Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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Texas

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When is Bona Fide Purchaser Defense available?


BONA FIDE PURCHASER DEFENSE

Who may claim it?

The Texas Supreme Court has stated that status as a bona fide purchaser is an affirmative defense to a title dispute. A bona fide purchaser is not subject to certain claims or defenses.

To receive this special protection, one must acquire property in good faith, for value, and without notice of any third-party claim or interest.

Notice may be constructive or actual. Actual notice rests on personal information or knowledge. Constructive notice is notice the law imputes to a person not having personal information or knowledge. Madison v. Gordon, 39 S.W.3d 604, 606 (Tex. 2001) (citations omitted); see AMC Mortg. Servs., Inc. v. Watts, 260 S.W.3d 582, 586 (Tex. App.-Dallas 2008, no pet.). See Footnote 2 “[W]hereas actual notice is usually a question of fact for the jury, constructive notice is a legal presumption not to be controverted.” Univ. State Bank v. Gifford-Hill Concrete Corp., 431 S.W.2d 561, 571 (Tex. Civ. App.-Fort Worth 1968, writ ref'd n.r.e.).

A party has constructive notice of instruments properly recorded in the proper county. Tex. Prop. Code Ann. § 13.002 (West 2004); AMC Mortg. Servs. Inc., 260 S.W.3d at 586. A party claiming title through principles of equity has the burden of proving that a subsequent purchaser was not a good faith purchaser. AMC Mortg. Servs., Inc., 260 S.W.3d at 586.

SOURCE: 05-09-00726-CV 5/3/11


Footnote 2:

AMC Mortg. Servs., like the trial court in this case, uses the term “good faith purchaser,” rather than “bona fide purchaser.” AMC Mortg. Servs., 260 S.W.3d at 586 (“To qualify as a good faith purchaser, the party must demonstrate that the purchase was made (1) in good faith, (2) for valuable consideration, and (3) without actual or constructive knowledge of any outstanding claims of a third party.”). Those two terms have the same meaning. See Richards v. Suckle, 871 S.W.2d 239, 242 (Tex. App.-Houston [14th Dist.] 1994, no pet.). We use the term “good faith purchaser” in our analysis in this opinion.

SOURCE: 05-09-00726-CV - Dallas Court of Appeals - 5/3/11

Elements of Wrongful Foreclosure Tort in Texas


CAUSE OF ACTION FOR WRONGFUL FORECLOSURE

The elements for wrongful foreclosure when the plaintiff seeks to set aside the sale are (1) a defect in the foreclosure sale proceedings; (2) a grossly inadequate selling price; and (3) a causal connection between the defect and the grossly inadequate selling price. See Charter Nat’l Bank-Houston v. Stevens, 781 S.W.2d 368, 371 (Tex. App.—Houston [14th Dist.] 1989, writ denied).

SOURCE: Houston Court of Appeals 01-09-00269-CV 4/28/11 (dissenting opinion)

 

Illegal Contract Defense


ILLEGALITY AS AFFIRMATIVE DEFENSE TO BREACH-OF-CONTRACT CLAIM

The validity of a contract is generally a question of law. Farah v. Mafrige & Kormanik, P.C., 927 S.W.2d 663, 678 (Tex. App.--Houston [1st Dist.] 1996, no writ).

ILLEGAL CONTRACT DEFINED - VOID CONTRACTS

An illegal contract is one in which the parties undertake what the law forbids. Franklin v. Jackson, 847 S.W.2d 306, 309 (Tex.App.--El Paso 1992, writ denied). A contract to do a thing which cannot be performed without a violation of the law is void. Id. Because the contract violates the law, it imposes no legal obligation on the parties. Miller v. Long-Bell Lumber Co., 148 Tex. 160, 222 S.W.2d 244, 246 (Tex. 1949); Franklin, 847 S.W.2d at 309.

