Levels v. Merlino

• Citation: 969 F.Supp.2d 704
• Decision Date: 03 September 2013
• Docket Number: No. 3:11–cv–3434–M–BN.,3:11–cv–3434–M–BN.
• Parties: Tangela LEVELS and Byron Levels, Plaintiffs, v. Andrew P. MERLINO and Lynne Merlino, Defendants.
• Court: U.S. District Court — Northern District of Texas

969 F.Supp.2d 704

Tangela LEVELS and Byron Levels, Plaintiffs,

v.Andrew P. MERLINO and Lynne Merlino, Defendants.

No. 3:11–cv–3434–M–BN.

United States District Court,

N.D. Texas,

Dallas Division.

Sept. 3, 2013.

Julie Pettit, The Pettit Law Firm, Dallas, TX, for Plaintiffs.

Michael H. Myers, Curtis Castillo, P.C., Dallas, TX, for Defendants.

ORDER ACCEPTING FINDINGS, CONCLUSIONS, AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE

BARBARA M.G. LYNN, District Judge.

After making an independent review of the pleadings, files, and records in this case, and the Findings, Conclusions, and Recommendation of the United States Magistrate Judge dated August 1, 2013, the Court finds that the Findings, Conclusions, and Recommendation of the Magistrate Judge are correct and they are accepted as the Findings, Conclusions, and Recommendation of the Court.

IT IS, THEREFORE, ORDERED that the Findings, Conclusions, and Recommendation of the United States Magistrate Judge are accepted.

FINDINGS, CONCLUSIONS, AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE

DAVID L. HORAN, United States Magistrate Judge.

This case has been referred to the United States magistrate judge for pretrial management, including determination of Defendants' motion for summary judgment, pursuant to 28 U.S.C. § 636(b) and a standing order of reference from the District Court. The undersigned magistrate judge issues the following findings of fact, conclusions of law, and recommendation.

Procedural Background

Plaintiffs filed this lawsuit in Texas state court on December 2, 2011, alleging several causes of action. See Dkt. No. 1–1 at 2–7. Defendants properly removed the case on December 12, 2011. See Dkt. No. 1. Defendants then brought a counterclaim against Plaintiffs, alleging breach of contract and malicious civil prosecution and seeking exemplary damages. See Dkt. No. 19 at 5–7. Plaintiffs twice amended their complaint, with their Second Amended Complaint alleging negligence, conversion, common law and statutory fraud, negligent misrepresentation, violations of the Texas Finance Code, violations of the Truth in Lending Act (“TILA”), violations of the Real Estate Settlement Procedures Act (“RESPA”), breach of contract, and wrongful foreclosure. See Dkt. No. 31 at 8–13.

Defendants moved for summary judgment on all of Plaintiffs' claims. See Defendants' Motion for Summary Judgment on Plaintiffs' Claims (“Motion”) [Dkt. No. 40]. Plaintiffs filed their Response and Brief in Opposition (“Response”), see Dkt. No. 50, and Defendants filed their Reply to Plaintiffs' Amended Response (“Reply”), see Dkt. No. 51.

Objections to Summary Judgment Evidence

Before considering the substantive merits of Defendants' Motion, the Court first notes that Defendants have objected to portions of Plaintiffs' summary judgment evidence. Dkt. No. 51. As a matter of efficiency, the undersigned will only take up the objections to evidence on which the Court relies on in making the recommendation on Defendants' Motion. At the time that the undersigned relies on evidence to which Defendants object, the objections will be considered. If evidence is relied on and the objection was not discussed, the undersigned considered both the evidence proffered and Defendants' objections, and to the extent the undersigned regarded portions of the evidence as relevant, admissible, and necessary to the resolution of particular summary judgment issues, overruled those objections. To the extent the undersigned did not rely on other evidence about which Defendants complain, the objections are denied as moot.

Factual Background and Allegations

This is a case involving a seller (or owner) financed home purchase that went wrong. The property at issue is located in Dallas, Texas (the “Property”). Dkt. No. 1–1 at 2. The summary judgment evidence, when all facts are viewed and all reasonable inferences are drawn in the light most favorable to Plaintiffs as the nonmoving party and all disputed factual controversiesare resolved in Plaintiffs' favor, shows the following.

On April 7, 2004, Defendants Andrew and Lynne Merlino (“Defendants” or “Merlinos”) sold the Property to Plaintiffs Byron and Tangela Levels (“Plaintiffs” or “Levels”). See Dkt. Nos. 40 at 5–6 & 50 at 3–4. Plaintiffs first inquired into the Property as a rental property but ultimately decided to purchase the home through owner financing. See Dkt. No. 50–1 at 30 (¶ 3). Plaintiffs were at least considering using the Property as an in-home daycare at the time of purchase. On April 7, 2004, the parties entered into a Real Estate Lien Note (the “Note”) on April 7, 2004, in the amount of $333,000.00, with an annual interest rate of 6.0%. Dkt. No. 40–1 at 2. The terms of payment under the Note were as follows: “Principal and interest are payable in monthly installments of ... $1,996.50 each on or before the 1st day of each month. Payments shall commence on or before April 7, 2004 and continue until principal and interest have been paid, but the final payment of any remaining principal and interest is payable on or before March 7, 2007.” Id. at 3. The Note was secured by an interest in the Property. See id.

