CASE FILE Texas Declaratory and Injunctive Relief Based On Wrongful Foreclosure, Trespass To Try Title and Quiet Title Miller Et Al v. Homecomings Financial LLC Et Al
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Banks are neither private attorneys general nor bounty hunters, armed with a roving commission to seek out defaulting
homeowners and take away their homes in satisfaction of some other bank's deed of trust.
Stephen Wm. Smith, United States Magistrate Judge
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CASE FILE Texas Declaratory and Injunctive Relief Based on Wrongful Foreclosure, Trespass to Try Title and Quiet Title Miller et al v. Homecomings Financial LLC et al
Banks are neither private attorneys general nor bounty hunters, armed with a roving commission to seek out defaulting
homeowners and take away their homes in satisfaction of some other bank's deed of trust.
Stephen Wm. Smith, United States Magistrate Judge
Droits d'auteur :
Attribution Non-Commercial (BY-NC)
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Téléchargez comme PDF, TXT ou lisez en ligne sur Scribd
100%(3)100% ont trouvé ce document utile (3 votes)
5K vues40 pages
CASE FILE Texas Declaratory and Injunctive Relief Based On Wrongful Foreclosure, Trespass To Try Title and Quiet Title Miller Et Al v. Homecomings Financial LLC Et Al
Banks are neither private attorneys general nor bounty hunters, armed with a roving commission to seek out defaulting
homeowners and take away their homes in satisfaction of some other bank's deed of trust.
Stephen Wm. Smith, United States Magistrate Judge
Droits d'auteur :
Attribution Non-Commercial (BY-NC)
Formats disponibles
Téléchargez comme PDF, TXT ou lisez en ligne sur Scribd
<excerpt> Case 4:11-cv-04416 Document 16 Filed in TXSD on 08/08/12 Page 12 of 14 Analysis Pg12 2. Standing to Challenge Assignment of Security Interest Defendants' final (and weakest) argument is that homeowners like plaintiffs "will not be prejudiced" if the chain of assignments from original lender to foreclosing entity were immune to debtor challenge. After all, the argument apparently goes, the Millers owe the money to somebody. In truth, the potential prejudice is both plain and severe - foreclosure by the wrong entity does not discharge the homeowner's debt, and leaves them vulnerable to another action on the same note by the true creditor. Banks are neither private attorneys general nor bounty hunters, armed with a roving commission to seek out defaulting homeowners and take away their homes in satisfaction of some other bank's deed of trust. MasterCard has no right to sue for debts rung up on a Visa card, and that remains true even if MasterCard has been assigned the rights of another third party like American Express. Unless and until a complete chain of transactions back to the original lender is shown, MasterCard remains a stranger to the original transaction with no claim against the debtor. And that is a fair description of this case in its present posture. In sum, a standing issue is lurking here, but only as to the defendants, not the plaintiffs. The court concludes that under Texas law homeowners have legal standing to Pg12 challenge the validity or effectiveness of any assignment or chain of assignments under which a party claims the right to foreclose on their property. Accordingly, plaintiffs have properly stated claims for declaratory and injunctive relief based on wrongful foreclosure, trespass to try title and quiet title. Just ia > Docket s & Filings > Texas > Texas Sout hern Dist rict Court > Real Propert y > Foreclosure > Miller et al v. Homecomings Financial LLC et al Mi l l er et al v. Homecomi ngs Fi nanci al LLC et al Pl ai nt i f f s: Joan Miller and David Miller Def endant s: Homecomings Financial LLC , GMAC Mortgage LLC , Bank of New York Mellon Trust Company NA , Don Ledbetter, Patricia Poston, Gabriel Ozel and Pite Duncan, LLP
Case Number : 4:2011cv04416 Fi l ed: December 15, 2011
Cour t : Texas Southern District Court Of f i ce: Houston Office Count y : Montgomery Pr esi di ng Judge: David Hittner
Nat ur e of Sui t : Real Property - Foreclosure Cause: 28:1446 Notice of Removal Jur i sdi ct i on: Diversity Jur y Demanded By : None
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Homecomi ngs Fi nanci al LLC et al Search Blogs [ Justia BlawgSearch | Blawg.com | Bloglines | Google Blogsearch |Technorati ] Search News [ Google News | Marketwatch | Wall Street Journal | Financial Times |New York Times ] Search Web [ Legal Web | Google | Bing | Yahoo | Ask ] Pl ai nt i f f : Joan Mi l l er Represented By: Jeffrey Scott Kelly Search Dockets [ Dockets ] Search Blogs [ Justia BlawgSearch | Blawg.com | Bloglines | Google Blogsearch |Technorati ] Search News [ Google News | Marketwatch | Wall Street Journal | Financial Times |New York Times ] Search Finance [ Google Finance | Yahoo Finance | Hoovers | SEC Edgar Filings ] Search Web [ Legal Web | Google | Bing | Yahoo | Ask ] Pl ai nt i f f : Davi d Mi l l er Represented By: Jeffrey Scott Kelly Search Dockets [ Dockets ] Search Blogs [ Justia BlawgSearch | Blawg.com | Bloglines | Google Blogsearch |Technorati ] Search News [ Google News | Marketwatch | Wall Street Journal | Financial Times |New York Times ] Search Finance [ Google Finance | Yahoo Finance | Hoovers | SEC Edgar Filings ] Search Web [ Legal Web | Google | Bing | Yahoo | Ask ] Def endant : Homecomi ngs Fi nanci al LLC Represented By: Keith Steven Anderson Search Dockets [ Dockets ] Search Blogs [ Justia BlawgSearch | Blawg.com | Bloglines | Google Blogsearch |Technorati ] Search News [ Google News | Marketwatch | Wall Street Journal | Financial Times |New York Times ] Search Finance [ Google Finance | Yahoo Finance | Hoovers | SEC Edgar Filings ] Search Web [ Legal Web | Google | Bing | Yahoo | Ask ] Def endant : GMAC Mor t gage LLC Represented By: Keith Steven Anderson Search Dockets [ Dockets ] Search Blogs [ Justia BlawgSearch | Blawg.com | Bloglines | Google Blogsearch |Technorati ] Search News [ Google News | Marketwatch | Wall Street Journal | Financial Times |New York Times ] Search Finance [ Google Finance | Yahoo Finance | Hoovers | SEC Edgar Filings ] Search Web [ Legal Web | Google | Bing | Yahoo | Ask ] Def endant : Bank of New Yor k Mel l on Tr ust Company NA Represented By: Keith Steven Anderson Search Dockets [ Dockets ] Search Blogs [ Justia BlawgSearch | Blawg.com | Bloglines | Google Blogsearch |Technorati ] Search News [ Google News | Marketwatch | Wall Street Journal | Financial Times |New York Times ] Search Finance [ Google Finance | Yahoo Finance | Hoovers | SEC Edgar Filings ] Search Web [ Legal Web | Google | Bing | Yahoo | Ask ] Def endant : Don Ledbet t er Search Dockets [ Dockets ] Search Blogs [ Justia BlawgSearch | Blawg.com | Bloglines | Google Blogsearch |Technorati ] Search News [ Google News | Marketwatch | Wall Street Journal | Financial Times |New York Times ] Search Finance [ Google Finance | Yahoo Finance | Hoovers | SEC Edgar Filings ] Search Web [ Legal Web | Google | Bing | Yahoo | Ask ] Def endant : Pat r i ci a Post on Search Dockets [ Dockets ] Search Blogs [ Justia BlawgSearch | Blawg.com | Bloglines | Google Blogsearch |Technorati ] Search News [ Google News | Marketwatch | Wall Street Journal | Financial Times |New York Times ] Search Finance [ Google Finance | Yahoo Finance | Hoovers | SEC Edgar Filings ] Search Web [ Legal Web | Google | Bing | Yahoo | Ask ] Def endant : Gabr i el Ozel Search Dockets [ Dockets ] Search Blogs [ Justia BlawgSearch | Blawg.com | Bloglines | Google Blogsearch |Technorati ] Search News [ Google News | Marketwatch | Wall Street Journal | Financial Times |New York Times ] Search Finance [ Google Finance | Yahoo Finance | Hoovers | SEC Edgar Filings ] Search Web [ Legal Web | Google | Bing | Yahoo | Ask ] Def endant : Pi t e Duncan, LLP Search Dockets [ Dockets ] Search Blogs [ Justia BlawgSearch | Blawg.com | Bloglines | Google Blogsearch |Technorati ] Search News [ Google News | Marketwatch | Wall Street Journal | Financial Times |New York Times ] Search Finance [ Google Finance | Yahoo Finance | Hoovers | SEC Edgar Filings ] Search Web [ Legal Web | Google | Bing | Yahoo | Ask ] U.S. District Court SOUTHERN DISTRICT OF TEXAS (Houston) CIVIL DOCKET FOR CASE #: 4:11-cv-04416 Miller et al v. Homecomings Financial LLC et al Assigned to: Magistrate Judge Stephen Smith Case in other court : Montgomery County, TX, 9th Judicial District, 11-00010-11705-CV Cause: 28:1446 Notice of Removal Date Filed: 12/15/2011 Jury Demand: None Nature of Suit: 220 Real Property: Foreclosure Jurisdiction: Diversity Plaintiff Joan Miller represented by Jeffrey Scott Kelly The Kelly Legal Group PLLC PO Box 2125 Austin, TX 78768 512-505-0053 Email: jkelly@kellylegalgroup.com LEAD ATTORNEY ATTORNEY TO BE NOTICED Plaintiff David Miller represented by Jeffrey Scott Kelly (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED V. Defendant Homecomings Financial LLC represented by Graham W. Gerhardt Bradley Arant et al 1819 5th Ave N. Birmingham, AL 35203 205-521-8000 Email: ggerhardt@babc.com LEAD ATTORNEY ATTORNEY TO BE NOTICED Keith Steven Anderson Brandley Arant Boult Cummings LLP 1819 Fifth Avenue North Birmingham, AL 35203 205-521-8714 Fax: 205-488-6714 Email: kanderson@babc.com ATTORNEY TO BE NOTICED Defendant GMAC Mortgage LLC represented by Graham W. Gerhardt (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED Keith Steven Anderson (See above for address) ATTORNEY TO BE NOTICED Defendant Bank of New York Mellon Trust Company NA represented by Graham W. Gerhardt (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED Keith Steven Anderson (See above for address) ATTORNEY TO BE NOTICED Defendant Don Ledbetter Defendant Patricia Poston Defendant Gabriel Ozel Defendant Pite Duncan, LLP Date Filed # Docket Text 12/15/2011 1 NOTICE OF REMOVAL from Montgomery County District Court, case number 11-10-11705-CV (Filing fee $ 350 receipt number 0541-9014203) filed by Homecomings Financial LLC, Bank of New York Mellon Trust Company NA, GMAC Mortgage Group, LLC. (Attachments: # 1 Exhibit A, # 2 Exhibit B, # 3 Civil Cover Sheet)(Anderson, Keith) (Entered: 12/15/2011) 12/16/2011 2 CERTIFICATE OF INTERESTED PARTIES by GMAC Mortgage Group, LLC, filed.(Anderson, Keith) (Entered: 12/16/2011) 12/16/2011 3 CERTIFICATE OF INTERESTED PARTIES by Homecomings Financial LLC, filed.(Anderson, Keith) (Entered: 12/16/2011) 12/16/2011 4 CERTIFICATE OF INTERESTED PARTIES by Bank of New York Mellon Trust Company NA, filed.(Anderson, Keith) (Entered: 12/16/2011) 12/19/2011 5 ORDER for Initial Pretrial and Scheduling Conference and Order to Disclose Interested Persons. Initial Conference set for 3/28/2012 at 02:00 PM in Courtroom 703 before Magistrate Judge Stephen Smith.(Signed by Judge David Hittner) Parties notified.(amaly) (Entered: 12/19/2011) 12/22/2011 6 MOTION to Dismiss and Incorporated Brief in Support Thereof by Bank of New York Mellon Trust Company NA, Homecomings Financial LLC, filed. Motion Docket Date 1/12/2012. (Attachments: # 1 Exhibit A, # 2 Proposed Order)(Anderson, Keith) (Entered: 12/22/2011) 01/03/2012 7 RESPONSE to 6 MOTION to Dismiss and Incorporated Brief in Support Thereof filed by David Miller, Joan Miller. (Attachments: # 1Exhibit A)(Kelly, Jeffrey) (Entered: 01/03/2012) 01/09/2012 8 REPLY to Response to 6 MOTION to Dismiss and Incorporated Brief in Support Thereof, filed by Bank of New York Mellon Trust Company NA, GMAC Mortgage LLC, Homecomings Financial LLC. (Anderson, Keith) (Entered: 01/09/2012) 03/27/2012 9 PROPOSED ORDER Proposed Scheduling Order, filed.(Kelly, Jeffrey) (Entered: 03/27/2012) 03/27/2012 10 Request to Appear by Telephone by Joan Miller, filed.(Kelly, Jeffrey) (Entered: 03/27/2012) 03/27/2012 11 Defendants' Request to Appear by Telephone by Ally Financial Inc, Bank of New York Mellon Corporation, Bank of New York Mellon Trust Company NA, GMAC Inc., GMAC Mortgage LLC, Homecomings Financial LLC, filed. (Gerhardt, Graham) (Entered: 03/27/2012) 03/27/2012 12 CONSENT to Proceed Before a Magistrate Judge by Ally Financial Inc, Bank of New York Mellon Corporation, Bank of New York Mellon Trust Company NA, GMAC Inc., GMAC Mortgage LLC, Homecomings Financial LLC, filed. (Gerhardt, Graham) (Entered: 03/27/2012) 03/28/2012 13 CONSENT TO PROCEED BEFORE MAGISTRATE JUDGE by All Parties and ORDER TRANSFERRING CASE to Magistrate Judge Stephen Smith. Judge David Hittner no longer assigned to the case..(Signed by Judge David Hittner) Parties notified.(ealexander, ) (Entered: 03/28/2012) 03/28/2012 14 Minute Entry for proceedings held before Magistrate Judge Stephen Wm Smith. SCHEDULING CONFERENCE held on 3/28/2012. Scheduling order issued. Appearances: Graham W. Gerhardt, Jeffrey Scott Kelly. (ERO:A. Maly), filed. (jmarchand) (Entered: 03/29/2012) 03/28/2012 15 SCHEDULING ORDER. ETT: 1 day. Bench trial. Amended Pleadings due by 7/14/2012. Joinder of Parties due by 7/14/2012 Pltf Expert Witness List due by 10/12/2012. Pltf Expert Report due by 10/12/2012 Deft Expert Witness List due by 11/12/2012. Deft Expert Report due by 11/12/2012 Discovery due by 11/30/2012. Dispositive Motion Filing due by 12/31/2012. Non-Dispositive Motion Filing due by 12/31/2012. Joint Pretrial Order due by 2/28/2013. Bench Trial set for 3/7/2013 at 09:30 AM in Courtroom 703 before Magistrate Judge Stephen Wm Smith.(Signed by Magistrate Judge Stephen Wm Smith) Parties notified.(jmarchand) (Entered: 03/29/2012) 08/08/2012 16 MEMORANDUM AND ORDER denying 6 MOTION to Dismiss and Incorporated Brief in Support Thereof ( Amended Complaint due by 9/7/2012.) (Signed by Magistrate Judge Stephen Smith) Parties notified.(chorace) (Entered: 08/08/2012) UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION JOAN MILLER and DAVID MILLER, Plaintiffs, HOMECOMINGS FINANCIAL, LLC, GMAC MORTGAGE, LLC, BANK OF NEW YORK MELLON TRUST CO., DON LEDBETTER, PATRICIA POSTON, GABRIEL OZEL, and PITE DUNCAN, LLP, Defendants. MEMORANDUM AND ORDER This is a suit to prevent foreclosure of real property. Defendants Homecomings Financial, LLC ("Homecomings"), GMAC Mortgage, LLC ("GMAC"), and Bank of New York Mellon Trust Company ("Mellon") have moved to dismiss for failure to state a claim (Dkt. 6). The motion is denied, although plaintiffs are directed to replead several of their causes of action as explained below. In April 2003 Plaintiff Joan Miller took out a home equity loan from lender Homecomings Financial Network, I ~ c . ~ in the amount of $184,800, secured by a home equity 1 These facts are taken from Plaintiffs' Original Petition, and are assumed as true for purposes of this 12(b)(6) motion. The record is not clear whether this entity is the same as the named defendant Homecomings Financial, LLC, or, assuming they are not the same, how they are related to one another, if at all. Case 4:11-cv-04416 Document 16 Filed in TXSD on 08/08/12 Page 1 of 14 lien duly filed in the county clerk's office of Montgomery County, Texas. (Dkt. 1 - 1, Ex. B). On July 19,2007, Joan Miller conveyed her interest in the property to plaintiff David ~ i l l e r l by special warranty deed, also duly recorded. (Dkt. 1 - 1, Ex. C). Subsequently, plaintiffs "ran in to financial hard times," and on June 10,20 1 1 defendant Mellon obtained an order under Texas Rule of Civil Procedure 736 to proceed with a foreclosure sale under Texas Property Code $ 5 1.002. (Dkt. 1 - 1, Ex. E). Earlier that year Mellon had received an assignment of a deed of trust on the property from "JPMorgan Chase Bank as Trustee, c/o Residential Funding Corporation," also filed with the county clerk (Dkt. 1 - 1, Ex. G). However, there is no indication that the original lender, Homecomings Financial Network, Inc., ever assigned the note or security interest to Chase, Mellon, or anyone else. Plaintiffs brought this suit in state court for declaratory judgment and an injunction preventing foreclosure on October 28,20 1 1. They argue that defendants lack the authority to foreclose because they cannot show proper chain of