When mortgage lenders assign their interests in notes and deeds of trust to other entities, borrowers sometimes argue that the assignment destroys the original lender’s legal standing to pursue foreclosure proceedings. This argument becomes particularly complex when assignments occur during pending appeals or while foreclosure actions are underway. Borrowers may contend that the original lender lost all rights to the mortgage when it transferred its interest, making any subsequent legal proceedings invalid.
These standing challenges often arise in distressed mortgage situations where borrowers face foreclosure and seek any available defense to delay or prevent the loss of their property. The timing of assignments can create confusion about which party has the authority to pursue foreclosure and whether procedural requirements have been properly satisfied. Courts must balance the legitimate rights of mortgage assignees against borrowers’ due process protections.
The legal question centers on whether mortgage assignments during pending litigation destroy the assignor’s standing retroactively or whether assignees can step into the assignor’s shoes and continue existing proceedings. This issue affects the efficiency of mortgage enforcement and the finality of court judgments in foreclosure cases. The case of In the Estate of Susan Turner-Hargrave, 2025 WL 1798641 (Tex. App.—Dallas 2025, no pet.), provides an opportunity to examine how Texas courts treat assignment rights and standing issues when mortgage interests are transferred during active litigation.
Facts & Procedural History
Susan obtained a $380,000 home equity loan in November 2006 by executing a promissory note secured by a deed of trust against a Cedar Hill residence. Her husband James was not a signatory on the note but joined her in signing the deed of trust. No payment was ever made on the loan during the life of the obligation.
The couple initially challenged the loan’s enforceability in federal court proceedings that began in 2015. An expedited foreclosure proceeding filed that year was dismissed when Susan and James filed their federal lawsuit. The federal court ruled against the couple in April 2018, and their Fifth Circuit appeal was dismissed for want of prosecution following Susan’s death in July 2018.
After Susan’s death in 2018, a probate proceeding commenced in Dallas County in 2019. In October 2020, Notecraft Capital became the mortgagee through assignment of the 2006 note and deed of trust. The probate court approved Notecraft’s claim for over one million dollars as a preferred debt and lien against the property.
In January 2021, Notecraft filed both a foreclosure sale application under the Texas Estates Code and an expedited foreclosure application under Rule 736. The probate court granted both applications in April 2021, authorizing Notecraft “and its successors and assigns” to proceed with foreclosure regarding the property.
James filed a separate lawsuit in July 2021 against Notecraft and its mortgage servicer, challenging the pending foreclosure and alleging various violations of state law. This lawsuit was initially assigned to Dallas County Court at Law but was transferred into the probate proceeding in September 2021.
James also filed an appeal challenging the probate court’s April 2021 foreclosure orders. However, this appeal was dismissed in September 2021 at James’s own request. Meanwhile, Notecraft filed a foreclosure counterclaim in October 2021 in James’s transferred lawsuit, asserting claims for breach of contract, non-judicial foreclosure, and judicial foreclosure in the alternative.
The key event occurred in October 2021 when Notecraft executed an assignment of “all its right, title and interest” in the note and deed of trust to Green Mountain Holdings. The assignment was recorded in November 2021. Before recording, Notecraft requested that the court substitute Green Mountain as the real party in interest to continue as counter-plaintiff.
Green Mountain and Notecraft filed summary judgment motions seeking foreclosure relief. James opposed these motions, arguing primarily that the assignment destroyed Notecraft’s standing and prevented Green Mountain from benefiting from any prior court orders. The trial court initially denied the summary judgment motions but later reconsidered and granted them, authorizing Green Mountain to proceed with foreclosure.
This complex Probate Litigation involved questions about mortgage assignments during pending proceedings and the impact of such transfers on legal standing. The case also raised issues about Probate Administration of secured debts against estate property.
Understanding Standing vs. Capacity in Civil Litigation
Texas law requires plaintiffs to possess both standing and capacity to bring lawsuits. These concepts serve different purposes in determining whether parties can pursue legal claims. Standing focuses on whether a party has a sufficient relationship with the lawsuit to have a justiciable interest in its outcome. Capacity addresses the procedural issue of whether a party has the personal qualifications necessary to litigate.
Standing must exist when a plaintiff files suit and must continue throughout all stages of legal proceedings, including appeals. This requirement ensures that courts only decide cases involving parties with genuine stakes in the outcome rather than abstract legal questions. Without proper standing, courts lack jurisdiction to render binding decisions.
