Robyn N. Jones v. Wells Fargo Bank, N.A. ( 2015 )

ACCEPTED
03-14-00658-CV
3893107
THIRD COURT OF APPEALS
AUSTIN, TEXAS
1/26/2015 10:47:09 AM
Oral Argument Conditionally Requested JEFFREY D. KYLE
CLERK
NO. 03-14-00658-CV FILED IN
3rd COURT OF APPEALS
AUSTIN, TEXAS
1/26/2015 10:47:09 AM
JEFFREY D. KYLE
In The Clerk
Third Court of Appeals
____________________________________________________________________
ROBYN N. JONES,
Appellant,
v.
WELLS FARGO BANK, N.A.,
Appellee.
____________________________________________________________________
Cause No. 11-0479
On Appeal from the 428th District Court, Hays County, Texas
Honorable Bill Henry, Judge Presiding
____________________________________________________________________
APPELLEE’S BRIEF
____________________________________________________________________
B. David L. Foster W. Scott Hastings
State Bar No. 24031555 State Bar No. 24002241
LOCKE LORD LLP Robert T. Mowrey
600 Congress Avenue, Suite 2200 State Bar No. 14607500
Austin, Texas 78701 LOCKE LORD LLP
Telephone: (512) 305-4715 2200 Ross Avenue, Suite 2200
Facsimile: (512) 391-4722 Dallas, Texas 75201-6776
Telephone: (214) 740-8000
Facsimile: (214) 740-8800
Counsel for Appellee
TABLE OF CONTENTS
STATEMENT OF THE CASE .................................................................................. 1
ISSUE PRESENTED .................................................................................................1
STATEMENT REGARDING ORAL ARGUMENT ............................................... 1
STATEMENT OF FACTS ........................................................................................2
SUMMARY OF THE ARGUMENT ........................................................................ 5
ARGUMENT .............................................................................................................6
A. Under Texas Law, Jones Had No Right to Force Wells
Fargo to Accept Her as the Principal Obligor on the
Loan. ......................................................................................................6
B. The Deed of Trust Does Not Compel Wells Fargo to
Approve an Assumption. .....................................................................11
C. Wells Fargo’s Right to Accept or Reject an Assumption
of the Debt By Jones Is Not Impaired by the Federal
Garn-St. Germain Act. ........................................................................17
CONCLUSION AND PRAYER .............................................................................24
CERTIFICATE OF COMPLIANCE .......................................................................26
CERTIFICATE OF SERVICE ................................................................................26
ii
INDEX OF AUTHORITIES
CASES
Ashby v. Wells Fargo Bank, N.A.,
No. 12-803, 2012 WL 1833932 (S.D. Tex. May 18, 2012) ......................................... 16
Brannin v. Richardson,
185 S.W. 562 (Tex. 1916) .................................................................................. 10, 11
In re Cady,
440 B.R. 16 (N.D.N.Y. 2010) .................................................................................. 20
Cain v. Bank United of Tex.,
No. 14-95-00601-CV, 1997 WL 428054 (Tex. App.—Houston [14th
Dist.] July 31, 1997, pet. denied) ............................................................................... 9
Cronin v. Wells Fargo Bank, N.A.,
No. 03-12-00799-CV, 2014 WL 2918006 (Tex App.—Austin June 19,
2014, no pet.) (mem. op.).......................................................................................... 15
DTND Sierra Invs. LLC v. CitiMortgage, Inc.,
No. SA-12-CV-80-XR, 2012 WL 1711738 (W.D. Tex. May 15, 2012) ............ 16
In re FH Partners, L.L.C.,
335 S.W.3d 752 (Tex. App.—Austin 2011, orig. proceeding) .......... 12, 13, 14, 15
Helge v. Am. Cent. Life Ins. Co.,
124 S.W.2d 191 (Tex. Civ. App.—Austin 1938, writ dism’d judgm’t
cor.) ................................................................................................................................ 8
In re Henderson,
No. 04-B-75636, 2005 Bankr. LEXIS 1474 (Bankr. N.D. Ill. May 17,
2005)............................................................................................................................ 23
Howell v. Murray Mortgage Co.,
890 S.W.2d 78 (Tex. App.—Amarillo 1994, writ denied) ............................. 16, 17
In re Jordan,
199 B.R. 68 (Bankr. S.D. Fla. 1996) ............................................... 19, 20, 21, 22, 23
La-Rey, Inc. v. Kowalski,
433 S.W.2d 530 (Tex. Civ. App.—San Antonio 1968, no writ)............................ 7
iii
In re Lumpkin,
144 B.R. 240 (Bankr. D. Conn. 1992)..................................................................... 20
Marler v. Parker,
135 So. 400 (Fla. 1931) ....................................................................................... 20, 21
Monroe v. Salter,
No. 05-94-01560-CV, 1995 WL 447549 (Tex. App.—Dallas July 27,
1995, no writ) ............................................................................................................... 9
Pinckney v. Wylie,
86 F.2d 541 (5th Cir. 1936) ........................................................................................ 8
Preston v. Seterus,
931 F. Supp. 743 (N.D. Tex. 2013) ......................................................................... 16
Proctor v. Hearne,
131 So. 173 (Fla. 1930) ....................................................................................... 20, 21
