Power of Attorney!

In August 2002 Vinh Nguyen purchased property in Pflugerville Texas which was financed with a loan from Finance America. Finance America sold the loan to Wells Fargo. Wells appointed Ocwen Loan Servicing as Wells’ agent to collect loan payments, assure that the tax payments were timely made and that the property was insured.

 

In July 2003, the property was purchased by Francis Montenegro. Diem Thi Nguyen signed a Warranty Deed to Francis Montenegro as “Vinh Nguyen, by his attorney in fact, Diem Thi Nguyen.” Diem’s claim to be Vinh’s attorney-in-fact was supported by a Power of Attorney document signed by Vinh in June 2003.

 

The Warranty Deed was recorded with the Travis County Clerk about a week after closing. The Power of Attorney document was not recorded.

 

Montenegro made monthly payments to Vinh until April 2006; presumably Vinh was, in turn, supposed to pay Ocwen but Vinh failed to do so. In May 2006 Montenegro sent a letter to Ocwen requesting authority to make loan payments to Ocwen instead of Vinh.

 

Ocwen never expressly allowed Montenegro to make direct payments, but regardless Montenegro sent an $8128 payment to Ocwen to cure Vinh’s default. Thereafter Montenegro made monthly mortgage payments to Ocwen for one year.

 

In August 2007 Ocwen sent Vinh a Notice of Default and Intent to Accelerate. The notice was not sent to Montenegro. When the default was not cured, Ocwen sent a Notice of Acceleration and Notice of Foreclosure to both Vinh and Montenegro in October 2007.

 

Montenegro filed a lawsuit to stop the foreclosure sale. A temporary restraining order was granted, but Ocwen foreclosed anyway. So Montenegro sued Ocwen for wrongful foreclosure.

 

In February 2012 the trial court ruled for Ocwen. Montenegro appealed.

 

Montenegro claimed that Ocwen should have furnished Notice of Default and Intent to Accelerate to accelerate the loan to Montenegro, not solely to Vinhn. That analysis involves privity, or a legal connection between Ocwen and Montenegro.

 

In order to determine if Montenegro had privity with Ocwen, the Appellate Court had to review the 2003 transaction to determine its validity. If the Power of Attorney was ineffective, then so was the Deed. If that is true, then Montenegro would have no standing to contest Ocwen’s foreclosure.

 

The Appellate Court first turned its gun turrets towards that lonely piece of paper, the Warranty Deed transferring the Pflugerville property to Montenegro in July 2003, recorded in Travis County the week after. The Deed was signed by Diem Thi Nguyen, purportedly as attorney-in-fact for Vinh Nguyen. Vinh, you will recall, was the true property owner, having purchased the property in 2002.

 

The Deed appeared to be Ok, subject to the Power of Attorney provisions. So, next up was an evaluation of the POA document.

 

Texas law provides that Power of Attorney documents must be recorded if they will be used in real property transactions. There was no evidence to show that the Power of Attorney was recorded, at least not in the County that counts – Travis County.

 

Consequently, the Power of Attorney document failed.

 

Failure of the Power of Attorney meant that Diem did not have authority to convey Vinh’s title to Montenegro. In turn, that means that although Vinh could have properly contested Ocwen’s foreclosure despite the existence of a temporary restraining order, Montenegro did not have such standing as Montenegro was, at least in law, a stranger to the transaction.

 

Hopefully Montenegro received a title policy at the 2003 purchase (or after) so he would have recourse against a title underwriter if his ownership is later challenged. Otherwise, I suppose he might have recourse against Diem and Vinh, but it is unknown if either are solvent and doubtless both will raise statute of limitations and other defenses.

 

The trial court’s Judgment was affirmed for Ocwen Loan Servicing. Ocwen wins; Montenegro loses. See Montenegro v. Ocwen Loan Servicing, LLC; No. 07-12-00297-CV, Texas Court of Appeals – Amarillo, November 18, 2013.

