Mortgage Electronic Registration Systems, as Nominee for Lender and Lender's Successors and Assigns v. Kim Young and All Occupants of 289 CR 4764, Boyd, Texas 76023

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH

NO. 2-08-088-CV

MORTGAGE ELECTRONIC APPELLANT
REGISTRATION SYSTEMS, AS
NOMINEE FOR LENDER AND
LENDER’S SUCCESSORS AND
ASSIGNS

V.

KIM YOUNG AND ALL APPELLEES
OCCUPANTS OF 289 CR 4764,
BOYD, TEXAS 76023

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FROM THE COUNTY COURT AT LAW OF WISE COUNTY

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MEMORANDUM OPINION 1

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Appellant Mortgage Electronic Registration Systems, as Nominee for

Lender and Lender’s Successors and Assigns, (“MERS”) appeals from the

1
… See Tex. R. App. P. 47.4.
judgment of the county court at law of Wise County on its forcible detainer

action against Appellees Kim Young and All Occupants of 289 CR 4764, Boyd,

Texas 76023 (“Young”). MERS brings two issues on appeal. In its first issue,

MERS argues that the trial court erred by granting judgment for possession in

favor of Young on the basis of estoppel because the defense of estoppel cannot

control the outcome in a forcible detainer action. In its second issue, MERS

argues that the trial court erred by granting judgment for possession in favor of

Young because the evidence showed that MERS owned the property and had

a superior right of possession of the property. Because we hold that the

evidence does not demonstrate that MERS owned the property at the time of

its forcible detainer action and that the county court did not have jurisdiction

to determine the issue of possession because that determination rested on the

resolution of title, we reverse the judgment of the county court and render a

judgment of dismissal.

Young bought the property at issue in 2002. She executed a note on the

property, secured by a deed of trust. Home Loan Corporation was listed on the

deed of trust as the lender and MERS was named as nominee. The deed of

trust noted that MERS held legal title and had the right to foreclose and sell the

property. The deed of trust did not mention Wells Fargo Home Mortgage, Inc.

(“WFHM”), and no record of assignment of the note was introduced at the

2
hearing on MERS’s forcible detainer action, but Young alleged that she made

her monthly mortgage payments to WFHM in 2002 and 2003.

According to Young’s testimony at the hearing in the county court,

sometime in 2004, she sold the property, and she obtained information from

WFHM about how the buyers could assume the debt. She testified that she

followed the instructions given and paid an assumption fee and that she never

received any communication from WFHM that the assumption did not go

through. But she did not testify that she ever received confirmation from

WFHM that the assumption had gone through, and no deed conveying the

property to the buyers was introduced at the hearing. Young’s attorney had the

sale contract with her at the hearing, but it was not introduced into evidence.

Young testified that in 2005, she received notice that Wells Fargo Bank,

N.A. had procured insurance on the property in Young’s name. She stated that

she then contacted the insurance company and informed it of the sale of the

property and the buyer’s assumption of the note.

On January 3, 2006, unbeknownst to Young, a substitute trustee

conveyed the property to MERS after a nonjudicial foreclosure sale. The deed

was recorded in the Wise County records. On January 12, 2006, MERS

conveyed the property to the Secretary of the Department of Housing and

Urban Development (“HUD”).

3
 In April and June of 2006, Standard Guaranty Insurance Company sent

letters to Young notifying her that it had paid Wells Fargo Bank, N.A. for claims

made under an insurance policy on the property. On August 30, 2006, WFHM

sent Young a notice that it was renewing the insurance on the property.

Young testified that when she received this letter (which was after the

nonjudicial foreclosure sale and the transfer of the property to HUD), she

contacted “Wells Fargo.” 2 She testified that she was told that the property had

been abandoned by the buyers; the note was in default; foreclosure proceedings

had been commenced on January 3, 2006, but had not been finalized; and she

was still the owner of the property. She testified that an employee of “Wells

Fargo” agreed to reinstate the note and send her the paperwork for

reinstatement, but that she never received the paperwork despite repeated

telephone calls to “Wells Fargo” and “Wells Fargo” repeatedly telling her that

the note could be reinstated. Despite never receiving the paperwork, she

moved back onto the property and made repairs to it.

