Can a company (not just an individual) act as the substitute trustee that runs a mortgage foreclosure sale in Texas?

Plain-English summary

Senator Donna Campbell, as chair of the Senate Committee on Nominations, asked the AG to resolve a recurring point of confusion in mortgage practice: when a lender appoints a "substitute trustee" to run a foreclosure sale under Property Code chapter 51, does that trustee have to be an individual human being, or can it be a company?

Chapter 51 governs the enforcement of a deed of trust, which is the lien instrument behind most Texas home mortgages. It defines a "trustee" as the person authorized to exercise the power of sale under a security instrument, and a "substitute trustee" as a person appointed by the current mortgagee or mortgage servicer to exercise that power. Both definitions use the word "person," but chapter 51 never defines "person."

The AG filled that gap with the Code Construction Act in Government Code chapter 311, which supplies default definitions unless a statute or context requires otherwise. That Act defines "person" to include a corporation, organization, government, business trust, estate, trust, partnership, association, and any other legal entity. The Property Code expressly adopts the Code Construction Act for its own provisions, and nothing in chapter 51 narrows "person" to a human. The AG also pointed out that other parts of the Property Code (the Trust Code, the institutional-funds management rules, and the Fair Housing Act) all define "person" to include corporate and legal entities.

Finally, the AG relied on federal cases that addressed this exact question. In In re AMRCO, a Texas bankruptcy court held that because corporations are clearly "persons" who can serve as a "mortgage servicer" or "mortgagee" under section 51.0001, it would violate the canon that similar language in the same statute gets a consistent meaning to bar an artificial person from serving as trustee or substitute trustee. Another federal case upheld a corporate entity (Deutsche Bank) acting as trustee under a deed of trust. The AG concluded a court would likely hold that a corporate entity is a "person" that may serve as a substitute trustee (and the analysis is the same for a trustee).

What this means for you

If you are a mortgage servicer or lender

Based on this opinion, you can appoint a corporate entity, not only an individual, as the substitute trustee to conduct a foreclosure sale under chapter 51. The AG read "person" in the trustee and substitute-trustee definitions to include corporations and other legal entities.

If you are a homeowner facing foreclosure

The AG's reading means a foreclosure sale is not invalid simply because the substitute trustee named in the paperwork is a company rather than a named individual. The opinion does not address any other requirement for a valid foreclosure; it answers only the narrow question of whether a corporate entity can hold that role.

If you are a real estate or title attorney

The decisive points are that chapter 51 uses "person" without defining it, that the Code Construction Act's broad definition applies through Property Code section 1.002, and that federal authority (In re AMRCO) treats trustee and mortgage-servicer/mortgagee definitions consistently. State courts find federal authority persuasive in home-mortgage litigation, which the AG noted in support.

Common questions

Q: Does a Texas foreclosure substitute trustee have to be a person, or can it be a company?
A: The AG concluded a corporate entity is a "person" under the applicable definitions and may serve as a substitute trustee under Property Code chapter 51.

Q: Why does the law use the word "person" if it can mean a company?
A: Chapter 51 does not define "person," so the Code Construction Act's default definition applies, and that definition includes corporations and other legal entities.

Q: Is a foreclosure sale invalid if the substitute trustee is a corporation?
A: Not on that basis, according to the AG's reading. A corporate entity may validly serve in that role; this opinion does not address other foreclosure requirements.

Q: Does the same answer apply to a trustee, not just a substitute trustee?
A: Yes. The AG noted the analysis is the same for a trustee as for a substitute trustee.

Background and statutory framework

Property Code chapter 51 governs enforcement of a deed of trust against real property (sections 51.0001-.016). It defines a "trustee" as the person authorized to exercise the power of sale under a security instrument (section 51.0001(8)) and a "substitute trustee" as a person appointed by the current mortgagee or mortgage servicer to exercise that power (section 51.0001(7)); one or more persons may be authorized to exercise the power of sale (section 51.0074(a)). Chapter 51 does not define "person."

