Lender Did Not Have Burden To Prove Holder Status In Wrongful Foreclosure Suit


In Campbell v. Mortgage Electronic Registration Systems, Inc., the Campbells borrowed money from a lender to purchase a residence. No. 03-11-00428-CV, 2012 Tex. App. LEXIS 4030 (Tex. App.—Austin May 18, 2012, no pet. history). The deed of trust expressly stated that a trustee could have the power of sale. The lender then assigned the note to Wells Fargo, who subsequently gave the Campbells notice of intent to foreclose on the property. After foreclosure, the Campbells sued the original trustee and Wells Fargo for wrongful foreclosure. After the trial court granted summary judgment for the defendants, the Campbells appealed.

The court of appeals first held that the Campbells, as plaintiffs alleging wrongful foreclosure, would have the burden of proof at trial to show that Wells Fargo was not the note's holder. The court stated that to prevail in a wrongful foreclosure suit, a party must establish (1) a defect in the foreclosure sale proceedings; (2) a grossly inadequate selling price; and (3) a causal connection between the defect and the grossly inadequate selling price. The court held that Wells Fargo was not required to present proof that it was the holder. Rather, the Campbells have the burden of proving this alleged defect in the foreclosure sale proceedings. The Campbells failed to produce any evidence creating a fact issue as to Wells Fargo's status as the note's holder.

The court of appeals next addressed the Campbells’ issue that the assignment of the deed of trust from the first trustee to Wells Fargo was not recorded in the public records. The court noted that when a note is transferred, the mortgage or deed of trust is also automatically transferred to the note holder by virtue of the common law rule that "the mortgage follows the note.” Therefore, when the original lender transferred the note to Wells Fargo, that transfer also served to transfer the deed of trust to Wells Fargo. Further, the court found that the assignment of the deed of trust from the original trustee to Wells Fargo was valid under Texas law where a deed of trust expressly grants a trustee the power of sale. The original trustee had the authority to transfer the rights and interests in the deed of trust to Wells Fargo, and when it did so, Wells Fargo obtained all of the original trustee's rights and interest in the deed of trust, including the power to foreclose on the property. The court of appeals affirmed the trial court's judgment for the lender.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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