title of the note and security instrument. (Dkt. 1-1). The state court issued a temporary restraining order on December 1, 20 1 1. Defendants removed the case to federal court on December 15,201 1 (Dkt. I), and the parties have consented to magistrate judge jurisdiction. (Dkt. 13). Standard of Review Rule 12(b)(6) allows a court to dismiss a plaintiffs complaint if it "fails to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). Rule 12(b)(6) dismissals The petition does not describe the relationship, if any, between the two named plaintiffs. Case 4:11-cv-04416 Document 16 Filed in TXSD on 08/08/12 Page 2 of 14 are proper only if the plaintiff fails to plead "enough facts to state a claim to relief that is plausible on its face." Ashcroftv. Iqbal, 129 S. Ct. 1937,1960 (2009) (quoting BellAtl. Corp v. Twombly, 550 U.S. 544, 570 (2007)). A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Iqbal, 129 S. Ct. at 1949. It is the plaintiffs responsibility to actually "plead specific facts, not mere conclusional allegations, to avoid dismissal." Kane Enters. v. MacGregor (USA), Inc., 322 F.3d 371, 374 (5th Cir. 2003). When the plaintiff does plead such specific facts, the court must assume that they are true, Twombly, 550 U.S. at 555, and draw all reasonable inferences from them in the plaintiffs favor. Elsensohn v. Tammany Parish Sherws OOfJice, 530 F.3d 368,37 1-72 (5th Cir. 2008). As a general rule courts must "afford plaintiffs at least one opportunity to cure pleading deficiencies before dismissing a case, unless it is clear that the defects are incurable or the plaintiffs advise the court that they are unwilling or unable to amend in a manner that will avoid dismissal." Great Plains Trust Co. v. Morgan Stanley Dean Witter & Co., 3 13 F.3d 305,329 (5th Cir. 2002). Analysis Plaintiffs raise a number of theories of relief in their Original Petition, all of which are premised on the same basic contention: that none of these defendants have the authority to foreclose on plaintiffs' property. The institutional defendants move for dismissal under Rule 12(b)(6) essentially on three grounds: (1) plaintiffs' claim that defendants lack the Case 4:11-cv-04416 Document 16 Filed in TXSD on 08/08/12 Page 3 of 14 authority to foreclose is not based on a cognizable legal theory; (2) plaintiffs have no standing to contest the assignment by which Mellon claims the right to foreclose; and (3) plaintiffs' other state law causes of action are also insupportable as a matter of law. 1. A Cognizable Legal Claim Texas recognizes a claim for wrongfbl foreclosure. See, e.g., League City State Bank v. Mares, 427 S.W. 2d 336 (Tex. Civ. App.-Houston [ 1 4 ~ ~ ~ i s t . ] 1968) (affirming judgment holding bank liable for wrongful foreclosure). Texas courts also permit debtors to sue for injunctive and declaratory relief to prevent wrongful foreclosure. See e.g., Martin v. New Century Mortgage Co., - S.W. 3d - > 2012 Tex. App. LEXIS 4705 at *3 (Tex. App. - Houston 11" Dist.] June 14,2012); Wells Fargo Bank, NA. v. Ballestas, 355 S.W. 3d 187, 189-90 (Tex. App.- Houston [1" Dist.] 20 1 1, no pet.); Leavings v. Mills, 175 S.W. 3d 30 1, 306 (Tex. App.- Houston [l" Dist.] 2004, no pet.); see also TRCP 736.11 (providing for automatic stay of foreclosure proceedings upon filing of an original proceeding in a court of competent jurisdiction contesting the right to foreclose). Debtors may challenge a foreclosure sale on various grounds: no default in payment by the debtor, Slaughter v. Qualls, 162 S.W. 2d 67 1, 675 (Tex. 1942); violation of the conditions and limitations of the trustee's power of sale under the deed of trust (id.); non- compliance with the statutory notices and other requirements for a non-judicial sale, Lido Intern., Inc. v. Lambeth, 6 1 1 S. W.2d 622 (Tex. 198 1); and, most significantly for the present case, no "contractual standing" by the party seeking to foreclose, Martin, 2012 Tex. App. Case 4:11-cv-04416 Document 16 Filed in TXSD on 08/08/12 Page 4 of 14 LEXIS 4705 at *3. Under the Texas Property Code, the only party with standing to initiate a non-judicial foreclosure sale is the m~r t gagee, ~ or the mortgage servicer acting on behalf of the current mortgagee.' Determining mortgagee status is easy when the party is named as grantee or beneficiary in the original deed of trust, mortgage, or contract lien. But factual disputes may arise when the party seeking to foreclose is not the original mortgagee, as is most often the case these days. In such cases the foreclosing party must be able to trace its rights under the security instrument back to the original mortgagee. Leavings v. Mills, 175 S.W.3d 30 1, 3 10 (Tex. App. -Houston [1" Dist.] 2004, no pet.). One way the foreclosing party can do this is by showing that it is the "holder" of the note secured by the deed of trust. "A person can become the holder of an instrument when the instrument is issued to that person; or he can become a holder by negotiation." Leavings 175 S.W.3d at 309. Negotiation is the "transfer of possession of the instrument . . . by a person other than the issuer to a person who thereby becomes a holder." Tex. Bus. & Corn. Mortgagee is defined as "(A) the grantee, beneficiary, owner, or holder of a security instrument; (B) a book entry system; or ( C) if the security interest has been assigned of record, the last person to whom the security interest has been assigned of record." 5 5 1.0001(4). In other words, there are several ways by which an entity can acquire mortgagee status with the power to foreclose. In this case, Mellon asserts that it has the right to foreclose as the owner of deed of trust by virtue of an assignment from a third party. A mortgage servicer is "the last person to whom the mortgagor has been instructed by the current mortgagee to send payment for the debt secured by the security instrument." Tex. Prop. Code 5 5 1.0001(3). A mortgagee may be the mortgage servicer. Id. A mortgage servicer may administer the foreclosure on behalf of the current mortgagee provided there is a servicing agreement disclosed to the debtor along with the other required notices. 5 5 1.0025. Case 4:11-cv-04416 Document 16 Filed in TXSD on 08/08/12 Page 5 of 14 Code Ann. 5 3.20 1. If the instrument is payable to an identified person, negotiation requires both transfer of possession and written indorsement by the holder. Id. at 5 3.20 l(b). In order to enforce the note as a holder, a party who is not the original lender must prove "successive transfers ofpossession and indorsement" establishing an "unbroken chain of title." Leavings, 175 S.W.3d at 310. Thus, with certain exce~t i ons, ~ possession of the note is typically required in order for a holder to enforce it. Millet v. JP Morgan Chase, N.A. , 20 12 WL 1029497 at *3 (W.D. Tex. 2012). Standing to foreclose may also be shown by proof that the foreclosing party is the "owner" of the note under common law principles of assignment. Martin, 2012 Tex. App. LEXIS 4705 at * 11. The owner of a note need not be a holder, because the two issues are separate and distinct. SMS Financial, LLCv. ABCO Homes, Inc., 167 F.3d 235,239 (5th Cir. 1999). A person not identified in a note who is seeking to enforce it as the owner must prove the transfer by which he acquired the note. Leavings, 175 S.W. 3d at 309. Such a transfer may be proved by testimony as well as by documentation. Preismeyer v. PaciJc Southwest Bank, F.S.B., 917 S.W.2d 937, 939 (Tex. App. - Austin 1996). In such cases a party is "required to prove the note and an unbroken chain of assignments transferring to him the right to enforce the note according to its terms." Leavings, 175 S.W. 3d at 3 10. An unexplained gap in the chain of title may present a fact issue on the question of ownership. The owner of a lost note may foreclose on property securing a debt, if there is evidence showing why the missing note cannot be produced and what its terms were. See O.J. & C. Co. v. Johnson, 1997 WL 167866 at *4 (Tex.App.