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Pnc Mortgage v. Howard

Court of Appeals of Texas, Fifth District, Dallas

June 24, 2019

PNC MORTGAGE, A DIVISION OF PNC BANK, N.A. SUCCESSOR TO NATIONAL CITY BANK, AND NATIONAL CITY MORTGAGE, A DIVISION OF NATIONAL CITY BANK OF INDIANA, Appellants
v.
JOHN HOWARD AND AMY HOWARD, Appellees

          On Appeal from the 199th Judicial District Court Collin County, Texas Trial Court Cause No. 199-01559-2010.

          Before Justices Whitehill, Molberg, and Reichek

          MEMORANDUM OPINION

          Amanda L. Reichek Justice.

         In this suit concerning the default on a note and foreclosure sale of a private home, PNC Mortgage, a division of PNC Bank, N.A. successor to National City Bank ("PNC"), and National City Mortgage, a division of National City Bank of Indiana ("Bank of Indiana"), appeal a partial summary judgment in favor of John and Amy Howard on their claims against Bank of Indiana. PNC also appeals the final judgment following a bench trial on stipulated facts ordering that it take nothing by its claims against the Howards. In four issues, the banks generally contend the trial court erred in its application of the law to the undisputed summary judgment evidence and stipulated facts and in failing to file findings of fact and conclusions of law. For the reasons that follow, we affirm the trial court's judgment in part, reverse and render in part, and remand for further proceedings consistent with this opinion.

         Factual and Procedural Background

         The undisputed facts relevant to our resolution of this appeal are as follows. In March 2003, the Howards purchased a home in Frisco, Texas and obtained two purchase money lien mortgages from First Franklin Financial Corporation. On March 24, 2005, the Howards entered into a loan refinance transaction with Bank of Indiana. In connection with the refinancing, the Howards executed a note and deed of trust on the property in favor of Bank of Indiana. The Howards then used the loan proceeds they obtained from Bank of Indiana to pay off the mortgage debts they owed to First Franklin.

         On March 4, 2008, Bank of Indiana assigned the note and deed of trust to National City Mortgage Co., a subsidiary of National City Bank located in Ohio (National City Bank). The assignment was recorded in the Collin County Records.

         The Howards stopped making payments on the note after November 1, 2008 and defaulted under the note's terms. On January 20, 2009, National City Bank sent notices of default and intent to accelerate to both John and Amy Howard. On that date, National City Bank was the servicer and holder of the note and deed of trust. On June 19, 2009, National City Bank, as servicer and holder of the note and deed of trust, sent the Howards notices of acceleration through its attorneys. On the same day that National City Bank accelerated the note, Bank of Indiana, which had previously assigned the note and deed of trust to National City Bank, appointed Greg Bertrand as a substitute trustee to conduct a foreclosure sale of the Howard's property.

         In November 2009, National City Bank was merged into PNC and PNC became the servicer of the Howard's note. Four months later, in March 2010, Bank of Indiana, through its attorneys, sent a notice of acceleration to Amy Howard. The notice listed Bank of Indiana as the mortgagee and PNC as the mortgage servicer. On April 6, 2010, Bertrand sold the Howard's property at a nonjudicial foreclosure sale on behalf of Bank of Indiana. According to the substitute trustee's deed, the property was sold on behalf of, and also purchased by, Bank of Indiana.

         Ten days later, the Howards filed this suit against Bank of Indiana and PNC seeking to set aside the foreclosure sale and resulting substitute trustee's deed. In their petition, the Howards asserted the foreclosure was void because Bank of Indiana was not the mortgagee at the time it appointed the substitute trustee and held no interest in the deed of trust at the time the property was sold on its behalf.

         Almost four years later, in February 2014, the Howards filed a motion for partial traditional summary judgment against Bank of Indiana. In the motion, the Howards argued the foreclosure sale was void because the sale was both noticed by and conducted on behalf of Bank of Indiana, which had assigned its interest in the note and deed of trust to another bank prior to the foreclosure. The Howards further contended the foreclosure by Bank of Indiana violated the terms of the deed of trust which stated that a substitute trustee could only be appointed by the lender and, at the time the substitute trustee was appointed, the lender was National City Bank, not Bank of Indiana. In support of their motion, the Howards submitted documents including the note, the deed of trust, the assignment of the deed of trust from Bank of Indiana to National City Bank, the substitute trustee appointment signed by a representative of Bank of Indiana, and the notice of substitute trustee sale and the substitute trustee's deed listing Bank of Indiana as the mortgagee.

         Although the motion was directed solely at Bank of Indiana, both PNC and Bank of Indiana filed a response arguing the Howards had asserted "a cause of action without recognition in Texas" and they were attempting to sidestep the elements of a wrongful foreclosure claim under section 51.002 of the Texas Property Code. The banks further construed the Howards' motion as challenging the validity of the chain of assignments of the note and deed of trust and contended the Howards failed to produce any evidence that would allow the trial court to declare that "Defendants were neither the holder nor the owner of the loan." Neither PNC nor Bank of Indiana submitted any summary judgment evidence in support of their response.