However, a contract which could have been performed in a legal manner will not be declared void simply because it may have been performed in an illegal manner. Franklin, 847 S.W.2d at 309, citing Lewis v. Davis, 145 Tex. 468, 199 S.W.2d 146, 148-49 (1947); Wade v. Jones, 526 S.W.2d 160, 162-63 (Tex.Civ.App.--Dallas 1975, no writ).

PRESUMPTION OF LEGALITY - BURDEN OF PROOF TO SHOW ILLEGALITY

The law presumes that contracts are legal, and the burden to prove illegality is on the party asserting it, in this case, Appellants. See Franklin, 847 S.W.2d at 310. Unless the face of the contract shows it is illegal, the party asserting illegality must present evidence demonstrating the illegality before a court may declare the contract void. See Lewis, 199 S.W.2d at 149; Franklin, 847 S.W.2d at 310.

SOURCE: 08-07-00071-CV (7/29/09)

 

Statute of Frauds and equitable exceptions to statutes of fraud


Traditional Statute of Frauds and Its Exceptions (promissory estoppel and partial performance)

The traditional statute of frauds in Texas, currently at Tex. Bus. & Com. Code Ann. § 26.01(a) (Vernon Pamph. 2008), provides that certain types of agreements, such as a promise to answer for the debt, default, or miscarriage of another, a contract for the sale of real estate, or an agreement which is not to be performed within one year of its making, are not enforceable unless the agreement, or a memorandum of it, is in writing and signed by the person to be charged or his authorized representative. See Footnote 5

However, equity will act to avoid the statute of frauds in circumstances where enforcing the statute would itself amount to a fraud. See Nagle v. Nagle, 633 S.W.2d 796, 799-800 (Tex. 1982); Birenbaum v. Option Care, Inc., 971 S.W.2d 497, 503 (Tex. App.-Dallas 1997, pet. denied) (“Before using equity to circumvent the statute of frauds, the Texas Supreme Court has consistently required a showing that fraud would result in not doing so.”).

Those circumstances are limited, however, because otherwise the exceptions would render the statute meaningless:The Statute of Frauds is the Legislature's directive that courts enforce promises covered by the statute only if such promises are in writing. Equity can avoid the strictures of that directive only by “some positive rule which will insure its exercise for . . . the prevention of an actual fraud as distinguished from a mere wrong . . . so surely as to leave the statute itself, through the exactness of the exception, with some definiteness of operation.”Nagle, 633 S.W.2d at 799 (quoting Hooks v. Bridgewater, 111 Tex. 122, 128, 229 S.W. 1114, 1116 (1921)).

Promissory estoppel and partial performance have been recognized as equity-based exceptions to the traditional statute of frauds. Promissory estoppel allows enforcement of an otherwise unenforceable oral agreement when (1) the promisor makes a promise that he should have expected would lead the promissee to some definite and substantial injury; (2) such an injury occurred; and (3) the court must enforce the promise to avoid the injury. Nagle, 633 S.W.2d at 800; “Moore” Burger, Inc. v. Phillips Petroleum Co., 492 S.W.2d 934, 936 (Tex. 1972).

Promissory estoppel avoids the traditional statute of frauds when the alleged oral promise is to sign an existing document that satisfies the statute of frauds. See Nagle, 633 S.W.2d at 800 (discussing contract for sale of real estate provision of section 26.01); Exxon Corp. v. Breezevale Ltd., 82 S.W.3d 429, 438 (Tex. App.-Dallas 2002, pet. denied) (same); see also Birenbaum, 971 S.W.2d at 504 (promissory estoppel avoids statute of frauds only if oral promise “was to execute a document in existence that itself complied with the statute”; discussing statute of frauds formerly applicable to purchase of securities).

Under the partial performance equitable exception, an oral agreement that does not satisfy the traditional statute of frauds but that has been partially performed may be enforced if denying enforcement would itself amount to a fraud. Breezevale, 82 S.W.3d at 439; Carmack v. Beltway Dev. Co., 701 S.W.2d 37, 40 (Tex. App.-Dallas 1985, no writ) (discussing statute of frauds for agreements to pay a commission on sale or lease of real estate). The actions asserted to constitute partial performance must be “unequivocally referable” to the alleged oral agreement and corroborate the existence of that agreement; they “must be such as could have been done with no other design than to fulfill the particular agreement sought to be enforced; otherwise, they do not tend to prove the existence of the parol agreement relied upon by the plaintiff.” Breezevale, 82 S.W.3d at 439-40.

