, and we’re going to take it over there

13    and they’re going to all agree. So that’s our goal in

14    life. If we do that, we will all win. So that’s kind of

15    where we are and what we’re going to do.

16              I think what we’re probably going to do this

17    morning is go around the room. We want each of you to say

18    who you are, where you’re from, and what you bring to the

19    table in terms of expertise and experience, and we’ve

20    got — we tried to when putting this committee together to

21    get all sides of most of the issues so we can know what

22    all the issues are and deal with them fairly. That is

23    what we tried hard to do, and we’ll see how successful we

24    are at the end of it, but we tried to do that.

25              And then probably we’ll go around after

Page 5

1    just start going around here, who you are, where you’re

2    from, and what you bring to the table.

3              HONORABLE PHIL JOHNSON: I’m Phil Johnson,

4    and I’m the Supreme Court liaison to the committee.

5   I’m —

6              MR. BAGGETT: Hold on, we’ve got some new

7    folks coming. Are you-all on the committee? Okay. You

8    should have nametags somewhere.

9              MS. HOBBS: Right there.

10             MR. BAGGETT: Just get one and get a seat.

11    I know Manny.

12             MR. NEWBURGER: Sorry about that. I flew  in

13    late last night.

14             MR. BAGGETT: I’m sorry. You-all missed a

15    great introduction, but you better ask them if it was any

16    good or not. So we’re just getting started, going around

17    the room, who you are and kind of what your experience is

18    in these areas and then we’ll open it up for issues later

19    on. Judge, I apologize.

20             HONORABLE PHIL JOHNSON: That’s all right.

21    I’ve been on the Court a couple of years. I was on the

22    Court of Appeals in Amarillo before that, and before that

23    I tried lawsuits, and all I looked forward to was someone

24    messing up the foreclosure, so I’m here to bring the

25    Court’s imprimatur to this and to encourage everybody.

 

 

Page 6

1              MR. BAGGETT: Thank you for participating.

2    Lisa.

3              MS. HOBBS: My name is Lisa Hobbs. I’m the

4    general counsel for the Supreme Court, and I’m here to be

5    of staff assistance as I can be. I have no expertise in

6    this area, and Jody Hughes is our rules attorney, and he

7    will probably have a hand in this as well, but he is on

8    his honeymoon right now, so he couldn’t make this meeting,

9    but you will probably be working with him as well.

10              MR. McRAE: I’m Tock McRae. I’m from San

11    Antonio. I am in-house with C. H. Guenther & Son, which

12    is a privately held food manufacturer in San Antonio, and,

13    no, we don’t do any foreclosures there, but in my former

14    life — I’ve only been in-house about four years. In my

15    former life I was a banking lending lawyer and was pretty

16    involved in foreclosures, depending on the economic

17    cycles.

18              MR. BAGGETT: Okay.

19              MR. REDDING: I’m Tim Redding. I’m with

20    First American in Houston. I was in the mortgage business

21    before I got in the title business, and I’ve been in the

22    title business 30 years, so that tells you something. I

23    was in the mortgage business going to law school in

24    Houston, and obviously I’m involved in foreclosures being

25    in the title business.

Page 8

1     Grande Legal Aid. We represent the homeowners who are

2     facing foreclosures in these kind of suits, and so I’ll

3     bring that perspective to the table I hope.

4                 MR. BAGGETT: Fred was on the committee

5     before, and what did I lie about in the opening, Fred?

6     Was it okay?

7                 MR. FUCHS: I thought you were right on.

8                 MS. RODGERS: I’m Kelly Rodgers. I’m an

9     attorney and a lobbyist here in Austin, and I worked on

10     Senate Bill 1520 and the companion regulatory bill during

11     the last session representing the interest of mortgage

12     lenders.

13                 MR. TEMPLE: I’m Larry Temple. I’m an

14     Austin lawyer, and I have for more than 35 years

15     represented the Texas Mortgage Bankers Association, the

16     association of mortgage companies in the state, and they

17     obviously have an interest in this.

18                 MR. CULBRETH: Ken Culbreth. I’m not on the

19     force. I’m just kind of here auditing, was involved with

20     the legislation before, and my client had hired Kelly

21     Rodgers to help us with this, and represent mortgage

22     lenders and taxpayers and seen a lot of this in the courts

23     and the litigation and just continue to be interested.

24                 MR. BAGGETT: Okay. Manny.

25                 MR. NEWBURGER: I’m Manny Newburger with

Page 7

1             MS. HOBBS: Hi, Judge Davidson, I’m sorry, I

2    was interrupting someone here, but we have you on the line

3    and we’re doing introductions right now.

4             HONORABLE MARK DAVIDSON: I apologize I was

5    late.

6             MR. BAGGETT: No problem. Thank you, Judge.

7    And I should have said something that I forgot to say in

8    my elaborate opening remarks, and that is that one of the

9    things that we do need to be careful here is we’ve got

10    about 200 years of title law, so whatever we do, we

11    probably don’t need to mess it up. So we do need to think

12    about titles and how we deal with those, and one of the

13    things I guess about titles is certainty probably helps

14    the title business. Would you agree with that?

15             MR. REDDING:  I’m sorry?

16             MR. BAGGETT:  Certainty.

17             MR. REDDING: Certainty, absolutely. I

18    mean, that’s our biggest problem with fighting bills every

19    session that try to hide information, be it from public

20    officials or things like that. We’re always, you know,

21    looking for the information.

22             MR. BAGGETT: And since foreclosures are a

23    part of the title we need to be careful about that, so

24    anyway.

25             MR. FUCHS: Fred Fuchs with Texas Rio

Page 9

1     Barron, Newburger, Sinsley & Weir here in Austin. In my

2     former life I represented consumers suing banks and

3     mortgage servicers and such. These days I represent a

4     large portion of the collection industry. I represent

5     lawyers, debt buyers. My law firm represents I think four

6     trade groups that deal with the collection industry, and I

7     still teach consumer law at UT and periodically still

8     advocate for consumers.

9                 HONORABLE BRUCE PRIDDY: My name is Bruce

10     Priddy, and I’m a district judge in Dallas in the 116th.

11     I’ve only been on the bench for about ten months now.

12     I’ve heard about — probably about a hundred 736

13     applications in the short time I’ve been there and have a

14     strong interest in this area of the law. Before I was

15     elected to the bench I was a consumer lawyer and had some

16     experience in home equity litigation, representing

17     consumers exclusively, mostly pro bono, some intentional,

18     some nonintentional, but home equity lending is something

19     that interests me a great deal.

20                 MR. BAGGETT: Okay. Thank you.

21                 MS. DOGGETT: I’m Mary Doggett. I’m an

22     attorney in San Antonio. I represent the Texas Property

23     Tax Lenders Association and several companies that do

24     property tax lending.   My background is that I worked  for

25     eleven years with Linebarger, Goggan, Blair & Sampson

 

 

Page 10

1    collecting delinquent taxes for various taxing units in

2    Bexar County.

3              MR. BAGGETT: Okay.

4              HON. AMALIA RODRIGUEZ-MENDOZA: Good

5    morning. I’m Amalia Rodriguez-Mendoza. I’m the district

6    clerk here in Travis County, and I guess the reason I’m on

7    this committee is to sort of give you the clerk’s

8    perspective, but in Travis County on February 28th Judge

9    Dietz signed an order mandating that certain cases be

10    e-filed, and one of the type of cases that is e-filed is

11    home equity and foreclosures, and we receive a lot of

12    e-filing foreclosures, and I don’t know if you’re doing

13    that e-filing, but I guess that’s one of the perspectives

14    that I bring.

15              MR. BAGGETT: It is. It is. It’s a very

16    important perspective, so speak up and let us know what

17    we’re doing good and bad because that’s important. We

18    need to make sure we do that right. Okay. Thank you.

19    All right, Linda.

20              MS. KELLUM:  I’m Linda Kellum.  I’m the

21    court coordinator for the 88th Judicial District Court,

22    which is composed of Hardin and Tyler County. I’m also a

23    certified legal assistant. I’ve been in the legal

24    profession for probably about 28 years now. I just went

25    off of the board of directors for the Texas Association of

Page 12

1    knows who everybody is, and we have done all that — yes.

2             MR. REDDING: On the phone.

3             MR. BAGGETT: Oh, Judge? Judge?

4             HONORABLE MARK DAVIDSON: Yeah, I’m here.

5             MR. BAGGETT: Okay.

6             HONORABLE MARK DAVIDSON: My name is Mark

7    Davidson. I’m judge of the 11th District Court in

8    Houston. I’m also the administrative judge in Harris

9    County. I have been a judge for 18 years, and I have been

10    doing these since the rule and the constitutional

11    amendment went into effect a long time ago.

12             MR. BAGGETT: Okay. Well, thank you very

13    much, and we clearly need the skills of the administrative

14    judge in Harris County. And whatever you see that’s

15    reality we need to know for sure, because we’ve got to

16    deal with it at every level, so thank you very much for

17    joining us, and what we’ll probably do now is we have two

18    major areas that we probably need to think about and deal

19    with. One is the tax lien information and the other is

20    what’s working and isn’t working in those two rules that

21    we need to deal with, 735 and 736.

22             I will say this, that when we had the task

23    force before and we didn’t have a rule, we started from

24    scratch, and a little bit of the history — and I stand

25    for rebuttal from any of you who are in here if you think

Page 11

1    Court Administration. I also am a faculty member for the

2    Texas Center of the Judiciary with their PDP program, and

3    like Mr. Redding there, I have spent some time in a — in

4    the title business before as well. My perspective, I

5    suppose, is going to be how the courts deal with it.

6              MR. BAGGETT: You have a very important

7    perspective, what are we doing good and what are we doing

8    bad from the real life everyday stuff, and that’s very

9    important. So both of you, if we get off into esoteric

10    stuff and we’re not paying attention to reality, you let

11    us know. Karen.

12              MS. NEELEY: Karen Neeley. I’m general

13    counsel for Independent Bankers Association of Texas and

14    of counsel with Cox Smith Matthews, and I followed and

15    worked on this 1520 companion regulatory bills as it was

16    going through session.

17              MR. BARRETT: Hi, I’m Mike Barrett. I’m

18    chairman at Barrett Burke Wilson Castle Daffin & Frappier.

19    I’m Manny’s client and Tommy’s boss, so I’m just here to

20    make sure they’re doing a good job.

21              MR. BAGGETT: Tommy says he’s the boss.

22              All right, Tommy.

23              MR. BASTIAN: I’m Tommy Bastian, and I’m the

24    peon at Barrett Burke Wilson Castle Daffin & Frappier.

25              MR. BAGGETT: Okay. Now that everybody

Page 13

1    I slipped in what I say here, that’s fine, because we have

2    several that have been on all the task forces, and but

3    what we were assigned to do because we got home equity for

4    the first time in a constitutional amendment that said

5    there has to be an order from a court in order to go

6    forward with a foreclosure. So these two rules were to

7    try to address that requirement that there be an order

8    from the court in this area of foreclosures, and first in

9    I guess ’97 was home equity, and we talked about where do

10    we go and what do we do, and we were starting from

11    scratch.

12              And I will say this, although it wasn’t

13    popular to say this in the meeting, we borrowed from

14    Colorado, because Colorado had a process somewhat like

15    what we ended up with, and the big concerns were if

16    there’s a lot of this we don’t want to clog up all the

17    dockets and make the administrative part of it very

18    difficult and if, in fact, they are uncontested, proceed

19    with it on a basis that the rule deals with, but if

20    anybody wants to contest it in any way, they can bring

21    another lawsuit, what I would call a full regular lawsuit

22    in another court, file a notice of it where the

23    application is filed, and it’s automatically dismissed

24    without prejudice, and you flip over to full litigation,

25    and that was our thought process about how we do it.

 

 

Page 14

1              So it’s a balance between full litigation if

2    and when you need it, and if it’s not disputed, so we

3    don’t clog up the courts and so forth, go forward with

4    this process that we came up with in 735 and 736, and I

5    think it’s different than what we’ve had before, so

6    administratively it caused some problems. Judges weren’t

7    familiar with it, which is very understandable, because it

8    was different than anything we’ve ever done, but I think

9    everybody tried and it worked out pretty well, and then

10     when we got reverse mortgages two years later we just

11     added reverse mortgages to those two rules, and now I

12     guess the thing that probably triggers this more than

13     anything else is we’ve got the tax lien issues that say

14     you’ve got to comply with 736.

15               So we — again, we need to put into these

16     two rules how we deal with the tax lien situation. That

17     probably is the starting point for most of this, because

18     we’ve got to deal with that issue.  Now, while we’re at

19     it, if there are other issues that have arisen, as much

20     from the administrative judge and the coordinators and the

21     clerks, mechanically on how we can improve it or if there

22     are problems with it then we would like to hear any of

23     that if we can.

24               I will say our goal in life is not to

25     reinvent the Constitution. No, no, no. We need to deal

Page 16

1    impact what committees we have and who’s on them. Having

2    said that, Tommy, do you want to talk about tax liens and

3    Karen and I guess Kelly? Yeah, go ahead.

4              MR. TEMPLE: Can I suggest something?

5              MR. BAGGETT: Sure.

6              MR. TEMPLE: I don’t want to trump what you

7    just said, but it would be instructive to me if before we

8    got into what additions we are going to make if the people

9    that are dealing with this on a regular basis could tell

10    me what problems there are with the present rule to which

11    it’s applicable anyway.

12              MR. BAGGETT: Sure.

13              MR. TEMPLE: I know there is an issue about

14    lines of credit and there is an issue about reverse

15    mortgages and certainly going to be an issue about the

16    property tax liens, and we’ll need to make some additions

17    or changes probably, but without regard to that just a

18    minute, what it was intended to work for, I would be

19    interested in knowing are there issues, are there problems

20    in the way it has been working over the last decade in the

21    areas to which it was originally applicable.

22              MR. BAGGETT: I was going to go to that

23    next, but that’s fine. Let’s start on that now. I don’t

24    have any problem with that. That’s fine. So why don’t we

25    do that? Anybody that’s dealing with it everyday or has

Page 15

1    with things as efficiently and as precisely as possible.