- Houston [I" Dist.] 1997). Case 4:11-cv-04416 Document 16 Filed in TXSD on 08/08/12 Page 6 of 14 See Martin, at "2; First Gibraltar Bank, FSB v. Farley, 895 S.W.2d 425, 428-29 (Tex.App.- San Antonio 1995, writ denied); Jernigan v. Bank One, Tex., N.A., 803 S.W.2d 774,777 (Tex.App.-Houston [14th Dist.] 199 1, no writ). As a matter of Texas law, then, homeowners such as the Millers do have a cognizable cause of action7 to challenge a party's right to foreclose on their property. In their motion, defendants ignore this well-established Texas precedent, and focus instead on recent federal court decisions dealing with a legal theory dismissively dubbed as "show me the note." See, e.g., Wells v. BAC Home Loans Servicing, L. P., 20 1 1 WL 2 163987, at *2 (W.D. Tex. April 26, 2011). Those cases are correct, so far as they go. As discussed above, holding the original note is one way to establish the right to foreclose, but it is not the only way. See, e.g., Crear v. JP Morgan Chase Bank N.A., No. 10-10875,2011 WL 1129574 (5th Cir. Mar. 28, 201 1) (Texas Property Code allows a mortgage servicer to administer a deed of trust foreclosure without producing the original note). Defendants contend that plaintiffs' petition is based on nothing more than the legal theory rejected by those cases. While plaintiffs' petition at one point (7 24) does suggest that possession of the original note is a necessary rather than a sufficient basis to foreclose, the balance of their pleading (11 19-23,26) is broader than that. The crux of plaintiffs' claim is that none of the defendants can show a proper chain of title to establish a right to foreclose under the Texas Property Code as mortgagee or mortgage servicer. It is undisputed that defendant Mellon, Variously termed wrongful foreclosure, trespass to try title, or quiet title. 7 Case 4:11-cv-04416 Document 16 Filed in TXSD on 08/08/12 Page 7 of 14 which obtained the order to proceed with the foreclosure, was neither the original lender or mortgagee. Instead, Mellon claims to be the current mortgagee by virtue of an assignment from a third party dated January 25, 20 1 1. (Dkt. 1- 1, Ex. G). Plaintiff claims (7 19) that there is no public record of any assignment or transfer to that third party (or anyone else) from the original mortgagee. The traditional way to prove chain of title is via filings of record in the county clerk's office. The Texas Property Code provides that "if the security interest has been assigned of record, the last person to whom the security interest has been assigned of record" is the mortgagee. 5 5 1.001(4)(C). A Texas statute declares that any transfer or assignment of a recorded mortgage must also be recorded in the office of the county clerk: To release, transfer, assign, or take another action relating to an instrument that is filed, registered, or recorded in the office of the county clerk, a person must file, register, or record another instrument relating to the action in the same manner as the original instrument was required to be filed, registered, or recorded. Texas Local Government Code 5 192.007(a) (emphasis added.) No reported case has interpreted this 1989 law. The legal consequences of failing to comply with this statutory command are unclear, and the subject of current litigation. See Dallas County v. Merscorp, Inc., 1 1-CV-2733 (N.D. Tex.). In any event, the absence of such required filings is arguably some evidence that no such assignment or transfer has occurred, as the plaintiffs here contend. Case 4:11-cv-04416 Document 16 Filed in TXSD on 08/08/12 Page 8 of 14 It is true, as Mellon notes, that the last assignment of the deed of trust, from JP Morgan Chase to Mellon, was filed and recorded in the county clerk's office. But that is only one link in a chain of unknown length, and does nothing to bridge the remaining gap to the original lender. If Mellon's assignor had no valid rights in the note or deed of trust, then no such rights were conveyed to Mellon by the as~ignment. ~ When a party seeking to foreclose fails to show an unbroken chain of title, then the homeowner may be entitled to an injunction against the threatened foreclosure. Leavings v. Mills, 175 S.W.3d 301, 310 (Tex. App. - Houston [I" Dist.], 2004, no pet.). For these reasons, the Court finds that plaintiffs' petition states a claim for cognizable legal relief based on theories of wrongful foreclosure, trespass to try title and quiet title. 2. Standing to Challenge Assignment of Security Interest Defendants argue alternatively that plaintiffs have no standing to challenge an assignment of the security interest because they were not parties to the assignment. In support of their argument defendants cite nine recent decisions from federal district courts in this state (six of which were issued by the same magistrate judge), which do indeed affirm that propo~ition.~ However, none of these decisions cite any Texas case law or statute, and * 6 Am. Jur.2d Assignments 108 (assignee acquires no greater rights than were possessed by assignor). The Latin phrase is "Nemo dat quod non habet." Eskridge v. Fed. Home Loan Mortgage Corp., 20 1 1 WL 2 163989, at "5 (W.D. Tex. Feb. 24,201 1 ; Spositi v. Fed. Nati ' I Mortgage Ass 'n, 201 1 WL 59773 19, at *2-3 (E.D. Tex. Nov.3,2011); Malikyar v. BAC Home Loans Servicing, LP,. 201 1 WL 5837262, at *4 (E.D. Tex. Oct. 28,201 1); Perry v. JP Morgan Chase, 201 1 WL 5837297, at "2-3 (E.D. Tex. Oct. 28, 201 1); Lackey v. Reliance Mortgage Co., 201 1 WL 5838189, at *3-4 (E.D. Tex. Oct. 28,201 1); Case 4:11-cv-04416 Document 16 Filed in TXSD on 08/08/12 Page 9 of 14 all but one explicitly rely upon a single federal case, Eskridge v. Fed. Home Loan Mortgage Corp, 201 1 WL 2163989, at *5 (W.D. Tex. Feb. 24,201 I), which cites no authority at all, state or federal. In fact, Texas has long followed the common law rule which permits a debtor to assert against an assignee any ground that renders the assignment void or invalid. See Tri-Cities Const., Inc. v. American Nat. Ins. Co., 523 S.W. 2d 426,430 (Tex. Civ. App. -Houston [Ist Dist. 1975, no writ); Glass v. Carpenter, 330 S.W. 2d 530, 537 (Tex. Civ. App.- San Antonio 1959, writ ref d n.r.e.). The Glass court endorsed as authoritative the following summary of the rule, which still appears in the current version of Corpus Juris Secundum: A debtor may, generally, assert against an assignee all equities or defenses existing against the assignor prior to notice of the assignment, any matters rendering the assignment absolutely invalid or ineffective, and the lack of plaintiffs title or right to sue; but if the assignment is effective to pass legal title, the debtor cannot interpose defects or objections which merely render the assignment voidable at the election of the assignor or those standing in his or her shoes. 6A C. J.S. Assignments tj 132 (database updated May 20 12) (emphasis added). The current edition of American Jurisprudence states the same rule more succinctly, while adding the rationale: Schieroni v. Deutsche Bank Nat'I Trust Co., 201 1 WL 3652194, at *6 (S.D. Tex. Aug. 18,201 1); DeFrancheschi v. Wells Fargo Bank, N.A. 201 1 WL 3875338, at *5 (N.D. Tex. Aug. 31,201 1); McAllister v. BAC Home Loans Servicing, LP, 201 1 WL 2200672, at *5 (E.D. Tex. April 28, 201 1); Adams v. Bank ofAmerica, 201 1 WL 5080217 , at *4 (E.D. Tex. Oct. 26,201 1). Defendants also rely on an unreported Sixth Circuit case, Livonia Properties Holdings, LLC, v. 12840-12976 Farmington Road Holdings, LLC, 2010 WL 4275305 (6th Cir. Oct. 28,2010), but that case is inapposite because the lender there established chain of title based on public records. Case 4:11-cv-04416 Document 16 Filed in TXSD on 08/08/12 Page 10 of 14 The obligor of an assigned claim may defend a suit brought by the assignee on any ground that renders the assignment void or invalid, but may not defend on any ground that renders the assignment voidable only, because the only interest or right that an obligor of a claim has in the assignment is to ensure that he or she will not have to pay the same claim twice. 