The distinction between standing and capacity becomes important when mortgage assignments occur during pending litigation. Questions about whether assignors retain standing or whether assignees acquire standing affect the court’s jurisdiction to continue proceedings. Capacity challenges, by contrast, focus on whether parties have the authority to act on behalf of legal entities or estates.
Courts analyze standing issues as matters of subject matter jurisdiction that can be raised at any time during proceedings. Capacity challenges, however, must be raised by verified pleadings in trial courts or they are waived. This procedural difference affects how parties can challenge opposing parties’ rights to maintain litigation.
The timing of standing challenges also matters because standing must be maintained continuously. A party that loses standing during litigation cannot continue to prosecute claims, even if the party had proper standing when the lawsuit was filed. However, assignments may cure standing defects by transferring interests to parties with proper justiciable interests.
Assignment Rights: Stepping Into the Assignor’s Shoes
Under Texas law, assignees “stand in the shoes” of their assignors and obtain all rights, title, and interest that the assignor possessed at the time of assignment. This includes all remedies that were available to the assignor against debtors for enforcement of obligations. The assignment transfers not just the underlying debt but also the legal rights to pursue that debt through judicial proceedings.
When mortgage assignments occur during pending litigation, the assignee acquires the assignor’s rights to continue prosecuting the existing lawsuit. Courts recognize that requiring assignees to file new lawsuits would create unnecessary delay and expense while providing no additional protection for debtors. The assignment relationship creates legal continuity that preserves the efficiency of existing proceedings.
The law permits assignees to prosecute suits to completion in the assignor’s name, whether or not the assignee is added or substituted as a party. This rule acknowledges that assignments are primarily changes in beneficial ownership rather than fundamental alterations in the legal claims being pursued. Both assignors and assignees are deemed to have standing to maintain actions after assignment.
This principle applies even when assignments occur during appeals or other ongoing proceedings. The assignment does not destroy the assignor’s previous legal actions but rather creates additional parties with interests in the litigation’s outcome. Courts focus on ensuring continuity of legal proceedings rather than requiring fresh starts that would benefit no legitimate interest.
The standing analysis considers whether parties had justiciable interests when they took actions, not whether they retained those interests throughout the entire proceeding. An assignor’s loss of beneficial ownership through assignment does not retroactively invalidate actions the assignor took when it possessed the necessary interest. This approach promotes finality and prevents parties from disrupting legal proceedings through strategic assignments.
The “Successors and Assigns” Language in Court Orders
The probate court’s April 2021 orders specifically authorized Notecraft “and its successors and assigns” to proceed with foreclosure. This language demonstrates the court’s recognition that mortgage interests might be assigned and its intent that such assignments should not disrupt authorized foreclosure proceedings. The inclusive language protects the continuity of court orders despite changes in beneficial ownership.
Notecraft’s counterclaim was filed on behalf of itself “and its successors and assigns,” again acknowledging the possibility of future assignments and preserving rights for assignees. This pleading practice ensures that assignments do not create gaps in legal representation or require dismissal and refiling of claims when ownership changes occur.
The comprehensive language in both court orders and pleadings reflects standard practice in mortgage litigation where assignments frequently occur during pending proceedings. Lenders routinely buy and sell mortgage portfolios, and requiring new legal proceedings for each assignment would create substantial inefficiencies without corresponding benefits for borrowers or courts.
Courts interpret such language to authorize continued proceedings by assignees who acquire interests during litigation. The “successors and assigns” designation creates legal continuity that preserves the effectiveness of court orders despite ownership changes. Without this continuity, mortgage enforcement would be significantly complicated by routine business transactions.
The specific authorization language also addresses potential standing challenges by clarifying the court’s intent to permit continued proceedings by parties who acquire interests through assignment. This judicial recognition of assignment rights helps prevent disruption of authorized foreclosure proceedings through technical standing challenges.
The Property Code Definition of “Mortgagee”
Texas Property Code Chapter 51 provides guidance for determining who qualifies as a “mortgagee” with authority to pursue foreclosure proceedings. When security interests have been assigned of record, the statute defines “mortgagee” as “the last person to whom the security interest has been assigned of record.” This definition recognizes that mortgage ownership changes through assignment and provides clarity about who has authority to act.
Under this definition, Notecraft remained the “mortgagee” until its assignment to Green Mountain was recorded in November 2021. During the period between assignment execution in October and recording in November, Notecraft retained its status as mortgagee under the Property Code. This statutory framework supports Notecraft’s authority to seek party substitution while still qualifying as a mortgagee.