2    We are not the Supreme Court. We are not the Legislature,

3    and we all haven’t been voted into office, so our task, we

4    need to bear in mind, we are not kings and queens, we’re

5    just folks trying to figure out how to make this work and

6    do it in an efficient, easy way as opposed to rewriting

7    the Constitution. We don’t need to do that, I don’t

8    think. So I’m not sure that little talk helped you very

9    much, but that’s where we are.

10              Why don’t we talk first, because our primary

11    goal is to deal with how we adapt this rule to tax liens,

12    and I will also say this: This morning throw out

13    everything that anybody has an issue with and we ought to

14    talk about it as much as you want to. What we’ll probably

15    do after this, after we see what the different issues are

16    and so forth, we’ll probably get some subcommittees that

17    will work between these meetings to come up with some

18    proposed drafts. As Larry said, we did that to Tommy, and

19    he did the work, and we came in and said, “Tommy did a

20    pretty good job, that’s good.” So maybe that will happen

21    again. That will be fine with me if we do that.

22              But we’ll probably do that, so y’all will

23    probably be hearing after this sometime that you might be

24    on a committee and what we would be looking at. But what

25    we say today as far as issues and how we approach it will

Page 17

1    issues with it or things that we can improve on the rules

2    and how they work right now, you know, the floor is open

3    and don’t hold back, because we need it.

4             HONORABLE MARK DAVIDSON: Okay. Well, not

5    one to hold back, can I get my first little shot?

6             MR. BAGGETT:  You bet.

7             HONORABLE MARK DAVIDSON: There appears to

8    be a dispute between attorneys that represent the lenders

9    and some — no, and most, but not all, judges as to

10    whether or not the papers that are filed with the Court

11    that establish the existence of the debt and the lien must

12    show that the movant, that is the current holder and owner

13    of the note, is the party entitled to foreclose. In other

14    words, whether you have to attach the assignment

15    documents. If I get an application that shows a note paid

16    to the ABC Lending Company and it’s the XYZ Bank Company

17    that is seeking to foreclose, some judges say that the

18    motion should be denied, the application should be denied,

19    because the — unless the assignment from ABC to XYZ is

20    contained in the file.

21             Other judges maintain that as long as it is

22    pled under oath that the applicant is the holder and owner

23    of the note, that the purpose and effect of the statute

24    has been complied with.

25             MR. BAGGETT: Gotcha. That is a good start,

 

 

Page 18

1    because that’s an issue we have around the state with

2    different judges, and I think we ought to do it. Let me

3    tell you what I think about it generally, then I want to

4    go to Tommy who does it more. But I need to tell you,

5    too, we do commercial litigation when it’s probably big

6    issues and big problems. We do not do volume foreclosures

7    and so forth, so to the extent that people deal with it on

8    a daily basis, that’s not me, so you need to know that, so

9    I’m giving you a disclaimer before I start.

10              But I think what the issue is that I’ve

11    heard some is who’s the owner and holder and how do you

12    establish that and you have to establish that in order to

13    proceed with the process. This is not — this is just

14    some general comments. When you have a debt you have

15    several sources of repayment, and I’m going beyond the

16    rules here. This is more of my foreclosure general stuff

17    than it is the rules. You could have a source of

18    repayment for — from the maker of the note, or it could

19    be nonrecourse. You could have a source or a payment from

20    real property collateral, you could have a source or

21    payment from personal property collateral, you could have

22    guarantors.

23              So owner and holder of the note, the lien

24    goes with the debt, no question about that, but does not

25    necessarily mean who had — what’s the primary source of

Page 20

1    those, and he doesn’t want to hear all that kind of stuff,

2    and I do understand that. I think we probably ought to

3    talk about the practicalities of it some; and I think

4    Tommy probably knows that more and a lot of you do, so I

5    particularly want to hear from the court personnel about

6    that; but I think originally when we did those two rules

7    the application was to be verified with respect to debt

8    and ownership of it and default; and that was what was

9    supposed to be verified; and if there was an issue with

10    that in any way then you would file a regular lawsuit and

11    get into it, and you get into all these issues because now

12    obviously you have pooling of all these mortgages, you’ve

13    got entranches, you’ve got it sold with different levels

14    of assets and collectability; and the one commonality of

15    the marketplace is you have a, quote, mortgage servicer,

16    which was added to the statute; and that’s the party to

17    whom the payments are being made.

18              And the old concept of owner and holder sort

19    of works in the sense that if you went into Frost Bank and

20    you got a mortgage and you paid it back to Frost Bank,

21    then you know who the owner and holder is. Now, what

22    happens now is you have — this is not necessarily in just

23    a single family. It’s in the commercial, it’s in all of

24    it. All these loans are generated. They’re put into a

25    pool that satisfies these tax issues and trust issues, and

Page 19

1    repayment. So, basically, owner and holder deals with the

2    UCC provisions that have to do with enforcing a note.

3    They don’t necessarily deal with real estate foreclosures,

4    personal property foreclosures. There are other sources

5    of repayment on an obligation. So there is a — I think

6    that’s an issue in Florida and some other places, so we’ve

7    got to pay attention to the — how this affects the

8    overall body of foreclosure law, but we’ve got to also be

9    realistic.

10               The original, I think, intent of those rules

11     was that you file an application, you have to swear to

12     that there is a debt and that it’s in default. Nothing

13     else is required to be certified, and it’s really there

14     for a situation where you have an uncontested issues to a

15     great extent. If there’s ever an issue about who’s the

16     owner and holder or anything like that, a lawsuit, I think

17     we contemplated, could be filed in district court, notice

18     of that filed in the application, and the application

19     dismissed. This is not necessarily supposed to be a

20     mini-trial in any way. It’s supposed to be dealing with

21     situations that are uncontested, because if there is a

22     problem with it, file a regular lawsuit, do full

23     discovery, and do whatever you want to with it.

24               Now, that’s a — that’s probably not fair to

25     a judge sitting there listening to this and having ten of

Page 21

1    then layers of that pool are sold to different investors,

2    and they’re rated by the rating agency, and you’ve got

3    triple A and double A and A and all this stuff.

4              So what happens is these loans get into a

5    pool, which now the market’s having trouble with subprime

6    pool, so I don’t know what’s going to happen to all that,

7    but when they get into a pool they are in a group of a lot

8    of assets in that pool that go into a trust and then

9    layers of that are sold out to investors. So the only

10    common denominator of that which would be even close to an

11    owner and holder is the mortgage servicer, because the

12    mortgage servicer is the one that knows where all this

13    goes. They know where the waterfall payments go, they

14    know where the defaults are, and none of these investors

15    ever anticipated they’re going to do anything with it,

16    because the services are going to do it, and MERS has all

17    this recording and all that in D.C. about where all these

18    tranches are, and so when you get into owner and holder

19    from our old traditional concept of it, the way the

20    market’s working on pooling these mortgages, it really

21    doesn’t apply, and that’s why this is a huge issue about

22    how you deal with it. That’s why I think the statute was

23    changed two sessions ago, so you now have the mortgage

24    servicer, who’s the one that gives the notices and deals

25    with everything, and that’s the person to who the payments

 

 

Page 22

1    — the entity to who the payments are made.

2             HONORABLE MARK DAVIDSON: That is who is

3    making the application to foreclose.

4             MR. BAGGETT: That’s right, and that’s the

5    closest thing you’re going to have to who the owner and

6    holder of the debt is.

7             HONORABLE MARK DAVIDSON:  Okay.  So need the

8    application filed with the court have a copy of the

9    assignment or whatever the agreement is that authorizes

10    that entity to do that?

11             MR. BAGGETT: Well —

12             HONORABLE MARK DAVIDSON: Or can a naked

13    stranger to the original transaction come in and seek

14    foreclosure of the lien without proof that they have

15    standing to do so?

16             MR. BAGGETT: Right. And that’s a good

17    question. Manny, you want to —

18             MR. NEWBURGER: I’m just curious, if I could

19    ask a question, isn’t lack of standing an affirmative

20    defense that’s waived if it’s not pled, and if the rules

21    simply have Rules 93 and 94 applicable to this proceeding,

22    doesn’t that answer the question?

23             MR. BAGGETT: Did you hear that, Judge?

24             HONORABLE MARK DAVIDSON: I did.

25             HONORABLE PHIL JOHNSON: Let me say, I’m not

Page 24

1    up with a one piece — a single piece of paper that the,

2    you know, ABC Mortgage Company does hereby assign the

3    rights to collect and foreclose on any lien to the XYZ

4    Bank, and that the XYZ Bank that is seeking the relief and

5    that is what we require, but there are — the rule is

6    silent as to whether this is required, but generally —

7              MR. BAGGETT: That’s true.

8              HONORABLE MARK DAVIDSON: — it takes one

9    piece of paper.

10             MR. BASTIAN: There might be an easy

11    solution to all of this because just about every

12    foreclosure referral that comes from a mortgage servicer

13    always says “The investor is,” and the investor is the

14    person that that servicer ultimately is going to be

15    sending the principal and interest to. So it would be a

16    very simple thing to just say “The investor is,” blank,

17    “the mortgage servicer is,” blank, because that’s who the

18    borrower is making their payments to, so you kind of have

19    the fail-safe that the borrower knows, well, this is who

20    I’ve been making the payments to. Plus if it’s a

21    Federally insured mortgage, that borrower has to know, and

22    I think it’s included in your materials the definitions of

23    servicer and what the servicer does.

24             So if you had that “the investor is,” and

25    that kind of takes care of — it’s kind of a fail-safe in

Page 23

1    sure, when you say standing, standing generally goes to

2    jurisdiction and goes to whether something is void or not,

3    so when you say standing you need to be a little more

4    discriminating.

5             MR. BAGGETT: Judge, let me butt in. What

6    we’re — the rules are very important. I don’t have any

7    question about that, but the problem here, let’s think

8    about who would be the owner and holder in a situation

9    where it’s a mortgage that’s one of 5,000 mortgages in a

10    pool and that pool has been put together where you have

11    triple A investors, double A investors, B, double B

12    investors, and the only commonality of dealing with that

13    pool of debt is the mortgage servicer to whom the payments

14    are made, and the rule, 92 — well, I mean, our regular

15    rule was amended to put that in there for that reason.

16             Now, this doesn’t necessarily become a big

17    issue if you just have a traditional situation where

18    you’ve got the party who originated the loan as the holder

19    of the debt. That’s not too difficult, but when you

20    get — I don’t know how you get proof of all that. I

21    mean, you would have to go through all those layers of

22    here’s the trust, here’s the parties who have the

23    different layers, here’s the mortgage servicer.

24             HONORABLE MARK DAVIDSON: What they’ve been

25    doing in Houston for the judges that require it is coming

Page 25

1    itself in that five years from now somebody comes in and

2    says, “Okay, I paid or I think I paid that and somebody

3    else is suing me,” you go back and say, “Well, who was the

4    investor,” and then you have the mortgage servicer who is

5    the money maid, and that’s real simple for people to

6    provide because that’s what your lender’s going to be

7    sending to you when you do a foreclosure and initiate the

8    foreclosure, and it basically just has transparency and it

9    has full disclosure on the parties and the roles that they

10    play. The big thing that’s kind of the fly in the

11    ointment of all of this is MERS because MERS is going to

12    be the mortgagee of record, and that kind of changes

13    things.

14              MR. BAGGETT: Explain to people what MERS

15    is.

16              MR. BASTIAN: Well, MERS is going to be the

17    mortgagee of record. In about 60 percent of all loans

18    MERS is going to be the mortgagee of record, but all MERS

19    is is a registration system. That’s all it is. It really

20    is a piggyback on what happened in the securities market

21    back in the early Seventies when Wall Street was

22    exploding, and back in those days whenever you bought and

23    sold stocks or bonds you had to have a paper certificate.

24    Well, the back rooms couldn’t keep up with it, and Wall

25    Street almost cratered, and they came up with a book entry

 

 

Page 26

1    system that everybody is familiar with today where loans

2    are bought and sold, and that’s basically what MERS is.

3    It’s just a listing of who has all the beneficial

4    ownership interest in a mortgage, and that’s going to be

5    the investor, it’s going to be the mortgage servicer, it’s

6    going to be the subservicers.  It gives you four or five,

7    six pieces of corroborating information about the borrower

8    and that particular loan. I mean, it has the detail on

9    their status sheet that says, “This is when the loan was

10    made, here is the borrower, and here’s the amount of the

11    loan.” I mean, all that information is right there so

12    that if the loan is registered on MERS it’s real easy to

13    determine all the different parties in the transaction,

14    and that’s the way the world’s going, so maybe that’s kind

15    of the place we need to be going.

16              MR. BAGGETT: But MERS is in D.C. and it’s

17    national and —

18              MR. BASTIAN: Yeah. It is the book entry

19    that’s referenced in 51.001 as the book — the book entry

20    system. That’s what MERS is.

21              HONORABLE MARK DAVIDSON: Well, all I’m

22    saying is I don’t — I see reasons for the rule to be one

23    way or the other, but I think the rule should be clearer

24    as to whether capacity, standing, ability, power, call it

25    what you will, has to be affirmatively proven within the

Page 28

1    courts in Dallas require some sort of assignment of the

2    note to the applicant so the applicant is actually the

3    person or the entity that has the rights under the —

4              MR. BAGGETT: Judge Davidson, can you hear

5    that?

6              HONORABLE MARK DAVIDSON: Most of it.

7              MR. BAGGETT: Speak up.

8              HONORABLE BRUCE PRIDDY: And what the —

9    happens is they just execute a document like Mr. Barrett

10    says doesn’t exist.  They just create one for the most

11    part sometimes, and the servicer signs it themselves

12    saying that it’s been transferred to whatever entity they

13    name as the applicant. I think we can avoid a lot of

14    problems if we specifically allow the servicer standing

15    under Rule 736, because I think it’s — we don’t

16    specifically allow the servicer to proceed, and I think if

17    we tie in with the Property Code provision that the

18    servicer can proceed with foreclosure if certain

19    circumstances are met, if we tie into that in the rule I

20    think we’ll avoid a lot of these problems.