6 Am.Jur. 2d Assignments 9 1 19 (database updated May 20 12). Examples of "voidable" defenses include the statute of frauds, Harding Co. v. Sendero Res., Inc., 2012 Tex.App. LEXIS 1754, *33 3.28 (Tex. App.- Texarkana 20 12); fraud in the inducement, Kansas Life Ins. Co. v. First Bank of Truscott, 78 S.W. 2d 584, 587 (Tex. 1935); lack of capacity as a minor, Dairyland County Mut. Ins. Co. v. Roman, 498 S.W. 2d 154, 158 (Tex. 1973); and mutual mistake, Chase, Inc., v. Bostick, 55 1 S. W. 2d 1 16, 1 19 ( Tex. Civ. App. - Texarkana 1977, writ ref d n.r.e.). Plaintiffs here do not assert these or any other "voidable" defenses to Mellon's assignment. Instead, plaintiffs assert that, standing alone, this single assignment from a third party is ineffective to establish a right to foreclose, because it does not show a proper assignment of the original security instrument to the third party. Texas courts routinely allow a homeowner to challenge the chain of assignments by which a party claims the right to foreclose. See Martin v. New Century Mortgage Co., 20 12 Tex. App. LEXIS 4705 (Tex. App Houston [I" Dist.] 20 12); Austin v. Countrywide Home Loans, 261 S.W. 3d 68 (Tex. App.- Houston[lst Dist.] 2008); Leavings v. Mills, 175 S.W. 3d 301 (Tex. App.- Houston [I" Dist.] 2004, no pet.); Shepard v. Boone, 99 S.W. 3d 263 (Tex. App. - Eastland 2003); Priesmeyer v. PaczJic Southwest Bank, F.S.B., 917 S.W. 2d 937 (Tex. App. -Austin 1996). Case 4:11-cv-04416 Document 16 Filed in TXSD on 08/08/12 Page 11 of 14 Federal district courts in this state have also entertained chain of title claims by mortgage debtors challenging foreclosure proceedings. See Millet v. JP Morgan Chase, N. A., 20 12 WL 1029497, *4 (W.D. Tex. 2012); Nonvood v. Chase Home Finance LLC, 20 11 WL 197874 (W.D. Tex. 201 1). Nor is Texas alone among non-judicial foreclosure states in permitting such suits. US. Bank Nat ' I Ass 'n v. Ibanez, 941 N.E. 2d 40, 53 (Mass. 201 1). Defendants' final (and weakest) argument is that homeowners like plaintiffs "will not be prejudiced" if the chain of assignments from original lender to foreclosing entity were immune to debtor challenge. After all, the argument apparently goes, the Millers owe the money to somebody. In truth, the potential prejudice is both plain and severe - foreclosure by the wrong entity does not discharge the homeowner's debt, and leaves them vulnerable to another action on the same note by the true creditor. Banks are neither private attorneys general nor bounty hunters, armed with a roving commission to seek out defaulting homeowners and take away their homes in satisfaction of some other bank's deed of trust. MasterCard has no right to sue for debts rung up on a Visa card, and that remains true even if MasterCard has been assigned the rights of another third party like American Express. Unless and until a complete chain of transactions back to the original lender is shown, MasterCard remains a stranger to the original transaction with no claim against the debtor. And that is a fair description of this case in its present posture. In sum, a standing issue is lurking here, but only as to the defendants, not the plaintiffs. The court concludes that under Texas law homeowners have legal standing to Case 4:11-cv-04416 Document 16 Filed in TXSD on 08/08/12 Page 12 of 14 challenge the validity or effectiveness of any assignment or chain of assignments under which a party claims the right to foreclose on their property. Accordingly, plaintiffs have properly stated claims for declaratory and injunctive relief based on wrongful foreclosure, trespass to try title and quiet title. 3. Other claims Plaintiffs' state court petition includes a variety of other causes of action, all more or less centered upon the threatened foreclosure. These include breach of contract, tortious interference with existing contract, violations of the Texas Deceptive Trade Practices Act, statutory fraudlfraud in real estate, and violation of the federal Fair Debt Collection Practices Act. Plaintiffs have requested the opportunity to replead these claims in accordance with the federal rules. In light of the court's foregoing ruling, it may well be that some or all of these claims are now superfluous and need not be pursued. Rather than engage in an extended and possibly futile analysis of these vaguely pleaded claims, the court will simply order the plaintiffs to replead any of these claims they still wish to pursue, paying careful attention to Rule 11 of the Federal Rules of Civil Procedure as well as the substantive elements of these state and federal causes of action. Conclusion For the foregoing reasons, defendants' motion to dismiss is denied. However, if plaintiffs intend to seek relief based on any claims other than wrongful foreclosure, trespass to try title and quiet title, they are directed to file an amended complaint asserting such claims Case 4:11-cv-04416 Document 16 Filed in TXSD on 08/08/12 Page 13 of 14 on or before September 7, 20 12. Signed at Houston, Texas on August 8,2012. " $tephen Wm. Smith United States Magistrate Judge Case 4:11-cv-04416 Document 16 Filed in TXSD on 08/08/12 Page 14 of 14 ___________________________________________ Plaintiffs Response to Motion to Dismiss Page 1 of 15
IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION
JOAN MILLER, & DAVID MILLER Plaintiffs,
v. CIVIL ACTION NO. 4:11-CV-04416
HOMECOMING FINANCIAL, LLC, GMAC MORTGAGE, LLC, THE BANK OF NEW YORK MELLON TRUST COMPANY, DON LEDBETTER, PATRICIA POSTON, GABRIEL OZEL, & PITE DUNCAN, LLP,. Defendants.
PLAINTIFFS JOAN MILLER AND DAVID MILLER RESPONSE TO DEFENDANTS MOTION TO DISMISS PLAINTIFFS ORIGINAL PETITION FOR FAILURE TO STATE A CLAIM
COMES NOW, Plaintiffs JOAN MILLER and DAVID MILLER (hereafter Plaintiffs) and files this their Response to Defendants 12(b)(6) Motion to Dismiss, and in support thereof, Plaintiff states the following: I. FACTUAL AND PROCEDURAL BACKGROUND 1. Plaintiff filed suit in the Texas state district court on October 28, 2011 in the 9 th
Judicial District of Montgomery County, Texas with Cause No. 11-10-11705-CV. 2. On December 15, 2011 Defendants Homecoming Financial, LLC (Homecoming), GMAC Mortgage, LLC (GMAC), and Bank of New York Mellon Trust Company, LLCs ( New York Mellon Trust) (collectively Defendants) removed the cause to this court. Case 4:11-cv-04416 Document 7 Filed in TXSD on 01/03/12 Page 1 of 15 ___________________________________________ Plaintiffs Response to Motion to Dismiss Page 2 of 15
3. On December 22, 2011 only one week after removal Defendants submitted their F.R.C.P. 12(b)(6) Motion to Dismiss. This response comes as a response to that motion. II. ARGUMENT & AUTHORITIES A. Plaintiffs Chain of Title Argument is Valid and Supported by Case Law 4. Defendants fraudulently and without the proper documentation foreclosed on the subject property known as 245 Springs Edge Drive, Montgomery, Montgomery County, Texas 77356. (Subject Property). 5. This matter arose because Defendants wrongfully initiated the foreclosure process without notifying Plaintiff David Miller, who had been deeded the Subject Property years prior. 1 6. When Plaintiff sued Defendants for their wrongful actions, Defendants removed the case and is immediately attempting to obviate Plaintiffs constitutional rights of redress of harm and a trial by jury by attempting a premature dismissal of the action. Defendant has used the Motion to Dismiss to largely state the actions were not pled appropriately for the federal court, when the Plaintiff filed in state court.
Notably, Defendants do not deny the deed to Mr. Miller, that it was illegitimate, or why they could proceed with a foreclosure without notifying Mr. Miller without violation the requirements of Texas Property Code 51.002. 7. The crux of one of the arguments is that Defendant New York Mellon Trust, without possession of the original Note and no power under the deed of trust, have wrongfully instructed the Substitute Trustee to wrongfully foreclose on Plaintiffs.