Puntarelli v. Peterson,
405 S.W.3d 131 (Tex. App.—Houston [1st Dist.] 2013, no pet.) ............................... 10
Romund v. Ginzel,
259 S.W.2d 619 (Tex. Civ. App.—Waco 1953, no writ) ..................................... 14
Shockey v. Page,
354 S.W.2d 698 (Tex. Civ. App.—Eastland 1962, writ ref’d n.r.e.)................. 8, 9
Siefkas v. Siefkas,
902 S.W.2d 72 (Tex. App.—El Paso 1995, no writ) ................................................... 10
Smith v. Green Tree Servicing, LLC,
No. C13-1573RSL, 2014 WL 1319821 (W.D. Wash. Mar. 28, 2014) ............... 18
Spann v. Ewing,
63 Tex. 240 (1885) .............................................................................................. 10, 11
Strauss v. Brooks,
148 S.W.2d 393 (Tex. 1941) ...................................................................................... 8
Thompson v. Tropical Sav. & Loan Ass’n,
430 S.W.2d 426 (Tex. Civ. App.—San Antonio 1968, writ ref’d n.r.e.) ............ 10
iv
Wilson v. Bank of Am., N.A.,
No. 14-2498, 2014 WL 4744555 (E.D. Pa. Sept. 24, 2014)................................. 23
Zale Corp. v. Decorama, Inc.,
470 S.W.2d 406 (Tex. Civ. App.—Waco 1971, writ ref’d n.r.e.) ....................... 14
RULES, STATUTES, AND CONSTITUTION
12 U.S.C. § 1701j-3(a)(1)......................................................................................... 18, 22
12 U.S.C. § 1701j-3(d)(7) ........................................................................................ 18, 22
12 U.S.C. § 1701j-3(b)(3) .............................................................................................. 19
TEX. FAM. CODE § 5.001 ............................................................................................... 2, 6
v
STATEMENT OF THE CASE
This is a declaratory judgment case about the scope of a lender’s rights when
its borrower seeks to assign a mortgage loan without the consent of the lender.
Appellant Robyn Jones (“Jones”) is not the borrower on the mortgage loan from
Wells Fargo Bank, N.A. (“Wells Fargo”). Nevertheless, she sued Wells Fargo
seeking a declaration that she is “the principal debtor, and may enter into any
agreement to modify the amortization terms of the Note without the Note and
without the signature of Brian C. Jones [her now ex-husband who was Wells
Fargo’s borrower].” (CR:11.) The district court granted summary judgment to
Wells Fargo, rejecting Jones’s claims that were seeking to make Wells Fargo an
involuntary lender. (CR:519-20.) Jones voluntarily dismissed her remaining
claims. (CR:525-26.) Accordingly, the district court entered final judgment on
September 11, 2014. (CR:525-26.) Jones appeals. (CR:527.)
ISSUE PRESENTED
Did the district court err when it held as a matter of law that Jones could not
force Wells Fargo to accept her as the primary obligor on a loan, with authority to
negotiate changes to the amortization schedule of that loan without the consent of
her now ex-husband who was the original obligor on the loan?
STATEMENT REGARDING ORAL ARGUMENT
Wells Fargo believes this case can be resolved efficiently by submission on
the briefs. However, to the extent the Court believes oral argument would be
1
useful to answer questions and conduct a dialogue regarding Jones’s arguments,
Wells Fargo requests the opportunity to participate.
STATEMENT OF FACTS
While Jones was married to Brian Christopher Jones (“Brian Christopher”),
Brian Christopher obtained a loan from Wells Fargo 1 to purchase property located
at 467 Dandelion Loop, Kyle, Texas 78640 (the “Property”). The Loan is
evidenced by a promissory note (the “Note”) (CR:303-05), and secured by a deed
of trust (the “Deed of Trust”) (CR:312-23). Brian Christopher signed both the
Note and Deed of Trust (collectively, the “Loan”). (CR:304, 319, 323.) In
contrast, Jones—as non-borrowing spouse and co-owner of the Property—signed
only the Deed of Trust, as required by Texas law. (Id.; see TEX. FAM. CODE
§ 5.001.)
In January 2005, Appellant divorced Brian Christopher. (CR:6.) An Agreed
Final Decree of Divorce was signed by the Hays County district court, under which
terms Jones was awarded the Property as her sole and separate property, Brian
Christopher was to execute a “Special Warranty Deed with assumption clause”
conveying his interest in the Property to Jones, and Jones was to execute a “Deed
of Trust to Secure Assumption” for the benefit of Brian Christopher, to secure
payment of the “promissory note assumed by” Jones. (CR:380, 382.) Wells Fargo
1
The original lender was Universal American Mortgage Company, LLC. However, shortly
thereafter, Wells Fargo became mortgagee and lender. (CR:5, 300, 305.)
2
was not a party to the divorce suit or the Agreed Final Decree of Divorce.
(CR:348, 386.)
In accordance with the divorce decree, Brian Christopher executed a Special
Warranty Deed conveying the Property to Jones. (CR:325-27.) Part of the stated
consideration for the conveyance was Jones’s “assumption of the unpaid principal
and earned interest” on the Note. (Id.) Wells Fargo was not a party to the Special
Warranty Deed. (Id.)
Also in accordance with the divorce decree, Jones executed a Deed of Trust
to Secure Assumption, identifying Jones as “Grantor” and identifying Brian
Christopher as “Beneficiary,” and providing that as between such parties Jones was
primarily obligated to make the Loan payments. (CR:144-49.) Wells Fargo was
not a party to the Deed of Trust to Secure Assumption. (Id.)
In 2010, either Jones or Brian Christopher fell behind on Loan payments,
and the Loan went into default. (CR:5, 341.) After receiving a notice of default in
August 2010, Jones contacted Wells Fargo to discuss loss mitigation and the
possibility of a loan modification. (CR:7.) However, after determining that Jones
was not the borrower on the Note, and had not assumed the Loan, Wells Fargo
advised her that in order to modify the Loan, she would need to either have Brian
Christopher’s consent or she would have to qualify to take over and assume all
obligations of the Loan. (CR:301.) When Jones indicated that she was not willing
3
or able to get Brian Christopher’s consent, Wells Fargo attempted to review her for
an assumption of the Loan. (Id.) However, because her debt-to-income ratio was
too high and credit score was too low, Jones did not meet the relevant underwriting
standards and, accordingly, was not eligible to assume the Loan. (Id.)
Jones filed this lawsuit in March 2011. (CR:1-13.) Although other claims
and allegations were at issue before the district court,2 there is only one issue on
appeal. Jones contends that because of the assumption agreement between her and
her ex-husband Brian Christopher, her assumption of the Note is also effective
between her and Wells Fargo. Wells Fargo, on the other hand, contends that an
assumption of debt between a borrower and a third party is not enforceable against
the lender unless and until the lender approves the assumption.
Based on their respective positions, both Jones and Wells Fargo filed
motions for partial summary judgment on Jones’s declaratory judgment claim.
(CR:68-171; CR:286-398.) The trial court granted Wells Fargo’s motion for
partial summary judgment (CR:519), and denied Jones’s motion for partial
summary judgment (CR:520). Jones filed a Notice of Appeal. (CR:527-28.) This
appeal ensued, wherein Jones asks this Court to reverse the district court’s
judgment on her declaratory judgment claim, and Wells Fargo asks the Court to
affirm the judgment.
2
Jones also asserted a claim for damages against Wells Fargo under Texas Finance Code
chapter 392. (CR:12-13.)
4
SUMMARY OF THE ARGUMENT
Texas law is clear—a debtor cannot obligate a lender to accept the debtor’s
assignment of his debt absent the lender’s agreement thereto. There are many
good reasons for this rule. For example, a lender should have the right to
determine to whom it will extend a loan, including by checking that person’s credit
and history to determine if they are qualified to receive and repay the loan. If a
borrower could take out a loan and then assign away his status to another as the
principal obligor, this would place the lender at risk of issuing a loan to someone
who is not qualified. Moreover, in a case like this one where Jones is seeking to
take over obligations on the loan with the right to make changes without the
consent of the original borrower, the lender would be placed further at risk that its
original borrower could be discharged from his obligations without the lender’s
consent.
Here, Jones and her ex-husband never obtained the lender’s consent to Jones
becoming the principal obligator on the loan. When Jones applied to become the
principal obligor on the loan, she did not qualify. Although the Deed of Trust
allowed for the possibility of an assignment by the borrower, it did not strip Wells
Fargo of its right to determine whether the assignment was appropriate under
applicable investor and lending guidelines. There is nothing in Texas law or in the
5
federal Garn-St. Germain Act that deprives Wells Fargo of its rights to determine
who is qualified to be the borrower and principal obligor on its loans.
ARGUMENT
A. Under Texas Law, Jones Had No Right to Force Wells Fargo to Accept
Her as the Principal Obligor on the Loan.
Jones is not entitled to a declaratory judgment that she assumed the Note,
because Wells Fargo has not agreed to Jones’s assumption of the Note. While an
agreement between a grantor and grantee of property for the grantee’s assumption
of the grantor’s debt may be effective as between the grantor and grantee, this does
not mean that such agreement is effective as against the lender/mortgagee.
Jones did not sign the Note. (CR:304.) Thus, as she pleaded below, Brian
Christopher “was the only party personally obligated to pay the amounts secured
by the Deed of Trust.” (CR:6.) Jones did sign the Deed of Trust (CR:319), but did
so as a non-borrowing spouse, as is required by Texas law. See TEX. FAM. CODE
§ 5.001 (providing that a spouse may not encumber the homestead without joinder
of the other spouse). Indeed, the Deed of Trust expressly provides that Jones’s
signature on the Deed of Trust makes her a “Borrower” under the contract but does
not make her personally liable on the Note:
Any Borrower who co-signs this Security Instrument but does not
execute the Note: (a) is co-signing this Security Instrument only to
mortgage, grant and convey that Borrower’s interest in the Property
under the terms of this Security Instrument; [and] (b) is not personally
obligated to pay the sums secured by this Security Instrument….
6
(CR:316.)
It is undisputed that Jones has not entered into any agreement with Wells
Fargo to assume the Loan. (CR:341.) Rather, Jones contends that her assumption
of the Loan became effective via various agreements with her ex-husband Brian
Christopher—the Divorce Decree, the Special Warranty Deed, and the Deed of
Trust to Secure Assumption. (Appellant’s Br. at 8.) While these agreements may
have created a contractual relationship between the parties (i.e. Brian Christopher
and Jones) regarding the Property and the Loan, they do not create a contractual
relationship between Jones and the non-party Wells Fargo, nor do they change the
existing contractual relationship between Brian Christopher and Wells Fargo.3
As a general rule, in the context of a note and lien, a grantee’s assumption of
a note from the original borrower does not bind the lender if “it did not consent to
the assumption of the note or take any action to recognize [the grantee] as the
primary debtor.” La-Rey, Inc. v. Kowalski, 433 S.W.2d 530, 533 (Tex. Civ.
App.—San Antonio 1968, no writ). This is a longstanding rule in Texas law, as
the Texas Supreme Court observed decades ago:
3
In her Appellant’s Brief, Jones periodically references the vicious act of domestic violence
perpetrated against her by Brian Christopher, as well as his subsequent behavior regarding
the Loan, including his changing mortgage account contact information and online
passwords. (Appellant’s Br. at 2-3, 8.) Wells Fargo should not be held responsible for the
unsavory acts of Jones’s ex-husband. In fact, Jones sought an injunction from the divorce
court for the relief she seeks in this case—and against the proper party, Brian Christopher.
(CR:391.) But the district court denied Jones’s application for a permanent injunction.
(CR:396.)
7
It is also well settled that contracts by one capable of contracting may
be made by assumption, when such assumption is a consideration for
the purchase of property. An assumption of this kind, when accepted
by the payee of the obligation assumed, or the mortgagee, becomes a
contract under which the one making the assumption becomes the
principal obligor and the original maker the surety.
Strauss v. Brooks, 148 S.W.2d 393, 396 (Tex. 1941) (emphasis added). The
Austin Court of Civil Appeals earlier reached this same holding.
In the instant case when Augusta Helge reconveyed said lands to E. V.
Helge in January, 1928, who assumed the payment of the debt sued
upon, as between them, E. V. Helge then became primarily liable
thereon. But the holder of said indebtedness was not required to
accept the new obligor unless it chose to do so.
Helge v. Am. Cent. Life Ins. Co., 124 S.W.2d 191, 193 (Tex. Civ. App.—Austin
1938, writ dism’d judgm’t cor.) (emphasis added). Texas federal courts also
follow this rule.
In Texas, as generally elsewhere, the purchaser of property
incumbered by a mortgage who assumes to pay the mortgage as part
of the consideration of his purchase, as between himself and his
vendor becomes the principal debtor and the vendor his surety; and
the mortgagee may recognize and enforce the transaction for his own
benefit.
Pinckney v. Wylie, 86 F.2d 541, 542 (5th Cir. 1936) (citations omitted and
emphasis added).
The same conclusion was reached in Shockey v. Page, 354 S.W.2d 698 (Tex.
Civ. App.—Eastland 1962, writ ref’d n.r.e.), in which defendants Rice and
Shockey had executed a note and deed of trust, and two years later Rice and
8
Shockey conveyed the underlying property to Moore, “who assumed payment of
the unpaid balance of the note.” Id. at 699. According to the Court:
It is undisputed that Moore assumed payment of the balance due on
the note. Upon the assumption by Moore, however, Rice and Shockey
did not thereby become mere sureties and they were not released from
liability as principal obligors. There was no unconditional acceptance
of Moore as the sole principal obligor by the holder of the
indebtedness nor was there any agreement to release the original
obligors.
Id. at 700 (emphasis added).
In short, the lender has no obligation to deem the purchaser of the secured
property, who assumes the debt as between himself and the original borrower, to
be the principal obligor on the debt unless and until the lender agrees to the
assumption. See Cain v. Bank United of Tex., No. 14-95-00601-CV, 1997 WL
428054, at *9 (Tex. App.—Houston [14th Dist.] July 31, 1997, pet. denied)
(“Because Bank United [the lender] accepted Nupro’s [the property buyer]
agreement to assume the debt, Nupro became the party primarily liable to pay the
mortgage.”); Monroe v. Salter, No. 05-94-01560-CV, 1995 WL 447549, at *5
(Tex. App.—Dallas July 27, 1995, no writ) (holding that transfer of property did
not cause plaintiffs to become “unwilling lender” to transferees because “an
assumption can only take place if the holder of the note accepts or agrees to such
an assumption”). The fact that an agreement between a grantor and grantee of
property for the grantee’s assumption of the grantor’s debt is effective as between
9
the grantor and grantee does not establish that such agreement is also effective as
against the lender/mortgagee. 4 See Thompson v. Tropical Sav. & Loan Ass’n, 430
S.W.2d 426, 428-29 (Tex. Civ. App.—San Antonio 1968, writ ref’d n.r.e.)
(holding that principal debtor was unchanged when “assumption was never
accepted or agreed to by the holder of the note”).
In her Appellant’s Brief, Jones cites two Texas Supreme Court cases that
discuss a third party’s assumption of a borrower’s debt. (Appellant’s Br. at 8-9.)
However, neither case repudiates or even addresses the lender’s right not to accept
the third party’s assumption of debt. In Spann, while the lender was not a party to
the contract of assumption between the original debtor and the assuming third
party, the lender was entitled to accept such assumption, as such contract “gives to
the creditor a cause of action on which he may sue and recover from the person
who has so contracted to pay him a debt originally due only by the person to whom
the promise is made.” Spann v. Ewing, 63 Tex. 240, 242 (1885). Likewise, in
Brannin, the Court’s consideration of a third party’s assumption of debt arose in
the context of the lender’s assignee suing the third party on the debt. See Brannin
v. Richardson, 185 S.W. 562, 563-64 (Tex. 1916). Neither of these cases
4
For this reason, the cases cited by Jones involving an assignment of debt in the context of
divorce are not relevant to the lender’s ability to refuse to accept such assignment.
(Appellant’s Br. at 11-12.) In both cases, the lender was not a party to the lawsuit, and
whether the assignment was effective against the lender was not at issue. See Puntarelli v.
Peterson, 405 S.W.3d 131, 135-37 (Tex. App.—Houston [1st Dist.] 2013, no pet.); Siefkas v.
Siefkas, 902 S.W.2d 72, 76 (Tex. App.—El Paso 1995, no writ).
10
contradicts the lender’s right to refuse to accept an assumption of the debt. In both
cases, the lender was seeking to enforce the assumption, and thus there was no
reason for the Court to question whether the lender had, in fact, accepted such
assumption. Accordingly, while Spann and Brannin may be relevant as to whether
Wells Fargo had the right to accept the assumption agreement between Jones and
Brian Christopher (Wells Fargo has such right), neither case is relevant as to
whether Wells Fargo has the obligation to accept such agreement. Texas case law
consistently shows that there is no such obligation.
Wells Fargo does not dispute that, as between Jones and her ex-husband,
Jones assumed the Note pursuant to the Divorce Decree, the Special Warranty
Deed, and the Deed of Trust to Secure Assumption. But unless and until Wells
Fargo approves the assumption, Jones cannot require Wells Fargo to provide her
any rights that belong only to the principal obligor of the debt, Brian Christopher. 5
B. The Deed of Trust Does Not Compel Wells Fargo to Approve an
Assumption.
Jones argues that the general rule in Texas that the lender is not obligated to
accept a borrower’s assumption agreement is somehow altered in this case by the
language of the Deed of Trust. (Appellant’s Br. at 10-13.) The Deed of Trust in
this case does not support Jones’s argument.
5
This status is not without benefit to Jones. While as the Property owner she may have the
option to redeem the lien on the Property, she is also free to walk away from the Note
without any personal liability to the lender for it, if she chooses to do so.
11
The provision of the Deed of Trust at issue is in Paragraph 12, which states:
“The covenants and agreements of this Security Instrument shall bind and benefit
the successors and assigns of Lender and Borrower….” (CR:316.) While this
provision contemplates that the Borrower may have a successor or assign, it does
not govern how a successor or assign arises. Wells Fargo does not dispute that the
Deed of Trust is assignable as a general matter; however, Wells Fargo’s consent
remains a prerequisite to an assignment by the Borrower. No provision of the
Deed of Trust provides that Brian Christopher could assign the Deed of Trust
without Wells Fargo’s agreement. By its plain language, the only principle that
arises from the Paragraph 12 provision is that if the Borrower’s rights are assigned,
the Deed of Trust’s covenants and agreements shall bind and benefit the
Borrower’s assignee. There is no express or implied modification of the general
rules regarding how a borrower’s rights can be assigned.
In fact, Jones’s argument has been foreclosed by this Court’s opinion in In
re FH Partners, L.L.C., 335 S.W.3d 752 (Tex. App.—Austin 2011, orig.
proceeding). In that case, the borrowers argued that their consent was required in
order for the lender to assign the loan to the plaintiff. See id. at 761. This Court
disagreed, explaining that the assignment by a lender is subject to the
“longstanding rule in Texas that the right to collect a debt … is generally
assignable.” Id.12
This Court further observed that there is a “long-recognized exception”
when a contract relies on the credit of the parties. In such a case, the general
policy of free assignment yields to a contracting person’s interest to require
performance only by a specific person. Id. at 762. As the Court explained:
Texas courts have long held that a debtor cannot assign an extension
of credit or delegate its duty to pay a creditor without the creditor’s
consent. This reflects a view that a creditor’s agreement to extend
credit inherently contemplates a specific debtor and that the creditor
should not be effectively forced to extend credit to a different debtor
without the creditor’s consent.
Id. at 763 (citations omitted). The borrowers in FH Partners then argued that the
same rule applicable to an assignment by a borrower should apply equally to an
assignment by lender. See id. at 763-64. This Court flatly disagreed. According
to this Court, neither the “personal trust or credit” exception nor its rationale
extends to a creditor’s assignment of its right to receive payment from a debtor. Id.
at 764. This distinction does not turn on a particular party’s trust or reliance, but
on the type of rights conveyed. Id. at 765. The right to collect a debt is
“quintessentially among the types of rights that Texas law deems freely
assignable.” Id. at 766. The obligation to pay a debt, on the other hand, clearly
falls within the “personal trust or credit” exception to the rule of free assignability.
Id. at 762-63.
In short, a lender need not obtain the borrower’s consent to assign its rights
and obligations, but the borrower must obtain the lender’s consent to assign his
13
rights and obligations. Therefore, absent language to the contrary in the Deed of
Trust, Brian Christopher could not assign his debt to Jones without Wells Fargo’s
consent. Paragraph 12 of the Deed of Trust contemplates that a borrower’s
assignee may exist, but does not contemplate that Wells Fargo’s consent is
unnecessary in order for such assignment to take place. The Deed of Trust is silent
regarding whether consent is necessary for either party to assign the debt. Thus,
the common law rule is unaltered: Wells Fargo’s consent is necessary.
None of the cases relied on by Jones contradicts this straightforward
application of FH Partners. In Zale Corp. v. Decorama, Inc., 470 S.W.2d 406(Tex. Civ. App.—Waco 1971, writ ref’d n.r.e.), one contract at issue specified that
“Tenant may without consent of the Landlord assign this lease,” thereby enabling
the Court to hold that the landlord’s consent was not required for the tenant to
assign his rights under the second contract executed contemporaneously. Id. at
408-09. Unlike in Zale Corp., there is no contract provision in this case removing
the requirement of lender consent for the borrower to assign any rights or
obligations.
In Romund v. Ginzel, 259 S.W.2d 619 (Tex. Civ. App.—Waco 1953, no
writ), the Court concluded that under the specific circumstances of the case the
“personal trust or credit” exception did not apply. Id. at 621. Unlike in Romund,
this case involves an existing debt and attempted transfer of that debt by the
14
borrower, and thus it cannot be reasonably contended that the “personal trust or
credit” exception is inapplicable.
In Cronin v. Wells Fargo Bank, N.A., No. 03-12-00799-CV, 2014 WL
2918006 (Tex App.—Austin June 19, 2014, no pet.) (mem. op.), this Court held
that the deed of trust provision that its covenants and agreements “bind and benefit
the successors and assigns” unambiguously expressed the parties’ intent to allow
the original lender to assign the deed of trust. See id. at *7. Jones extrapolates
from Cronin’s holding that the same rule should apply to a borrower, but in doing
so, Jones ignores the clear distinction—explained and applied by this Court in FH
Partners—between a lender’s and a borrower’s authority to assign a loan.
(Appellant’s Br. at 10-11.) Because a lender can assign its rights without borrower
consent, the provision in the deed of trust indicating that assignment may occur,
while confirming that assignment is possible, did nothing to change the status quo
that consent was unnecessary. In the same way, because a borrower cannot assign
its rights without lender consent, a provision in the deed of trust indicating that
assignment may occur, while confirming that assignment is possible, does nothing
to change the status quo that consent is necessary. This Court in Cronin did not
address this latter circumstance, and its analysis in Cronin should not be
interpreted to upset the clear distinction outlined in FH Partners.
15
Appellant lastly cites Howell v. Murray Mortgage Co., 890 S.W.2d 78 (Tex.
App.—Amarillo 1994, writ denied), for the proposition that a successor to the
borrower obtains the benefits of the borrower under the deed of trust. As an initial
matter, Howell deals with the deceased borrower’s estate. Whether a borrower’s
estate qualifies as the borrower’s “successor” has no evident bearing on Jones’s
status. See, e.g., DTND Sierra Invs. LLC v. CitiMortgage, Inc., No. SA-12-CV-80-
XR, 2012 WL 1711738, at *10 (W.D. Tex. May 15, 2012) (“[A] purchaser in a
sale without credit approval would not appear to be a successor bound by or
entitled to the benefits of the Deed of Trust.”). This lawsuit does not involve an
estate or the administrator of an estate, and there is no legal basis for Jones to
qualify as Brian Christopher’s “successor.”
Moreover, even if Jones could be deemed a “successor” of her ex-husband
Brian Christopher, it does not follow that Jones has assumed the Note and become
the principal obligor. See, e.g., Preston v. Seterus, 931 F. Supp. 743, 759 n.8 (N.D.
Tex. 2013) (quoting deed of trust language that party who is successor to borrower
need not have assumed debt). 6 This distinction is evident in the very opinion cited
by Jones. In Howell, where the deed of trust provided that its covenants and
6
See also Ashby v. Wells Fargo Bank, N.A., No. 12-803, 2012 WL 1833932, at *2 (S.D. Tex.
May 18, 2012) (“Plaintiff is not the borrower. He is not a party to the Promissory Note or the
Deed of Trust. Although Plaintiff alleges that he inherited the property when his parents
died, there is no allegation or evidence that he requested or obtained Wells Fargo’s written
consent to assume the loan or that he has been substituted in Wells Fargo’s records as a party
to the Promissory Note or Deed of Trust.”).
16
agreements inured to the borrower’s successors, even though the Court concluded
that the estate was successor to the borrower, the Court’s conclusion did not impair
the rule “that the debt would not be assumable without the lender’s consent.” See
Howell, 890 S.W.2d at 83-84 (emphasis added). Specifically, the Court noted that
while a probate court could order a sale of property subject to indebtedness, the
probate code “does not empower the court to require a creditor to make a loan,
extend a loan or make a loan assumable.” Id. at 81. In the same way, while the
divorce court could order the transfer of the Property to Jones subject to the Loan,
the divorce court could not—and did not—require Wells Fargo to consent to an
assignment or assumption of the Loan.
Jones is a “Borrower” under the Deed of Trust as a signatory thereof, but her
rights and obligations are limited (as shown in Paragraph 12) because she did not
also sign the Note and thereby become a principal obligor. Under Texas law,
absent contractual language to the contrary, a principal-obligor status cannot be
assigned to or assumed by another “Borrower” without the lender’s consent. The
Deed of Trust contains no contractual language that would modify this rule.
C. Wells Fargo’s Right to Accept or Reject an Assumption of the Debt By
Jones Is Not Impaired by the Federal Garn-St. Germain Act.
Jones also claims that Wells Fargo’s right to decline to accept Jones’s
assumption of the debt is preempted by the Garn-St. Germain Depository
17
Institutions Act of 1982. (Appellant’s Br. at 13-14.) The plain language of the
Garn-St. Germain Act shows otherwise.
Under the Garn-St. Germain Act, a lender cannot exercise a deed of trust’s
due-on-sale clause (i.e. accelerate the debt) as a result of the transfer by divorce
decree of “any part of the property, or an interest therein, securing the real property
loan.” See 12 U.S.C. § 1701j-3(a)(1), (d)(7). But that undisputedly has not
occurred here. Any attempt to accelerate the Loan by Wells Fargo would be due to
the default on the Loan starting in 2010, not the transfer of the Property back when
Jones got divorced in 2005.7 See Smith v. Green Tree Servicing, LLC, No. C13-
1573RSL, 2014 WL 1319821, at *2 (W.D. Wash. Mar. 28, 2014) (holding that
Garn St. Germain Act did not apply when borrower’s spouse obtained property
through divorce and five years later defaulted by non-payment).
