Priester, Jr. et al v. Long Beach Mortgage Company et al

Filing 218

MEMORANDUM OPINION AND ORDER AND FINDINGS OF FACT AND CONCLUSIONS OF LAW. Defendants' Motion for Summary Judgment on Defendants' counterclaim for judicial foreclosure (Dkt. # 143 ) is hereby GRANTED. Signed by District Judge Amos L. Mazzant, III on 9/18/2018. (rpc, ) Modified on 9/18/2018 (kls, ).

United States District Court
EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION

JOHN PRIESTER,
PRIESTER

JR.

and

BETTIE

v.
LONG BEACH MORTGAGE COMPANY,
et al.

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§
§
§
§
§

Civil Action No. 4:16-CV-449
Judge Mazzant

MEMORANDUM OPINION AND ORDER AND FINDINGS OF FACT AND
CONCLUSIONS OF LAW
On March 5, 2018, the parties appeared before the Court for a trial of this case, at which
time the Court heard evidence and argument of counsel. Upon a review of the record, the Court
concludes that it erroneously denied summary judgment as to Defendants’ judicial foreclosure
counterclaim. As such, the Court reconsiders its Order on the summary judgment in this case. 1
However, even if the Court did not reconsider, after considering the evidence submitted at trial,
the Court finds that Defendants are entitled to judicial foreclosure. As such, after the Court details
its reconsideration of its prior Order, the Court alternatively considers the evidence submitted
during trial.
RECONSIDERATION
I.

BACKGROUND
This case arises out of a dispute regarding payments on a Home Equity Loan encumbering

the property located at 1406 Oakwood Drive, Allen, Texas, 75013 (the “Property”). On June 6,
2016, Plaintiffs John and Bettie Priester (the “Priesters”) initiated a lawsuit against Defendants

1

The only issue that the Court reconsiders is the Court’s ruling on Defendants’ judicial foreclosure claim. The
remainder of the Report and Order on Defendant’s motion summary judgment remains intact.

Deutsche Bank National Trust Company, as Trustee, in Trust for Registered Holders of Long
Beach Mortgage Loan Trust 2006-1, Asset-Backed Certificates, Series 2006-1 and Select Portfolio
Servicing, Inc. (“SPS”). The case was removed to the Eastern District of Texas on June 27, 2016
(Dkt. #1). On November 3, 2017, Defendants submitted a motion for summary judgment against
Plaintiffs’ affirmative claims and also in support of Defendants’ counterclaims for judicial
foreclosure and subrogation (Dkt. #143). Plaintiffs filed their response on November 22, 2017
(Dkt. #148). On November 30, 2017, Defendants filed a reply (Dkt. #152) and Plaintiffs filed a
sur-reply on December 4, 2017 (Dkt. #155). On January 23, 2018, the Magistrate Judge entered
an Order and Report and Recommendation (“the Report”) on, among other motions, Defendants’
motion for summary judgment, recommending the Court grant the requested relief except for
Defendants’ request for summary judgment on its counterclaim for judicial foreclosure (Dkt.
#168). Both Plaintiffs and Defendants filed objections to the Report (Dkt. #185; Dkt. #183).
Responses were likewise filed to both sets of objections (Dkt. #187; Dkt. #186). The Court
overruled the objections and adopted the Report on February 28, 2018 (Dkt. #194).
II.

LEGAL STANDARD
A. Reconsideration
“Federal Rule of Civil Procedure 54(b) provides that, in a case involving multiple claims