1 See Plaintiffs Original Petition, 14. Defendant acknowledged that David Miller had been deeded the Subject Property prior to their attempts at wrongfully foreclosing the property without notifying him of said foreclosure. See Defendants Motion to Dismiss, 3. Case 4:11-cv-04416 Document 7 Filed in TXSD on 01/03/12 Page 2 of 15 ___________________________________________ Plaintiffs Response to Motion to Dismiss Page 3 of 15
8. Defendant New York Mellon Trust is claiming in the notices of foreclosure (See Docket #1 Original Petition Exhibits) that it is the owner and holder of the Note and the Deed of Trust when the original Deed of Trust does not designate New York Mellon Trust as the Mortgagee. If a party is attempting to foreclose, the Mortgagor, here the Plaintiffs, has the right to affirmation of the ability and right to foreclose. 9. Despite Plaintiffs requests and attempts, none of the Defendants has ever been able to produce the original Note which Plaintiff signed at closing and therefore cannot prove that a default has occurred, that a right to foreclosure pursuant to the Deed of Trust exists, or which party has a right to foreclose. Further, there are no transfers or assignments in the real property records in Montgomery County, Texas transferring the original Deed of Trust. For the transfer of a Deed of Trust to be effective Texas Local Government Code 192.007 requires the transfer or assignment to be recorded. 10. It is interesting that the Defendants in the motion failed yet again to affirm that possession of the Note was vested with any one of the Defendants. If only they had done so, or if they could prove they were in actual possession of the Note pursuant to the Texas Business and Commerce Code, then Plaintiffs primary argument would be discounted. Yet they did not. Section 3.104 of the Texas Business & Commerce Code defines a negotiable instrument, under which the currently disputed Mortgage agreement falls. 2
2 The Code reads in pertinent part: NEGOTIABLE INSTRUMENT. (a) Except as provided in Subsections (c) and (d), "negotiable instrument" means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it:(1) is payable to bearer or to order at the time it is issued or first comes into possession of a holder; (2) is payable on demand or at a definite time; and (3) does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain: (A) an undertaking or power to give, maintain, or protect collateral to secure payment; (B) an authorization or power to the holder to Section 3.110 of the Texas Business & confess judgment or realize on or dispose of collateral; or (C) a waiver of the benefit of any law intended for the advantage or protection of an obligor. TEX BUS COMM. CODE 3.104
Case 4:11-cv-04416 Document 7 Filed in TXSD on 01/03/12 Page 3 of 15 ___________________________________________ Plaintiffs Response to Motion to Dismiss Page 4 of 15
Commerce Code mandates that the identification of a person to whom the instrument is payable is defined. If the Note is negotiated or transferred, certain rights follow. TEX. BUS. COMM. CODE 3.201. If there is no determination or confirmation of that transfer or delivery, the rights in question cannot be considered. TEX. BUS. COMM. CODE 3.203. Plaintiffs are fully within their rights to inquire as to whether the transferor actually attached an Indorsement to the Note, thereby signifying an actual transfer and delivery. TEX. BUS. COMM. CODE 3.204. 11. Lastly, Enforcement of the Note is also determined under the Texas Business & Commerce Code. TEX. BUS. COMM. CODE 3.301. The Code defines a Person Entitled to Enforce Instrument as: (i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to Section 3.309 [defined as a note that is lost, destroyed, or stolen] or 3.418(d) [defined as payment by acceptance or mistake]. Id. (emphasis added).
12. A person may be entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument. Either way, the noteholder or a party claiming rights pursuant to the note must prove its standing. Defendants have failed to do so. Here, Defendants have not shown they are the holder of the instrument; that they are a nonholder with the rights of a holder; or that the note has been lost, destroyed or stolen. 13. Despite Defendants citing a number of cases, none are controlling on this Court. Defendants lack of proof of who has the note and the lack of assignments of the Deed of Trust is analogous to the cases of US Bank National Association (as Trustee) vs. Antonio Ibanez and
Case 4:11-cv-04416 Document 7 Filed in TXSD on 01/03/12 Page 4 of 15 ___________________________________________ Plaintiffs Response to Motion to Dismiss Page 5 of 15
Wells Fargo vs. Mark and Tammy LaRace 3 14. Though Defendants in their 12(b)(6) Motion to Dismiss claim they have acted properly and within the laws of the state throughout the mortgage process both recent decisions out of Massachusetts. In each case the Supreme Court found that the banks, because of securitization and assignments, could not prove that they had ownership of the note and therefore did not have proof that they had the right to foreclose. 4 , Attorneys General across the nation have chosen to seek redress from foreclosing parties, including Texas Attorney General Greg Abbott - who in October 2010 called for a halt to foreclosures across this state (see Exhibit A). 5 As Delaware Attorney General Biden said, certain parties in the foreclosing process were engag[ing] and continu[ing] to engage in a range of deceptive trade practices that sow confusion among consumers, investors and other stakeholders in the mortgage finance systemand lead to unlawful foreclosure practices. 6 This supposition has been supported by a prevalence of case law reviewing the lack of legal power of MERS to assign ownership of the note and deed of trust which affects the right to foreclose. 7
3 These cases were just decided out of the Supreme Court of Massachusetts SJC-10694 on January 7, 2011 The Supreme Court of Arkansas 4 See Defendants 12(b)(6) Motion to Dismiss Plaintiffs Original Petition for Failure to State a Claim, at p. 4. 5 Bloomberg Business Week, October 5, 2010, Texas AG Calls for Statewide Foreclosure Freeze, available at http://www.businessweek.com/ap/financialnews/D9ILJRE81.htm. (stating The attorney general's office is investigating mortgage lenders to determine the full harm Texas homeowners have suffered, according to a letter signed by Paul D. Carmona, the chief of the state consumer protection and public health division.) 6 Bloomberg Business Week, October 28, 2011, Mortgage Registry MERS sued by Delaware Attorney General, available at http://www.businessweek.com/news/2011-10-27/mortgage-registry-mers-sued-by-delaware-attorney- general.html
7 In re Sheridan, ___ B.R. ___, 2009 WL 631355, at *4 (Bankr. D. Idaho March 12, 2009) (MERS "acts not on its own account. Its capacity is representative."); Mortgage Elec. Registration System, Inc. v. Southwest, ___ Ark. ___, ___, ___ S.W.3d ___, 2009 WL 723182 (March 19, 2009) ("MERS, by the terms of the deed of trust, and its own stated purposes, was the lender's agent"); LaSalle Bank Nat. Ass'n v. Lamy, 2006 WL 2251721, at *2 (N.Y. Sup. 2006) (unpublished opinion) ("A nominee of the owner of a note and mortgage may not effectively assign the note and mortgage to another for want of an ownership interest in said note and mortgage by the nominee.") Mortgage Elec. Reg. Sys., Inc. v. Nebraska Depart. of Banking, 270 Neb. 529, 530, 704 N.W.2d 784 (2005) citing Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619, 623 (Mo. App. 2009)."The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the Case 4:11-cv-04416 Document 7 Filed in TXSD on 01/03/12 Page 5 of 15 ___________________________________________ Plaintiffs Response to Motion to Dismiss Page 6 of 15
recently published an opinion that recites nearly the same outcome as to the Defendants lack of power or authority to foreclose as did the Kansas and Missouri courts. 8 15. Defendants commenced a wrongful foreclosure action based on an inaccurate balance on the Note and wrongfully alleged power to foreclose under a Deed of Trust for which the Defendants did not have power to do so. If the foreclosure should be allowed to continue Plaintiffs would suffer irreparable injury in that real property is unique and cannot be replaced easily.
16. Thus, Plaintiffs have a cause of action, an actual controversy exists, and Plaintiffs request for temporary restraining order and declaratory judgment causes of action should not be dismissed.
B. Plaintiff has a cognizable cause of action because Defendants did not follow foreclosure requirements of Texas Property Code 51.002. 17. Additionally, Defendants failed to notify Plaintiff David Miller of the foreclosing proceedings, as required by Texas Property Code 51.002. Plaintiffs did not deny this contention in their Motion to Dismiss, thus Plaintiffs have a cognizable claim, and the recognized wrongful conduct of Defendants should prevent the dismissal of Plaintiffs claims.
holder of the deed of trust is the agent of the holder of the note. [Citation omitted.] Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of default. The person holding only the deed of trust will never experience default because only the holder of the note is entitled to payment of the underlying obligation. [Citation omitted.] The mortgage loan becomes ineffectual when the note holder did not also hold the deed of trust." Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619, 623 (Mo. App. 2009).
8 See Mortgage Elec. Registration Sys. v. Southwest Homes of Ark., Inc., 2009 Ark. LEXIS 458 (Ark., Apr. 23, 2009) attached hereto. Case 4:11-cv-04416 Document 7 Filed in TXSD on 01/03/12 Page 6 of 15 ___________________________________________ Plaintiffs Response to Motion to Dismiss Page 7 of 15
C. Plaintiff May Maintain Trespass to Try Title and Quiet Title Claims 18. It is Plaintiffs belief that a Trespass to Try Title action is appropriate because of the unlawful claim which exists and is clouding the title of the Sbject Property. Again, this claim must be supplemented with evidence which will be produced in discovery. To the extent Plaintiffs did not fully plead either cause, Plaintiffs request leave of the Court to amend their pleadings.
D. Plaintiff has Pled a Breach of Contract Claim 19. Texas follows a "fair notice" standard for pleading, which looks to whether the opposing party can ascertain from the pleading the nature and basic issues of the controversy and what testimony will be relevant. Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d 887, 896 (Tex. 2000). Rule 47 of the Texas Rule of Civil Procedure provides a pleading "shall contain a short statement of the cause of action sufficient to give fair notice of the claim involved." TEX. R. CIV. P. 47. Plaintiff, in his original petition, pled sufficiently to provide notice to Defendants that a contract existed, the nature of the contract, and that it was breached. To the extent Plaintiff has not pled all of the elements of the breach of contract, Plaintiff requests leave to amend its pleadings.