21              MR. BAGGETT: Yeah, I think you might be

22    right because whatever vehicles we have, you do have a

23    servicer if there’s multiple parties, and that is the most

24    logical entity to go forward. We just need — if we’re

25    going to do that, we need to figure out how we do it

Page 27

1    four corners of the papers filed with the court or whether

2    the verified application without any paperwork being

3    attached is enough to require a judge to sign the request

4    for relief.

5              MR. BAGGETT: Right. That’s fair.

6              MR. BARRETT: Judge, I think that’s a very

7    good point. This is Mike Barrett, and I know we’ve had

8    this difficulty. There really isn’t such a document, and

9    maybe, Larry, you might explain mortgage servicing rights

10    because the servicer usually acquired their position in

11    the file through the purchase of MSRs. There is an

12    organized market in MSRs that really makes up maybe as

13    much as 40 to 50 percent of any mortgage company’s assets,

14    and they acquired this — their status of being a servicer

15    through the purchase of an MSR most of the time, or they

16    did it themselves, they created their own loan. So

17    finding a document that says, “I am the owner and holder,

18    and I hereby grant to the servicer the right to foreclose

19    in my name” is an impossibility in 90 percent of the

20    cases. So we’re going to have to deal with that

21    particular issue, and an understanding of who the servicer

22    is and what an MSR is may be important to the transaction.

23              MR. BAGGETT: Okay. Judge.

24              HONORABLE BRUCE PRIDDY: Yeah, in Dallas

25    we’ve wrestled with this issue, and I think most of the

Page 29

1    cleanly so that everybody understands it.

2              Manny, did you have a comment you want to

3    make? Larry, you want to talk?

4              MR. TEMPLE: Mike suggested I do that and

5    then he did it so well there’s nothing for me to add.

6    That really tells you what the servicers do, and I just

7    wonder if you added into Rule 736 in what has to be pled

8    just a statement that the person, the movant, is either

9    the owner or is the servicer with the power from the owner

10    to —

11              MR. BAGGETT: Yeah.

12              MR. TEMPLE: — therefore proceed.

13              MR. BAGGETT: And swear to that as part of

14    the application process. Judge, would that do it?

15              HONORABLE BRUCE PRIDDY: Perhaps.

16              MR. BAGGETT: Okay.

17              HONORABLE BRUCE PRIDDY: One of the other

18    concerns I have is that most of the applications, the rule

19    says it can be on information — it can be on personal

20    knowledge or information and belief, if they state the

21    basis for information and belief. Nearly all of the

22    applications I see are on personal knowledge, and you can

23    tell that there’s no way that one person can have personal

24    knowledge of everything that’s in there.

25              MR. BAGGETT: That’s true.

 

 

Page 30

1             MR. BARRETT: Exactly.

2             HONORABLE BRUCE PRIDDY: It’s just — to me,

3    I think we need to massage it a little bit and not

4    encourage folks who do this, because it really kind of

5    devalues the idea of personal knowledge in my court

6    because of what they’re saying they have personal

7    knowledge to they can’t possibly have personal knowledge

8    to.

9             MR. BAGGETT: That’s probably right.

10             HONORABLE BRUCE PRIDDY: And so I would like

11    to have some tweaks of that.

12             MR. BAGGETT: And we shouldn’t write the

13    rule in a way that they can’t possibly comply with it.

14    That’s not very smart.

15             HONORABLE BRUCE PRIDDY: Right. But they

16    can do it if they do it on information and belief and just

17    say that it’s based on their records, but no one does

18    that. They just say they have personal knowledge, and you

19    can’t have personal knowledge that a loan occurred in

20   1978.

21             MR. BARRETT: That is exactly right. Some

22    of these companies are servicing six million mortgages.

23    The records with those mortgages are spread out in cities

24    across America. The clerk who is preparing the document

25    the judge refers to is usually an employee for less than a

Page 32

1    mortgage servicer.

2              MR. BASTIAN: And the definitions to 51.002

3    were done after Rule 735 and 736 were drafted, and that’s

4    one of the things that we asked the Supreme Court to look

5    to, is to marry those two ideas and make 735 and 736 now a

6    master definition in the foreclosure statute.

7              MR. BAGGETT: Yeah, that’s right.

8              MR. BASTIAN: And what we’re talking about

9    would probably be taken care of. I mean, it needs to be

10    more specific, but —

11              MR. BAGGETT: Yeah, because the mortgage

12    servicer definition that y’all dealt with is in the

13    probate — I mean, in the real property law, not in the

14    rules. So we clearly need to make the rules reflect

15    what’s in the foreclosure law, and maybe that’s a way to

16    do it. What do you say, chief?

17              MR. BASTIAN: No, I agree. Because that’s

18    who the borrower is making their payments to, that’s who

19    they assume is the mortgage servicer. I mean, I’ve

20    tried a bunch — or had a bunch of these hearings before

21    judges, and they think the person that they’re making

22    their own home loan payment to is the owner and holder of

23    the note. It’s always the mortgage servicer. I mean,

24    they don’t even know that, so and that’s kind of the

25    fail-safe because that’s who the borrower expects to be

Page 31

1    year or two, and there’s no way they know, so you’re

2    absolutely right, Judge.

3              MR. BAGGETT: Yeah, but we also — we’ve

4    also got to write it in a way that they take enough time

5    and effort to make sure that it really is the right

6    servicer doing it. I don’t want to go so far on the other

7    side that they just say “slap it on them” once they get in

8    the door, and that’s all you’ve got to do. They ought to

9    take — it’s a foreclosure. They ought to take time to

10    make sure it’s the servicer that’s doing it. Whatever

11    that means. Okay. Other comments?

12              MR. REDDINGS: Mike?

13              MR. BAGGETT: Yeah.

14              MR. REDDING: Mike, I was just looking at

15    736. You know, there is no definition of “applicant” in

16    it.

17              MR. BAGGETT: Well, I don’t remember what it

18    says.

19              MR. BASTIAN: That’s exactly right.

20              MR. BAGGETT: Yeah, that’s true. Maybe we

21    just define “applicant,” and the applicant really would be

22    the mortgage servicer.

23              MR. BASTIAN: Yeah.

24              MR. REDDING: Or the mortgagee.

25              MR. BAGGETT: Or owner and holder or

Page 33

1    enforcing this note, not some, you know, Bank of New York

2    as trustee for series XYZ home equity loan —

3              MR. BAGGETT: Pool No. 216.

4              MR. BASTIAN: That just creates problems.

5              MR. REDDING: Well, the other problem —

6    Judge, this is Tim Redding. The other problem that I see

7    — and, Tommy, you and I talk about it regularly — that

8    we have a bunch of servicers that are corporations or

9    trusts attempting to foreclose on behalf of other trusts

10    using a power of attorney, and I don’t think that’s really

11    proper. I mean, we all kind of turn a blind eye to it,

12    but I think that’s an issue that’s out there that somebody

13    could use to potentially attack a foreclosure.

14              MR. NEWBURGER: That’s what basically

15    happened in Florida where MERS has been held as being

16    unauthorized practice of law by a few judges when they

17    filed foreclosures.

18              MR. BAGGETT: Speak up. Speak up, Manny, so

19    the judge can hear you.

20              MR. NEWBURGER: That’s what’s happened in

21    Florida where some judges have decided that MERS’ attempt

22    to conduct a foreclosure as the applicant was an

23    unauthorizerd practice of law. Now, they’ve got some

24    really good arguments for why they think that’s wrong, but

25    that’s been a major battleground over in that state.

 

 

Page 34

1              MR. BAGGETT: But all MERS is is a recording

2    vehicle, right?

3              MR. NEWBURGER: Well, but they’ve been

4    filing foreclosures in the name of MERS. I don’t think

5    anyone is doing it anymore since judges decided that that

6    constituted an unauthorized practice of law, but —

7              MR. BASTIAN: Well, part of that in Florida,

8    their foreclosure statute says only the owner and holder

9    of the note can bring the foreclosure, and MERS wasn’t the

10    owner and holder of the note, and yet everybody was

11    pleading them as the owner and holder of note. All they

12    were was the mortgagee of record in the land title

13    records, and it got everybody confused, and like anything

14    new, it just created problems.

15              MR. BARRETT: Well, MERS was at great —

16    greatly at fault for creating all of those impressions.

17    They may be supposed to be merely a registrant, but they

18    haven’t acted as a registrant. They have acted as a

19    for-profit business, and they have gone out and tried to

20    get into the default servicing business. At one point in

21    time they considered themselves a huge competitor for

22    doing foreclosure business, and they actually went out and

23    marketed their services to bring foreclosures.

24              MR. BAGGETT: They’ve quit doing all that,

25    right?

Page 36

1              MR. BARRETT: Yes.

2              MR. BAGGETT: It was started by Fannie Mae

3    or Freddie Mac.

4              MR. REDDING: Consortium.

5              MR. BASTIAN: Well, yeah, there’s 270 — I

6    mean, 2,700 members. It’s Fannie Mae/Freddie Mac, VA,

7    HUD, Texas Mortgage Bankers, American Land Title, I mean,

8    all the people that are involved in the mortgage banking

9    industry, has three classes of stock, and it’s basically a

10    utility for the mortgage banking industry simply to track

11    all the beneficial interests in loans that are registered

12    on the system.

13              HONORABLE PHIL JOHNSON: But it’s an entity

14    that is owned by stock, stockholders?

15              MR. BASTIAN: Yes. It’s a stockholding

16    entity just like the Depository Trust Corp. for Wall

17    Street.

18              MR. BAGGETT: Owned by investors primarily.

19              MR. BASTIAN: Yeah, the investors, the

20    mortgage — the people that are involved in the mortgage

21    banking industry. It has about 80 employees. That’s it.

22    All of its work is done through the mortgage servicers.

23              MR. BAGGETT: There’s going to be a chapter

24    in the foreclosure book added by him on MERS, what MERS

25    is.

Page 35

1              MR. BARRETT: Well, I don’t know whether

2    they have or not.

3              MR. BAGGETT: Okay.

4              MR. BARRETT: It’s a big company. You might

5    ask one and they say “We quit,” and you ask three others,

6    they say, “Oh, no, we still like your business.” They’re

7    competitors, Mike.

8              MR. BAGGETT: All right. Other comments on

9    this, because this is the issue I hear about mostly from

10    judges, which is a fair issue?

11              HONORABLE PHIL JOHNSON: Could I ask a

12    question?

13              MR. BAGGETT: Yeah.

14              HONORABLE PHIL JOHNSON: Is this a private

15    corporation, corporate entity?

16              MR. BAGGETT: Tell him the history of it.

17              MR. BASTIAN: Well, basically it is a

18    utility of the mortgage banking industry to register

19    loans, so that they can debunk — so it’s just like the

20    Depository Trust Corporation for stocks and bonds. When

21    you buy and sell stock, that’s where it’s registered so

22    you can figure out who is the owner and holder of that

23    stock when you buy and sell it.

24              MR. McRAE: Is it cooperatively owned, I

25    guess?

Page 37

1              MR. BASTIAN: I’m sure that will solve all

2    of the world’s problems.

3              MS. NEELEY: Mike?

4              MR. BAGGETT: Yeah.

5              MS. NEELEY: Just sort of an observation,

6    here’s what I’m hearing, that in order to resolve these

7    issues a couple of things need to happen, define

8    “applicant” to include mortgage servicer, regularize the

9    rules with the Property Code, which have been carefully

10    thought out to deal with this issue that’s developed over

11    time, and also clarify in the rules what we mean by a

12    verified application so that it’s clearer that it can be

13    on information and belief. That’s actually in another

14    part.

15              MS. HOBBS: Yeah, it’s pretty clear.

16              MS. NEELEY: But it’s not as clear as it

17    could be in the first part, so we don’t get people just,

18    you know, lying in the affidavits, but they actually have

19    a basis for the verified affidavit.

20              MR. BAGGETT: I think you’re right.

21              MS. NEELEY: Does that make sense?

22              MR. BAGGETT: We struggled with the issue of

23    what needed to be sworn to in ’97 and ’99, and we really

24    did not say that the applicant needed to be identified for

25    (1) or (2) because we didn’t know that was going to be an

 

 

Page 38

1    issue. I think what you said is probably right, if we can

2    figure out how to deal with those three things it probably

3    would help significantly, and we didn’t really — all we

4    did — you-all tell me when I mess this up.  All we did

5    was swear that there was a debt and it’s in default. The

6    rest of it didn’t need to be sworn to, and the concept

7    was, is that has to be served and everybody knows about

8    it, but when you get it, go to a lawyer, and a lawyer

9    says, “No, you’re not — there’s something wrong with

10    that,” they file the lawsuit and this just gets dismissed.

11              MS. NEELEY: And I don’t think people

12    realized that these were going to get packaged as much as

13    they are.

14              MR. BAGGETT: The secondary market has

15    obviously increased, and it’s going to keep increasing,

16    and how do you deal with that because we did not attempt

17    to deal with that in ’97 and ’99.  We did not know it was

18    a big issue, and so that’s very appropriate to talk about

19    now, but I also want — I want you guys who are on the

20    consumer side to make sure that what we’re doing is fair

21    to the consumers, too.

22              MS. NEELEY: I was going to make an

23    observation. Under RESPA you have to be a federally

24    related lender, and some of these tax lien financiers are

25    below the one million threshold, and so they are not

Page 40

1    cause number and no court, so they don’t know the judicial

2    district; and the good firms file it and then send it out

3    with a cause number in a court, but there are some firms

4    that aren’t doing that. So the homeowner has — and

5    doesn’t know the cause number in which to file a response

6    if he or she wishes to file a response.

7              MR. BAGGETT: Okay.

8              MR. FUCHS: And, believe it or not, we’ve

9    had some problems with law firms then when you call them

10    up and ask them to provide that information, which as a

11    courtesy you would do in any kind of litigation it seems

12    to me, refuse to tell us over the telephone the number

13    that’s been assigned to the pending application.

