One of the most controversial, most discussed, but least successful strategies in mortgage law is arguing the “split the note” theory. Yet thousands of attorneys and self represented individuals keep running into this 100 mph train thinking their case is somehow going to have a different outcome. So what is the split the note theory? This is the notion that a promissory note and deed of trust/mortgage are inseparable; that if they are not held and owned by the same entity or person, then somehow the foreclosure is no longer valid.
In Texas, the current reality is that the note’s whereabouts and travels is probably more than 90% irrelevant – who has it now, who’s had it in the past, was it securitized, they can’t produce the “wet ink” note, etc. are just not going to matter in most Texas suits.
The reason for its irrelevance is that in Texas, the note and deed of trust are being treated by most courts as 2 separate methods of collection on the same obligation. (think of it as a co-signature by two individuals; in a default the collector can go after EITHER one and both are NOT necessary). In almost all cases, a servicer or beneficiary chooses to foreclose on the deed of trust and therefore does not require possession of the note whatsoever. Unfortunately, many self-represented homeowners and attorneys are far too consumed with proving this argument and hundreds if not thousands of potentially good cases have been lost as a result. I am not saying that I agree with many of the current interpretations by the Courts but I do understand where the rationale is coming from. Below is a list of some of the appellate cases that have said no to this theory. I promise that in the coming days I will post some of the cases that disagree with the current interpretation but I must caution that they are more for educational purposes than they are for the self represented individual to use. They are dangerous and low percentage plays in Texas’ current highly predictable foreclosure system.
(Written by Rick Guerra – Managing Partner)