Holder-of-Note Standing to Foreclose Persists Despite Alleged Deed-of-Trust Assignment Defects; Texas Equitable Redemption Requires Conjunctive Proof of Being “Ready, Willing, and Able”

1. Introduction

In Kafi v. Wells Fargo Bank (5th Cir. Mar. 10, 2025), Plaintiff–Appellant Kafi, Incorporated challenged Defendant–Appellee Wells Fargo Bank, N.A., as Trustee for ABFC 2006-OPT3 Trust, Asset Backed Funding Corporation Asset-Backed Certificates, Series 2006-OPT3 (and servicer PHH Mortgage Corporation) over Wells Fargo’s right to nonjudicially foreclose on a Texas residence in League City.

Kafi purchased the property “as-is” and “subject-to” outstanding liens while the underlying loan remained in default. Kafi’s core theory was that a recorded 2012 Corporate Assignment of the Deed of Trust from Sand Canyon to Wells Fargo was forged and therefore void ab initio, depriving Wells Fargo of “standing” to foreclose and creating a cloud on title. In the alternative, Kafi sought equitable redemption—the right to cure by paying the valid lien amount before foreclosure.

The Fifth Circuit affirmed summary judgment for Wells Fargo and PHH, addressing two recurring foreclosure-litigation issues under Texas law: (i) whether being the holder of the note alone confers foreclosure standing even if assignment of the deed of trust is contested, and (ii) what evidence is required at summary judgment to preserve an equitable redemption claim.

2. Summary of the Opinion

  • Standing to foreclose: The court held Wells Fargo had standing to foreclose because it was the holder of the Note (endorsed in blank and delivered in 2006), and Texas law permits foreclosure by the note holder even if the deed-of-trust assignment is attacked. Kafi’s declaratory judgment and quiet title theories failed as a matter of law.
  • Equitable redemption: The court affirmed dismissal because Kafi did not produce adequate summary-judgment evidence that it was ready and willing and able to redeem. Kafi’s declaration stating it was “ready, able, or willing” was insufficient; those requirements are conjunctive. The court also emphasized that Kafi could have taken procedural steps (e.g., deposit into the registry) to satisfy redemption-related evidentiary burdens without abandoning its standing challenge.

3. Analysis

3.1. Precedents Cited

A. Standing / Foreclosure Authority Under Texas Law

  • EverBank, N.A. v. Seedergy Ventures, Inc., 499 S.W.3d 534 (Tex. App.—Houston [14th Dist.] 2016, no pet.)
    Role in opinion: Supplied the framing rule the district court adopted: under Texas law, parties with standing to initiate a nonjudicial foreclosure include the mortgagee and the holder of the note.
  • SGK Properties, L.L.C. v. U.S. Bank National Ass'n, 881 F.3d 933 (5th Cir. 2018)
    Role in opinion: Primary Fifth Circuit authority rejecting Kafi’s “must own the recorded deed of trust via valid assignment” theory. The court reiterated SGK’s rule: “Even if a party does not have a recorded interest in a security instrument, the party may still have standing to foreclose if the party is the holder or owner of a note secured by the instrument.”
  • Reinagel v. Deutsche Bank National Trust Co., 735 F.3d 220 (5th Cir. 2013)
    Role in opinion: Kafi invoked Reinagel to argue Texas law shifted to “the note follows the deed of trust.” The panel clarified Reinagel does not “radically shift” Texas law and is not inconsistent with SGK. Rather, Reinagel and SGK articulate different presumptions depending on what is transferred (note vs. security instrument).
  • Martins v. BAC Home Loans, Serv., L.P., 722 F.3d 249 (5th Cir. 2013) (quoting Robeson v. Mortg. Elec. Registration Sys. Inc.)
    Role in opinion: Reinforced that foreclosure authority may exist even when it would not be possible for both the lender and beneficiary to hold the note, underscoring Texas’s flexible approach to foreclosure actors.
  • Harris Cnty., Tex. v. MERSCORP, Inc., 791 F.3d 545 (5th Cir. 2015); Kiggundu v. Mortg. Elec. Registration Sys. Inc., 469 Fed. App'x 330 (5th Cir. 2012)
    Role in opinion: Cited as consistent federal applications of Texas law recognizing foreclosure authority in contexts involving mortgage interests and note holding.
  • Restatement (Third) of Property: Mortgages, § 5.4
    Role in opinion: Used to harmonize Reinagel and SGK: the Restatement recognizes both directions of the linkage—transfer of the obligation transfers the mortgage, and transfer of the mortgage transfers the obligation (absent contrary agreement and subject to UCC requirements).