Plaintiffs state that at the time of signing, Defendants provided them with a 30–year amortization schedule at an interest rate of six percent. See Dkt. 50–1 at 31 (¶ 5). This amortization schedule is not included in the summary judgment evidence.¹

On May 15, 2007, the parties entered into a “Modification of Note and Deed of Trust” (“First Modification”), wherein the parties agreed that the “note will be amortized over thirty years at 8% interest” with monthly payments due “until May 10, 2008 when the entire balance is due and payable.” Dkt. No. 40–2. The First Modification also provided Plaintiffs with the option “to apply $30,000.00 in principal and at which point interest will be changed to 9% and amortize remaining balance over 30 years and note will [be] due and payable on May 10, 2009,” rather than paying the balance in full on May 10, 2008. Id.

Plaintiffs allege that Defendants again provided them with a 30–year amortization schedule when the parties signed the First Modification. See Dkt. No. 50–1 at 32–33 (¶ 17). This Amortization Schedule was attached as an exhibit to Plaintiffs' state court petition but was not attached as summary judgment evidence. See Dkt. No. 1–1 at 13. Defendant Andrew Merlino testified that does not recall whether Defendants provided this Amortization Schedule to Plaintiffs. See Dkt. No. 50–1 at 7. Plaintiffs state that they received a HUD–1 Settlement Statement at closing and therefore were under the impression that the parties “would be bound by all obligations” that might apply under HUD. Dkt. No. 50–1 at 34 (¶ 27).

On June 25, 2010, the parties entered into the “Modification and Amendment Agreement” (the “Second Modification”),² wherein the parties expressed their desire to “modify the terms of the Note.” Dkt. No. 40–3. Under the Second Modification, Plaintiffs promised to pay Defendants “principal and interest payment of $2,482.95 on the Base Principal at the rate of TEN PERCENT (10.0%) per annum beginning July 15, 2010 and continuing [monthly] until June 15, 2011, when the entire principal and interest is due and payable.” Id.

Thus, while the language is somewhat varied in the Loan Agreements, in each, the terms were comprised of a monthly payment arrangement with a balloon payment at a set date when the loan would be due in full. As explained below, however, Plaintiffs take the position that the terms were actually dictated by the amortization schedules that demonstrate that the loan would be a 30–year loan.

By September 2011, Plaintiffs were delinquent on their payments under the Second Modification. See Dkt. No. 40–10 at 3. The events that transpired after that point are not entirely clear, but a foreclosure sale on the Property became set for December 6, 2011. See Dkt. No. 1–1 at 7. On December 2, 2011, Plaintiffs filed a Petition in state court, alleging several causes of action and requesting a temporary and permanent injunction. See Dkt. No. 1–1 at 2. The state court entered the temporary restraining order (“TRO”), enjoining the scheduled foreclosure of the Property for 14 days and setting the TRO for hearing. See id. at 22–23.

Neither party explains the process by which the foreclosure occurred, but Defendants foreclosed on the Property on March 6, 2012. See Dkt. No 50–1 at 35 (¶ 31); Dkt. No. 40–4 at 13. Byron Levels testified via affidavit that he did not receive a copy of the Notice of Sale 21 days before the foreclosure. See Dkt. No. 50–1 at 43 (¶ 4).³

Plaintiffs allege that Defendants repeatedly told them the mortgage was a 30–year mortgage and that based upon Defendants' alleged statements they entered into the Loan Agreements. See Dkt. No. 50–1 at 32–33 (¶¶ 17–20).⁴ Plaintiffs assert that Defendants made additional misrepresentations and that, based on these alleged misrepresentations, Plaintiffs did not seek alternative financing arrangements. See Dkt. No. 50–1 at 34 (¶ 25).

In addition to the above alleged misrepresentations, Plaintiffs raise other complaints related to Defendants' handling of the loan. More specifically, Plaintiffs claim the following actions by Defendants constituted Defendants' mismanagement of the loan: (1) Defendants were at times unable to inform Plaintiffs as to what their payment amounts were or how much Plaintiffs had paid into escrow for taxes and insurance; (2) Defendants would tell Plaintiffs the wrong payment amounts due; and (3) Defendants failed, in general, to accurately keep track of the mortgage note amounts paid and due, as evidenced by an email sent by Defendants to Plaintiffs. See Dkt. No. 50–1 at 9–12; Dkt. No. 31 at 4.⁵ Plaintiffs also contend that Defendants failed to provide them with a Truth in Lending Statement as well as a Good Faith Estimate, as allegedly required under federal law. See Dkt. No. 31 at 4. Plaintiffs claim that ...