14              There’s the form here, which is implicit it

15    seems that you would state the cause number, but the way

16    the rule is written you simply have to certify as the

17    attorney filing the application that you served it by

18    first class mail and certified mail and along with the

19    notice, but there’s no requirement actually in the rule

20    that the cause number and the court actually be included

21    in the correspondence to the consumer, and that’s one of

22    the little things that I think need to be tweaked along

23    with the other three issues that have been discussed here.

24              MR. BASTIAN: That’s a real simple one to

25    fix. I mean, that — there’s a lot of little tiny tweaks

Page 39

1     necessarily subject to RESPA, and under RESPA you’ve got

2     to give the disclosure of the transfer of servicing  rights

3     that was added in by Henry B. Gonzalez a number of years

4     ago, but I don’t recall, and I don’t know if any of you

5     guys remember, a record retention requirement as to how

6     long that servicing right disclosure is actually retained

7     by the lender such that that document would be available

8     to — I don’t think it’s retained.

9                 MR. BASTIAN: It’s five years.

10                 MS. NEELEY: Yeah. So you don’t have that

11     necessarily when you’re getting ready to foreclose to

12     establish that as one of the pieces of evidence. So the

13     verification process I think works and then the debtor  is

14     going to know, “I wasn’t making payments to that  servicer.

15     I’m going to contest this, because that’s not really the

16     right party,” I think.

17                 MR. BARRETT: Good point.

18                 MS. NEELEY: Fred, does that make sense?

19                 MR. FUCHS: Well, I was actually thinking of

20     one other issue that we’ve seen from the homeowners’

21     perspective; and if you’ll look at the rule, the — it

22     doesn’t identify or require actually that the notice or

23     the application state the cause number in the court; and

24     believe it or not, we see homeowners coming in who have

25     received the application and the notice, and there is no

Page 41

1    that need to be taken care of where it ends up being a

2    loophole that I think can be taken care of.

3             MR. BAGGETT: Okay. Anybody else got any

4    comments on this?

5             HONORABLE BRUCE PRIDDY:  On that last issue

6    that Mr. Fuchs brought up, there is one particular firm

7    that persists in doing this, and in my court those

8    applications get denied, and I wrote a three-page opinion

9    which I sent off to the law firm telling them don’t do it

10    again. I likened the notice to a citation, and if the

11    citation is missing certain information like that then

12    that would be — the case would be dismissed or there

13    would be no way to get a default judgment.  I kind of

14    analogized to that, and I believe that fair notice

15    requires them to tell the — to not send the notice out at

16    the same time.  What they do if they’re in another city,

17    they send the — Fed Ex the application to be filed at the

18    same time they send the notice out, and so actually the

19    notice is sent out the day before.

20             MR. BAGGETT: Right. They don’t know what

21    it is.

22             HONORABLE BRUCE PRIDDY: The day before, and

23    I just don’t think that’s — that that’s allowed, that you

24    have to file it and then have the notice so you can give

25    the borrower the notice of the court and the case number

 

 

Page 42

1    so they know where to file the answer and what to put on

2    the answer, because if you don’t have the case number the

3    answer is going to get lost.

4              MR. BAGGETT: Okay. I see you shaking your

5    head yes, and I agree.

6              MS. KELLUM: I agree with judge, and that’s

7    — I don’t know if you would call it an issue, but it’s

8    certainly a concern in our court, the service process,

9    period, because we have a lot of attorneys that we have to

10    double-check and make sure that service was proper and

11    everything, because it’s — we just are concerned with due

12    process.

13              HONORABLE BRUCE PRIDDY: Yeah. And I have

14    two issues that I was going to — wanted to bring up, and

15    that was the one of them, and that’s the outsourcing the

16    citation in the service of process to the applicant’s law

17    firm, and that’s what they do, with a notice that is

18    instead of the citation and then the service where they

19    have to send it by regular mail and certified mail is —

20    stands in for the service of process. Now, the vast

21    majority of the applications in our courts are default.

22    Now, either that means the borrowers don’t have any

23    objection and everything is fine, we can just go forward,

24    or it means the borrower may not be getting notice —

25              MR. BAGGETT: Right.

Page 44

1    ten months and then they get this notice.  They may not

2    even open it because it’s from the law firm.  They just

3    think it’s another dunning notice, and they may get it,

4    and they may not even realize it’s a court document or

5    something. If they can get notice from the court or

6    notice from personal service or something that really hits

7    home that there’s a court proceeding that they’re about to

8    lose their house, and I just think that it would probably

9    make sense to have some sort of more official notice than

10     the notice solely from a law firm, and that’s just one

11     issue that I want to throw out there.

12               MR. BARRETT: We may have gotten that one

13     wrong, Judge. What we were primarily thinking of in the

14     old committees and in the past is the size of the cost.

15     $50 is ten percent of the cost of the whole thing, so

16     that’s a significant charge when you stack it up and

17     use — because all of these servicers are losing 40, $50 a

18     day, they want you to go out and hire an expedited service

19     processor, and now you’re talking about a hundred to 150

20     bucks.

21               When you want to reinstate — and Texas is

22     the cheapest state in all the country to reinstate

23     mortgages. We are thousands of dollars less than

24     California, so if you lose your job, you get a job, and

25     you need to go reinstate your mortgage, this is the best

Page 43

1              HONORABLE BRUCE PRIDDY: — or may not be

2    getting sufficient notice that they really understand

3    what’s going on.  I often set a final disposition hearing

4    on my applications unless the — unless a default is — I

5    can clearly do a default. If they’ve proven everything

6    they need to prove to get the default, I’ll grant the

7    default, but otherwise I will just set a final disposition

8    hearing, and I send notice directly to the borrower, and

9    this is a default situation where the borrower has not

10    answered. About 30 percent of those the borrower shows

11    up, and this is in a default situation, so I’m kind of

12    concerned that the borrowers may not be getting notice.

13              There is due process concerns, there is the

14    Jones vs. Flowers case out of the U.S. Supreme Court

15    involving the Arkansas tax debt that has some implication

16    here about notice, and I think we need to think about — I

17    would like to rethink whether going back to real service

18    of process.  I think 60 bucks would be a small price to

19    pay in this to go ahead and get — it would solve a lot of

20    my concerns about due process and my concerns about

21    whether the borrower is really getting notice.

22              One of the things that I think is the

23    borrowers get a barrage of letters from these particular

24    lawyers. They get all these dunning notices they may have

25    gotten every month — you know, every month for the last

Page 45

1    place on earth to do it, and we did it by scraping fees

2    out of the process. Most states use substitute service

3    providers, and in some states the fee for that goes all

4    the way to nearly 400 bucks, so it’s a significant expense

5    which is tacked on each and every case, whereas it would

6    be beneficial only to the few who for some reason had a

7    justified reason for not getting the letter, and I don’t

8    think not opening your letter is a justified excuse, and

9    then I’d be interested to know when those 30 percent show

10    up, do they have meritorious defenses? Have they, in

11    fact, made payments that nobody discovered until they

12    appeared?

13              MR. BAGGETT: Yeah, but I understand your

14    issue. You want to make sure they get it, get it in some

15    way that they know that it’s different, and I don’t — the

16    cost of the process, I — you know, the market is just

17    going to have to deal with that issue. If it costs more

18    money, the market is going to have to figure out how to

19    deal with that issue if it’s something that we really

20    need.

21              MR. BARRETT: Well, it’s a huge imposition

22    of expense on the debtors. All of these expenses either

23    are paid by the debtors when they reinstate —

24              HONORABLE MARK DAVIDSON: Paid by the

25    lenders up-front.

 

 

Page 46

1                MR. BARRETT: Paid when they reinstate or

2     when they pay off or they’re paid by investors, and of

3     course, most of the investors ultimately are insured  and

4     that means the taxpayers pay it.  60 percent of the  loans

5     are HUD loans, and all the loans that don’t go back,  are

6     not reinstated, wind up being paid for by Federal  funds

7     out of HUD. That’s plain tax money, so the market you’re

8     describing is us, the voters, the taxpayers, the citizens.

9                MR. BAGGETT: Ultimately we’ve got to pay

10     for everything, but that doesn’t mean we’re not going to

11     do anything.

12                MR. BASTIAN: Let me ask the clerks, if

13     you-all sent the notice, how big an imposition is that on

14     you-all, to have the independent hand-off that Judge

15     Priddy is talking about?

16                HON. AMALIA RODRIGUEZ-MENDOZA: When we file

17     the application or the — and we have to make a copy of it

18     because it’s electronic, so that’s an expense that will

19     be — have to be charged on the number of copies that we

20     have to do to file the — to submit the citation. So it’s

21     an added work to our employees, but, you know, I think

22     we’ll have to just deal with it.

23                MR. BASTIAN: Okay. That may be kind of a

24     philosophical thing that we have to deal with. I mean —

25                MR. BAGGETT: Yeah, Manny.

Page 48

1    that to you.

2             HON. AMALIA RODRIGUEZ-MENDOZA: So then

3    we’ll end up with two methods, the e-filing method and the

4    manual processing, which, I mean, it’s workable. I’m not

5    saying it’s not. I’m just trying to bring that —

6             MR. BAGGETT:  It’s going to cause you an

7    expense.

8             HON. AMALIA RODRIGUEZ-MENDOZA: — into it.

9             MR. REDDING: This is probably a ridiculous

10    idea, but I always look for the simplest solution.

11             MR. BAGGETT: Yes.

12             MR. REDDING: Could you change up some of

13    these rules such that when that final notice is sent to

14    them or the document is — or the actual order or the

15    application for the order is sent to them, that you put it

16    on the outside of the envelope?

17             MR. NEWBURGER: Lawyers can’t do that. The

18    Fair Debt Collection Practices Act forbids any notices on

19    the outside of an envelope that are sent from a debt

20    collector, which includes any of the law firms conducting

21    foreclosures, and the limit is the name of the addressee

22    and the return address of the sender and their name if it

23    doesn’t reflect that they’re in the debt collection

24    business.  If firms like Mike start putting stuff on the

25    outside of envelopes, that’s a guaranteed class action.

Page 47

1             MR. NEWBURGER: We’ve got options elsewhere

2    in the rules that — or in the statutes that let us have

3    alternate ways of service.  For example, on foreign

4    judgments you can let the clerk give notice or you can let

5    a party give notice. What if you simply provide the

6    option of either the clerk or service and mandate that if

7    they’re going to have the clerk do it, they’ve got to

8    deliver the extra copies to the clerk’s office so the

9    clerk’s office doesn’t have that burden, and I don’t want

10    to step on Amalia here. It may be the solution is not to

11    allow e-filing. I don’t know if e-filing is a bad thing

12    here, but if it’s a good thing for you-all —

13             HON. AMALIA RODRIGUEZ-MENDOZA: It’s a good

14    thing.

15             MR. NEWBURGER: — they have to deliver the

16    copies, but certainly we’ve got a precedent for giving

17    parties the option of service or a clerk doing a mailing.

18             HON. AMALIA RODRIGUEZ-MENDOZA: I think the

19    way we’ve solved that is we actually make the copies and

20    then we charge the attorneys for the copies and then —

21             MR. BASTIAN: What if the attorney had to

22    send to you the notice and then you just put it in your

23    envelope? I mean, because you already have the Pitney

24    Bowes machines that just run it through, and it’s going to

25    come through from your court if the attorneys supplied

Page 49

1              MR. REDDING: Good reason not to then.

2              MR. BASTIAN: Well, there’s probably an

3    unintended consequence with this whole service thing

4    because, as most of you-all know, in the rules if nobody

5    files a response you’re entitled to an order, but we have

6    a matrix of all the courts in the state, and almost ten

7    percent of them require a hearing, and I think many times

8    they require a hearing even if it’s a default simply

9    because they’re worried about what Judge Priddy is, did

10    somebody really have notice, and that court wants to be

11    kind of the arbiter, a fail-safe, or whatever you want to

12    call it that —

13              MR. BAGGETT: They’re also worried about the

14    applicant.

15              MR. BASTIAN: Well, you know, all of those

16    kind of things and kind of gets back, and then really what

17    happens is because of that and having the hearing and even

18    judges the way they’re looking at these things, is that is

19    the burden of proof to prove up one of these Rule 736s, is

20    it now the burden of proof for motion for summary judgment

21    type proof or is it for a default proof?  And those are

22    two completely different things.  If you had personal

23    service on somebody, I think every judge would just go on

24    and sign the order and you would be done, but when you

25    have the service like we have now then judges are

 

 

Page 50

1    requiring hearings that really aren’t required in the

2    rule, and then even if they don’t have a hearing, they’re

3    going to go through and look at the verification or your

4    evidence that you have and they’re going to use the motion

5    for summary judgment standard, which many times means that

6    you’ve got three or four months delay to go get all that

7    stuff because the standard is so much different.

8              So it has kind of an unintended consequence

9    when you have judges that are a little bit concerned about

10    did the borrower really get notice and then they end up

11    vetting the files to make sure that, you know, everything

12    is kosher.

13              HONORABLE MARK DAVIDSON: Well, let’s start

14    with the — I hate to back it up, but I wasn’t on the

15    committee at the time. What is the purpose of judicial

16    review? If it is not to make sure that the — that

17    everything is copacetic, then why are judges even involved

18    at all?

19              MR. BASTIAN: Well, because that’s — the

20    Constitution required a court order.

21              HONORABLE BRUCE PRIDDY: But why did the

22    Constitution require the court order is the question?

23              MR. BASTIAN: Well, but there’s kind of an

24    answer back to that, and that was the way this — the core

25    principle the way Rule 736 was set up, we had the

Page 52

1                 HONORABLE MARK DAVIDSON: With respect, no

2     judge wants to have Marvin Zindler in their reception room

3     when they get to the courthouse in the morning wanting to

4     know why you threw the Widow Jones out of the house. We

5     had a judge who did that on a homeowners association deal

6     down here a couple of years ago, and the judge essentially

7     was hounded off the bench, resigned.