B. Quiet Title Framework (Texas)

  • Ford v. Exxon Mobil Chem. Co., 235 S.W.3d 615 (Tex. 2007); Hahn v. Love, 321 S.W.3d 517 (Tex. App.—Houston [1st Dist.] 2009)
    Role in opinion: Provided baseline description of quiet title as an equitable remedy to remove clouds.
  • Longoria v. Lasater, 292 S.W.3d 156 (Tex. App.—San Antonio 2009); Vernon v. Perrien, 390 S.W.3d 47 (Tex. App.—El Paso 2012)
    Role in opinion: Defined “cloud on title” and elements/burdens for quiet title; crucially, Kafi could not prove Wells Fargo’s facially valid claim was invalid once the court concluded Wells Fargo was the note holder entitled to foreclose.

C. Equitable Redemption (Texas and Federal Applications)

  • Scott v. Dorothy B. Schneider Est. Tr., 783 S.W.2d 26 (Tex. App.—Austin, 1990, no writ)
    Role in opinion: Identified redemption as a surviving common-law equitable action in Texas and recited a “ready, able, or willing” phrasing that the Fifth Circuit scrutinized and effectively corrected by tracing the quote back to Houston.
  • Louisville Joint Stockland Bank v. Radford, 295 U.S. 555 (1935); Parks v. Worthington, 87 S.W. 720 (Tex. App. 1905, no writ)
    Role in opinion: Provided historical/equitable foundations for redemption doctrine and pleading requirements.
  • Houston v. Shear, 210 S.W. 976 (Tex. Civ. App. 1919), writ granted, writ dismissed
    Role in opinion: Central to the court’s analysis. Houston reversed a trial court and emphasized equitable power to allow post-trial payment, where the plaintiff alleged and testified he was “ready and able” and offered to pay the amount decreed. The Fifth Circuit used Houston to show the correct standard is effectively conjunctive and that “or” language in later quotations likely reflected a reporting error rather than the governing rule.
  • Jones v. Porter, 29 Tex. 456 (Tex. 1867)
    Role in opinion: Demonstrated Texas courts are not compelled to grant additional time to redeem beyond what equity and pleadings support; it supported the Fifth Circuit’s skepticism toward open-ended, non-tender redemption claims.
  • Elbar Investments, Inc. v. Wilkinson, No. 14-99-00297-CV, 2003 WL 22176624 (Tex. App—Houston [14th Dist.], Sept. 23, 2003, writ denied)
    Role in opinion: Illustrated that failure to pay or attempt to pay can be fatal; notably, Elbar itself ultimately used conjunctive “ready, willing, and able,” reinforcing the Fifth Circuit’s point.
  • Suri Holdings, LLC v. Argent Mortgage Co., No. 4:19-cv-3844, 2021 WL 972888 (S.D. Tex. Feb. 8, 2021); Kingman Holdings, LLC v. Ocwen Loan Serv. LLC, No. 3:17-CV-41-M, 2018 WL 3448556 (N.D. Tex. June 28, 2018)
    Role in opinion: Supported the district court’s view that summary-judgment survival often requires evidence of actual tender (or attempted tender) after a payoff quote.
  • Ther & Co., LLC v. U.S. Bank, N.A., No. CV H-18-2916, 2019 WL 5684226 (S.D. Tex. Oct. 31, 2019); Suniverse LLC v. Encore Credit Corp., No. CV 19-2331, 2020 WL 7265403 (S.D. Tex. Nov. 17, 2020)
    Role in opinion: The panel treated these as factually distinguishable: they involved sworn proof that plaintiffs were “ready, willing, and able,” while Kafi’s declaration used ambiguous disjunctive wording (“or”).
  • Owens v. Bank of Am., N.A., No. H-11-CV-2552, 2012 WL 912721 (S.D. Tex. Mar. 16, 2012)
    Role in opinion: Offered a practical pathway: tendering the redemption amount to the lender or depositing it into the court registry can satisfy redemption-related tender demands.

3.2. Legal Reasoning

A. Standing: “Holder of the Note” Is Enough Under Texas Foreclosure Law

The court treated Kafi’s claimed forgery in the 2012 deed-of-trust assignment as ultimately beside the point given an earlier, dispositive fact: Wells Fargo possessed the original Note endorsed in blank since 2006. Under Texas law (as applied in Fifth Circuit precedent), the note holder may foreclose even if the security instrument’s recorded chain is contested. The opinion’s most important clarifications are:

  1. SGK Properties controls the “note-first” scenario: If the note is transferred and the deed of trust is not expressly mentioned, the deed of trust “follows the note,” and foreclosure standing remains with the note holder.
  2. Reinagel addresses the “security-first” scenario: If the deed of trust is transferred without explicit note language, the note presumptively “follows the mortgage” (consistent with the Restatement).
  3. No contradiction: The maxims are context-dependent presumptions, not mutually exclusive rules. The Restatement’s § 5.4(a) and (b) recognizes both directions absent contrary agreement (and subject to UCC constraints).