On May 10, 2007, HUD conveyed the property under a deed without

warranty to Wells Fargo Home MTG–Prudential (“WFHM–Prudential”). On June

27, 2007, a law firm acting on behalf of Wells Fargo Bank, N.A. sent Young a

2
… Young did not specify which Wells Fargo entity she contacted.

4
notice to vacate the property. When she refused, MERS filed a forcible detainer

action against her in the justice court. After the justice court granted

possession of the property to MERS, Young appealed to the statutory county

court. There she entered a plea to the jurisdiction and several affirmative

defenses, including estoppel and a claim that the foreclosure had not complied

with statutory requirements. At the conclusion of the hearing, the county court

stated that estoppel applied and that it was denying the detainer on that

ground. The court’s judgment for Young, however, did not state the specific

grounds for denying MERS’s forcible detainer. MERS now appeals.

We consider MERS’ second issue first because it is dispositive. 3 MERS

argues that the trial court erred by granting judgment for possession in favor of

Young because the evidence showed that MERS owned the property and had

a superior right of possession of the property. Young argued in the county

court and in the alternative on appeal that the county court did not have

jurisdiction over the forcible detainer action because the court could not

determine whether MERS had a superior right to immediate possession without

determining title. We agree with Young.

3
… See Tex. R. App. 47.1.

5
 A forcible detainer action addresses only the question of who is entitled

to immediate possession of a premises.4 A person commits forcible detainer

when the person refuses to surrender possession of real property on demand

and the person is a tenant by sufferance. 5 A plaintiff in a forcible detainer

action must present sufficient evidence of ownership to demonstrate a superior

right to immediate possession of the premises.6 A plaintiff does not, however,

have to prove ownership of the property; rather, a court may determine which

party has a superior right to possession without determining title when there

exists a landlord-tenant relationship between the parties.7 A court does not

have to determine title in such a case because the existence of the landlord-

tenant relationship provides a basis for determining the right to possession

without resolving the issue of who owns the property.8

4
… Cattin v. Highpoint Village Apartments, 26 S.W.3d 737, 738–39 (Tex.
App.—Fort Worth 2000, pet. dism’d w.o.j.).
5
… Tex. Prop. Code Ann. § 24.002(a) (Vernon 2000).
6
… Gibson v. Dynegy Midstream Servs., L.P., 138 S.W.3d 518, 522 (Tex.
App.—Fort Worth 2004, no pet.).
7
… Rice v. Pinney, 51 S.W.3d 705, 709, 712 (Tex. App.—Dallas 2001,
no pet.).
8
… See Salaymeh v. Plaza Centro, LLC, 264 S.W.3d 431, 436 (Tex.
App.—Houston [14th Dist.] 2008, no pet.) (stating that in forcible detainer
action, landlord-tenant relationship presents “an independent basis on which the
trial court [can] determine the right to immediate possession without resolving

6
 In a forcible detainer case, the only issue that may be determined is the

right to actual possession; the issue of title to the property cannot be

adjudicated.9 The losing party in a forcible detainer action brought in the justice

court may appeal to the county court for a trial de novo.10 The taking of such

an appeal vacates the judgment of the justice court.11 In an appeal from a

justice court, the county court does not have jurisdiction if the justice court did

not have jurisdiction, and justice courts do not have jurisdiction to decide issues

of title.12 Significantly, although the existence of a title dispute will not deprive

a justice court of jurisdiction in a forcible detainer action, the court does not

have jurisdiction when the right to possession cannot be determined without

resolving the title issue.13 Thus, the county court did not have jurisdiction in

underlying title issues”); Brown v. Kula-Amos, Inc., No. 02-04-00032-CV, 2005
WL 675563, at *3 (Tex. App.—Fort Worth 2005, no pet.) (mem. op.) (noting
that forcible detainer action based on contract for deed depends upon landlord-
tenant relationship and that contract for deed may provide for party to become
tenant at sufferance upon default).
9
… Tex. R. Civ. P. 745.
10
… See Cattin, 26 S.W.3d at 739; Tex. R. Civ. P. 574b.
11
… Harter v. Curry, 101 Tex. 187, 105 S.W. 988, 989 (Tex. 1907);
Villalon v. Bank One, 176 S.W.3d 66, 69–70 (Tex. App.—Houston [1st Dist.]
2004, pet. denied).
12
… Gibson, 138 S.W.3d at 522; Rice, 51 S.W.3d at 708–09.
13
… Rice, 51 S.W.3d at 713.

