Texas Commercial Law Firm

Most deeds of trust and established Texas case law require that a “holder” be the entity to appoint the substitute trustee and foreclose. A “holder” would be the party who holds the note, whether endorsed or not. To have a valid foreclosure therefore, prior to enactment of Section 51.0075(c), it was required in most cases that the holder of the note be the party appointing the substitute trustee. Had this practice been followed in Nicholson, the Court presumably would have ruled in favor of the lender.

Frequently, however, it is difficult to obtain the holder's signature on an appointment of substitute trustee. After all, the holder of the loan is typically an investor in a portfolio of loans and has neither the desire nor staffing to be involved in the day to day functions associated with collecting defaulted loans. For all intents and purposes, the mortgage servicer has stepped into the shoes of the holder in managing virtually all aspects of collection of loans it services on behalf of the holder. In fact, prior to enactment of Section 51.0075(c), many mortgage servicers routinely signed of appointments of substitute trustee on behalf of the mortgagees.

The primary reason for enactment of Property Code Section 51.0075(c) therefore, was to allow mortgage servicers to appoint substitute trustees to avoid the problems of the Nicholson case. While Section 51.0075(c) appears to accomplish that purpose, mortgage servicers must bear in mind that a power of attorney or “other written instrument” authorizing the mortgage servicer to appoint the substitute trustee are required for a valid appointment.

3. The Mortgage Servicer May “Administer” the Foreclosure.

The revised Property Code has deleted the term “holder” altogether and replaced it with the term “Mortgage Servicer” (a term which includes the term “Mortgagee”). One must therefore be a Mortgage Servicer or a Mortgagee in order to “administer” a foreclosure. A Mortgagee is defined as follows:

“Mortgagee” means:

(A) The grantee, beneficiary, owner, or holder of a security instrument;
(B) a book entry system; or
(C) if the security interest has been assigned of record, the last person to whom the security interest has been assigned of record.

Texas Legislature HB 1493, Property Code Sec. 51.0001(4) (2004) [Emphasis added].

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