 

Statute of Frauds: Sale of Real Property, Real Estate Transactions


Statute of Frauds (Real Estate Sales Transaction)


To be enforceable, a contract for the sale of real estate must comply with the statute of frauds. Tex. Bus. & Com. Code Ann. § 26.01(b)(4) (West 2009); Cohen v. McCutchin, 565 S.W.2d 230, 232 (Tex. 1978). Section 26.01 of the business and commerce code provides:

(a) A promise or agreement described in Subsection (b) of this section is not enforceable unless the promise or agreement, or a memorandum of it, is

(1) in writing; and

(2) signed by the person to be charged with the promise or agreement or by someone lawfully authorized to sign for him.

(b) Subsection (a) of this section applies to:

. . .

(4) a contract for the sale of real estate . . . .

Tex. Bus. & Com. Code Ann. § 26.01.

Whether a contract meets the requirements of the statute of frauds is a question of law. Bratcher v. Dozier, 346 S.W.2d 795, 796 (Tex. 1961); West Beach Marina, Ltd. v. Erdeljac, 94 S.W.3d 248, 264 (Tex. App.--Austin 2002, no pet.).

[T]he statute of frauds bars a fraud claim to the extent that the plaintiff seeks to recover as damages the benefit of a bargain that cannot otherwise be enforced because it fails to comply with the statute of frauds. Haase v. Glazner, 62 S.W.3d 795, 799 (Tex. 2001). This is because "the Statute exists to prevent fraud and perjury in certain kinds of transactions by requiring agreements to be set out in a writing signed by the parties. But that purpose is frustrated and the Statute easily circumvented if a party can use a fraud claim essentially to enforce a contract the Statute makes unenforceable.

The statute of frauds may not bar a common-law fraud claim to the extent the plaintiff seeks out-of-pocket damages incurred in relying upon the defendant's alleged misrepresentations because "[w]ith respect to such damages, [the plaintiff] is not attempting to enforce the otherwise unenforceable contract. . . . These kinds of damages are not part of the benefit of any alleged bargain between the parties." Haase v. Glazner, 62 S.W.3d 795, 799-800 (Tex. 2001).

We need not address the type of damages Joseph seeks because statutory real estate fraud requires the existence of a contract.

SOURCE: 03-07-00197-CV (Austin Court of Appeals (11/6/09) (Because there is no enforceable contract that satisfies the statute of frauds, the trial court did not err in granting appellees' motion for summary judgment.)

 

Elements of promissory note suit, suit on note

To recover for a debt on a promissory note, a party must establish that it is the legal holder of the note, the debtor’s execution of the note, and that an outstanding balance is due and owing. Austin v. Countrywide Homes, 261 S.W.3d 68, 72 (Tex. App.—Houston [1st Dist.] 2008, pet. denied).

SOURCE: McShaffry v. Amegy Bank N.A. (Tex.App.- Houston [1st Dist.] Apr. 2, 2009)(Bland)

 

Meeting of the Minds Element of Civil Conspiracy Claim Not Established


Elements of a Civil Conspiracy Claim

To recover on an action for civil conspiracy, the plaintiff must prove: (1) the defendant and another person acted together, (2) they acted to accomplish an object (an unlawful purpose or a lawful purpose by unlawful means), (3) they had a meeting of the minds on the object or course of action, (4) they committed one or more unlawful acts, and (5) the plaintiff suffered damages as the proximate result of the unlawful acts. Ins. Co. Of N. Am. v. Morris, 981 S.W.2d 667, 675 (Tex. 1998).

Absence of Evidence on Meeting of the Minds on the object of the alleged conspracy warrants no-evidence summary judgment

In his motion for summary judgment, [Defendant] argued there is no evidence supporting any of the elements of conspiracy.