The Code Construction Act (Government Code chapter 311) supplies default definitions unless a statute or context requires otherwise (section 311.005), and it defines "person" to include a corporation, organization, business trust, estate, trust, partnership, association, and any other legal entity (section 311.005(2)). The Property Code adopts the Code Construction Act for its provisions (section 1.002), and other Property Code definitions of "person" include corporate and legal entities (sections 111.004(10), 163.003(6), 301.003(12)). Federal courts have addressed the precise question: a bankruptcy court held an artificial person may serve as trustee or substitute trustee, reasoning that corporations are "persons" who can be a mortgage servicer or mortgagee and that similar language in the same statute must be read consistently (In re AMRCO, Inc., quoting Nat'l Credit Union Admin. v. First Nat. Bank & Trust Co.; see also Jones v. Deutsche Bank Nat. Trust Co.; Pate v. Zientz). The AG concluded a court would likely hold a corporate entity may serve as a substitute trustee under chapter 51.

Citations and references

Statutes:

• Tex. Prop. Code § 51.0001 — defines trustee and substitute trustee using "person"
• Tex. Gov't Code § 311.005 — Code Construction Act definition of "person" includes corporations and other legal entities
• Tex. Prop. Code § 1.002 — Code Construction Act applies to the Property Code

Key cases:

• In re AMRCO, Inc., 496 B.R. 442 (W.D. Tex. 2013) — an artificial person may serve as trustee or substitute trustee under chapter 51
• Nat'l Credit Union Admin. v. First Nat. Bank & Trust Co., 522 U.S. 479 (1998) — similar language within the same statute gets a consistent meaning
• Pate v. Zientz, No. 4-09-CV-643, 2011 WL 1576943 (E.D. Tex. Mar. 9, 2011) — a corporate entity validly acted as trustee under a deed of trust

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/ken-paxton/kp-0424
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2023/kp-0424.pdf

Original opinion text

KEN PAXTON
ATTORNEY GENERAL OF TEXAS

February 6, 2023

The Honorable Donna Campbell, M.D.
Chair, Senate Committee on Nominations
Texas State Senate
Post Office Box 12068
Austin, Texas 78711-2068

Opinion No. KP-0424

Re: Whether a corporate entity may serve as a substitute trustee for purposes of conducting a mortgage foreclosure sale under Property Code chapter 51 (RQ-0466-KP)

Dear Senator Campbell:

You ask whether a corporate entity may serve as a substitute trustee for the purpose of conducting a mortgage foreclosure sale under Property Code chapter 51.¹ You explain that confusion exists on the question whether a person acting as a substitute trustee under that chapter may be a legal entity or if a substitute trustee must be a natural person, i.e., an individual human being. See Request Letter at 1–2.

Property Code chapter 51 provides the law governing enforcement of a deed of trust which creates a lien against real property. See generally TEX. PROP. CODE §§ 51.0001–.016. Subsection 51.0001(8) identifies the trustee as the person who is authorized to "exercise the power of a sale under the terms of a security instrument . . . ." Id. § 51.0001(8); see also id. §§ 51.0001(6) (defining "security instrument" to mean "a deed of trust, mortgage, or other contract lien on an interest in real property"), 51.0074(a) (providing that "[o]ne or more persons may be authorized to exercise the power of sale under a security instrument"). Subsection 51.0001(7) defines a "[s]ubstitute trustee" as "a person appointed by the current mortgagee or mortgage servicer under the terms of the security instrument to exercise the power of sale." Id. § 51.0001(7) (emphasis added). As you point out, chapter 51 does not define "person." See generally id.; see also Request Letter at 1.

Chapter 311, Government Code, provides definitions of common terms that "apply unless the statute or context . . . requires a different definition[.]" TEX. GOV'T CODE § 311.005. It defines "person" to include a "corporation, organization, government or governmental subdivision or agency, business trust, estate, trust, partnership, association, and any other legal entity." Id. § 311.005(2); see also id. § 311.001 (identifying chapter 311 as the "Code Construction Act"). The Property Code states that the Code Construction Act applies to the construction of provisions in the Property Code except as otherwise expressly provided by the Property Code. TEX. PROP. CODE § 1.002 No language in chapter 51 limits the term "person" to only a human individual. Moreover, other provisions elsewhere in the Property Code define the word "person" broadly to include corporate and legal entities. See, e.g., id. §§ 111.004(10) (defining "person" for purposes of the Texas Trust Code to include different types of corporate and legal entities), 163.003(6) (defining "person" for purposes of the management of institutional funds to include different types of corporate and legal entities), 301.003(12) (defining "person" for purposes of the Texas Fair Housing Act to include different types of corporate and legal entities). A court would likely utilize Government Code chapter 311's definition of "person" to define the term for purposes of chapter 51 of the Property Code.