7
this forcible detainer case if the court could not determine the right to

possession without determining title.

MERS based its claim for the right to possession on an alleged landlord-

tenant relationship created by a deed from the substitute trustee’s sale and the

provision in the deed of trust that made Young a tenant at sufferance upon

default and foreclosure. MERS submitted to the trial court a copy of the deed

of trust that secured the note to Young and listed MERS as the nominal

mortgagee for the lender and its successors and assigns. The deed of trust

provided that if Young defaulted on the note and the property was sold at a

foreclosure sale under the deed of trust, Young would become a tenant at

sufferance. This kind of provision in a deed of trust is generally sufficient to

establish a landlord-tenant relationship between the mortgagor and the

purchaser of the property at a foreclosure sale.14 MERS also introduced

evidence of the substitute trustee’s deed showing that it purchased the

property at a foreclosure sale. MERS argued in the county court that with this

evidence—the substitute trustee’s deed showing that MERS owned the property

after purchasing it at the foreclosure sale and the deed of trust creating a

landlord-tenant relationship between it and Young and showing that Young was

14
… See Scott v. Hewitt, 127 Tex. 31, 90 S.W.2d 816, 818 (1936).

8
a tenant at sufferance—the county court could have determined MERS’s right

to possession without determining title, despite Young’s arguments with

respect to the propriety of the foreclosure proceedings. 15

But Young brought a plea to the jurisdiction, disputing MERS’s assertion

that it owned the property. At the hearing, Young introduced two deeds

executed after the substitute trustee’s deed: a deed conveying the property

from MERS to HUD and another deed conveying the property from HUD to

WFHM–Prudential. The deed from HUD does not mention MERS at all, as

nominee for WFHM–Prudential or in any other capacity. All the other

documents MERS introduced relating to this property did, however, specifically

mention MERS. The deed of trust listed MERS, as nominee for the lender, as

the beneficiary of the instrument. The substitute trustee’s deed listed MERS,

as nominee for the lender, as the mortgagee. The deed to HUD listed MERS,

“as nominee for [the] Lender,” as the grantor. But no evidence before the

county court indicated that WFHM–Prudential designated MERS to act as its

nominee with respect to this property after HUD conveyed it to

WFHM–Prudential.

15
… See Reynolds v. Wells Fargo Bank, N.A., 245 S.W.3d 57, 60 (Tex.
App.—El Paso 2008, no pet.) (stating that argument that notice of foreclosure
was improper was beyond scope of forcible detainer action because only issue
in such action was right to possession).

9
 On appeal, MERS argues that it brought the forcible detainer action on

behalf of “Wells Fargo.” It argues that it is a “book entry system” as that term

is defined in section 51.0001 of the property code 16 and contends that under

the deed of trust, MERS could act on behalf of “Lender and Lender’s successors

and assigns” and that WFHM–Prudential, as the current owner of the property,

is “Lender’s successor or assign with regard to the [p]roperty.” Thus, MERS

argues, it had authority to bring this suit on behalf of WFHM–Prudential.

MERS did not introduce evidence in the county court about the nature of

its business, but it has been discussed by other courts. MERS was created for

the purpose of tracking ownership interests in residential mortgages. 17 Entities

such as mortgage lenders “subscribe to the MERS system and pay annual fees

for the electronic processing and tracking of ownership and transfers of

mortgages.” 18 These MERS members “contractually agree to appoint MERS to

act as their common agent on all mortgages they register in the MERS

system.” 1 9 When a mortgage is executed through a MERS member and

16
… See Tex. Prop. Code Ann. § 51.0001 (Vernon 2007) (defining term
“book entry system”).
17
… MERSCORP, Inc. v. Romaine, 8 N.Y.3d 90, 861 N.E.2d 81, 83
(2006).
18
… Id.
19
… Id.