8                 HONORABLE BRUCE PRIDDY: I had one judge,

9     one of my colleagues just — we’re civil judges. Harris

10     County and Dallas I think are the only — or I guess

11     there’s a few that are purely just civil. We just do

12     civil cases, no criminal cases at all, so we don’t sign

13     death warrants. We can’t do a capital punishment case,

14     and one judge confessed to me that this is the closest

15     thing that he has to a death warrant, is that we’re

16     signing an order allowing someone’s house to be taken

17     away, and —

18                 MR. BAGGETT: I’m not disagreeing that there

19     ought to be a process for that, but we’ve got to balance

20     between how much we put back on the courts to do all that

21     versus what we — if it’s going to be the uncontested, is

22     it going to just clog up the docket so that half your

23     cases are these issues.

24                 HONORABLE BRUCE PRIDDY: Right. And that’s

25     the next issue that I had, is there’s ambiguity on the

Page 51

1    assumption that 50 percent of all the home equity

2    applications that were going to be filed were going to be

3    uncontested, and that was — we figured that would be

4    maybe a high number. In truth it’s probably very, very —

5    I mean, it’s very low. I mean, a whole lot less than that

6    have ever been challenged, and this whole idea of the rule

7    was if nobody was going to contest that you basically have

8    a foreclosure like you do now, and it just goes through

9    the process. That was the whole idea that Rule 736 was

10    set up, so that if somebody didn’t contest that you didn’t

11    clog up the courts. If they did contest, you had all of

12    these things in place so they could come in and say

13    there’s something wrong with this, the servicing, the

14    loan, whatever it is.

15              MR. BAGGETT: Let me get — mechanics of how

16    we get an order are very important, and they’ve got to do

17    what we need to protect people, but don’t forget what

18    we’re doing here is all we’re doing is getting an order

19    saying you can foreclose. You’ve still got to go through

20    the whole process that you do anyway, so yeah, there is

21    judicial participation because they’ve got to make sure

22    that what we say is done is done, but it does not

23    immediately take away from all the normal foreclosure

24    issues. All you’ve got is an order and then you go do

25    whatever you’ve got to do on top of that.

Page 53

1     default situation, what Mr. Bastian was pointing out, and

2     I think we need to clarify that. In the rule (8)(a) says

3     that you have to prove the certain elements before you can

4     grant an order, but then sub (5) talks about default, “You

5     shall grant if there’s no answer and the notice is on file

6     for ten days” or something like that. The question there

7     is do they still have to prove the elements in the

8     application? Do they have to prove everything that’s — I

9     believe it’s the elements of (1) —

10                 MS. DOGGETT: (e).

11                 HONORABLE BRUCE PRIDDY: — (e). Does that

12     have to be proved in the application or does the fact that

13     they don’t answer — do you accept all allegations  as

14     true?  I don’t think you do that.   The normal default

15     situation doesn’t seem to apply because we have this

16     obligation to bring forward facts in the initial pleading,

17     in the application. So there is to me an ambiguity of

18     whether before you grant a default you have to make sure

19     that the — all the elements of (1)(e) are proven or not.

20     (8)(a) seems to say that to me.

21                 MS. DOGGETT: Why do you have to have a

22     hearing to prove it?

23                 HONORABLE BRUCE PRIDDY: Oh, you don’t have

24     to prove it, but you have to analyze the application to

25     see if they’ve presented evidence. I believe it’s

 

 

Page 54

1    evidence as would be admissible at trial, is I believe the

2    standard in the rule, to see if they established evidence

3    instead of just an allegation that these necessary

4    elements are established, and that’s — if we can clarify

5    that, if you want to say that if there is no answer we

6    assume all facts as true as in the normal situation, we

7    should make that explicit, and that will streamline a lot

8    of — a lot of things if we make that explicit.

9             MR. BASTIAN: Yeah, the rule says “as will

10    be admissible in evidence” and then that’s it. It doesn’t

11    really say that’s the way it is, but you certainly have

12    this two different standards of proof, motion for summary

13    judgment proof or just plain default proof, and again,

14    that’s that philosophical difference, and it may go back

15    to either because you don’t have personal service — I

16    mean, I don’t know all the reasons why, but you’ll see

17    those variations in lots of these courts.

18             HONORABLE MARK DAVIDSON: Well, a lot of —

19    a number of my colleagues say, “We didn’t ask for this

20    job, but if we have it, then, you know, there must be a

21    purpose behind us being required to be the gatekeepers to

22    make sure all procedures have been followed,” and there

23    are other judges that take the position, “These people

24    borrowed the money, they didn’t make their loan payments,

25    end of the road.”

Page 56

1    objective was just to create this opportunity for the

2    debtor to come in and say, “Wait, wait, wait” —

3              MR. BAGGETT: Yeah.

4              MS. NEELEY: — “irregularities,” that’s it.

5    And if they didn’t have an irregularity then, you know,

6    they had their opportunity, and that was it.

7              MR. BAGGETT: I think you’re right. We’re

8    trying to deal with the balance between these that there’s

9    no problem with and clogging up the courts with those.

10    However, I agree with the judges that if there’s something

11    that says you’ve got to do it, they ought to be able to be

12    comfortable that’s what we’ve got to do. Now, what that’s

13    probably going to mean is we’re going to put more on the

14    courts, send out notice or this, that, and the other, and

15    we didn’t want to burden the courts, overburden the courts

16    with this process. That’s the balance we’re trying to get

17    to.

18              MS. NEELEY: Well, I think the real balance

19    is —

20              MR. BAGGETT: Judges and the coordinators

21    and the clerks. You have to send out extra notices.

22              MR. TEMPLE: Mike, I agree with Karen. I

23    think the original concept of the court order that she

24    said was somewhere in between the standard and nonjudicial

25    foreclosure that we have on 99 percent of the cases and

Page 55

1              The rules should be as explicit and clear as

2    possible as to what has to be there in order for one of

3    these to be granted and exactly what the procedure should

4    be, and the current rule is in my view no as clear as it

5    should be one way or the other.

6              MS. NEELEY: Okay, for what it’s worth —

7    and Larry and Kelly can kick in if I’m getting it wrong,

8    but I believe if you go back to the legislative history

9    there was a colloquy on the floor between Mr. Woolins and

10    Harriet Earhart about the legislative intent of this

11    particular section in the Constitution, and the concept

12    here, there’s a tension between normal foreclosure,

13    posting at the courthouse door, no judicial action at all,

14    judicial foreclosure, something in between, and the

15    concept that was put in here was that there needed to be

16    some simple mechanism whereby the debtor would have an

17    opportunity to say, “Well, wait, there is an irregularity

18    in this transaction and the lien is invalid,” and by

19    having this sort of intermediate process, there was an

20    opportunity for the debtor to say, “The loan is irregular,

21    so I really should be off the hook.”

22              It was not conceptually a judicial

23    foreclosure or a requirement that you had to go through

24    all of this additional proof that we wouldn’t do in a

25    courthouse steps foreclosure. So the whole underlying

Page 57

1    the provisions that are available for judicial

2    foreclosure, and while the law doesn’t quite say this, the

3    concept was that if the application is filed and there’s

4    no response to it, what the court is effectively doing is

5    saying “We have not been provided with any reason why the

6    lender ought not to be able to proceed with the standard

7    nonjudicial foreclosure.” That’s all that is. It’s not

8    really giving the court the responsibility of saying, yes,

9    we think Widow Jones ought to be kicked out of her house.

10    It’s more the negative of we see no reason why, have been

11    provided no reason why, they ought not to be able to

12    proceed with a standard form of the foreclosure.

13              MR. BAGGETT: I don’t disagree with you, but

14    I think that we’ve got to make the rule have the basic

15    elements in there that does what we hope it does, which is

16    they actually get notice, and it actually is the right

17    party —

18              MR. TEMPLE: Absolutely.

19              MR. BAGGETT: — trying to get it, and

20    there’s a default, and we’ve got to get to a place to

21    where we do that without overburdening the judges and the

22    courts with it. Now, how you get to that balance, I don’t

23    know.

24              MR. FUCHS: Mike?

25              MS. KELLUM: Can I — I’m sorry.

 

 

Page 58

1              MR. FUCHS: Go ahead.

2              MS. KELLUM: I was just going to say in the

3    CYA world that we live in today if you’ve got a judge like

4    the judge that I work for, he’s not going to sign a leaf

5    that blows in the window, and he’s going to want some

6    substance behind it.

7              MR. BAGGETT: I understand that.

8              MR. FUCHS: Currently under the rule we

9    allow for service of — and showing that service has been

10    completed just on these certificate of service by the

11    attorney for the applicant.  One — and that the judge can

12    grant the default if there’s no response within time and

13    that certificate of service has been on filed for ten

14    days. One additional — part of the concern is shady

15    attorneys who are perhaps not complying, and one

16    possibility would be some extra requirement of proof of

17    service; i.e., because there’s the i.e. that the attorney

18    who seeks the default would have to show a copy, a copy of

19    the green card having come back or a — and show that if

20    it does — if the green card didn’t come back, a copy of

21    the envelope that’s come back showing it was unclaimed and

22    a copy of the envelope showing it was mailed by first

23    class mail.

24              I mean, you can still play with those, but

25    it’s harder on the certified mail, and that would give

Page 60

1    from where they had been storing green cards. Again, I’ve

2    got to tell you that the cost of all of this is

3    monumental. Most of these actions are redeemed by

4    reinstatement, so every time you add cost to the process,

5    you add cost to the people who are trying to reinstate

6    their mortgages, and in an era when holding onto your home

7    is a very difficult process, raising the cost of retention

8    is probably something that we should be very circumspect

9    about.

10              It’s costly to do a green card process,

11    probably as much as 20, 25 bucks a file by the time you

12    pay for the postage and pay for the storage and pay for

13    the clerical manipulation of it. Barrett Burke, for

14    example, is an entirely paperless outfit. We don’t keep

15    paper. If we’ve got to keep green cards then we’re going

16    to have to go create a place to keep the green cards.

17              MR. FUCHS: But do you scan the green cards

18    after you get them back so that —

19              MR. BARRETT: If the rule said that, but

20    we’ve got a lot of judges that say, no, I want green

21    pieces of paper.

22              MR. BASTIAN: What I found with judges on

23    the green card, lots of them have their computer on their

24    desk and I say, “Judge, here is the number, type it in,

25    U.S. Post Office, type in the number.” They do it

Page 59

1    some at least additional confidence to the judiciary then

2    that the attorney had indeed complied with the notice

3    requirement other than taking the attorney’s word. It

4    doesn’t deal completely with Judge Priddy’s concern about

5    the fact that the consumer may ignore the notice because

6    he or she may have gotten five or six —

7              (Sirens)

8              MR. BAGGETT: Here’s some consumers coming

9    after us, all the sirens.

10              MR. FUCHS: — but sort of in keeping with

11    the concept that we assure that there’s notice yet that

12    it’s a streamlined process. I just throw that out.

13              MR. BASTIAN: I’m going to jump in here on

14    the green cards because that’s a real pain, but now with

15    the U.S. Post Office you can get a certified number, and

16    there is just a printout that you ought to be able to

17    attach that. I mean, that’s coming from the post office

18    that says, “This was delivered to the post office and

19    there’s the proof” and you attach that, so you don’t have

20    to have the green card, because to get green cards is just

21    a royal —

22              MR. BARRETT: Well, there was a client of

23    ours two years ago that decided they were no longer going

24    to keep green cards, and the reason they did it is 37,000

25    square feet was the amount of space that they recovered

Page 61

1    themselves and they see it pop up, and that’s proof.

2              MR. FUCHS:  That’s good enough.

3              MR. BASTIAN: That’s good enough.

4              MR. BARRETT: Yeah.

5              MR. BASTIAN: Because that’s the U.S. Post

6    Office. You have an independent source that comes in and

7    says that was actually deposited with the U.S. Post Office

8    and then you don’t have to mess with the green cards

9    unless somebody wants to mess with them.

10              MR. BAGGETT: Okay, let’s do this. Let’s

11    try to figure out some way we can do it that is least

12    obtrusive to you guys and expensive, but judges are more

13    comfortable that they’re getting the durn papers that they

14    need to get, and we’ll work on that and see how we get

15    into everything, but I don’t — and I don’t — the three

16    that you said are fine, defining “the applicant” is

17    important because you’ve got to have the right party to do

18    that, regularize it with the Property Code is important,

19    and verifying the application.

20              MS. NEELEY: What does that mean.

21              MR. BAGGETT: Yeah.

22              MS. NEELEY: And then if we can enhance the

23    notification process to give comfort that there is due

24    process and that the debtor really knows that they have

25    this opportunity, then I think maybe, Judge, some of the

 

 

Page 62

1    concerns can be allayed, the person didn’t respond because

2    they didn’t have anything to say, but they really knew

3    they had an opportunity. That’s key.

4             HONORABLE BRUCE PRIDDY: It would be almost

5    like in terms of a show cause order, tell us a reason why

6    I shouldn’t let the lender foreclose, come up with a

7    reason if you don’t — with the standard being if you

8    don’t come up with reasons the court’s going to grant it.

9             MR. BASTIAN: And that could be put in the

10    rule. I mean, I think that could very easily, because

11    that’s your standard that you’re looking for.

12             MR. TEMPLE: That was the concept

13    originally.

14             MS. NEELEY: Yeah.

15             MR. BASTIAN: Say this is the standard you

16    use, because right now you have some judges saying the

17    default standard and some judges saying a motion for

18    summary judgment standard.

19             HONORABLE BRUCE PRIDDY: Right, and that’s

20    something we need to clarify because I think (8)(a) to me

21    seems to indicate that if there’s no answer you still have

22    to use, as Tommy said, the summary judgment standard, and

23    I don’t know if that was intended in a default situation.

24    If it wasn’t, that needs to be clarified that that — that

25    in a default situation the lender does not have to prove

Page 64

1    fine. Thank you, Judge.

2             HONORABLE MARK DAVIDSON: I promise I’ll be

3    there live at the next meeting.

4             MR. BAGGETT: No problem.

5             (Recess from 10:58 a.m. to 11:09 a.m.)

6             MR. BAGGETT: Okay. Why don’t we do this,

7    we will put that in a committee form and try to come up

8    with something that is not swinging one way or another,

9    kind of comes down the middle and the court people don’t

10    get killed in it and that’s okay with you-all I assume,

11    and the judges feel okay that they’ve done what they need

12    to do to make sure everybody got notice and a shot and

13    that’s all fair. I don’t have a problem with any of that.