 

Lessons learned:

 

1.      Power of Attorney documents are inherently risky business. Sometimes there is no alternative, as the Seller, Buyer, Lender, Landlord or Tenant is unavailable. In other situations such parties will execute a POA simply out of convenience. Avoid the issues presented in a POA by demanding signature of important documents by the real parties, not by their agents and attorneys-in-fact through a POA document.

 

2.      Of course title insurance is available in purchase and financed transactions, but did you know that title insurance is also available for leasing, easements and virtually every other estate in land? As a failsafe, always get title insurance. Title policies can insure the Buyer, Lender, Tenant, easement holder and a host of other holders of Texas estates in land.

 

3.      Always. Get. Title. Insurance. Or did I already write that?

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

How Not to Foreclose

Lawrence Mathis owned and operated a commercial laser printing and direct mail business in Austin. In March 2000 he bought a 20,000 SF building, and arranged SBA financing. A first lien Note for $440,000 (approx. 50% of the purchase price) was given to Norwest Bank, NA, and SBA through its affiliate CenTex Certified Development Corporation accepted a second lien Note for $365,000 (approx. 40% of the purchase price).

Mathis had difficulty servicing the debts and he started making late payments in 2003. In 2006, CenTex acquired the Norwest Note. At that time, Mathis was still several months behind on his payments.

For years Mathis continued to make late payments, and CenTex continued to accept them. Until 2009. In February 2009 Mathis sent CenTex a check for three installment payments. This was the first time that a payment was rejected, but not until April 2009. Shortly thereafter CenTex sent Mathis a letter of intent to foreclose on the property in May 2009.

Mathis sued to stop the foreclosure, claiming the debt was improperly accelerated. And as a consequence, CenTex had no right to foreclose. The trial court initially granted Mathis’ request to stop the foreclosure, but at a full trial in 2010 the court reversed itself and ruled for CenTex.

Displeased with that final Judgment, Mathis appealed.

While Texas law requires notice of intent to accelerate a real estate debt, it can also be waived if done so properly. At least with regard to commercial transactions. The waiver must be clear and unequivocal. And from my experience, most commercial loans contain a full waiver clause, giving the lender the option to send a notice of intent to accelerate the debt and opportunity to cure a default, or bypassing it and instead sending a notice of foreclosure.

It is also my experience that many times the notice waiver can be negotiated and eliminated. Then, lenders are forced to give a written notice of intent to accelerate and an opportunity to cure the default before acceleration. But the loan docs in this case did not contain the type of clause that would have been of great benefit to Mathis. Instead, the scales were tilted in the lender’s behalf.

The Texas Court of Appeals looked at the waiver provision in the Note and the waiver provision in the Deed of Trust. They were not the same. The waiver provision in the Note appeared to be ‘clear and unequivocal.’ But not so in the Deed of Trust. The Deed of Trust stated: “If [Mathis] defaults . . . and the default continues after [Lender] gives [Mathis] notice of the default and the time within which it must be cured, as may be required by law or by written agreement . . .”

Feeling confused by the two clauses, the Court of Appeals concluded that the waiver provisions in the Note and Deed of Trust could not be rectified. Absent clear and unequivocal evidence that the Lender and Mathis intended to waive any formal requirement to send notice of default and intent to accelerate the debt before foreclosure, the Judgment of the trial court was reversed because the attempted Note acceleration was ineffective.

Mathis wins. CenTex loses. Well not really. All CenTex has to do now is to send out a notice of intent to accelerate, then accelerate the debt and foreclose next month. But I digress.

See Mathis v. DCR Mortgage III Sub I L.L.C.; 08-10-00310-CV; Texas Court of Appeals 8^th District; October 10, 2012.

Lessons learned:

1.      Be wary of commercial loan docs. Yes they are one-sided and intended to be so. But that doesn’t mean that Borrowers must be in default the moment they sign the docs. Many lenders are willing to make reasonable accommodations. But you have to know what to ask for. And then ask.

2.      Texas law will usually help consumer-borrowers and residential tenants. Not so in a commercial context. Don’t count on Texas laws helping you. Many provisions that are non-waivable in Texas consumer and residential law are waivable in Texas commercial law.

3.      Exercise your Democratic right / obligation. Even if you are a Republican. Vote!

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.