Lozano v. Ocwen Federal Bank, Fsb

• Decision Date: 14 June 2007
• Docket Number: No. 05-20960.,05-20960.
• Citation: 489 F.3d 636
• Parties: John R. LOZANO and Susie Lozano, Plaintiffs-Appellants, v. OCWEN FEDERAL BANK, FSB, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

489 F.3d 636

John R. LOZANO and Susie Lozano, Plaintiffs-Appellants, v. OCWEN FEDERAL BANK, FSB, Defendant-Appellee.

No. 05-20960.

United States Court of Appeals, Fifth Circuit.

June 14, 2007.

David Wallace Holman (argued), The Holman Law Firm PC, Houston, TX, for Plaintiffs-Appellants.

John Hatchett McFarland, William Guy Arnot (argued), Winstead, Sechrest & Minick, Houston, TX, for Defendant-Appelellee.

Appeal from the United States District Court for the Southern District of Texas.

Before REAVLEY, DeMOSS and BENAVIDES, Circuit Judges.

DeMOSS, Circuit Judge:

John and Susie Lozano appeal the district court's order granting summary judgment in favor of Ocwen Federal Bank on the Lozanos' claims related to Ocwen's foreclosure of their home in Houston, Texas.¹ The Lozanos sought a declaratory judgment to void the foreclosure and remove the cloud of title on the property. They also sought damages for alleged violations of Texas and federal law governing foreclosures. The district court granted Ocwen's motion for summary judgment and purported to dismiss the entire case. For the reasons stated below, we affirm in part and reverse in part.

I.

On April 15, 1980, the Lozanos executed a promissory note for $76,500, payable to University Savings over a thirty year term at 12% interest, for the purchase of a home. They also executed a deed of trust granting University Savings a lien on their homestead. The Lozanos submitted cancelled checks showing that they thereafter made two unscheduled payments to University Savings on the note: a $12,000 payment on September 30, 1980, and an $11,000 payment on June 1, 1981. The parties agree that University Savings never credited these payments to the balance owed on the note.

University Savings subsequently transferred the note and deed of trust to Federal Home Loan Bank of Dallas in 1989. Between 1989 and 1997, when Ocwen purchased the note and deed of trust, they changed hands several times. According to the district court, the note and deed of trust were subject to the following transfers: first, on May 9, 1990 the note was assigned from Federal Home Loan Bank of Dallas to the Resolution Trust Company ("RTC") as receiver for University Federal Savings Association; second, on November 15, 1990 the note was assigned from RTC as receiver for University Savings Association to RTC as receiver for University Federal Savings Association; and third, in an undated assignment, the note was assigned from RTC as receiver for University Federal Savings Association to Ryland Mortgage Company. Following the transfer to Ryland there is a gap in the chain of title. Ocwen purchased the note, by that time apparently in default, from Credit Suisse First Boston Mortgage Capital LLC on May 31, 1997. On December 17, 1997, the deed of trust was also transferred to Ocwen. Thereafter, Ocwen sold the note to LaSalle National Bank in 1998, but has remained the servicer of the note.²

The Lozanos filed for bankruptcy in 1996, 1998, and 2000. During these bankruptcies the Lozanos asserted, and the bankruptcy court accepted, that the Lozanos owed a substantial sum on the note at issue. Additionally, the Lozanos entered into two forbearance agreements with Ocwen, one in 1999 and one in 2001, where they acknowledged default on the note and agreed to modify the note's terms in exchange for Ocwen's promise not to foreclose at that time. As part of the 2001 forbearance agreement, the Lozanos also represented that they had no defenses or setoffs with respect to their obligation to pay the note.

In 2002, the Lozanos again defaulted on the note and Ocwen foreclosed and purchased the property at a foreclosure sale on March 3, 2003. The Lozanos responded by bringing suit in Texas state court seeking declaratory relief and damages based on their 1980 and 1981 prepayments and Ocwen's alleged violations of notice and verification requirements under state and federal law. Ocwen removed to federal court on the basis of diversity jurisdiction.

After fairly extensive discovery, the parties filed cross motions for summary judgment. The main thrust of the Lozanos' argument was that the foreclosure was void because, considering the prepayments they made in 1980 and 1981, they had paid the note in full by 1990. Ocwen argued it was entitled to summary judgment based on, inter alia, the affirmative defenses of judicial estoppel (based on assertions made in the prior bankruptcy proceedings) and "estoppel" (based on the forbearance agreements). The district court granted Ocwen's motion³ and denied the Lozanos' motions for summary judgment and for leave to amend their complaint, and it entered a take nothing judgment against the Lozanos. The Lozanos timely appealed.

II.