14    And then we’ve got to balance the cost, I understand, so

15    we’re going to figure how to do that.

16             HON. AMALIA RODRIGUEZ-MENDOZA: All in one.

17             MR. BAGGETT: Easy, easy. Okay. Now, why

18    don’t we do tax liens since we solved this other problem

19    so easily, and who wants to talk about tax liens? Because

20    I know what tax liens are. I need to pay them or I’m in

21    trouble. That’s about the beginning and ending of what I

22    know about it.

23             MR. BASTIAN: We need to talk about

24    hearings.

25             MR. BAGGETT: Hearings? What do you want to

Page 63

1    all the elements of (1)(a).

2             MR. BASTIAN: To me that’s just drafting. I

3    think we can come up with the words for that. I mean, we

4    have two judges that are very — and Fred that’s very

5    interested in that language about what is the standard,

6    and we ought to be able to come up with the standard

7    that’s easy to enforce.

8             MR. BAGGETT: Okay.

9             HONORABLE MARK DAVIDSON: I agree.

10             MR. BAGGETT: I think those are the fair

11    issues. Yes.

12             MS. HOBBS: We need to give the court

13    reporter a break.

14             MR. BAGGETT: Need a break? We don’t have

15    coffee or anything? Okay. We’re going to take about a

16    ten-minute break.

17             HONORABLE MARK DAVIDSON:  Okay.  And I have

18    to get on an airplane to San Diego, which is why I

19    couldn’t be there today.

20             MR. BAGGETT: Okay.

21             HONORABLE MARK DAVIDSON: I’m speaking at a

22    nationwide conference, and I’m sorry, but when they give

23    me free first class airplane tickets to San Diego I go,

24    “Yes, I’ll be there.”

25             MR. BAGGETT: We understand that, and you’re

Page 65

1    talk about on hearing?

2              MR. BASTIAN: Well, under the rule you don’t

3    have to have a hearing if there’s no response and you’ve

4    got —

5              MR. BAGGETT: On this? All right. Sorry.

6              MR. BASTIAN: That’s another one of those

7    philosophical things we’ve got to kind of wrestle with.

8              MR. BAGGETT: Okay. All right. Bring up

9    your issue. Now, we’ve got to get to tax liens because

10    that really is the reason why we’re here. We do need to

11    coordinate everything, but we’ve got to get to tax liens.

12    Okay.

13              MR. BASTIAN: Well, and again, this may be

14    one of the philosophical things we’ve got to deal with,

15    and that is lots of judges are requiring hearings even if

16    there’s no response, and part of this may be tied up with

17    the service again. But the way the rule is written, that

18    if there is no response filed and the judge is supposed to

19    sign the order and you go do the rest of the things that

20    you have to do to foreclose, and I don’t know if anybody

21    has a problem with that or rewriting the rule or something

22    to make sure that you don’t have to go have a hearing if

23    there’s no response filed, or whether we want a hearing.

24              HONORABLE BRUCE PRIDDY: One of the things,

25    to clarify, one of the reasons I think some judges have

 

 

Page 66

1    hearings is there’s really only two ways to get documents

2    that they can consider. One is the application in the

3    materials and the affidavit is attached to that, and then

4    there’s also the — I think rule (6) says at the hearing

5    you can consider affidavits on file. To the extent that

6    supplementation is required, if stuff is not in the

7    application and then they file, like, as Judge Davidson

8    pointed out a lot of times courts will require you file

9    the assignment, wasn’t in the original application, they

10    file it later. Can a court consider that? It wasn’t

11    attached to the application. Or does the court have to

12    have a hearing and then consider it at the hearing?

13              To the extent that applicants try to offer

14    documents that weren’t in the original application, there

15    is some confusion or some disagreement among the courts of

16    whether they can consider that or whether they have to

17    have a hearing to consider that, and that’s one reason why

18    I think you have some hearings.

19              MR. BASTIAN: I think that can be drafted,

20    too.

21              HONORABLE BRUCE PRIDDY: No, we can draft

22    around it. We just need to be clear on what we want.

23              MR. BAGGETT: Okay. So what are we going to

24    draft? What are we going to say about the hearings?

25              MR. BASTIAN: Well, I think what we do is

Page 68

1    point, well, you need to read it and make sure they did

2    what they did, and if they didn’t or you have a question

3    about it, then have a hearing. That’s going to put it on

4    the judge to do all that.

5              MR. BASTIAN: Well —

6              MR. BAGGETT: All right. We’ll work on

7    hearing, too.  All right.  And we’ve got as much time as

8    we need.  We’re going to have lunch and all that stuff, so

9    I’m not hurrying through it. I want to make sure we cover

10    tax liens. Who wants to talk about it first? Which one

11    of you were most active? Kelly?

12              MS. RODGERS:  Me.

13              MS. NEELEY:  Kelly.

14              MR. BAGGETT: You’re up, Kelly.

15              MS. RODGERS: When we came into the last

16    legislative session this issue on tax lien transfers and

17    liens and foreclosures had been addressed in some prior —

18    prior legislative sessions, but for whatever reason the

19    mortgage lenders were just beginning to see some of these

20    tax lien foreclosures come through, because there’s a

21    super priority lien with the tax lien that transfers from

22    the taxing authority to whoever pays off the taxes, and it

23    trumps the first lien purchase money mortgage that’s out

24    there. So sort of the impetus for all of this was that

25    some of the mortgage companies and mortgage lenders were

Page 67

1    come up with some suggestions in the group and look at it

2    after you see something work in the real world.

3              MR. BAGGETT: If on the face of the

4    documents it doesn’t appear to comply —

5              MR. BASTIAN: Yeah, if it’s proved up and

6    you don’t have a response, then no hearing. But maybe

7    like you’re saying, give the judge the discretion if he

8    wants — well, see, that’s the catch 22. A lot of judges

9    are doing — you don’t know why they do it. Because I’ve

10     had a lot of judges just do it, as soon as you show up,

11     nobody shows up, they give you the order. I mean, it’s

12     kind of like an exercise in futility, but I mean, if it’s

13     like you’re saying, okay, here is the particular reason

14     why you have to have a hearing and that is you haven’t

15     supplied it to the judge’s satisfaction, then the judge

16     has a hearing and that kind of also gives the enforcement

17     that, Mr. Attorney, if you don’t do it right, then we’re

18     going to make you suffer and have a hearing on this thing.

19     But if you do it right then there’s no need for a hearing.

20               HONORABLE BRUCE PRIDDY: Right, but —

21               MR. BASTIAN: That would be kind of the

22     discipline that makes sure that the attorneys do it right

23     when they file the application and all the proof then.

24     Maybe we can do it that way.

25               MR. BAGGETT: Well, I guess that gets to the

Page 69

1    getting notices that a foreclosure was about to take

2    place, you know, four days before the foreclosure was

3    about to take place, and they were obviously interested in

4    going in and paying off the — paying off the tax lien

5    transfer loan.

6              As far as the — do you want me to go

7    through some of the more detail? Essentially the tax lien

8    lenders were not regulated by any state agency of any

9    sort, which was the only — you know, the only lender in

10    the state of Texas that wasn’t regulated. So one of the

11    things we did was pass House Bill 2138, which put them

12    under the regulation of the Office of Consumer Credit

13    Commissioner who is currently in the process of

14    promulgating rules dealing with how those folks are

15    licensed and what kind of fees and expenses they can

16    charge.

17              MR. BAGGETT: Who has to be licensed?

18              MS. RODGERS: The tax lien lenders have to

19    be licensed by the Consumer Credit Commissioner’s office

20    now, and so we’ve got the regulatory side of it and then

21    we’ve got Senate Bill 1520.

22              MR. BAGGETT: Put a mark in your mind, and

23    I’m going to go back to you, but let me tell you my

24    reaction to this, having never ever seen anybody buy one

25    or sell one or whatever. From a foreclosure standpoint I

 

 

Page 70

1     never worried about ad valorem taxes being a priority

2     because they had to be judicially foreclosed.

3                  MR. REDDING: That’s right.

4                  MR. BAGGETT: So it didn’t bother me, and

5     then I found out all the sudden they don’t have to be

6     judicially foreclosed and they have a priority and you

7     don’t give notice to the first lienholder. I said, “How

8     in the hell did we get there?” I’ll just be honest with

9     you. That was my reaction to it.

10                  MR. REDDING: Well —

11                  MS. RODGERS: That was the reaction of a lot

12     of the industry.

13                  MR. REDDING: Yeah. Mike, if I can

14     interpose, because this was an issue obviously for the

15     title industry because —

16                  MR. BAGGETT: Yeah.

17                  MR. REDDING: — what you have is you have

18     the tax lien lender claiming priority under the tax code

19     and yet trying to avail themselves of the nonjudicial

20     provisions —

21                  MR. BAGGETT: Right.

22                  MR. REDDING: — you know, in 51.002 for

23     foreclosure.

24                  MR. BAGGETT: Right.

25                  MR. REDDING: And I don’t think you can —

Page 72

1    but not all the tax lien lenders and in particular one

2    very large company was not doing so, and so they went to

3    one of the representatives and said, “We would like to

4    have some amendment to make sure that everybody is doing

5    what we’re doing.” They kind of wanted a level playing

6    field.

7              So Representative Puente filed I think it

8    was House Bill 2491, which started off as a very short

9    one-page bill that basically said if you foreclose

10    pursuant to your transferred tax lien and you use the

11    Property Code nonjudicial procedures then you have to go

12    through and make sure everybody gets notice.  That turned

13    into — House Bill 2220 was amended into it and it turned

14    out to be like a 40-page bill or something. We had very

15    long coattails that session, and that resolved that

16    problem.  It didn’t resolve the — a lot of the other

17    issues and that’s why we came back this session.

18              But one of the things that I think, just

19    personal opinion as to address your statement, Tim, is

20    that I think there is a way to marry those two or the idea

21    that you got a nonjudicial proceeding with a lien that

22    could only be foreclosed judicially if it was held by a

23    government unit is because of who’s holding the lien and

24    because of the fact — you know, coming from a background

25    where I filed 5,000 suits a year to foreclose property tax

Page 71

1    Tommy and I talked about this. We all talked about it,

2    because it was how do you marry those two together without

3    giving notice? Tax code says you give notice to everybody

4    that has an interest in the property.

5              MR. BAGGETT: Right.

6              MR. REDDINGS: And yet the foreclosure —

7              MR. BAGGETT:  And you got it judicially

8    foreclosed.

9              MR. REDDING: Yeah, and the nonjudicial

10    foreclosure provisions say you only have to give notice to

11    that person that is obligated on the note.

12              MR. BAGGETT: Correct.

13              MR. REDDING: So how do you marry those two

14    and still protect them?

15              MR. BAGGETT: We’ve been giving speeches

16    like that for 20 years.

17              MR. REDDING: That’s right. That’s right.

18              MS. DOGGETT: Can I add something here?

19              MS. RODGERS: Absolutely.

20              MS. DOGGETT: This is Mary Doggett. Oh,

21    he’s off the line. In the 2005 legislative session, I

22    represented a small tax lien lender that had been giving

23    notice.  I had always advised them that if you don’t give

24    notice to the lienholder you’re not extinguishing their

25    interest in the property so you need to give them notice,

Page 73

1    liens, governments can handle that. Governments have, you

2    know, their revenue stream set up based on those taxes,

3    and they can predict what’s going to happen, but nobody,

4    when I started doing — representing taxing units, nobody

5    was doing property tax liens transfers because — unless

6    you had a rich uncle because there was no way to recover

7    other than doing a judicial foreclosure, and you could

8    only get ten percent interest.

9              I don’t know if anybody remembers Oliver

10    Heard, but he was my boss at the time, and he, you know,

11    saw a way to make some money and got the code amended in

12    ’95 so that you could get 18 percent interest and do

13    nonjudicial foreclosures and all of the sudden there’s

14    this new industry, but the theory was that, you know, if

15    you’ve got a lien and you’re a private entity you should

16    be able to foreclose that pursuant to the most efficient

17    process as opposed to a governmental unit. Now, the tax

18    code has been amended, and there are some nonjudicial

19    foreclosures of tax liens permitted nowadays by government

20    units as well, but the vast majority I think — Mike, as

21    you said when we talked on the phone, the vast majority

22    are still foreclosed judicially. Okay. That’s my speech,

23    Kelly.

24              MS. RODGERS: We essentially sat down with

25    the tax lien lender representatives, including Mary. We,

 

 

Page 74

1    being the mortgage lender folks, and came up with what

2    ended up being an agreed bill, which is 1520, and some of

3    the uncertainties or language in it that may look very odd

4    to anybody else made perfect sense to us when we were

5    doing it.

6              MR. BAGGETT: Or at least at midnight that’s

7    what came out, right, is this?

8              MS. RODGERS: That’s exactly right, and

9    that’s what leg. counsel left alone, so —

10              MS. DOGGETT: You know what this means and I

11    know what this means, so it’s okay.

12              MS. RODGERS: Everybody else can figure it

13    out.

14              MR. BAGGETT: Kind of like our great rules.

15    We can improve them. We know that we can.

16              MS. RODGERS: That’s right. That’s right.

17    But for our purposes, though, you know, we had a model

18    with the home equity loans and the reverse mortgages of

19    putting the foreclosure of tax lien loans, you know,

20    somewhere, as Karen said, between nonjudicial and judicial

21    foreclosure, just to make sure that all the I’s were

22    dotted and the T’s were crossed and that everybody —

23              MR. BAGGETT: Everybody got notice.

24              MS. RODGERS: — who needed to get notice,

25    and so that was the purpose of this, and because we had

Page 76

1    the issues we’ve discussed this morning, the notice issues

2    and those sorts of things —

3              MR. BAGGETT: All apply.

4              MS. RODGERS: — are all applicable. You

5    know, once we fix that for home equity and reverse

6    mortgages it’s going to —

7              MR. BAGGETT: It will fit for everybody.

8    Okay.

9              MS. RODGERS: — be the same for tax lien.

10              MR. BARRETT: What form of notice would you

11    recommend be required?