E. Plaintiffs FDCPA Claim Should Stand Because Defendants may be Debt Collectors 20. Defendant broadly claims mortgage companies or servicers cannot be liable under the DTPA. 9
9 Motion to Dismiss, p. 16. Defendant, however, fails to properly apply precedential case law, including the Case 4:11-cv-04416 Document 7 Filed in TXSD on 01/03/12 Page 7 of 15 ___________________________________________ Plaintiffs Response to Motion to Dismiss Page 8 of 15
very controlling law they cite. 10 The Court in Williams stated a debt collector does not include the consumer's creditors, a mortgage servicing company, or an assignee of a debt, as long as the debt was not in default at the time it was assigned. 11 21. A debt is in default if one single payment has been late. Plaintiff originally contracted with Homecoming for the mortgage at issue. Defendants admit in their own motion that the Note was assigned after Plaintiffs supposedly defaulted.
12 22. The FDCPA claim does not fail as a matter of law, and Plaintiffs should be allowed to move forward with discovery under the FDCPA claim to determine Defendants wrongful conduct as debt collectors for their mortgage. To the extent Plaintiffs have not pled all of the elements of the FDCPA claim, Plaintiffs request leave to amend their pleadings. Therefore, Defendant assignee was a debt collector and may be liable under the FDCPA.
E. Plaintiffs DTPA Claim Should Stand 23. Because Defendants may be debt collectors under the FDCPA, Defendants may be liable for DTPA claims. A violation by a debt collector of the FDCPA may be a violation of the DTPA under Tex. F. Code 392.304(a)(8) and 392.304(a)(19). Thus, a proper pleading of the FDCPA claim, including facts that establish the violations of the debt collector, is fair and proper notice of the DTPA claim. To the extent Plaintiff has not pled all of the elements of the DTPA claim, Plaintiff requests leave to amend its pleadings.
F. Plaintiffs Requests For Injunctive and Declaratory Relief Should Stand
10 Motion to Dismiss, p. 8, citing Williams v. Countrywide Home Loans, Inc.. 11 Williams v. Countrywide Home Loans, Inc., 504 F. Supp. 2d 176, 190 (S.D. Tex 2007) (emphasis added). 12 Motion to Dismiss, p. 2, 2. Case 4:11-cv-04416 Document 7 Filed in TXSD on 01/03/12 Page 8 of 15 ___________________________________________ Plaintiffs Response to Motion to Dismiss Page 9 of 15
24. The wrongful conduct of Defendants, unless restrained and enjoined by an order of the court, will cause great and irreparable harm to Plaintiffs. Plaintiffs will not have the beneficial use and enjoyment of the property and will lose their home. 25. Plaintiff has no other adequate remedy at law and the injunctive relief prayed for is necessary and appropriate at this time to prevent irreparable loss to Plaintiff. Plaintiff has suffered and will continue to suffer in the future unless Defendants wrongful conduct is restrained and enjoined because real property is inherently unique and it is and will be impossible for Plaintiffs to determine the precise amount of damage Plaintiffs will suffer. 26. For these reasons this Court must retain the status quo so as to allow the parties to have an evidentiary hearing and put on evidence that it is actually entitled to foreclose and what the actual balance of the note is. If this Court chooses to denies the request, Plaintiff will suffer irreparable harm, for even when litigation is instituted a wrongful taking will be experienced if the foreclosure is allowed. Defendants, once they wrongfully exercise dominion and control will then evict the Plaintiff thereby divesting him completely of all possession rights and causing extreme hardship upon the Plaintiff which cannot be overcome. And, as mentioned in Section B supra, Defendants fail to assert when given the opportunity that they followed the requirements of Texas foreclosure law, and Defendants should be restrained from moving forward with their unlawful foreclosure. 27. The Court in eBay Inc v. Mecr-Exchange, L.L.C 13 a. irreparable injury: Clearly Plaintiffs, if the foreclosure is allowed to proceed will suffer an imminent injury, one which will be irreparable and not be able to be overcome. If states that injunctive relief is based on well established principles of equity. Equitable factors for an injunction include;
13 547 U.S. 388, 391, 126 S.Ct. 1837, 1839 (2006) Case 4:11-cv-04416 Document 7 Filed in TXSD on 01/03/12 Page 9 of 15 ___________________________________________ Plaintiffs Response to Motion to Dismiss Page 10 of 15
the foreclosure is allowed to go forward this litigation could take years to determine. During that time the Plaintiffs would be divested of their home because of the wrongful acts of the Defendants. Even after a full trial there is no amount of damages or recovery at law which would rectify the wrongful taking of Plaintiffs house. b. no adequate remedy at law: There is no adequate remedy or relief at law which will prevent this wrong Plaintiffs are about to experience. In fact the filing of this citation and the claims for relief alleged are only a small representation of the actual harm Plaintiff will experience, the loss of ones homestead is devastating. Further, there is just no way to obtain effective legal relief even with filing multiple lawsuits. Further, the District Courts in Texas very rarely issue a TRO regardless of what is plead for a foreclosure even when there is fraud on the face of the transaction like is evident here. By adhering to this policy Plaintiffs have no redress for illegal and wrongful actions of the Substitute Trustees or the Defendants but to pursue federal claims. c. a likelihood of success on the merits: Clearly from the facts and the law cited herein Plaintiffs will prevail in their federal claims due to Defendants wrongful acts. Further, just the lack of assignments or transfers of the rights conveyed in the deed of trust is enough to show that the foreclosure is wrong. d. the balance of hardship: Plaintiffs injury clearly outweighs the injury if any that the Defendants will experience. If assuming for argument sake this TRO is denied, Defendants will foreclose and take the Subject Property back. Defendants will still not have a performing note, cashflow etc, rather will only have a property that will not be maintained and will deteriorate. As for Plaintiffs they will wrongfully be displaced, be forced to find another Case 4:11-cv-04416 Document 7 Filed in TXSD on 01/03/12 Page 10 of 15 ___________________________________________ Plaintiffs Response to Motion to Dismiss Page 11 of 15
residence. The balance of hardship clearly strongly slants towards Plaintiffs, especially considering that each of the Defendants are standing in front of this Court with unclean hands. e. the effect on the public interest: The requested injunctive relief will not adversely affect the public policy or the public interest, rather it would advance the overall public interest by making the Defendants abide by the law. Everyday the news is filled with Robo- signors and stories of wrongful foreclosures; the Attorney General of this state has recognized the problems within the mortgage foreclosure industry, and this trend has to be stopped and should not be allowed to occur in Texas. 28. The complaint on file is a verified complaint by Plaintiff alleging and proving that they the Plaintiffs will suffer immediate and irreparable injury, loss and extensive damage if this Temporary Restraining Order does not issue therefore this Temporary Restraining Order may be granted ex parte. 29. Below Plaintiffs attorney certified in writing that efforts were in fact made to give notice to opposing counsel of this application for Temporary Restraining Order therefore this application may issue pursuant to FRCP 65(b)(1).
