Posted on Oct 05, 2013

In a lawsuit filed in state court and later removed to U.S. District Court, the Wileys claimed that Deutsche Bank did not have authority to foreclose on their house because it possessed only the deed of trust and not the underlying note. The 5th Circuit Court of Appeals in Wiley v. Deutsche Bank National Trust Company, Court of Appeals, 5th Circuit 2013, demolished that theory, holding that

"the `split-the-note' theory is . . . inapplicable under Texas law where the foreclosing party is a [mortgagee] and the mortgage has been properly assigned. The party to foreclose need not possess the note itself." (citation omitted). So long as it is a beneficiary named in the deed of trust or an assign, that party may exercise its authority even if it does not hold the note itself. That is contemplated in the deed of trust and by the statute allowing mortgagees and mortgage servicers to foreclose.See TEX. PROP. CODE § 51.0025.

The Court goes on to state that since the deed of trust names MERS as its beneficiary, MERS transferred the deed of trust to Deutsche Bank and recorded that transfer, Deutsche Bank has the power to foreclose. And even if the the MERS officer is not authorized to sign the assignment, it is only voidable and even then, only at the election of the defrauded principal.

The 5th Circuit affirmed the U.S. District Court's dismissal of the plaintiff's suit, since their claims are unsupported by Texas law. The decision is unpublished, meaning that it has limited precedential value.


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J Thomas Black
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Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization