Reinagel v. Deutsche Bank Nat'l Trust Co.

• Decision Date: 29 October 2013
• Docket Number: No. 12–50569.,12–50569.
• Citation: 735 F.3d 220
• Parties: Joseph A. REINAGEL, Jr.; Dia J. Reinagel, Plaintiffs–Appellants v. DEUTSCHE BANK NATIONAL TRUST COMPANY, Defendant–Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

735 F.3d 220

Joseph A. REINAGEL, Jr.; Dia J. Reinagel, Plaintiffs–Appellants

v.DEUTSCHE BANK NATIONAL TRUST COMPANY, Defendant–Appellee.

No. 12–50569.

United States Court of Appeals,Fifth Circuit.

Oct. 29, 2013.

Christopher J. Deeves, Esq., Kenneth Ernest Grubbs, San Antonio, TX, for Plaintiffs–Appellants.

William Scott Hastings, Esq., Robert Thompson Mowrey, Dallas, TX, Benjamin David Lee Foster, Esq., Austin, TX, for Defendant–Appellee.

Appeal from the United States District Court for the Western District of Texas.

Before HIGGINBOTHAM, OWEN, and GRAVES, Circuit Judges.

ON PETITION FOR REHEARING

PATRICK E. HIGGINBOTHAM, Circuit Judge:

Treating Appellants' Petition for Rehearing En Banc as a Petition for Panel Rehearing, the Petition for Panel Rehearing is DENIED, but we amend the prior opinion, 722 F.3d 700 (5th Cir.2013), solely to add footnote 30. As amended, the opinion is as follows:

In this case, mortgagors who defaulted on their note seek to enjoin a bank from foreclosing, contending that the assignments by which the bank obtained the note and corresponding deed of trust were “robo-signed” and therefore invalid. The district court granted the bank's motion to dismiss. We affirm.

I.

In February 2004, Dia and Joseph Reinagel, the appellants, purchased a property in Helotes, Texas for $307,840, obtaining the necessary financing from a mortgage lender not party to this appeal. In May 2006, the Reinagels refinanced, obtaining a $360,000 home-equity loan from Argent Mortage Company, LLC (“Argent”) in exchange for a promissory note as well as a deed of trust securing the note.¹ Argent apparently sold the Reinagels' loan to Deutsche Bank National Trust Company (“Deutsche Bank”), the appellee, shortly after origination, at which point Deutsche Bank pooled it with other mortgage loans in a securitization transaction and sold the resulting mortgage-backed securities to investors. As alleged in the amended complaint, the Pooling and Servicing Agreement (“PSA”) that governed the trust in which Deutsche Bank, as trustee, held the mortgage loans provided that no loans could be transferred into the trust after October 1, 2006.

Notwithstanding the PSA's closing date, neither Argent nor Deutsche Bank formally documented the sale of the Reinagels' loan until January 23, 2008, a date that roughly coincides with the zenith of the subprime mortgage crisis. ² On that date, a Ms. Dawn L. Reynolds, purporting to act as the “authorized agent” of “Citi Residential Lending, Inc...., [a]ttorney-in-[f]act for Argent,” executed an instrument assigning the deed of trust “to Deutsche Bank ..., as Trustee, in trust for the registered Holders of Argent Securities Inc., Asset–Backed Pass–Through Certificates, Series 2006–M1.” Ms. Reynolds acknowledged her signature before a California notary and the instrument was filed and recorded in Bexar County on January 30, 2008. The instrument does not reference the promissory note secured by the deed of trust.

On February 13, 2009, more than a year after the initial assignment, a Mr. Brian Bly executed a second instrument assigning the deed of trust to Deutsche Bank, purporting to act in his capacity as “Vice President” of “Citi Residential Lending, Inc., ... attorney-in-fact for Argent.” Unlike the first assignment, however, the second instrument also expressly transferred “the certain note(s) described [in the deed of trust] together with all interest secured thereby, all liens, and any rights due or to become due thereon.” Mr. Bly acknowledged his signature before a Florida notary and the instrument was e-filed and e-recorded in Bexar County on February 17, 2009.

At some point in 2009 or early 2010, the Reinagels defaulted on the note, and in April 2010, Deutsche Bank sought a judicial order authorizing foreclosure. Deutsche Bank asserted that it was a “mortgagee” under Texas Property Code § 51.0001(4) and therefore had the right to foreclose on the Reinagel's property. Under § 51.0001(4), a mortgagee can be (1) “the grantee, beneficiary, owner, or holder of a [deed of trust],” or (2) “if the [deed of trust] has been assigned of record, the last person to whom the [deed of trust] has been assigned of record.” ³ Deutsche Bank claimed that it qualified as a mortgagee on either wing, as the 2008 and 2009 assignments rendered it owner and holder, as well as assignee of record, of the deed of trust. The state court apparently agreed, granting the order.

