Barrera v. Security Bldg. & Inv. Corp.

• Decision Date: 25 September 1975
• Docket Number: No. 74-2565,74-2565
• Citation: 519 F.2d 1166
• Parties: Pedro and Olga A. BARRERA, Plaintiffs-Appellants, v. SECURITY BUILDING & INVESTMENT CORPORATION et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1166

519 F.2d 1166

Pedro and Olga A. BARRERA, Plaintiffs-Appellants, v. SECURITY BUILDING & INVESTMENT CORPORATION et al.,

Defendants-Appellees.

No. 74-2565.

United States Court of Appeals, Fifth Circuit.

Sept. 25, 1975.

J. L. Covington, Texas Rural Legal Aid, Inc., Edinburg, Tex., for plaintiffs-appellants.

Ann Gann, Jack Wiech, Brownsville, Tex., for defendants-appellees.

C. C. Small, Jr., Austin, Tex., for Texas Savings and Loan League, amicus curiae.

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

Before WISDOM, SIMPSON and RONEY, Circuit Judges.

WISDOM, Circuit Judge:

Pedro and Olga Barrera, plaintiffs-appellants, lost their house and lot to Security Building and Investment Corporation in a non-judicial foreclosure under a power of sale they had conferred on Jack D. Wiech in a deed of trust. They brought this § 1983 ¹ action to recover damages and for a declaratory judgment of the unconstitutionality of Article 3810, Tex.Rev.Civ.Stat., the Texas statute setting minimum procedural requirements for exercise of such powers of sale. ² The Barreras contend that the non-judicial foreclosure deprived them of their property without due process of law in violation of the 14th Amendment. The district court found no "state action" and dismissed the suit. We affirm.

The Barreras, migrant workers, owned a residential lot in Brownsville, Texas. In April 1971 they discussed with employees of Security Building and Investment Corp. the possibility of their building a house on their lot. The discussions were conducted in Spanish because the Barreras' had only a limited understanding of English. Security's employees informed them that a ready-built house could be moved to their lot and finished to their specifications. The Barreras say that they were also assured that flexible financing could be arranged allowing them to miss monthly payments when they were not working in the fields. The agreement that the Barreras signed did not, however, require Security to complete the house to the Barreras' satisfaction and specifications. Nor did it provide for the flexible financing arrangements that the Barreras say they were promised. Instead, the document set forth conventional financing terms. It required no down payment, but obligated the Barreras to make 180 equal monthly payments of $65 and other payments into an escrow fund to cover insurance and taxes.

As security for payment of this obligation, the Barreras executed a deed of trust, naming Jack D. Wiech, an officer of Security, the trustee and conveying to him, as trustee, the deed to their property. Discharge of the indebtedness, the trust instrument provided, would void the transfer. ³ Default, on the other hand, would entitle the debtor, at its option, to accelerate the indebtedness. The trustee would then be empowered and obligated to sell the property to satisfy the outstanding obligation. The trust instrument incorporated the requirements of Article 3810 Tex.Rev.Civ.Stat.: it required the trustee to advertise the sale for at least 21 days by posting notices at three public places (one of them the courthouse door) in the county where the land was located; it required that the sale be made by public auction, between 10 a. m. and 4 p. m. in front of the courthouse, to the highest bidder for cash. ⁴ It did not require that personal notice be given to the Barreras. It specified that the lender was entitled to purchase the property at such a sale and that the sale would act as a perpetual bar to the debtors, their heirs, and assigns. The contract specified that after sale by the trustee, the debtors would occupy the status of tenants at sufferance, and that the purchaser would be entitled to immediate possession and empowered to maintain an action for forcible detainer to secure possession.

The Barreras, immediately after executing this document, left Texas for California. When they returned to Texas a few months later, they concluded that Security's performance had not met its representations. On advice of counsel, they withheld payment. They discussed their grievances with Security but failed to settle their differences. When the Barreras had refused, for two to three months, to make payments on the note, Security decided to accelerate the indebtedness and to instruct Wiech to sell the property according to the terms of the deed of trust. Wiech posted the notices as required in the deed of trust and also (and this was not required) mailed a copy of the posted notice of sale to the Barreras two weeks before the date fixed for the sale. On February 1, 1972, Wiech sold the property at public auction to Security, which later sold it to a third party. After this final sale, the Barreras proferred payment of one installment. Security returned the check. It also advised them that their property had been sold and that they were to remove their belongings. They complied "under protest".

I.

The Fourteenth Amendment provides, in part:

"No state shall make or enforce any law which shall abridge the privileges or immunities of the citizens of the United States; nor shall any state deprive any person of life, liberty, or property, without due process of law . . ."