10
registered in the MERS system, it is recorded in the real property records with

MERS named on the instrument as nominee or mortgagee of record.20 While

the mortgage is in effect, the original lender may transfer the beneficial

ownership or servicing rights on the mortgage to another MERS member, with

MERS tracking these electronic transfers; these assignments are not recorded

in the real property records. 21 If a MERS member assigns its interest in a

mortgage to a non-MERS member, this assignment is recorded in the real

property records and MERS deactivates the loan within its system. 22

MERS has “no rights whatsoever to any payments made on account of

such mortgage loans, to any servicing rights related to such mortgage loans, or

to any mortgaged properties securing such mortgage loans.” 23 MERS acts as

the agent only for its members; once a note is transferred out of the MERS

system to a non-member, MERS cannot act as the agent.24

20
… Id.
21
… Id.
22
… Id. at n.4.
23
… In re Hawkins, No. BK-S-07-13593-LBR, 2009 WL 901766, at *3
(Bankr. D. Nev. Mar. 31, 2009) (mem. op.).
24
… Id. at *4.

11
 The evidence in the county court showed that MERS was named as

nominee for Home Loan Corporation, the original lender on the note. After

Young defaulted on the note, MERS purchased the property at the substitute

trustee’s sale and subsequently conveyed the property to HUD. HUD later

conveyed the property to WFHM–Prudential. The record did not establish that

WFHM–Prudential was a member of MERS, that MERS was acting for

WFHM–Prudential in bringing the forcible detainer action, or that

WFHM–Prudential’s ownership of the property was the type of interest that

could be registered with MERS such that MERS could record the interest in its

name in accordance with the property code or bring this action.25

According to the property records of Wise County, WFHM–Prudential

holds title to the property. MERS does not. MERS did not assert in the county

court that WFHM–Prudential owned the property under a deed from HUD or

that it acted on behalf of WFHM–Prudential. It asserted instead that MERS

itself owned the property under the substitute trustee’s deed naming it as

grantee “as nominee for Lender and Lender[']s Successors and Assigns.” It

stated that it was a nominee for “Lender” but did not specify who “Lender”

25
… See Tex. Prop. Code Ann. § 51.0001 (defining “book entry system”
as “a national book entry system for registering a beneficial interest in a
security instrument”) (emphasis added).

12
was or show (or even assert) that it had any authority to bring a forcible

detainer action on behalf of WFHM–Prudential, the owner of record of the

property. It mentioned “Wells Fargo” only as having been the servicer of the

loan obtained by Young. And the evidence shows that WFHM–Prudential has

an interest in the property, not because of a deed of trust granting

WFHM–Prudential an interest that was then registered with MERS, but rather

through a deed from HUD conveying the property to Wells Fargo outright.

Thus, the fact that MERS may be a “book entry system” does not establish that

it has a landlord-tenant relationship with Young with respect to the property.

The county court had no evidence before it establishing that after HUD

transferred the property to WFHM–Prudential, that entity nominated MERS to

act for it with respect to this property. And at the hearing, MERS made no

attempt to explain the subsequent deeds to and from HUD and relied

exclusively on the substitute trustee’s deed to assert its right to possession.

Young introduced evidence disputing both MERS’s interest in the property

and any landlord-tenant relationship between her and MERS. Based on the

pleadings and evidence before it, the county court would have had to determine

who owned the property in order to determine whether MERS had the superior

13
right to possession.26 Accordingly, because the county court had no jurisdiction

to determine title, and because title may not be adjudicated in a forcible

detainer action, the county court did not have jurisdiction to determine if MERS

had a superior right to immediate possession of the property. We overrule

MERS’s second issue. Because we have held that the county court did not

have jurisdiction to determine MERS’s claim, we do not address MERS’s

remaining issue.27

Having held that the county court had no jurisdiction to determine MERS’s

right to possession, we reverse the judgment of the county court and render

judgment dismissing this case.28

LEE ANN DAUPHINOT
JUSTICE

PANEL: LIVINGSTON, DAUPHINOT, and MCCOY, JJ.

DELIVERED: June 4, 2009

26
… See Dass, Inc. v. Smith, 206 S.W.3d 197, 200 (Tex. App.—Dallas
2006, no pet.); Rice, 51 S.W.3d at 712–13.
27
… See Tex. R. App. P. 47.1.
28
… See City of Wichita Falls v. Pearce, 33 S.W.3d 415, 417 (Tex.
App.—Fort Worth 2000, no pet.) (reversing trial court judgment and rendering
judgment of dismissal because trial court had no jurisdiction over claims).

14