This provision of the Garn-St. Germain Act restricts the lender’s right to
accelerate the debt. But no provision of the Act restricts the lender’s right to reject
an assumption of the debt. In fact, the Garn-St. Germain Act expressly references
assumption, but only to state that “a lender is encouraged to permit an assumption
7
In fact, when the property transfer occurred in 2005, Wells Fargo alerted Jones that the debt
would be accelerated as a result of the property transfer with Wells Fargo’s consent.
(CR:150.) However, Jones informed Wells Fargo that the property transfer was in
accordance with a divorce decree. (CR:151.) Wells Fargo, then, in compliance with the
Garn-St. Germain Act, withdrew its intent to accelerate. (CR:300.) Interestingly, Wells
Fargo’s 2005 letter also explained to Jones at that time that no assumption had taken place,
and any assumption of the debt would require satisfaction of “investor guidelines for a credit
qualifying assumption.” (CR:150.)
18
of a real property loan.” See 12 U.S.C. § 1701j-3(b)(3). Encouraging a lender to
agree to an assumption simply does not equate to prohibiting a lender from
rejecting an assumption. Thus, by its plain language, the Garn-St. Germain Act
does not limit in any way the lender’s discretion regarding whether to accept a
third party’s assumption of the debt from the borrower.
In order to equate the rejection of an assumption of debt with the
acceleration of the debt, Jones relies not on the plain language of the statute or any
Texas legal authority, but on a single Florida federal bankruptcy case. In In re
Jordan, 199 B.R. 68 (Bankr. S.D. Fla. 1996), a Florida bankruptcy court judge
compelled a lender to approve a property transferee’s assumption of debt. In that
case, the borrower had defaulted, the lender accelerated the debt and obtained a
final judgment of foreclosure, and the borrower filed for bankruptcy but had her
case dismissed with prejudice. Id. at 69. Undaunted, the borrower transferred a
half interest in her property to her son, and the son filed for chapter 13 bankruptcy.
See id. The Florida bankruptcy judge proceeded to hold not only that the mother’s
mortgage default would be cured by the court’s bankruptcy plan, but also that the
lender was compelled to accept the son’s assumption of the mortgage. See id. at
69-70.
The analysis employed by the judge to reach his conclusion is not
persuasive. First, the judge cited federal bankruptcy case law to the effect that a
19
mortgagee’s lien is a “claim” against the property owner under the bankruptcy
code. Id. at 69. However, these cases do not support the stripping of a lender’s
right to reject an assumption, because the bankruptcy code does not require an
assumption of the underlying debt for a lien on the debtor’s property to be a
“claim.” See In re Cady, 440 B.R. 16, 22 (N.D.N.Y. 2010) (despite the fact that
“the debtor never formally assumed the mortgage,” for purposes of “claim” under
bankruptcy code “it is sufficient that a debtor owns property against which a
creditor holds a lien”); In re Lumpkin, 144 B.R. 240, 241-42 (Bankr. D. Conn.
1992) (finding loan to be “claim” under bankruptcy code despite debtor “not being
the maker of the mortgage note and not having assumed the mortgage”). Whether
the Deed of Trust could be a “claim” under the bankruptcy code is irrelevant to
Wells Fargo’s ability to accept or reject Jones’s attempted assumption of the
underlying debt.
Second, the judge in Jordan cited two Florida Supreme Court cases for the
proposition that a grantee who purchases mortgaged land from the mortgagor and
assumes and agrees to pay the mortgage becomes the principal debtor and the
original mortgagor a surety. Id. at 70 (citing Marler v. Parker, 135 So. 400 (Fla.
1931), and Proctor v. Hearne, 131 So. 173 (Fla. 1930)). Neither case overturns the
lender’s right to reject an assumption of debt. On the contrary, both cases agree
with Texas law that an assumption of debt is not enforceable against the lender
20
until the lender approves the assumption. The Florida Supreme Court stated the
following in the Marler case:
It would seem to be also conceded that the relation of each of said
successive persons agreeing with their immediate grantors to assume
and pay said mortgage became, by virtue of said agreements, that of
principal debtors thereon upon said mortgagee’s acceptance of the
benefit derivable to it by their said several agreements.
Marler, 135 So. at 401 (emphasis added). The Florida Supreme Court was equally
explicit in the Proctor case:
For one reason or another, the courts are gradually uniting upon the
doctrine, which we here adopt, that the relation of principal and surety
between the mortgagor and his grantee, created in the manner above
stated, does not in and of itself involve the mortgagee in its legal
effects. His rights remain unchanged, unless by his voluntary
agreement, or by his dealings with the grantee, the mortgagee in effect
accepts the grantee alone as the principal debtor or estops himself to
further assert a personal liability against the mortgagor.
Proctor, 131 So. at 176. Thus, neither the bankruptcy code nor Florida law
supported the bankruptcy judge’s ultimate conclusion that the lender could not
withhold consent to the son’s assumption of his mother’s debt.
To reach such conclusion, then, the judge in Jordan relied solely on the
Garn-St. Germain Act. Certainly such Act prevents a lender from enforcing a
“due-on-sale clause” due to the transfer of property to the borrower’s spouse or
children. However, the judge did not—and could not—cite to any legal authority
for his bare conclusion that a lender’s right to reject an assumption “should be
21
equated with a due on sale clause.” Jordan, 199 B.R. at 70. The judge relied on
neither the plain language of the federal statute nor any state or federal case law.