"The Fourteenth Amendment prohibits the state from depriving any person of life, liberty, or property, without due process of law; but it adds nothing to the rights of one citizen as against another." United States v. Cruikshank, 1875, 92 U.S. 542, 23 L.Ed. 588. The Fourteenth Amendment "erects no shield against merely private conduct, however discriminatory or wrongful." Shelley v. Kraemer, 1946, 334 U.S. 1, 68 S.Ct. 836, 842, 92 L.Ed. 1161. The question here, as in all Fourteenth Amendment actions, is whether "there is a sufficiently close nexus between the state and the challenged action . . . so that the action . . . may be fairly treated as that of the State itself." Jackson v. Metropolitan Edison Company, 1974, 419 U.S. 345, 95 S.Ct. 449, 42 L.Ed.2d 477. This question is more easily stated than resolved. State involvement in undertakings otherwise private is protean and elusive: Can it be fairly said that the state was so closely involved in this non-judicial foreclosure that the state has, in some realistic sense, acted to deprive the Barreras of their property?

The Barreras advance a number of arguments. They argue that Article 3810 "controls and directs" the contested practice and represents in itself significant state involvement in foreclosure by sale. They also argue that the state through comprehensive and detailed regulation of mortgage transactions and, more generally, real property transactions, has sufficiently implicated itself in private foreclosure practices so that they may be treated as acts of the state for Fourteenth Amendment purposes. Finally, the Barreras contend that in tolerating non-judicial foreclosure, the state has surrendered a traditionally governmental function to private parties.

This Court has reviewed and rejected similar contentions raised with regard to challenges to the self-help repossession and sale codified in Sections 9-503, -504 of the Uniform Commercial Code. James v. Pinnix, 5 Cir. 1974, 495 F.2d 206; Brantley v. Union Bank and Trust Company, 5 Cir. 1974, 498 F.2d 365, cert. denied, 419 U.S. 1034, 95 S.Ct. 517, 42 L.Ed.2d 309; Caulderon v. United Furniture Company, 5 Cir. 1974, 505 F.2d 950. These contentions, we conclude, are not more persuasive as applied to non-judicial foreclosure under a power of sale.

We are not the first court to arrive at this conclusion. Three of our district courts and a Texas court of appeals have agreed that no significant state action is involved in non-judicial foreclosures under a deed of trust conforming to the requirements of Article 3810. Leisure Estates of America v. Carmel Development Co., S.D.Tex.1974, 371 F.Supp. 556; Hoffman v. H.U.D., N.D.Tex.1974, 371 F.Supp. 576; Carmel v. Federal National Mortgage Association, N.D.Tex.1973, CA-3-7158-L; Criss v. Federal National Mortgage Association, M.D.Tex.1973, CA-3-7044-E; Armeta v. Nussbaum, Tex.Civ.App.1975, 519 S.W.2d 673. The Circuit Court of Appeals for the District of Columbia has reached the same conclusion on a similar statute in its jurisdiction. Bryant v. Jefferson Federal Savings and Loan Association, D.C.Cir. 1974, 509 F.2d 511. This stream is not however without its countercurrents. A three-judge court in the Fourth Circuit has found state action in the non-judicial foreclosure proceeding available in North Carolina. Turner v. Blackburn, W.D.N.C., 389 F.Supp. 1250. Another district court has reached a similar conclusion. Garner v. Tri-State Development Co., E.D.Mich.1974, 382 F.Supp. 377; Northrip v. Federal National Mortgage Association, E.D.Mich.1974, 372 F.Supp. 594, appeal docketed No. 74-1500, -1501, 6 Cir., May 1, 1974 (finding, however, no denial of due process).

First, there is no direct involvement of the state in the act complained of here. ⁵ No state official or agency participated in the creation of the power of sale, in the decision to exercise that power, or in the actual exercise of that power. At no time did the seller seek or rely on the aid of any arm or agent of the state. This absence of direct state involvement in the act by which the deprivation itself was accomplished sets this case apart from Fuentes v. Shevin, 1972, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556; D. H. Overmyer Co. v. Frick Co., 1972, 405 U.S. 174, 92 S.Ct. 775, 31 L.Ed.2d 124; Swarb v. Lennox, 1972, 405 U.S. 191, 92 S.Ct. 767, 31 L.Ed.2d 138; Sniadach v. Family Finance Corporation, 1969, 395 U.S. 337, 89 S.Ct. 1820, 23 L.Ed.2d 349.

A sale under a deed of trust, to be an effective creditor remedy, must of course pass good title. The contract that provides for a power of sale thus relies, ultimately, on the state's acknowledgement of the legal effect of the involuntary change in ownership brought about by the exercise of the power of...