Pending in the United States Court of Appeals for the Fifth Circuit is a case of major importance as far as foreclosure defense cases go. The case is styled Arnold v Bank of America, N.A. et al Cause No. 13-40649. The reason the case is of such importance is the fact that the case may broaden the requirements of what a foreclosing party must prove to move forward with foreclosure.
Traditionally, lender attorney’s in Texas have attempted to make the general public and courts believe that all the foreclosing party must do is meet the requirements of the Texas Property Code §51.002, this is just not the case. What has been argued in this case is the fact that the Uniform Commercial Code or UCC (its equivalent in Texas is the Texas Business and Commerce Code) requires that a foreclosing party prove that they are or have the “Person Entitled To Enforce” the Note status (commonly known as PETE status). Texas Business and Commerce Code §3-301 mandates that to have PETE status one must either be: (i) Holder of the Instrument; (ii) a nonholder in possession of the instrument who has the rights of holder; (iii) person not in possession who is entitled to enforce the instrument per 3-309 or 3-418(d).
As is well known in the foreclosure community lender attorney’s often coin any defense a homeowner has as the “show-me-the-note” theory. It has been argued that the inclusion of the UCC in this type of case is a “show-me-the-note” theory as well and should not be applied. Interestingly, during oral arguments in this matter the Court tried to say that this is just another foreclosure case like we have heard before like in; Reinagel v. Deutsche Bank Nat’l Trust: where the appellant challenged assignments; or Lopez v. Sovereign Bank, N.A.; where the appellant contested the foreclosure because the Note and Deed of Trust were split; or Martins v BAC: arguing that the Note and Deed of Trust were split therefore worthless; or in Davis v. Volunteer State Life which involved a sale of property under a Deed of Trust by Substitute Trustee at the request of the assignee of the note was proper. We believe that this case is more similar to one of our other cases Miller v. Homecomings Fin., LLC, wherein the court found that the plaintiff could challenge a foreclosure and that a case by the name of League City allowed a cause of action for wrongful foreclosure. A viable challenge would be whether or not the foreclosing party actually has and is PETE. Further, it has been argued in the Arnold case and very successfully in other parts of the United States, that the foreclosing party MUST prove up that it as the “Lender” has in fact met and satisfied the covenants set forth in the Non Uniform Covenants of the Deed of Trust, to otherwise hold would be to allow the “Lender” to not be in compliance with their own agreements. We will update the blog once the court publishes its decision.