12              MR. BAGGETT: Right.

13              MS. RODGERS: In the sense of what the

14    delivery mechanism is?

15              MR. BARRETT: Yeah. If you were a tax lien

16    lender and you wanted to foreclose the interest of Bank of

17    America, there are 1,191 addresses for Bank of America.

18              MS. RODGERS: That’s right.

19              MS. NEELEY: Well, that’s —

20              MR. BARRETT: What form of a notice would

21    you have the tax lien lender give to Bank of America that

22    would have any — we’ve heard some claims here for due

23    process.

24              MS. RODGERS: Right, I know.

25              MR. BARRETT: What form of notice would

Page 75

1    the model with the rules there, it was very easy for us to

2    punt to a task force instead of trying to figure it out

3    ourselves at the last minute. So that’s pretty much the

4    history.

5               MR. BAGGETT: That’s fair, and I think if

6    you do give notice to everybody that’s affected and it’s

7    effective notice and it’s not too expensive, that probably

8    does solve the problems.

9               MS. RODGERS: Well, and —

10               MR. BAGGETT: I would assume unless the

11    title companies have got a different issue that I don’t

12    know about.

13               MS. RODGERS: Right. Right.

14               MR. BAGGETT: You get the notices?

15               MR. REDDING: Yeah, that was our biggest —

16    that was our big issue was making sure everybody got

17    the —

18               MR. BAGGETT: Then you’ve got to write to

19    reinstate.

20               MS. RODGERS: And the title industry was at

21    the table, too. I mean, they were very active in this

22    discussion during session.

23               MR. REDDING: Yeah. No, we were all in

24    favor of these changes.

25               MS. RODGERS: Right, but everybody — all

Page 77

1    cover due process when there are 1,190 addresses for one

2    client?

3              MS. NEELEY: That’s why we need to address

4    that.

5              MS. RODGERS: Well, and this was a

6    discussion. This has been a big issue for the tax lien

7    lenders on how they give effective notice even under

8    the —

9              MS. DOGGETT: And to whom, yeah.

10              MS. RODGERS: And to whom, and the —

11              MR. BARRETT: So the process is hard for

12    them. They get served, and it’s still hard to get the

13    right piece of paper —

14              MS. RODGERS: To the right person.

15              MR. BARRETT: — in the hands of someone who

16    knows what to do and how to do it.

17              MS. RODGERS: That’s right.

18              MR. BAGGETT: I’ll give you another example,

19    and I don’t think it solves the problem, but this does —

20    25 days notice to the internal revenue, and I say this in

21    speeches all the time. I’ve never ever seen a foreclosure

22    where they woke up in 25 days to do anything about it.

23              MR. BARRETT: That’s exactly right.

24              MR. BAGGETT: Never. Never.

25              MR. BARRETT: Exactly right.

 

 

Page 78

1              MS. DOGGETT: What most of the tax lien

2    lenders that I represent have done is establish personal

3    relationships with the mortgage servicers, and they try to

4    pick up the phone, to tell you the truth. As the industry

5    grows it’s not going to be possible.

6              MR. BAGGETT: That’s great, but we can’t

7    rely on that.

8              MS. DOGGETT: Right. One of the things that

9    we realized when we were — one of the things we talked

10    about when we were working on this bill was at the time

11    that a property tax transfer is closed you’re

12    communicating with the property owner and you can get the

13    name of the mortgage servicer, but three years down the

14    road when the guy is no longer to be found and you have no

15    communication, that mortgage servicer might have changed

16    three times, and so the best you can do is contact the

17    holder of the note, and so it was written that way so that

18    if a foreclosure occurs you contact whoever you can

19    basically, and the holder of the notice is sufficient at

20    that point.

21              But then again you’ve got that trickle down

22    effect. You know, if you send something to the holder of

23    the note are they going to get it, and so we extended the

24    notice from 38 days to 60 days. Is that even going to be

25    sufficient?

Page 80

1     of process, and — but there’s not — there’s not a simple

2     way to go about it.  There’s no way to maintain a  registry

3     of addresses and who the mortgage servicers are and  the

4     lenders are and —

5                  MR. BARRETT: What if we limited the tax

6     lien lenders recovery to their financial position and

7     required that any additional funds be returned to Fred’s

8     people? In other words, if you bought a tax lien for

9  $500 —

10                  MR. BAGGETT: Wait, wait, wait. We’re

11     legislating now. We’re not a legislature, we’re not a

12     court.

13                  MR. BARRETT: It’s just a question, Mike.

14                  MR. BAGGETT: We’ve got rules people can

15     live by. I understand your issues are — where you’re

16     coming from, but I don’t think we have the power to do

17     that.

18                  MR. BARRETT: I think that’s coming, though.

19                  MR. BAGGETT: Well, that’s fine. Get these

20     two ladies to go talk for you in the next session. Okay.

21     So your issue is, part of it is, how do we get service on

22     the lienholders that works —

23                  MS. RODGERS: Right.

24                  MR. BAGGETT: — and same kind of issue we

25     have with —

Page 79

1              MS. RODGERS: Right.

2              MR. FUCHS: The statute simply says the

3    application must be served. I’m curious, was there a

4    legislative discussion on whether that had to be personal

5    service, certified mail, first class mail?

6              MS. DOGGETT: There was, and —

7              MR. FUCHS: And?

8              MS. DOGGETT: The overriding sentiment was

9    that because everybody who was — had an interest in the

10    property was going to be bearing the expense of personal

11    service, that it was decided that 21a was sufficient.

12              MR. CULBRETH: Which is consistent with 736,

13    the certified mail.

14              MR. BAGGETT: Yeah, just certified mail.

15              MS. DOGGETT: Uh-huh.

16              MR. BAGGETT: The way we have it now, I

17    guess.

18              MS. DOGGETT: Right.

19              MS. RODGERS: Well, and the issue of, you

20    know, to whom you send the notice, I mean, there was talk

21    with Tommy, about, you know, a registry where you — you

22    know, financial institutions registered with whoever

23    service of process was. There was talk about, you know,

24    some of the institutions in the state now are required to

25    appoint the secretary of state as their agent for service

Page 81

1              MS. RODGERS: Same issues.

2              MR. BAGGETT: Yeah.

3              MS. RODGERS: And I assume what would work

4    on the home equity loans would probably work with us.

5              MR. BAGGETT: Okay. Well, judges that don’t

6    want Marvin Zindler — although, I understand he’s now

7    dead, so you-all are safe.

8              MR. BARRETT: I’ve had Marvin. That’s no

9    fun.

10              MR. BAGGETT: Marvin or his successors, you

11    know, how are we going to deal with this one, too. Really

12    it’s the same issue, is it not?

13              MR. BASTIAN: It is the same issue.

14              MR. BARRETT: Yeah.

15              MR. TEMPLE: It really is.

16              MR. BARRETT: I’m certainly sympathetic with

17    the position it puts them in, because obviously facts

18    don’t sell newspapers, and these reporters are rarely

19    interested in the —

20              MR. BAGGETT: Yeah.

21              MR. BARRETT: — eccentricities of the

22    statute and truly understand the judge’s role, so there is

23    no question that the judge is being put in a bad spot.

24              MR. BAGGETT: Right.

25              MR. BARRETT: The Legislature did that and

 

 

Page 82

1    then flicked this thing on the Court here, and we’re kind

2    of the instrument of that infliction, but it’s sure a bad

3    spot for the judge.

4              MR. BAGGETT: So whatever we come up with

5    that’s applicable to both of these issues is what we’re

6    going to get to live with, I guess, right?

7              MS. RODGERS: Mary, do you see any

8    difference between — you know, from the standpoint of

9    whether the notice on tax lien foreclosures and those

10    sorts of things, any reason why it should be different

11    from what we’re dealing with with regard to notice on the

12    home equity?

13              MS. DOGGETT: I haven’t yet.

14              MS. RODGERS: Yeah.

15              MS. DOGGETT: So, no.

16              MR. BAGGETT: Okay. Is there anything else

17    that we need to be doing with respect to tax liens that

18    would be unique other than —

19              MS. NEELEY: Yeah. There’s some unique

20    requirements in the statute as to what goes into them, the

21    notice, the application, et cetera, so it spells it out in

22    some fairly significant detail.

23              MR. BAGGETT: So we’re going to have a new

24    part of 736.

25              MR. BASTIAN:  Make it 736a, but it’s laid

Page 84

1    Tommy.

2              MR. BAGGETT: And I clearly didn’t know.

3    Don’t worry about that.

4              MS. DOGGETT: And you didn’t know any more

5    than I did, so — no. It says that the liens shall be

6    foreclosed in this manner. It doesn’t say that they shall

7    be foreclosed “pursuant to.” It says — it was crafted

8    very carefully so that it gives you the tax code provision

9    32.06(c)(2) says you shall foreclose in this manner,

10    except in — as modified by these few different

11    parameters, notice shall be longer. I’ve got a whole list

12    of them right here. I’m trying to paraphrase, but I don’t

13    see the need — and maybe somebody else could explain to

14    me what it is in 736 and 32.06 that conflict and why we

15    need to make a change to that.

16              MS. NEELEY: Well, the content is totally

17    different in terms of the application.

18              MS. DOGGETT: But do you see what I’m

19    saying, Karen? It doesn’t say —

20              MS. NEELEY: Yeah.

21              MS. DOGGETT: — “shall foreclose pursuant

22    to.” It says “this is manner that’s already set up in the

23    law.” You follow that.

24              MS. NEELEY: Yeah. (c)(1) says what the

25    application has to say.

Page 83

1    out one, two, three, four.

2              MS. NEELEY: It’s specified.

3              MR. BASTIAN: It’s pretty clear.

4              MR. BAGGETT: Okay. All right. We’ll just

5    make that (a). Yeah, we can just make it a whole new tax

6    lien deal.

7              MR. TEMPLE: Mike, I think all that’s going

8    to be easier than maybe what it jumps out at some of you

9    initially primarily because Kelly and Mary and Tommy and

10    others negotiated a lot of this during the session.

11              MR. BAGGETT: Right.

12              MR. TEMPLE: As Tommy says, it’s set out

13    pretty well in Senate Bill 1520, and to kind of pick it up

14    and put it in a rule isn’t going to be as difficult as you

15    might initially think.

16              MR. BAGGETT: Okay.

17              MS. DOGGETT: I’m going to go out on a limb

18    here and go even further than that. I don’t think that

19    the rule needs to be amended to reflect any of the changes

20    that are contained in Senate Bill 1520, because I spoke

21    with the legislative assistants for — or the general

22    counsel for Wentworth and the former chief of staff for

23    Paxton when the committee — when this task force was

24    formed and I said, you know, “I don’t understand what

25    we’re doing here,” and that’s why I called you, Mike, and

Page 85

1              MS. DOGGETT: Right.

2              MS. NEELEY: And the application in 736 has

3    a different content. It’s easy to do.

4              MR. BASTIAN: Yeah, it’s easy to do.

5              MR. BAGGETT: I think you just put that all

6    into 736.

7              MS. NEELEY: It’s easy. You just do a cut

8    and paste of (c)(1) into 736 as the content of the

9    application, boom, it’s done.

10              MS. DOGGETT: As you said, a separate

11    provision in 736 —

12              MS. NEELEY: Yeah.

13              MS. DOGGETT: — as opposed to applying

14   32.06 to law.

15              MS. NEELEY: Yeah, because otherwise you’ve

16    got the wrong content in your application.

17              MR. BASTIAN: And I have a practical comment

18    to that, because you see it in the home equity line of

19    credit that’s not in the Constitution. If you don’t put

20    it in that rule, you would be amazed how many people don’t

21    even know what you’re talking about. You need to put it

22    in the rule, because right now a lot of people will go

23    foreclose a home equity line of credit. Because they

24    didn’t see the word “home equity line of credit” in 736

25    they don’t even think they have to go get a court order.

 

 

Page 86

1              So it’s just a practical thing, just put it

2    there so everybody sees it because all you’re going to do

3    is just have a bunch of wrongful foreclosures on your

4    hands because somebody didn’t bother to go look at the new

5    provision in 36.05 or 36.065. It’s too easy it seems to

6    me. Just put it there so it’s there and then you don’t

7    have to —

8              MR. BAGGETT: Take what you’ve agreed to,

9    move it in there, and move on.

10              MS. NEELEY: Yeah, it’s a cut and paste.

11              HONORABLE BRUCE PRIDDY: I mean, actually, I

12    mean, the rule does give the option, “in the manner

13    provided by” —

14              MS. NEELEY: Yeah.

15              HONORABLE BRUCE PRIDDY: — “law for

16    foreclosure of tax liens or in the manner” — “or under

17    Rule 736.” We can just — if we don’t amend the rule they

18    can’t do a 736 for a tax lien, and we can just cut that

19    out, but I think we have to amend the rule to get tax lien

20    foreclosures under 736.

21              MR. BAGGETT: Right, so we just use the

22    substance that they already have and put it in there.

23              HONORABLE PHIL JOHNSON: If I might just say

24    something, there may be a concern about taking a statutory

25    provision and putting it into the rule because next time

Page 88

1    don’t put it in the rule somebody is going to leave out an

2    element. If you cross-reference the statute and the

3    statute changes, you’ve taken care of the elements. It’s

4    just going to be a matter of monitoring to make sure it’s

5    fixed.

6             HONORABLE PHIL JOHNSON: You know, we do

7    have in the Rule of Civil Procedures, you know, an

8    affidavit for introducing records, this will suffice, you

9    know, and we don’t have a rule. We just say if it’s

10    so-and-so, well, this is going to be good enough. Instead

11    of saying it’s got to be this way, it says if you do it

12    this way it will be good enough, so maybe somehow,

13    somehow. I guess I’m just a little jumpy —

14              MR. BASTIAN: Some language that says —

15              HONORABLE PHIL JOHNSON: Exactly. I’m just

16    a little jumpy about having a rule and then having the

17    Legislature change it on us.

18              MS. NEELEY: They would never do that.

19              MR. BAGGETT: But when they go to change it,

20    I mean, part of it they’ve got to look at the rule. They

21    can direct us again to modify the rule, because what

22    they’ve done is they’ve told us to do it under 736.