You refer us to a 2013 bankruptcy court case as support for this interpretation.² See Request Letter at 2. In In re AMRCO, Inc., the United States Bankruptcy Court for the Western District, Austin Division, looked at the precise question at issue: whether only natural persons can be appointed as trustee or substitute trustee in a foreclosure sale. See 496 B.R. 442, 445 (W.D. Tex. 2013). The court noted the case law makes clear that corporations are "persons" who may serve as a "mortgage servicer" or "mortgagee" as those terms are defined and used in section 51.0001. Id. (citing Jones v. Deutsche Bank Nat. Trust Co., No. 3:12-CV-3929-L, 2013 WL 3455716, at 8 (N.D. Tex. July 9, 2013)); see also TEX. PROP. CODE § 51.0001(3) (defining "mortgage servicer"), (4) (defining "mortgagee"). The court observed that to construe chapter 51 to allow an artificial person to serve as a mortgage servicer or mortgagee under subsections 51.0001(3) and (4), but not allow an artificial person to serve as a trustee or substitute trustee under subsections 51.0001(7) and (8) violates "the established canon of construction that similar language contained within the same section of a statute must be accorded a consistent meaning." In re AMRCO, Inc., 496 B.R. at 445 (quoting Nat'l Credit Union Admin. v. First Nat. Bank & Trust Co., 522 U.S. 479, 481 (1998)). The court concluded that an artificial person may "serve as Trustee or Substitute Trustee." Id.; see also Pate v. Zientz, No. 4-09-CV-643, 2011 WL 1576943, at 5 (E.D. Tex. Mar. 9, 2011) (holding that Deutsche Bank, a corporate entity, validly acted as a trustee under a deed of trust).

For these reasons, a court would likely conclude that a corporate entity is a "person" and thus may serve as a substitute trustee for purposes of conducting a mortgage foreclosure sale under Property Code chapter 51.³

S U M M A R Y

Property Code chapter 51 relates to liens created against real property as enforcement of a deed of trust. It authorizes a trustee or a substitute trustee to conduct a foreclosure sale and defines both using the term "person." Absent limitation in chapter 51 and utilizing the general definition of "person" from the Code Construction Act, a court would likely conclude that a corporate entity is a "person" and thus may serve as a substitute trustee for purposes of conducting a mortgage foreclosure sale under Property Code chapter 51.

Very truly yours,

KEN PAXTON
Attorney General of Texas

BRENT E. WEBSTER
First Assistant Attorney General

LESLEY FRENCH
Chief of Staff

D. FORREST BRUMBAUGH
Deputy Attorney General for Legal Counsel

AUSTIN KINGHORN
Chair, Opinion Committee

CHARLOTTE M. HARPER
Assistant Attorney General, Opinion Committee

¹ See Letter from Honorable Donna Campbell, M.D., Chair, Comm. on Veterans Affairs & Border Sec., Tex. State Senate, to Honorable Ken Paxton, Tex. Att'y Gen. at 1 (July 7, 2022), https://texasattorneygeneral.gov/sites/default/files/request-files/request/2022/RQ0466KP.pdf ("Request Letter").

² State courts find federal authority particularly persuasive in home-mortgage litigation. See, e.g., Schuetz v. Source One Mortg. Servs. Corp., No. 03-15-00522-CV, 2016 WL 4628048, at 3, n.3 (Tex. App.—Austin Sept. 1, 2016, no pet.); Standiford v. CitiMortgage, Inc., No. 03-14-00344-CV, 2015 WL 6831578, at 3, n.7 (Tex. App.—Austin Nov. 3, 2015, pet. denied).

³ Though you ask specifically about only a "substitute trustee," the analysis would be the same for a trustee. See generally Request Letter at 1–2.