The U.S. Fifth Circuit Court of Appeals gave servicers foreclosing in Texas the green light to proceed with a foreclosure even when the servicer lacks possession of the note.
In a case called, Martins v. Bac Home Loan Servicing, the Fifth Circuit interpreted Texas law as granting servicers a right to foreclose without the note as long as they have a viable mortgage assignment.
The case nullifies the ‘split-the-note theory’ in Texas and other states within the Fifth Circuit’s jurisdiction. Split-the-note is one of the main legal theories used by homeowners when challenging a foreclosure.
The argument made is that a servicer must posses both the note and mortgage assignment to obtain foreclosure rights. The process of banks recording multiple mortgage assignments through the Mortgage Electronic Registration Systems registry prompted many of these challenges.
The Fifth Circuit quashed this specific claim, holding the split-the-note theory “is inapplicable under Texas law where the foreclosing party is a mortgage servicer and the mortgage has been properly assigned.”
The court added, “the party to foreclose need not possess the note itself.”
The decision also provided clarity on whether servicers are expected to produce the original note when trying to foreclose.
The court held production of the “original note” is not required in Texas as long as the servicer files a photocopy of the promissory note along with a supporting affidavit.