G. Legal Standard Amendment Should Be Favored Rather than Dismissal 30. Although Fed.R.Civ.P. 12(b)(6) provides for a motion to dismiss for failure to state a claim upon which relief can be granted, the Texas Rules of Civil Procedure do not contain any analogous provision. Under the Texas Rules of Civil Procedure, the proper way for a defendant to urge that a plaintiff has failed to plead a cause of action is by special exception. Massey v. Armco Steel Co., 652 S.W.2d 932, 934 (Tex.1983); Texas Dep't of Correction v. Case 4:11-cv-04416 Document 7 Filed in TXSD on 01/03/12 Page 11 of 15 ___________________________________________ Plaintiffs Response to Motion to Dismiss Page 12 of 15
Herring, 513 S.W.2d 6, 10 (Tex. 1974); McFarland v. Reynolds, 513 S.W.2d 620, 626 (Tex.Civ.App.Corpus Christi 1974, no writ). Although special exceptions are generally considered to be the means by which an adverse party may force clarification of vague pleadings, they may also question the sufficiency in law of a plaintiff's petition. McFarland, 513 S.W.2d at 626. When special exceptions are sustained by a trial court, the pleader must be given, as a matter of right, an opportunity to replead. Moseley v. Hernandez, 797 S.W.2d 240, 242 (Tex.App.Corpus Christi 1990, n.w.h.). Only after special exceptions have been sustained and a party has been given an opportunity to amend its pleadings may a case be dismissed for failure to state a cause of action. Massey, 652 S.W.2d at 934; Herring, 513 S.W.2d at 10. When there is no action by the trial court sustaining special exceptions, an order granting a dismissal for failure to state a cause of action must be reversed. Graefv. City of Galveston, 538 S.W.2d 816, 817, 818 (Tex.Civ.App.Houston [14th Dist.] 1976, writ dism'd); Moseley, 797 S.W.2d at 242. 31. As discussed previously, this case was originally written specifically for and submitted to the State court, and intended to be pursued fully in the State court by Plaintiffs. The case was removed by the Defendants, and the Defendants now seek to dismiss the case under the more onerous (12)(b)(6) standards, rather than seeking clarification under the States special exception standards a strategy no doubt in mind when Defendants sought removal, as they sought the present motion to dismiss only one week after removal was granted. 32. When a plaintiff's complaint fails to state a claim, the court should generally give the plaintiff at least one chance to amend the complaint under Rule 15(a) before dismissing the action with prejudice. See Great Plains Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 329 (5th Cir. 2002) ("[D]istrict courts often afford plaintiffs at least one opportunity to cure pleading deficiencies before dismissing a case, unless it is clear that the defects are Case 4:11-cv-04416 Document 7 Filed in TXSD on 01/03/12 Page 12 of 15 ___________________________________________ Plaintiffs Response to Motion to Dismiss Page 13 of 15
incurable or the plaintiffs advise the court that they are unwilling or unable to amend in a manner that will avoid dismissal."); see also United States ex rel. Adrian v. Regents of the Univ. of Cal., 363 F.3d 398, 403 (5th Cir. 2004) ("Leave to amend should be freely given, and outright refusal to grant leave to amend without a justification . . . is considered an abuse of discretion." (internal citation omitted)). 33. Any deficient pleading in State court would be allowed the opportunity of amendment rather than dismissal. Plaintiffs seek leave of the court, to the extent any claims may be insufficient, to amend their complaint to meet the standards of this Court as they would be allowed as a matter of right if this claim were pursued as originally intended.
III. CONCLUSION Plaintiffs have properly pled causes of action to survive a 12(b)(6) analysis and requests this Court DENY Defendants Motion to Dismiss and, to the extent a claim does not meet the standards, allow Plaintiff leave to amend their Complaint.
Respectfully submitted, THE KELLY LEGAL GROUP, PLLC PO BOX 2125 Austin, Texas 78768-2125 512-505-0053 tel 512-505-0054 fax jkelly@kellylegalgroup.com
By: JEFFREY S. KELLY State Bar No. 24043749 Case 4:11-cv-04416 Document 7 Filed in TXSD on 01/03/12 Page 13 of 15 ___________________________________________ Plaintiffs Response to Motion to Dismiss Page 14 of 15
ATTORNEYS FOR PLAINTIFFS Case 4:11-cv-04416 Document 7 Filed in TXSD on 01/03/12 Page 14 of 15 ___________________________________________ Plaintiffs Response to Motion to Dismiss Page 15 of 15
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on January 3, 2012, I served a copy of the foregoing by e-file electronic transmission pursuant to the Electronic Case Management system of the United States for the Southern District of Texas, who will send an electronic copy to opposing counsel.
______________________________ Jeffrey S. Kelly Case 4:11-cv-04416 Document 7 Filed in TXSD on 01/03/12 Page 15 of 15 EXHIBIT B Case 4:11-cv-04416 Document 7-1 Filed in TXSD on 01/03/12 Page 1 of 3 Ms. Janis Allen
ATTORNEY GENERAL OF TEXAS GREG ABBOTT October 4,2010 Senior Vice President, Assistant General Counsel Bank of America 400 Countrywide Way Simi Valley California 93065 RE: Bank of America Foreclosures in Texas Dear Ms. Allen: Recent troubling developments about the veracity of claims made on documents used by Ally Financial, Inc. in its foreclosure filings have led to an inquiry by our office as to the full harm Texas homeowners have suffered. We know tbat you are aware of tbe issues raised when Ally Financial, Inc. announced that it was suspending foreclosures on certain properties in 23 states. Bank of America subsequently announced a similar move, again in tbe 23 "judicial foreclosure" states, apparently because you discovered that you had the same issue with certain of your employees, referred to as "robosigners." They had engaged in practices concerning the execution of documents which were used in foreclosures, among which were tbese: Signing thousands of documents per month Signing documents without reading them Signing affidavits which falsely claim personal knowledge of facts Signing affidavits which falsely claim the affiant reviewed the attached documents Notarizing documents prior to signing by the signer Notarizing documents when the signer. was not present before the notary Filing documents with records attached that did not correctly reflect loan payments, charges and advances We are aware that Bank of America services a significant number of mortgage loans in the State of Texas. It is likely that affidavits and other documents, such as assignments of deeds of trust and appointments of substitute trustees,with the issues described, above may have been used in connection with foreclosures in the State of Texas. Regardless ofwhetber the foreclosure was a nonjudicial one or a judicial one in connection with a home equity loan, home equity line of credit or reverse mortgage, if any of the practices described above were utilized in establishing Bank of America's authority to conduct tbe sale or obtain a court order for a sale, such use would have been a violation of Section 17.46(a) of the Texas Deceptive Trade Practices Act; Section 392.304, Texas Debt Collection Act; Section 37.02, Texas Penal Code; Section 12.001, Texas Property Code; Section 406.009, Texas Government Code; Texas Constitution Article 16, POST OfFICE Box !2548, AUSTIN, TEXAS 787112548 TEL:(5J2) 4632100 WEB: WWW.TEXASAT.TORNEyGSNERAL,GOY All Equal Emplflymellf Opperlunify !"Imp/oyer' Primed on Recycled Paper EXHIBIT B Case 4:11-cv-04416 Document 7-1 Filed in TXSD on 01/03/12 Page 2 of 3 Bank of America October 4, 2010 Page 2 Section 50; and/or Rule 736(1), Texas Rules of Civil Procedure, and the document and therefore the foreclosure sale would have been invalid. The State of Texas hereby demands that in the State of Texas, Bank of America immediately suspend all foreclosures, all sales of properties previously foreclosed upon, and all evictions of persons residing in previously foreclosed upon properties, until Bank of America has done the following: 1. Identify all Bank of America employees or agents who "robosigned," as described above, affidavits and other documents which were recorded in the State of Texas; 2. Identify all foreclosures in the State of Texas in connection with which an affidavit or other document with the characteristics listed above was used as part of the foreclosure process; 3. Describe the measures taken by Bank of America to ensure that affidavits and other documents are executed in compliance with Texas law; 4. Describe the measures taken by Bank of America to comply with the Servicemembers Civil Relief Act in connection with foreclosures; 5. Identify all other loan servicers and/or MERS for whom the above described employees or agents signed affidavits; 6. Provide assurances that all Banle of America foreclosures of properties in the State of Texas which relied upon documents with the characteristics described above will be rectified and the procedures by which they will be rectified; 7. Provide assurances that all future Banle of America foreclosures of properties in the State of Texas will be done with legally correct documentation; and 8. Identify all Bank of America employees or agents who are or who signed as officers of other non-related entities. Please provide your response on or before October 15, 2010. ,/ /'
Paul D. Carmona Chief, Consumer Protection and Public Health Division
ATTORNEY GENERAL OF TEXAS G R E G A B B O T T
P O S T OF F I C E B O X 1 2 5 4 8 , AU S T I N , T E X A S 7 8 7 1 1 - 2 5 4 8 T E L : ( 5 1 2 ) 4 6 3 - 2 1 0 0 WE B : WWW. T E X A S A T T O R N E Y G E N E R A L . G O V An Equal Employment Opportunity Employer Printed on Recycled Paper
Demand Letters sent to:
American Home Mortgage Servicing, Inc. American General Finance, Inc. AmTrust Mortgage Corporation Aurora Loan Servicec, Inc. Bank of America Carrington Mortgage Services, LLC Cenlar, FSB JP Morgan Chase & Co. CitiMortgage, Inc. EMC Mortgage Corporation First Horizon National Corp. Ally Financial, Inc./GMAC Home Loan Services HomEq Servicing, Inc. HSBC North America Holdings, Inc. Litton Loan Servicing, Inc. MGC Mortgage, Inc. Midland Mortgage Company MorEquity, Inc. National City Mortgage c/o PNC Financial Services Group, Inc. Nationstar Mortgage Company Ocwen Loan Servicing, LLC OneWest Bank Group LLC PHH Mortgage Services Corporation Saxon Mortgage Services, Inc. Select Portfolio Servicing, Inc. Vanderbilt Mortgage and Finance, Inc. Washington Mutual Wells Fargo & Company Wilshire Credit Corporation
EXHIBIT B Case 4:11-cv-04416 Document 7-1 Filed in TXSD on 01/03/12 Page 3 of 3
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