Miller v. Homecomings Fin., LLC

• Citation: 881 F.Supp.2d 825
• Decision Date: 08 August 2012
• Docket Number: Civil Action No. 4:11–cv–04416.
• Parties: Joan MILLER and David Miller, Plaintiffs, v. HOMECOMINGS FINANCIAL, LLC, GMAC Mortgage, LLC, Bank of New York Mellon Trust Co., Don Ledbetter, Patricia Poston, Gabriel Ozel, and Pite Duncan, LLP, Defendants.
• Court: U.S. District Court — Southern District of Texas

881 F.Supp.2d 825

Joan MILLER and David Miller, Plaintiffs,
v.
HOMECOMINGS FINANCIAL, LLC, GMAC Mortgage, LLC, Bank of New York Mellon Trust Co., Don Ledbetter, Patricia Poston, Gabriel Ozel, and Pite Duncan, LLP, Defendants.

Civil Action No. 4:11–cv–04416.

United States District Court,
S.D. Texas,
Houston Division.

Aug. 8, 2012.

[881 F.Supp.2d 827]

Jeffrey Scott Kelly, The Kelly Legal Group PLLC, Austin, TX, for Plaintiff.

Graham W. Gerhardt, Keith Steven Anderson, Brandley Arant Boult Cummings LLP, Birmingham, AL, for Defendant.

MEMORANDUM AND ORDER
STEPHEN WM. SMITH, United States Magistrate Judge.

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.

Background¹

In April 2003 Plaintiff Joan Miller took out a home equity loan from lender Homecomings Financial Network, Inc.² in the amount of $184,800, secured by a home equity 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 Miller ³ by special warranty deed, also duly recorded. (Dkt. 1–1, Ex. C). Subsequently, plaintiffs “ran in to financial hard times,” and on June 10, 2011 defendant Mellon obtained an order under Texas Rule of Civil Procedure 736 to proceed with a foreclosure sale under Texas Property Code § 51.002. (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, 2011. 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, 2011. Defendants removed the case to federal court on December 15, 2011 (Dkt. 1), and the parties have consented to magistrate judge jurisdiction. (Dkt. 13).

Standard of Review

Rule 12(b)(6) allows a court to dismiss a plaintiff's 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 are proper only if the plaintiff fails to plead “enough facts to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1960, 173 L.Ed.2d 868 (2009) (quoting

[881 F.Supp.2d 828]

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (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 plaintiff's 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, 127 S.Ct. 1955, and draw all reasonable inferences from them in the plaintiff's favor. Elsensohn v. Tammany Parish Sheriff's Office, 530 F.3d 368, 371–72 (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., 313 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 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 wrongful foreclosure. See, e.g., League City State Bank v. Mares, 427 S.W.2d 336 (Tex.Civ.App.-Houston [14th Dist.] 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., 377 S.W.3d 79, 81–82 (Tex.App.-Houston [1st Dist.] 2012); Wells Fargo Bank, N.A. v. Ballestas, 355 S.W.3d 187, 189–90 (Tex.App.-Houston [1st Dist.] 2011, no pet.); Leavings v. Mills, 175 S.W.3d 301, 306 (Tex.App.-Houston [1st Dist.] 2004, no pet.); see alsoTRCP 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, 139 Tex. 340, 162 S.W.2d 671, 675 (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, 611 S.W.2d 622 (Tex.1981); and, most significantly for the present case, no “contractual standing” by the party seeking to foreclose, Martin, 377 S.W.3d at 81–82.

Under the Texas Property Code, the only party with standing to initiate a non-judicial foreclosure sale is the mortgagee,⁴ or the mortgage servicer acting on behalf

[881 F.Supp.2d 829]

of the current mortgagee.⁵ 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 301, 310 (Tex.App.-Houston [1st 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. & Com.Code Ann. § 3.201. If the instrument is payable to an identified person, negotiation requires both transfer of possession and written indorsement by the holder. Id. at § 3.201(b). In order to enforce the note as a holder, a party who is not the original lender must prove “successive transfers of possession and indorsement” establishing an “unbroken chain of title.” Leavings, 175 S.W.3d at 310. Thus, with certain exceptions, ⁶ possession of the note is typically required in order for a holder to enforce it. Millet v. JP Morgan Chase, N.A., 2012 WL 1029497 at *3 (W.D.Tex. Mar. 26, 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, 377 S.W.3d at 84. The owner of a note need not be a holder, because the two issues are separate and distinct. SMS Financial, LLC v. 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. Priesmeyer v. Pacific 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 310. An unexplained gap in the chain of title may present a fact issue on the question of ownership. See Martin, 377 S.W.3d at 84–85;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.] 1991, no writ).

As a matter of Texas law, then, homeowners such as the Millers do have a cognizable cause of action ⁷ to challenge a

[881 F.Supp.2d...