In October 2011, the Reinagels filed suit in Texas state court to temporarily enjoin the foreclosure and obtain a declaratory judgment that Deutsche Bank lacked standing to foreclose. The Reinagels claimed that the 2008 and 2009 assignments were both “robo-signed” and therefore void. “Robo-signing” is the colloquial term the media, politicians, and consumer advocates have used to describe an array of questionable practices banks deployed to perfect their right to foreclose in the wake of the subprime mortgage crisis, practices that included having bank employees or third-party contractors: (1) execute and acknowledge transfer documents in large quantities within a short period of time, often without the purported assignor's authorization and outside of the presence of the notary certifying the acknowledgment,⁴ and (2) swear out affidavits confirming the existence of missing pieces of loan documentation, without personalknowledge and often outside of the presence of the notary.⁵

The state court granted the Reinagels' request for a temporary injunction, setting trial for June 4, 2012. On November 21, 2011, Deutsche Bank removed the Reinagels' suit to the Western District of Texas, invoking diversity. In their amended complaint, the Reinagels elaborated on their allegations of “robo-signing,” claiming that the January 2008 assignment was void because Ms. Reynolds “appears to be an employee of Citi Residential Lending[,] [Inc.] and not Argent,” and that the February 2009 assignment was void because Mr. Bly purported to execute it as “Vice President of Citi ... as attorney in fact for Argent” when he in fact worked for a third-party contractor, Nationwide Title Clearing. The Reinagels also asserted that the second assignment was void as a forgery, as “Mr. Bly's own deposition testimony taken in another case indicates that his signature was simply ‘scanned’ onto documents and then notarized as an original and recorded.” Finally, the Reinagels claimed, both assignments were void as violating the PSA, which specified that no mortgage could be transferred into Deutsche Bank's pooling trust after October 1, 2006.

Deutsche Bank moved to dismiss the Reinagels' amended complaint, urging that the Reinagels lacked standing to challenge the validity of the 2008 and 2009 assignments because they were not parties to those agreements. In the alternative, Deutsche Bank argued that “ ‘robo-signing’ claims are not applicable to assignments,” because “an assignment is a contract, and is distinguishable from an affidavit, which is the document typically challenged in connection with ‘robo-signing’ allegations.” Finally, though Deutsche Bank did not dispute that the assignments violated the PSA, it argued that the Reinagels lacked standing to enforce that agreement.

The district court granted Deutsche Bank's motion. Though the court “disagree[d] with [Deutsche Bank's] argument that the invalidity of the assignments would have no impact on its ability to foreclose,” it concluded that “[the Reinagels'] allegations of invalidity fail as a matter of law.” First, the court reasoned, the Reinagels pointed to “no case that has invalidated an assignment because it was robo-signed.” Second, the court observed, “[the Reinagels] cite no authority for the proposition that the violations of the PSA make the assignment invalid, and due to th[eir] lack of standing, they cannot assert [a] claim for breach of the PSA itself.” The Reinagels appeal.

II.

The first issue on appeal is whether the Reinagels have standing to challenge the validity of the transactions by which Argent, the loan originator, purportedly assigned the deed of trust and corresponding promissory note to Deutsche Bank. Deutsche Bank urges that “the law is well settled that a stranger to a contract lacks standing to challenge [that] contract,” and that “[n]umerous federal district courts have recognized that plaintiffs lack standing to challenge the assignment of security instruments in cases similar to the present.” The Reinagels rejoin that “Texas state and federal courts routinely allow a homeowner to challenge the chain of assignments by which a party claims a right to foreclose,” dismissing the cases relied upon by Deutsche Bank as incorrectly decided.

We agree with the Reinagels. To be sure, Texas courts have held that a non-party to a contract cannot enforce the contract unless she is an intended third-party beneficiary,⁶ occasionally couching this principle in terms of “standing.” ⁷ Here, however, the Reinagels are not attempting to enforce the terms of the instruments of assignment; to the contrary, they urge that the assignments are void ab initio. Though “the law is settled” in Texas that an obligor cannot defend against an assignee's efforts to enforce the obligation on a ground that merely renders the assignment voidable at the election of the assignor, Texas courts follow the majority rule that the obligor may defend “on any ground which renders the assignment void.” ⁸ A contrary rule would lead to the odd result that Deutsche Bank could foreclose on the Reinagels' property though it is not a valid party to the deed of trust or promissory note, which, by Deutsche Bank's reasoning, should mean that it lacks “standing” to foreclose.

III.

The next question is whether the Reinagels' allegations, taken as true, establish that Deutsche Bank lacks authority to foreclose under the deed of trust. To answer this question, we begin by examining whether the first assignment is itself sufficient to convey...