         In their reply to the banks' response, the Howards noted that their motion was not directed at PNC or any interest it might have in the loan. The motion was directed solely at Bank of Indiana because that was the entity that foreclosed on their property after assigning away its rights in the note and deed of trust. Following a hearing, the trial court granted the Howards' motion and rendered judgment declaring the foreclosure sale void ab initio.

         On January 8, 2015, PNC and Bank of Indiana filed an amended answer and, for the first time, asserted counterclaims against the Howards seeking relief including a declaratory judgment for contractual and equitable subrogation and foreclosure of the equitable lien. Four months later, in May 2015, PNC filed a separate lawsuit against the Howards seeking damages for their failure to perform their obligations under the note. The Howards answered and asserted the affirmative defense of limitations. The suit on the note was consolidated into this cause in October 2016.

         On April 3, 2017, the parties filed a joint motion for judgment on an agreed statement of facts, but reserved the right to introduce additional evidence at trial. A bench trial was conducted on April 5, at which the Howards rested on the stipulated facts. PNC and Bank of Indiana called both John and Amy Howard as witnesses and elicited testimony concerning amounts owed on the note, the refinancing of the loan in 2005, notices sent to the Howards, and Amy Howard's bankruptcy. Based on the evidence presented, the trial court rendered judgment that PNC and Bank of Indiana take nothing by their claims against the Howards and ordered that the note and lien on the Howards' property were void and unenforceable. The judgment further incorporated the partial summary judgment rendered in favor of the Howards and awarded the Howards $75, 000 in attorney's fees. All other relief requested in the case was denied. PNC and Bank of Indiana then brought this appeal.

         Analysis

         I. Summary Judgment on the Foreclosure

         In their second issue, PNC and Bank of Indiana contend the trial court erred in granting the Howards' motion for partial summary judgment. We review the grant of a summary judgment de novo. Travelers Ins. Co. v. Joachim, 315 S.W.3d 860, 862 (Tex. 2010); Spicer v. Tex. Workforce Comm'n, 430 S.W.3d 526, 532 (Tex. App.-Dallas 2014, no pet.). A movant for traditional summary judgment has the burden of showing there is no genuine issue of material fact and it is entitled to judgment as a matter of law. Tex.R.Civ.P. 166a(c); Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548-49 (Tex. 1985); Spicer, 430 S.W.3d at 532; McCoy v. Texas Instruments, Inc., 183 S.W.3d 548, 553 (Tex. App.--Dallas 2006, no pet.). We consider the summary judgment evidence in the light most favorable to the non-movant. Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009); Spicer, 430 S.W.3d at 532. When a plaintiff establishes his right to summary judgment as a matter of law, the burden then shifts to the defendant as non-movant to present evidence that raises a genuine issue of material fact, thereby precluding summary judgment. Boudreau v. Fed. Tr. Bank, 115 S.W.3d 740, 743 (Tex. App.- Dallas 2003, pet. denied).

         The trial court in this case granted summary judgment against Bank of Indiana and declared the foreclosure on the Howards' property void ab initio. One of the grounds asserted in the summary judgment motion was that Bank of Indiana had no authority to appoint a substitute trustee and foreclose on the property because it transferred all beneficial interest in the note and deed of trust to National City Bank before it instituted foreclosure proceedings. This assignment was recorded in the Collin County Records. Pursuant to Texas law, a nonjudicial foreclosure may be initiated by the current mortgagee. Santiago v. BAC Home Loans Servicing, L.P., 20 F.Supp.3d 585, 589 (W.D. Tex. 2014). If the security interest has been assigned of record, the current mortgagee is the last person to whom the security interest has been assigned of record. Tex. Prop. Code Ann. § 51.0001(4)(C). The Howards provided summary judgment evidence that Bank of Indiana assigned its security interest in the Howard property to National City Bank before the Howards defaulted on the note. The summary judgment evidence also showed that, at the time the note was accelerated, National City Bank was the mortgagee. The evidence showed, therefore, that Bank of Indiana was not the current mortgagee and could not initiate foreclosure proceedings. See Santiago, 20 F.Supp.3d at 589.

         Because it was not the mortgagee, Bank of Indiana also had no authority to appoint a substitute trustee to conduct the foreclosure. This Court addressed a similar situation in Burnett v. Manufacturers Hanover Trust Co., 593 S.W.2d 755 (Tex. App.-Dallas 1979, writ ref'd n.r.e.). In Burnett, the original mortgagee on a loan for real property appointed a substitute trustee to foreclose on the property after it had assigned the note to another entity. Id. at 756. The deed of trust required the appointment of the substitute trustee to be made by the holder of the note. Id. at 757. Because the original mortgagee was no longer the holder of the note, we concluded its appointment of the substitute trustee violated the terms of the deed of trust. Id. at 758. A foreclosure sale that is not conducted within the authority conferred by the deed of trust is void. See id. at 757.

         In this case, the deed of trust stated that a substitute trustee may be appointed by the "Lender." The summary judgment evidence showed that, at the time of the foreclosure, National City Bank was the current lender. Under the terms of the deed of trust, therefore, Bank of Indiana had no authority to appoint the substitute trustee. We conclude the Howards met their burden to show their entitlement to summary judgment as a matter of law. The ...


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