## Facts

- Deysi R. Santos obtained two loans from First Franklin, a division of National City Bank of Indiana, to purchase a residential property.
- The second loan was evidenced by a promissory note and secured by a junior deed of trust on the property.
- Santos later defaulted on her obligations.
- In 2007, the lender foreclosed on the first (senior) loan. The foreclosure sale satisfied the first loan and extinguished junior liens, including the junior deed of trust securing the second loan, but the unpaid balance on the second note remained as a personal obligation.
- In 2019, Yellowfin Loan Servicing Corp. purchased the outstanding second note and sought to collect it.
- After Santos did not cure the default, Yellowfin accelerated the amounts due under the note and sued Santos for breach of contract to recover the unpaid balance.
- Santos disputed Yellowfin’s right to enforce the note and asserted defenses, including limitations and arguments attacking the note’s status as a negotiable instrument.
- Santos also counterclaimed for fraud and for violations of the Texas Debt Collection Practices Act (TDCPA).
- On negotiability, Santos relied on provisions of the note stating that default could occur if she failed to keep agreements “under this Note or under any other agreement,” and that she agreed to the “Disclosure Statement” (a separate Truth-in-Lending disclosure) “incorporated herein by reference.”
- The trial court granted Yellowfin’s traditional motion for summary judgment. Santos appealed.

## Issues

1. Whether the promissory note was a negotiable instrument despite referencing or incorporating other documents, including a Truth-in-Lending disclosure statement and “other agreement” language.
2. Whether Yellowfin conclusively established, for summary-judgment purposes, that it was entitled to enforce the note it purchased in 2019.
3. Whether the 2007 foreclosure on the senior lien extinguished only the junior lien, or also extinguished Santos’s personal liability on the junior note.
4. Whether Yellowfin’s breach-of-contract claim was time-barred, including whether the senior-lien foreclosure triggered accrual or acceleration of the junior note for limitations purposes.
5. Whether Santos raised a genuine issue of material fact on her fraud and TDCPA counterclaims sufficient to defeat summary judgment.

## Decision

- The court of appeals affirmed the trial court’s summary judgment for Yellowfin.
- The court treated the second note as enforceable and rejected the argument that references to other documents (including an incorporated disclosure statement) defeated negotiability.
- The court held the 2007 foreclosure extinguished the junior lien but did not extinguish the debt evidenced by the second note, leaving an unsecured obligation that could be enforced by suit on the note.
- The court rejected Santos’s limitations defense and upheld the timeliness of Yellowfin’s suit based on the relevant accrual principles for enforcing the note following acceleration.
- The court upheld summary judgment against Santos on her fraud and TDCPA counterclaims.

## Legal Principles

- Foreclosure of a senior lien extinguishes junior liens on the property, but it does not, by itself, discharge the borrower’s personal liability on a junior promissory note that remains unpaid.
- A note’s negotiability is not defeated merely because the note references or incorporates documents such as a Truth-in-Lending disclosure statement, so long as the promise to pay is not made conditional in a way that removes it from Texas UCC negotiable-instrument treatment.
- A party seeking traditional summary judgment on a note must prove entitlement to enforce the note and the amount due; once that showing is made, the borrower must present competent evidence raising a genuine issue of material fact on defenses.
- For limitations purposes, the enforceability of the full balance on an installment note typically turns on acceleration; the debtor’s theories tying accrual to a separate foreclosure event must satisfy Texas rules governing accrual and acceleration.
- Fraud and TDCPA claims require proof of the statutory or common-law elements; they do not survive summary judgment based only on the borrower’s unsuccessful challenge to the creditor’s authority to collect.

## Conclusion

The court of appeals affirmed summary judgment for Yellowfin on its breach-of-contract claim to collect a second-lien note acquired in 2019, holding that the 2007 senior-lien foreclosure eliminated only the junior security interest—not the underlying debt—and rejecting defenses based on negotiability and limitations while also affirming judgment against the borrower’s fraud and TDCPA counterclaims.


Santos v. Yellowfin Loan Servicing Corp., 2022 WL 2678846 (2022)