Appellant provided no evidence of conspiracy and merely alleged that "all" defendants conspired against him because he is not proficient in English and is a "simple" blue collar worker.

One of the essential elements required to establish a civil conspiracy is a meeting of the minds on the object or course of action. Schlumberger Well Surveying Corp. v. Nortex Oil & Gas Corp., 435 S.W.2d 854, 857 (Tex. 1969).

There is no evidence of a meeting of the minds between the defendants. Appellant points out no specific facts establishing any of the elements of conspiracy. Appellant did not attach any evidence of conspiracy to his response as required by rule 166a(i). See Tex. R. Civ. P. 166a(i). Specifically, appellant presented no evidence on the third element of conspiracy, a meeting of the minds. The trial court did not err in granting Manley's no-evidence motion for summary judgment.

SOURCE: 14-07-01085-CV (10/6/09) (Fourteenth Court of Appeals-Houston)

 

Elements of fraud in Texas law, common-law fraud cause of action

In order to prove fraud, a plaintiff must show that (1) the defendant made a material representation that was false, (2) the defendant knew the representation was false or made it recklessly as a positive assertion without any knowledge of its truth, (3) the defendant intended to induce the plaintiff to act upon the representation, and (4) the plaintiff actually and justifiably relied on the representation, which caused the injury. Ernst & Young, L.L.P. v. Pac. Mut. Life Ins. Co., 51 S.W.3d 573, 577 (Tex. 2001).

SOURCE: Wood v. Texas Chiropractic College (Tex.App.- Houston [1st Dist.] July 24, 2008)

 

Exceptions to Enforcement of Applicable Limitations Period: SoL Tolling & The Discovery Rule in Texas


THE DISCOVERY RULE AND TOLLING OF LIMITATIONS BASED ON FRAUDULENT CONCEALMENT

We [Texas Supreme Court] have recognized two doctrines that may apply to extend the statute of limitations. Computer Assoc. Int’l, Inc. v. Altai, Inc., 918 S.W.2d 453, 455-56 (Tex. 1996). Under the first, the discovery rule, the cause of action does not accrue until the injury could reasonably have been discovered. See id.; S.V. v. R.V., 933 S.W.2d 1, 4 (Tex. 1996) (citing Trinity River Auth. v. URS Consultants, Inc., 889 S.W.2d 259, 262 (Tex. 1994)), for the proposition that deferring accrual and thus delaying the commencement of the limitations period differs from suspending or tolling the running of limitations once the period has begun).

The discovery rule is applied categorically to instances in which “the nature of the injury incurred is inherently undiscoverable and the evidence of injury is objectively verifiable.”4 Altai, 918 S.W.2d at 456. An injury is not inherently undiscoverable when it is the type of injury that could be discovered through the exercise of reasonable diligence. Wagner & Brown, Ltd. v. Horwood, 58 S.W.3d 732, 734–35 (Tex. 2001). Recognizing the social benefit in granting repose after a reasonable time, we have described the rule as a “‘very limited exception to statutes of limitations.’” Id. at 734 (quoting Altai, 918 S.W.2d at 455–56).

FRAUDULENT CONCEALMENT BY DEFENDANT

The second doctrine that may extend the limitations period in this case is fraudulent concealment, an equitable doctrine that, unlike the discovery rule, is fact-specific.

A defendant’s fraudulent concealment of wrongdoing may toll the statute of limitations after the cause of action accrues. See Kerlin v. Sauceda, 263 S.W.3d 920, 925 (Tex. 2008); HECI, 982 S.W.2d at 886. A party asserting fraudulent concealment must establish an underlying wrong, and that “the defendant actually knew the plaintiff was in fact wronged, and concealed that fact to deceive the plaintiff.” Earle v. Ratliff, 998 S.W.2d 882, 888 (Tex. 1999); Weaver v. Witt, 561 S.W.2d 792, 793 (Tex. 1977) (per curiam). Fraudulent concealment only tolls the running of limitations until the fraud is discovered or could have been discovered with reasonable diligence. Kerlin, S.W.3d at 925.