The recording requirement serves important notice functions by providing public documentation of mortgage ownership changes. However, the statute does not suggest that unrecorded assignments are invalid or that they immediately destroy all rights of assignors. The recording requirement establishes who has priority to act as mortgagee rather than eliminating all rights of previous owners.
The Property Code’s definition supports continuity in foreclosure proceedings by recognizing that mortgage ownership can change while maintaining clear lines of authority. The statute’s focus on recorded assignments ensures that third parties can determine who has current authority to act while preserving the rights of assignees who have not yet completed recording formalities.
This statutory framework complements the common law principles regarding assignment rights and standing. Together, these authorities support the conclusion that assignments do not automatically destroy ongoing legal proceedings but rather transfer rights and authority to continue existing actions.
The Irrelevance of Note Production Requirements
James argued that Green Mountain should be required to produce the original promissory note as a prerequisite to foreclosure proceedings. This “show me the note” argument has been consistently rejected by Texas courts in the context of deed of trust foreclosures. Texas law does not require parties to possess or produce original notes to pursue non-judicial foreclosure under deeds of trust.
Texas foreclosure statutes focus on the rights created by deeds of trust rather than possession of underlying promissory notes. Parties asserting interests under deeds of trust can pursue foreclosure based on their status as beneficiaries of the trust instruments. Green Mountain’s position as deed of trust beneficiary through assignment provided sufficient authority to pursue foreclosure regardless of note possession.
The distinction between note ownership and deed of trust beneficiary status reflects the different roles these instruments serve in mortgage transactions. While notes establish the debt obligation, deeds of trust create the security interest that enables foreclosure. Texas law permits foreclosure based on deed of trust rights without requiring proof of note ownership.
This rule promotes efficiency in mortgage enforcement by avoiding disputes over note possession that do not affect the substantive rights of borrowers. Borrowers remain obligated on their debts regardless of whether current note holders can produce original documents. The deed of trust provides the legal authority for foreclosure based on default under the secured obligation.
Courts recognize that requiring original note production would create unnecessary obstacles to legitimate foreclosure proceedings without providing meaningful protection for borrowers. The “show me the note” challenges typically represent procedural objections that do not address the underlying validity of mortgage debts or borrowers’ defaults.
Rule 736 vs. Traditional Foreclosure Counterclaims
James argued that Rule 736 barred Green Mountain from bringing any type of foreclosure counterclaim during the pendency of his lawsuit challenging the foreclosure. Rule 736 provides expedited foreclosure procedures for certain liens, giving lenders alternatives to traditional foreclosure lawsuits. However, the rule’s limitations apply specifically to expedited proceedings under Rule 736 rather than all forms of foreclosure litigation.
Texas courts have consistently held that lenders cannot bring Rule 736 proceedings as counterclaims in borrowers’ lawsuits against lenders. The narrow and limited nature of Rule 736 proceedings makes them incompatible with the counterclaim format. This restriction reflects the expedited nature of Rule 736 proceedings and their specific procedural requirements.
However, the prohibition on Rule 736 counterclaims does not extend to other types of foreclosure counterclaims. Courts have rejected arguments that Rule 736’s limitations create blanket prohibitions on all foreclosure counterclaims during pending borrower litigation. The rule’s restrictions are specific to its own expedited procedures rather than general foreclosure law.
Green Mountain’s counterclaim sought relief under traditional foreclosure theories rather than the expedited procedures of Rule 736. The counterclaim asserted causes of action for breach of contract, non-judicial foreclosure, and judicial foreclosure in the alternative. These traditional legal theories fall outside Rule 736’s limitations and remain available to mortgage holders during borrower litigation.
The distinction preserves lenders’ rights to pursue legitimate foreclosure claims while maintaining Rule 736’s procedural integrity. Borrowers’ lawsuits do not create immunity from all foreclosure proceedings but rather trigger specific limitations on expedited Rule 736 procedures. Traditional foreclosure rights remain available through counterclaims and other appropriate procedural mechanisms.
The Takeaway
The Turner-Hargrave decision clarifies that mortgage assignments during pending litigation do not automatically destroy assignors’ standing or prevent assignees from continuing existing proceedings. Courts will examine the timing of assignments, the language of previous court orders, and the specific statutory framework to determine whether parties retain or acquire sufficient interests to maintain litigation.
The case demonstrates that comprehensive pleading practices using “successors and assigns” language can preserve legal continuity despite ownership changes during litigation. Courts favor interpretations that promote the efficiency of legal proceedings while protecting the substantive rights of all parties. Technical standing challenges based on assignment timing are unlikely to succeed when assignees properly acquire interests and seek appropriate substitution.
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