We review the district court's grant of summary judgment de novo, applying the same standard as the district court. Ingalls Shipbuilding v. Fed. Ins. Co., 410 F.3d 214, 219 (5th Cir.2005). Summary judgment is appropriate if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law." FED.R.CIV.P. 56(c). Applying this standard, we view the evidence in the light most favorable to the nonmovant. Abarca v. Metro. Transit Auth., 404 F.3d 938, 940 (5th Cir.2005).

The Lozanos brought claims for (A) a declaratory judgment to set aside the deed executed on the foreclosure sale, and (B) damages for alleged violations of the Texas Deceptive Trade Practices Act (DTPA), TEX. BUS. & COM.CODE § 17.46(b)(12) (Vernon 2006), and the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692.⁴ The district court purported to dispose of each claim in its Opinion and Order on Summary Judgment.

A. Declaratory Judgment

The Lozanos sought a declaratory judgment to set aside the foreclosure on three grounds: (1) they had previously paid the entire the balance of the note, (2) Ocwen allegedly failed to comply with the Texas Property Code's foreclosure notice provisions, and (3) Ocwen allegedly violated the FDCPA.

1. Pre-payment of the note

The district court held that judicial estoppel, promissory estoppel, and the statute of limitations barred the Lozanos from asserting that, by virtue of their prepayments to University Savings in 1980 and 1981, they had fully paid the note by 1990. Because we affirm on quasi estoppel grounds, we need not decide whether judicial estoppel or the statute of limitations also bar this claim.

In the 1999 and 2001 forbearance agreements, the Lozanos made several promises in exchange for Ocwen's promise not to foreclose based on the pending delinquencies. The 1999 agreement provided that Ocwen would modify the note to reflect an unpaid balance of $90,148, and the Lozanos promised to pay that balance at 12% interest over twenty-seven years by monthly payments of $938.85. In the 2001 agreement, the Lozanos acknowledged another default and affirmed their obligation to pay the balance of the note, which they stated was $85,295.40. In that agreement, the Lozanos further conceded that "by their execution and delivery hereof, that they have no defense, setoff or counterclaim with respect to the default or their obligation under the Note and Mortgage."

Citing the Lozanos' representations and promises in the forbearance agreements, the district court held the doctrine of promissory estoppel prevented the Lozanos from asserting that they fully paid the mortgage in 1990. The court agreed with Ocwen that (1) the Lozanos made representations, (2) the Lozanos could foresee that those representations would be relied upon by Ocwen, and (3) Ocwen substantially relied upon the representations to its detriment by not foreclosing on the property. See "Moore" Burger, Inc. v. Phillips Petroleum Co., 492 S.W.2d 934, 937 (Tex. 1972) (discussing the elements of promissory estoppel).

The Lozanos argue on appeal that promissory estoppel is inapplicable here because the forbearance agreements constitute valid contracts, and Texas courts have held that promissory estoppel may only be applied when no valid contract exists. See Doctors Hosp. 1997, L.P. v. Sambuca Houston, L.P., 154 S.W.3d 634, 636-37 (Tex.App. — Houston [14th Dist.] 2004, pet. abated) (collecting cases). We agree the district court may have erred in styling this ground for relief as promissory estoppel. Nonetheless, the Lozanos made representations in a binding contract, and now seek to take a position inconsistent with those representations. Prudence and caselaw dictate that this cannot be allowed.

Estoppel by contract, also known as "quasi estoppel," forbids a party to a contract from taking a position inconsistent with the terms of the contract when that position prejudices another. Johnson v. Structured Asset Servs., LLC, 148 S.W.3d 711, 721-22 (Tex.App. — Dallas 2004, no pet.). "The doctrine applies when it would be unconscionable to allow a person to maintain a position inconsistent with one to which . . . he accepted a benefit." Lopez v. Munoz, Hockema & Reed, L.L.P., 22 S.W.3d 857, 864 (Tex.2000). In other words, the doctrine forbids a party from accepting the benefits of a transaction and then subsequently taking an inconsistent position to avoid corresponding obligations or effects. Atkinson Gas Co. v. Albrecht, 878 S.W.2d 236, 240 (Tex.App. — Corpus Christi 1994, writ denied).

In the 1999 forbearance agreement, the Lozanos agreed to pay more than $90,000 over the following twenty-seven years. In the 2001 forbearance agreement, they reaffirmed their obligations under the note and acknowledged that they had no defenses to their obligation to pay. But now they claim they do have a defense: that they have previously paid the note in full in 1990. That claim is patently inconsistent with the representations the Lozanos made in the forbearance agreements. Further, Ocwen, who agreed not to foreclose in 1999 and 2001...