SOURCE: Texas Supreme Court, No. 09-0399,
BP AMERICA PRODUCTION CO. v. MARSHALL 5/13/11

 

Asserting Fraudulent Concealment to Counter Affirmative Defense of Limitations (SoL)


FRAUDULENT CONCEALMENT AS COUNTER-DEFENSE TO LIMITATIONS DEFENSE

A defendant is entitled to summary judgment on the affirmative defense of limitations by conclusively proving all the elements of the defense as a matter of law. Pustejovsky v. Rapid-American Corp., 35 S.W.3d 643, 646 (Tex. 2000). This requires conclusively proving the date the cause of action accrued. See Rubio, 185 S.W.3d at 846.

When a defendant conclusively establishes a limitations defense and the plaintiff resists summary judgment by asserting fraudulent concealment, the plaintiff has the burden to present evidence raising a fact issue with respect to its claim. Am. Petrofina, Inc. v. Allen, 887 S.W.2d 829, 830 (Tex. 1994).

The elements of fraudulent concealment are 1) the existence of the underlying tort, 2) the defendant's knowledge of the tort, 3) the defendant's use of deception to conceal the tort, and 4) the plaintiff's reasonable reliance on the deception. Malone v. Sewell, 168 S.W.3d 243, 252 (Tex. App.-Fort Worth 2005, pet. denied).

SOURCE: 09-08-00433-CV (8/27/09) (Beaumont Court of Appeals)

 

Fraudulent Concealment as SoL Tolling Theory


Pleading and Proving Fraudulent Concealment to Avoid Limitations

Although similar in effect to the discovery rule, the fraudulent-concealment doctrine is an affirmative defense to limitations that resembles equitable estoppel. Trousdale v. Henry, 261 S.W.3d 221, 235 (Tex. App.- Houston [14th Dist.] 2008, rule 53.7(f) motion granted); Autry v. Dearman, 933 S.W.2d 182, 192 (Tex. App.- Houston [14th Dist.] 1996, writ denied).

This doctrine estops a defendant from relying on the defense of limitations if the defendant was under a duty to make a disclosure but fraudulently concealed the existence of a cause of action from the party to whom it belongs. Ponder v. Brice & Mankoff, 889 S.W.2d 637, 645 (Tex. App.- Houston [14th Dist.] 1994, writ denied).

To prove fraudulent concealment, the plaintiff must demonstrate that the defendant had (1) actual knowledge that a wrong occurred, (2) a duty to disclose the wrong, and (3) a fixed purpose to conceal the wrong. McMahan v. Greenwood, 108 S.W.3d 467, 493 (Tex. App.- Houston [14th Dist.] 2003, pet. denied).

The estoppel effect of fraudulent concealment ends when a party learns of facts, conditions, or circumstances that would cause a reasonably prudent person to make inquiry which, if pursued, would lead to the discovery of the concealed cause of action. Ponder, 889 S.W.2d at 645. This is the same standard that applies to the discovery rule. Trousdale, 261 S.W.3d at 235.

SOURCE: Seureau v. Exxon Mobil Corp (Tex.App.- Houston [14th Dist.] Oct. 16, 2008)

 

Suit to remove cloud from title, suit to quiet title


CIVIL ACTION TO RESOLVE TITLE DISPUTE


A suit to quiet title, sometimes referred to as a suit to remove a cloud from title, is an equitable action that may be used to establish that an adverse party's claim to property is invalid or unenforceable. See Angell v. Bailey, 225 S.W.3d 834, 838 n.6 (Tex. App.-El Paso 2007, no pet.) ("A cloud on title exists when an outstanding claim or encumbrance is shown, which on its face, if valid, would affect or impair the title of the owner of the property."); see also In re Stroud Oil Props., Inc., 110 S.W.3d 18, 25-26 (Tex. App.-Waco 2002, orig. proceeding); Wright v. Matthews, 26 S.W.3d 575, 578 (Tex. App.-Beaumont 2000, pet. denied); Bell v. Ott, 606 S.W.2d 942, 952-53 (Tex. Civ. App.-Waco 1980, writ ref'd n.r.e.). "

