Homeowners' Standing To Challenge Chain Of Title To Mortgage Being Foreclosed: Void vs. Voidable Mortgage Assignments

In a 2013 court ruling (Reinagel v. Deutsche Bank Nat'l Trust Co., 735 F.3d 220 (5th Cir. 2013)) involving a homeowner's challenge of the chain of title to a mortgage being foreclosed that allegedly involved robosigned assignments of mortgage, the 5th Circuit Court of Appeals ruled that, given the facts of the case, the homeowner lacked standing to challenge the assignments. The court applied the rule that one cannot challenge the validity of a contract to which it is neither a party nor a third-party beneficiary.

It should be noted (and emphasized), however, that (notwithstanding the propaganda put out by the banksters and their attorneys(1)) the court also reaffirmed the principle that there is an exception to this rule (regrettably for the homeowners in this case, an exception that the court, for the reasons set forth in its ruling, was unpersuaded was applicable to the particular facts of this case).

The exception the court reaffirmed (and one that has been recognized by other courts) was one where the homeowner alleges and proves that the assignment(s) of mortgage was(were) absolutely void (ie. void ab initio, void from inception, invalid, ineffective, a nullity, etc.), and not merely voidable (ie. an instrument that, while defective, is not so fatally defective as to make it invalid, and therefore is nevertheless binding on the parties to the assignment until challenged by the injured assignor or assignee, and set aside by the court).

The appeals court made this point in the following excerpt of its opinion ("The Reinagles" are the homeowners making the challenge):

• 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.

They cited the following authority for its basis for this exception in footnote 8 of its opinion:

• Tri-Cities Const., Inc. v. Am. Nat. Ins. Co., 523 S.W.2d 426, 430 (Tex. Civ. App. 1975) (citing Glass v. Carpenter, 330 S.W.2d 530, 537 (Tex. Civ. App. 1959)); see also, e.g., 6A C.J.S. ASSIGNMENTS § 132 (2013) ("A debtor may, generally, assert against an assignee ..., any matters rendering the assignment absolutely invalid ..., such as[] the nonassignability of the right attempted to be assigned, or a prior revocation of the assignment."); Murphy v. Aurora Loan Servs., LLC, 699 F.3d 1027, 1033 (8th Cir.2012) (recognizing that mortgagors can defend against foreclosure by establishing a fatal defect in the purported mortgagee's chain of title).

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Lest one believe the type of propaganda put out by the banksters and their lawyers that there is a growing chorus of courts throughout the country holding that homeowners can't challenge mortgage assignments,(2) it is important to emphasize that, at best, such propaganda constitutes:

• an overemphasis of the general rule that states a stranger or a non-third-party beneficiary to a contract (ie. the mortgage assignment) cannot challenge the validity of said contract, and
  .
• a complete failure by the banksters and friends to acknowledge that courts have found that a non-party can challenge a contract that is absolutely void (and not merely voidable).(3)

For the ruling, see Reinagel v. Deutsche Bank Nat'l Trust Co., 735 F.3d 220 (5th Cir. 2013).

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(1) See, for example, this misleading headline in post by one lender-favoring lawyer: Borrowers Cannot Challenge Mortgage Assignments, Says Nebraska Joining Other States).

(2) Ibid.

(3) For earlier posts providing examples of courts acknowledging the exception to the rule precluding homeowners from challenging mortgage assignments, see:

• Failure To Allege: Void (As Opposed To Merely Voidable) Transfer, Risk Of Double Payment Or Other Prejudice Is Fatal To Borrowers' Foreclosure Defense As Nebraska High Court Says Homeowners Lacked Standing To Challenge Allegedly Faulty Mortgage Assignment From One Bankster To Another,
  .
  Homeowners Have Standing To Challenge Faulty Mortgage Assignments From One Bankster To Another, But Only Where Defects Render Conveyance Absolutely Void, Not Merely Voidable,
  .
  1st Circuit: Borrower Has Standing To Challenge Mortgage Assignments When Invalid, Ineffective, Or Void; Transfers That Are Merely Voidable Are Immune From Protest,
  .
  Michigan Trial Court OKs Homeowner Challenge To Validity Of Mortgage Assignment Where Assignee's Lack Of Title Is Raised As A Defense (reversed on other grounds, HSBC Bank USA, NA v. Young, No. 313212 (Mich. App. 2014) (unpublished) (appeal denied HSBC v. Young, 2015).