The Garn-St. Germain Act expressly defines a “due-on-sale clause” as “a
contract provision which authorizes a lender, at its option, to declare due and
payable sums secured by the lender’s security instrument if all or any part of the
property, or an interest therein, securing the real property loan is sold or transferred
without the lender’s prior written consent.” 12 U.S.C. § 1701j-3(a)(1). And yet a
lender’s right to accelerate the debt upon a transfer of the property is hardly
comparable to a lender’s right to choose its borrower. The former involves the
transfer of secured property; the latter involves the transfer of debt. The former
concerns only the lender’s immediate rights; the latter impacts the life of the loan.
The former prohibits action by the lender (acceleration of the debt); the latter
compels action by the lender (acceptance of the assumption). Applying the
statute’s actual language maintains the status quo (the lender cannot accelerate the
debt); applying the bankruptcy judge’s conclusion disrupts the status quo (a new
debtor is forced upon the lender). Accordingly, the fact that, upon the sale of the
property, a secured lender is prohibited from accelerating the debt does not—and
should not—also mean the lender is required to accept the purchaser’s assumption
of the debt. See 12 U.S.C. § 1701j-3(a)(1), (d)(7).
22
This Court should not follow the unprecedented, unsupported conclusion of
the Florida bankruptcy judge in Jordan. No other court has made the same
extension of law. See, e.g., Wilson v. Bank of Am., N.A., No. 14-2498, 2014 WL
4744555, at *8 (E.D. Pa. Sept. 24, 2014) (deeming the Garn-St. Germain Act to be
“irrelevant” as to whether the transferee of real property has assumed the mortgage
pursuant to the lender’s credit standards); In re Henderson, No. 04-B-75636, 2005
Bankr. LEXIS 1474, at *10 (Bankr. N.D. Ill. May 17, 2005) (holding that Garn St.
Germain Act did not modify creditor’s rights with respect to debtor who was not
party to mortgage). Certainly no Texas federal or state court has ever reached the
same conclusion. At best, the Florida bankruptcy judge’s discussion of the Garn-
St. Germain Act was dicta, since the judge could have confirmed the bankruptcy
plan based on the lien being a “claim” and no assumption being a requirement for
such purpose. 8 This Court, therefore, should follow the plain language of the Act,
which prohibits acceleration in certain circumstances not applicable here and,
regarding assumption of debt, states only that the lender’s agreement thereto is
“encouraged.”
8
It is also possible that the judge in Jordan simply misunderstood what was at issue. A deed
of trust often states, as in this case, that “approval of the Secretary” is required for
acceleration of debt upon a transfer of the property when the transferee’s credit has not been
approved pursuant to “the requirements of the Secretary.” (CR:316.) The bankruptcy judge
appeared to equate—and unnecessarily so—the Secretary’s involvement with acceleration of
debt upon property transfer (which can implicate the Garn-St. Germain Act) with the
Secretary’s involvement with credit review for purposes of assumption of debt (which does
not implicate the Garn-St. Germain Act). See Jordan, 199 B.R. at 70.
23
The Garn St. Germain Act does not require Wells Fargo to agree to Jones’s
assumption of the Loan. Absent any legal authority that would require Wells
Fargo to agree to Jones’s assumption of the debt, then, Jones cannot obtain a
declaration from the Court compelling Wells Fargo to accept or agree to Jones’s
assumption of the debt.
CONCLUSION AND PRAYER
As demonstrated, Texas law is clear that an assumption of debt is not valid
as against the lender until the lender accepts or agrees to the assumption. Neither
the language of the deed of trust in this case nor the provisions of the Garn St.
Germain Act create an exception to this rule. Thus, Wells Fargo is not bound by—
nor compelled to accept or consent to—Jones’s agreement with Brian Christopher
for the assignment or assumption of the debt owed to Wells Fargo. The district
court correctly found that Jones is not entitled to a declaration against Wells Fargo
that she assumed the Note, she is the principal debtor, and/or she may enter into an
agreement to modify the amortization terms of the Note without Brian
Christopher’s signature. The district court’s judgment in favor of Wells Fargo
should be affirmed.
24
Respectfully submitted,
LOCKE LORD LLP
By: /s/ W. Scott Hastings
B. David L. Foster
dfoster@lockelord.com
State Bar No. 24031555
600 Congress Avenue, Suite 2200
Austin, Texas 78701
Telephone: (512) 305-4700
Facsimile: (512) 305-4800
W. Scott Hastings
shastings@lockelord.com
State Bar No. 24002241
Robert T. Mowrey
rmowrey@lockelord.com
State Bar No. 14607500
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201
Telephone: (214) 740-8000
Facsimile: (214) 740-8800
Counsel for Appellee Wells Fargo Bank, N.A.
25
CERTIFICATE OF COMPLIANCE
Pursuant to Texas Rule of Appellate Procedure 9.4(i)(3), the undersigned
certifies that this Brief complies with the length limitations of Rule 9.4(i) and the
typeface requirements of Rule 9.4(e).
1. Exclusive of the contents excluded by Rule 9.4(i)(1), this Brief
contains 6,311 words as counted by the Word Count function (including textboxes,
footnotes, and endnotes) of Microsoft Office Word 2010.
2. This Brief has been prepared in proportionally spaced typeface using:
Software Name and Version: Microsoft Office Word 2010
Typeface Name: Times New Roman
Font Size: 14 point
/s/ W. Scott Hastings
W. Scott Hastings
CERTIFICATE OF SERVICE
I hereby certify that on January 26, 2015, a true and correct copy of this
Brief is served by e-service through efile.txcourts.gov on Appellant through her
counsel of record listed below:
Doug W. Ray
Ray & Wood
2700 Bee Caves Road
Austin, Texas 78746
/s/ W. Scott Hastings
W. Scott Hastings
26