A suit to quiet title or to remove a cloud can be maintained only by a person owning an interest in the property involved." Bell, 606 S.W.2d at 953. The plaintiff in a suit to quiet title then "must allege right, title, or ownership in himself or herself with sufficient certainty to enable the court to see he or she has a right of ownership that will warrant judicial interference." Wright, 26 S.W.3d at 578.

SOURCE: 03-08-00372-CV (Austin Court of Appeals) (2/26/10)

 

Conversion, Civil Theft Claim, and Trespass


ELEMENTS OF CONVERSION, THEFT, TRESPASS CLAIMS UNDER TEXAS LAW

Cause of Action for Conversion

The elements of a conversion claim are (1) the plaintiff owned or had possession of the property or entitlement to possession; (2) the defendant unlawfully and without authorization assumed and exercised control over the property to the exclusion of, or inconsistent with, the plaintiff’s rights as an owner; (3) the plaintiff demanded return of the property; and (4) the defendant refused to return the property. Khorshid, Inc. v. Christian, 257 S.W.3d 748, 758–59 (Tex. App.—Dallas 2008, no pet.).

Statutory Cause of Action under Texas Theft Liability Act (alt. to conversion)

Under the Theft Liability Act, a person who commits theft by unlawfully appropriating property with intent to deprive the owner of property is liable for the resulting damages. Tex. Civ. Prac. & Rem. Code Ann. §§ 134.002(2), 134.003(a) (Vernon 2005); Tex. Penal Code Ann. § 31.03(a) (Vernon Supp. 2009). Appropriation of property is unlawful if it is without the owner’s effective consent. Id. § 31.03(b)(1).

Common-law Trespass Claim

“Trespass to personalty is an injury to, or interference with, possession of the property, unlawfully, with or without the exercise of physical force.” Russell v. Am. Real Estate Corp., 89 S.W.3d 204, 210 (Tex. App.—Corpus Christi 2002, no pet.) (citing Jamison v. Nat’l Loan Investors, L.P., 4 S.W.3d 465, 469 n.2 (Tex. App.—Houston [1st Dist.] 1999, pet. denied)). Destruction of, or injury to, personal property, regardless of negligence, may be a trespass. Id.


SOURCE: Cash Rent-A-Car v. Old American County Mutual Fire Ins. Co. No. 01-09-00021-CV (Tex.App.- Houston [1st Dist.] Jan. 14, 2009)

 

No RES JUDICATA where underlying judgment reversed or vacated


THE DEFENSE OF RES JUDICATA

Res judicata bars a party from attempting to relitigate a claim or cause of action that a competent tribunal has finally adjudicated. Ingersoll-Rand Co. v. Valero Energy Corp., 997 S.W.2d 203, 206 (Tex. 1999).

For res judicata to apply, the following elements must be present: (1) a prior final judgment on the merits by a court of competent jurisdiction; (2) the same parties or those in privity with them; and (3) a second action based on the same claims as were raised or could have been raised in the first action. Igal v. Brightstar Info. Tech. Group, Inc., 250 S.W.3d 78, 86 (Tex. 2008).

FIRST ELEMENT OF RES JUDICATA DEFENSE: A PRIOR JUDGMENT ON THE MERITS

Because of our holding that the motions for summary judgment in the first suit were erroneously granted, a prior final judgment on the merits does not exist on which Biela's and Alert can base their res judicata argument. Accordingly, the appellees cannot establish the first element of res judicata as a matter of law. The October 14, 2008 order granting summary judgment is therefore reversed, and the cause is remanded to the trial court for further proceedings.

SOURCE: Nos. 04-08-00587-CV, 04-08-00857-CV (San Antonio Court of Appeals 6/10/09, pet. denied Oct 16, 2009)

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