23              HONORABLE BRUCE PRIDDY: A clause, “except

24    as otherwise provided by law” might —

25              MS. NEELEY: Yeah.

Page 87

1    they meet over there, they change the statute, and then

2    we’ve got the rule, and that’s the worst of all worlds.

3    You know, they’re changing, and we’ve got to come back,

4    but we talk about bad foreclosures.

5              MR. BAGGETT: Right.

6              HONORABLE PHIL JOHNSON: That’s going to be

7    a concern that I can see instead of simply referencing in

8    the rule, referencing whatever it is that they do over at

9    the leg., because you just — somebody may take a one-page

10    bill, just a cleanup item, and all of the sudden now we’ve

11    got people following the rules that won’t go read the

12    statute, so I think that may well be a concern that we

13    ought to think about.

14              MS. NEELEY: That’s a good point, but the

15    problem is (c)(1) says that your application for this

16    order must allege the lien as an ad valorem tax lien,

17    state that they don’t want a home equity foreclosure,

18    state that they provided notice, et cetera, et cetera, and

19    confirm that the property owner has not requested deferral

20    of taxes. So there’s four elements, and they’re totally

21    different from the elements in the application, so it

22    either needs to be —

23              MR. BAGGETT: Yeah, take one of them.

24              MS. NEELEY: — something that says — to

25    me, I think Tommy is right. And you’re both right, if you

Page 89

1              HONORABLE BRUCE PRIDDY: — solve that.

2              MR. BAGGETT: I understand your point, but

3    they shouldn’t have told us to put it in the rule to begin

4    with if that’s the case. We’ve got to figure out what to

5    do.

6              HONORABLE PHIL JOHNSON: It’s just a

7    concern.

8              MR. BAGGETT: Yeah, that’s fair.

9              MR. REDDING:  Well, could you just reference

10    it and then say “or as may be amended from time to time”

11    and said — you know, “said procedure be done in

12    accordance with then current law” or something like that,

13    just add on a phrase to the back end of it?

14              MR. BAGGETT: Okay. We can take a stab at

15    that one. That one shouldn’t be too hard to at least

16    start the stab.

17              Here’s what I want you-all to do, too, those

18    of you who are particularly interested in an area, I think

19    you’ve got e-mails on there, let me know which — we’re

20    going to have at least two subcommittees. One is going to

21    be the cleanup of 735 and 736, and the second one will be

22    the tax lien deal, which probably they’ll kind of overlap

23    some, but that’s fine. And let me know which ones you

24    want to be on if you want to be on one. We’ve got to get

25    this done by December 31, so subcommittees, if you want to

 

 

Page 90

1    be on one, you’ve got to — you’ve got to be flexible with

2    time and get it done, because we’ve got to get it done and

3    then have another meeting to make sure everybody is okay

4    with it.

5              HONORABLE PHIL JOHNSON: Let me say this,

6    the Court wanted it December 31st because, as we

7    understood, this needs to be done, and it needs to be done

8    for the industry, and that’s our concern, but we want to

9    make sure it’s done right.

10              MR. BAGGETT: Yeah, because right now what

11    do they do if we don’t have the rule, and they’ve got to

12    file a lawsuit, I guess, and do it judicially in the

13    interim, but anyway, we’ll see. Okay. Other issues that

14    we may or may not have? Anybody got? Tommy, you got any

15    other issues?

16              MR. BASTIAN: Huh-uh.

17              MR. BAGGETT: You’ve got to be kidding me.

18    We’re all love and affection. Manny.

19              MR. NEWBURGER: I’m going to raise one, but

20    I’m not sure we can or should deal with this, but my

21    client base is lawyers all over the country are under

22    attack, and one of the biggest forms of attack is upon the

23    litigation privilege. The lawyers who follow the rules

24    ought to get to follow the rules and not get sued for

25    doing it. Is there any way we can put something in here

Page 92

1     with me after this?

2                 MR. NEWBURGER: Thank you.

3                 MR. BAGGETT: Did you have something, Mike?

4                 MR. BARRETT: Well, I wasn’t sure whether

5     you were saying “forever hold your peace.”

6                 MR. BAGGETT: No, no.

7                 MR. BARRETT: Tommy, do you want to hold

8     forth on the judges that are ruling that the provisions in

9     the deed of trust — why don’t you explain that? You’re

10     much more scholarly than I.

11                 MR. BASTIAN: Well, as you know, in our Rule

12     736 proceeding it’s not appealable, but there are judges

13     that just kind of — just like there are lawyers, just

14     like there is borrowers that go out, you know, kind of way

15     out there, and I think we need to put something in the

16     rule that you have the ability to do a mandamus on  these,

17     and that would be kind of the check and balance on  some

18     judges. I mean, I’ve got some orders here where judges

19     are actually reading the deed of trust and having their

20     own interpretations and then going and denying the order,

21     and you know, that’s way out there, that I think there

22     needs to be some — I don’t know how you — and there’s no

23     check and balance on that. They can just —

24                 MR. BARRETT: Don’t we have one judge in

25     Houston that has declared the rules unconstitutional,

Page 91

1    to make it clear that the litigation privilege under Texas

2    common law is intended to apply to proceedings under these

3    rules?

4              MR. BAGGETT: I think your first statement

5    was right. We’re probably beyond what we can do with

6    that.

7              MR. NEWBURGER: I had to ask, because in

8    Florida it’s foreclosure firms, and it had to go all the

9    way to the Florida Supreme Court. There’s a case, Cole

10    vs. Echevarria, just decided earlier this year that had to

11    go all the way up there at a cost of hundreds of thousands

12    of dollars to get the state Supreme Court to decide

13    whether litigation privilege applied to their proceedings

14    to foreclose mortgages, and I would really hate to see

15    that process clog up the Texas courts if there were a way

16    to put it in the rule.

17              MR. BAGGETT: Makes sense. I think that’s a

18    probably bigger issue for the overall rules committee

19    whenever they’re doing rules. If they want to get into

20    that, they can do that. That’s when Marvin is going to

21    come in and say, “This is lawyers writing rules to protect

22    lawyers. This is ridiculous.”

23              HONORABLE PHIL JOHNSON: Let me talk to you

24    about that, Manny. We’re working through some

25    disciplinary rules stuff right now, so why don’t you visit

Page 93

1    these rules? The way I read this.

2              MR. BASTIAN: Well, you could —

3              MR. BARRETT: She’s inviting a declaratory

4    judgment action to determine whether or not she’s right,

5    but she thinks that the internal language of the Fannie

6    Mae deed of trust and the rules are self-cancelling and

7    that the rules themselves impose unconstitutional

8    obligations, so —

9              MR. BAGGETT: The rules aren’t

10    constitutional?

11              MR. BARRETT: Yeah.

12              HONORABLE BRUCE PRIDDY: Under a Federal

13    like due process or under 750?

14              MR. BARRETT: Yeah, they’re due process.

15    She says the deed of trust creates — or the statute — or

16    the Constitution that provided nonrecourse status for home

17    equity loans prevailed and that there are provisions about

18    the rules that in her mind apply recourse and, therefore,

19    are unconstitutional.

20              MR. BASTIAN: The best we can figure out,

21    what she’s saying is that, as you know, a substitute

22    trustee’s deed, the warranties of title come from the

23    borrower and because the borrower has to give warranty of

24    titles in that substitute trustee’s deed then that’s a

25    violation of the Texas Constitution that says you can’t

 

 

Page 94

1    ask of anything from the borrower other than the property.

2    I mean, that’s the best we can figure out her order, what

3    she’s saying, but right now you can’t do anything about

4    it. You have a choice. You can either —

5              MR. BARRETT: We’ve got 70 orders stacked up

6    in her court that she won’t sign because the rules are

7    unconstitutional, so I think we should probably try to do

8    something about clarifying whether the fact that the rules

9    conflict with recourse provisions in the Constitution.

10              MR. BAGGETT: I don’t think we can do that

11    in the rules. “This is a real rule, and you better live

12    by it.”

13              MS. NEELEY: And we mean it.

14              MR. BARRETT: You said raise the issue.

15              MR. BAGGETT: I understand.

16              MR. BARRETT: I’m raising the issue.

17              MR. BAGGETT: I’m glad you raised it. That

18    would be my suggestion, mandamus.

19              MR. BASTIAN: But see, mandamus, these are

20    unappealable, so I mean, we’ve gone around and around, and

21    what we ended up doing, we just did judicial foreclosures,

22    but now we have a record, so that then we can go do —

23    but, you know, that’s almost, wait a minute, that’s a

24    whole lot to have to go through.

25              HONORABLE BRUCE PRIDDY: I don’t think there

Page 96

1              MS. RODGERS: Okay.

2              MR. BASTIAN: And we’ve tried to preserve

3    the law like it’s always been, that if you had a

4    complaint, well, then you go file your lawsuit and then

5    that abated it.

6              MS. RODGERS: Okay.

7              MR. BAGGETT: See, with the rules that we

8    have you don’t have normal discovery and all that stuff,

9    so what we did is we said here’s another way that you can

10    do everything. So you don’t want to be appealing

11    something that just gives you an order while you should be

12    litigating it over in a court, and you have a right to do

13    that that stops all this. I mean, you don’t want them

14    going on simultaneously.

15              MS. RODGERS: Right.

16              MR. BAGGETT: And you have a right to stop

17    all that stuff and tee it up in a regular case.

18              MR. BASTIAN: Rule 736 was designed for

19    those cases where nobody filed a response or didn’t care

20    so it wouldn’t clog up the system.

21              MS. RODGERS: Right.

22              MR. BASTIAN: That’s its purpose.

23              MS. NEELEY: Yeah, exactly.

24              MR. BAGGETT: And we really were thinking

25    about the courts and what kind of burden it would be, and

Page 95

1    is anything that would prevent a — Doggett and I were

2    talking. I don’t think there is anything that would

3    prevent a mandamus. You ought to do it. You ought to do

4    it and see, because I’ve always assumed that you can

5    mandamus these.

6             MR. BARRETT: I agree. I don’t think we

7    need to change the rule to create —

8             HONORABLE BRUCE PRIDDY: But if you mandamus

9    and the court of appeals says you can’t mandamus because

10    of the nonappealability provision then we can change the

11    rule, but let’s get a court of appeals —

12             MR. BARRETT: Yeah. All right.

13             MR. BAGGETT: Any other issues we’ve got,

14    other than lunch?

15             MS. RODGERS: I have a question. Where did

16    the nonappealability come from? It’s not in the

17    Constitution.

18             MS. NEELEY: Yeah.

19             MR. BAGGETT: No, it’s not.

20             MS. RODGERS: Where did you-all come up with

21    that?

22             MR. BAGGETT: How did we do it? How did we

23    do it?

24             MR. BASTIAN:  Well, because it was either up

25    or down.

Page 97

1    if we got a whole bunch of these, if half their docket

2    were these cases, that would not be good, so how do we

3    balance all of that to make it work.

4              MR. BASTIAN: What a lot of people forget is

5    most of the pundits were saying you had to go do a

6    judicial foreclosure on these things. Man, lordy mercy.

7              MR. NEWBURGER: This was actually a very

8    important trade-off because without this rule you would

9    have to go out, as I always used to have to do, and get a

10    restraining order to stop a foreclosure.

11              MR. BAGGETT: Right.

12              MR. NEWBURGER: And what this did was this

13    gave any consumer who wanted to raise a dispute the

14    ability to stop it merely by filing a lawsuit. So this

15    was a win-win deal.

16              MR. BAGGETT: Yeah.

17              MR. NEWBURGER: Folks in Mike’s business,

18    unopposed, uncontested foreclosures were streamlined and

19    didn’t clog the courts. It was a win for consumers

20    because we went from a cumbersome process of seeking a

21    restraining order and a temporary injunction to simply

22    having to file a suit and be able to accomplish the same

23    thing.

24              MR. BAGGETT: Yeah. Our biggest issue is we

25    patterned it after Colorado law, and we figured that

 

 

Page 98

1    somebody in Texas would say, “We don’t follow anything in

2    Colorado, we do our own thing.” So anyway.

3              Okay, I’m glad there are no other issues. I

4    need to go get lunch for you guys and see where the heck

5    it is, and I want to thank all of you for coming, and

6    we’ll get two committees, and let me know which one you

7    want to be on, and we’ll go down the road.

8              (Meeting adjourned.)

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Page 99

1   * * * * * * * * * * * * * * * * * * * *

2                    REPORTER’S CERTIFICATION MEETING OF THE

3              TASK FORCE ON JUDICIAL FORECLOSURE RULES

4

5   * * * * * * * * * * * * * * * * * * * *

6

7

8                 I, D’LOIS L. JONES, Certified Shorthand

9     Reporter, State of Texas, hereby certify that I reported

10     the above meeting of the Supreme Court Advisory Committee

11     on the 7th day of November, 2007, and the same was

12     thereafter reduced to computer transcription by me.

13                 I further certify that the costs for my

14     services in the matter are $                             .

15                 Charged to: The Supreme Court of Texas.

16                 Given under my hand and seal of office on

17     this the                    day of                                     , 2007.

18

19                                   

D’LOIS L. JONES, CSR

20                Certification No. 4546 Certificate Expires 12/31/2008

21                3215 F.M. 1339

Kingsbury, Texas 78638

22                (512) 751-2618

23

24   #DJ-198

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1 Comment

  1. Pingback: The Texas Death Warrant May Proceed for Elderly Homeowners. But Texas Won't Execute Death Row Killer | Laws In Texas

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Laws In Texas is a blog about the Financial Crisis and how the banks and government are colluding against the citizens and homeowners of the State of Texas and relying on a system of #FakeDocs and post-crisis legal precedents, specially created by the Court of Appeals for the Fifth Circuit to foreclose on homeowners around this great State. We are not lawyers. We do not offer legal advice. We are citizens of the State of Texas who have spent a decade in the court system in Texas and have been party to during this period to the good, the bad and the very ugly.

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