B. Equitable Redemption: Summary Judgment Requires Conjunctive Proof

The court characterized the appeal as turning on Texas substantive requirements for preserving an equitable remedy—filtered through federal summary judgment standards. Because the Supreme Court of Texas has not supplied a controlling modern decision on the pretrial evidentiary showing, the court performed an Erie guess, looking to intermediate Texas appellate decisions and persuasive federal applications.

Two moves in the opinion are especially consequential:

  1. The “ready, willing, and able” elements are conjunctive: The court held “common sense” and case law require all three. It examined Scott v. Dorothy B. Schneider Est. Tr.’s oft-quoted “ready, able, or willing” language and traced it to Houston v. Shear, concluding Scott likely repeated a reporting error. The court emphasized Houston’s operative language: “ready, able, and willing” in pleadings and testimony.
  2. Kafi’s declaration failed on its face: Kafi relied on a declaration stating it was “ready, able, or willing” to redeem. The court treated that as materially different from “ready, willing, and able,” leaving the redemption showing unsubstantiated under Rule 56.

The opinion also addresses fairness concerns in alternative pleading: the court acknowledged redemption was pled “in the alternative,” but held that strategy does not dilute the substantive evidentiary showing required to keep an equitable claim alive at summary judgment—especially for a third-party purchaser who took the property “subject-to” liens and did not assume the debt.

3.3. Impact

  • Foreclosure challenges premised on assignment defects narrow further (in federal court): The decision reinforces that, in Texas, attacking a deed-of-trust assignment (even alleging forgery) may not defeat foreclosure standing where the foreclosing party can prove it is the holder of the note.
  • Redemption claims face sharper evidentiary screening: By explicitly treating “ready, willing, and able” as conjunctive and finding “or” language insufficient, the Fifth Circuit increases the importance of careful declaration drafting and concrete tender-related steps.
  • Practical litigation roadmap: The opinion effectively instructs redemption plaintiffs to: (i) submit unequivocal “ready and willing and able” evidence, (ii) consider seeking a court-set redemption deadline, and/or (iii) tender funds to the lender or deposit them into the registry (citing Owens v. Bank of Am., N.A.).
  • Doctrinal cleanup: The court’s close reading of Houston v. Shear vs. Scott v. Dorothy B. Schneider Est. Tr. functions as a corrective signal to litigants and courts that have relied on disjunctive phrasing.

4. Complex Concepts Simplified

“Standing to foreclose” (Texas nonjudicial foreclosure)
In Texas, the party initiating a nonjudicial foreclosure must have legal authority under the deed of trust and/or as the note holder. Federal courts applying Texas law commonly recognize that the holder of the promissory note has authority to enforce it and foreclose on the collateral, even if there are disputes in the recorded assignment chain of the deed of trust.
“The mortgage follows the note” vs. “the note follows the mortgage”
These are default presumptions about what happens when one document is transferred without expressly mentioning the other. If someone transfers the note, the accompanying deed of trust typically comes with it (SGK’s emphasis). If someone transfers the deed of trust, the note is typically presumed included (Reinagel’s emphasis). The Restatement recognizes both.
Quiet title
An equitable suit to remove a “cloud” (an apparently valid but actually invalid claim) from title. If the defendant’s claim is legally valid—here, Wells Fargo’s foreclosure authority as note holder—quiet title fails.
Equitable redemption
A common-law equitable right to prevent loss of property by paying the amount of valid liens before foreclosure occurs. Courts require the redemption plaintiff to prove it is ready, willing, and able to pay, and disputes often turn on whether tender (payment/attempted payment) or a registry deposit is necessary to show genuine readiness.
Erie guess
When a state’s highest court has not decided a specific issue, a federal court predicts (“guesses”) how that court would rule, using intermediate state decisions and other persuasive sources.

5. Conclusion

Kafi v. Wells Fargo Bank reinforces two practical rules for Texas foreclosure litigation in federal court. First, a foreclosing party’s status as holder of the note can independently establish foreclosure standing notwithstanding alleged defects in a later-recorded deed-of-trust assignment. Second, a plaintiff seeking equitable redemption must produce summary-judgment evidence showing it is ready and willing and able to redeem; ambiguous “or” phrasing is insufficient, and plaintiffs should consider tender, registry deposit, or other concrete steps to substantiate equitable readiness while preserving alternative theories.