or parties, ‘any order or other decision, however designated, that adjudicates fewer than all the
claims or the rights and liabilities or fewer than all the parties . . . may be revised at any time before
the entry of a judgment adjudicating all the claims and all the parties’ rights and liabilities.’”
Blundell v. Home Quality Care Home Health Care, Inc., No. 3:17-cv-1990-L-BN, 2018 WL
276154, at *4 (N.D. Tex. Jan. 3, 2018) (quoting FED. R. CIV. P. 54(b)). “Under Rule 54(b), ‘the
trial court is free to reconsider and reverse its decision for any reason it deems sufficient, even in
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the absence of new evidence or an intervening change in or clarification of the substantive law.’”
Austin v. Kroger Tex., L.P., 864 F.3d 326, 336 (5th Cir. 2017) (quoting Lavespere v. Niagara
Mach. & Tool Works, Inc., 910 F.2d 167, 185 (5th Cir. 1990), abrogated on other grounds, Little
v. Liquid Air Corp., 37 F.3d 1069, 1075 n.14 (5th Cir. 1994)).
B. Motion for Summary Judgment
The purpose of summary judgment is to isolate and dispose of factually unsupported claims
or defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 323–24 (1986). Summary judgment is proper
under Rule 56(a) of the Federal Rules of Civil Procedure “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
FED. R. CIV. P. 56(a). A dispute about a material fact is genuine when “the evidence is such that
a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby Inc.,
477 U.S. 242, 248 (1986). Substantive law identifies which facts are material. Id. The trial court
“must resolve all reasonable doubts in favor of the party opposing the motion for summary
judgment.” Casey Enters., Inc. v. Am. Hardware Mut. Ins. Co., 655 F.2d 598, 602 (5th Cir. 1981).
The party seeking summary judgment bears the initial burden of informing the court of its
motion and identifying “depositions, documents, electronically stored information, affidavits or
declarations, stipulations (including those made for purposes of the motion only), admissions,
interrogatory answers, or other materials” that demonstrate the absence of a genuine issue of
material fact. FED. R. CIV. P. 56(c)(1)(A); Celotex, 477 U.S. at 323. If the movant bears the burden
of proof on a claim or defense for which it is moving for summary judgment, it must come forward
with evidence that establishes “beyond peradventure all of the essential elements of the claim or
defense.” Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986). Where the nonmovant
bears the burden of proof, the movant may discharge the burden by showing that there is an absence
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of evidence to support the nonmovant’s case. Celotex, 477 U.S. at 325; Byers v. Dall. Morning
News, Inc., 209 F.3d 419, 424 (5th Cir. 2000). Once the movant has carried its burden, the
nonmovant must “respond to the motion for summary judgment by setting forth particular facts
indicating there is a genuine issue for trial.” Byers, 209 F.3d at 424 (citing Anderson, 477 U.S. at
248–49). A nonmovant must present affirmative evidence to defeat a properly supported motion
for summary judgment. Anderson, 477 U.S. at 257. Mere denials of material facts, unsworn
allegations, or arguments and assertions in briefs or legal memoranda will not suffice to carry this
burden. Rather, the Court requires “significant probative evidence” from the nonmovant to dismiss
a request for summary judgment. In re Mun. Bond Reporting Antitrust Litig., 672 F.2d 436, 440
(5th Cir. 1982) (quoting Ferguson v. Nat’l Broad. Co., 584 F.2d 111, 114 (5th Cir. 1978)). The
Court must consider all of the evidence but “refrain from making any credibility determinations or
weighing the evidence.” Turner v. Baylor Richardson Med. Ctr., 476 F.3d 337, 343 (5th Cir.
2007).
III.

ANALYSIS
Defendants moved for summary judgment on its counterclaim for judicial foreclosure.

Defendants argued that they met all of the elements for judicial foreclosure and that Plaintiffs
should be estopped from arguing that the Loan does not comply with the Texas Constitution. In
support of their arguments, Defendants submitted evidence of the elements of foreclosure,
including: the Texas Home Equity Fixed/Adjustable Rate Note (the “Note”) (Dkt. #143,
Exhibit 2), the Texas Home Equity Security Instrument (the “Security Instrument”) (Dkt. #143,
Exhibit 3), the Texas Home Equity Affidavit and Agreement (the “Affidavit”) (Dkt. #143,
Exhibit 4), Notice of Intent to Accelerate and Demand for Payment from Chase Bank (Dkt. #143,
Exhibit 5), Notice of Default and Intent to Accelerate from SPS (Dkt. #143, Exhibit 9), Notice of
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Maturity/Acceleration of Texas Non-Recourse Loan (Dkt. #143, Exhibit 10), and SPS Payment
History (Dkt. #143, Exhibit 11).
Plaintiffs responded that Defendants cannot foreclose on the Property because the Loan,
which consists of the Note and the Security Instrument, did not comply with the requirements of
the Texas Constitution. Specifically, Plaintiffs contend that the Loan was closed in the Plaintiffs’
home rather than at the office of the lender, an attorney at law, or a title company in violation of §
50(a)(6)(N) and Plaintiffs were not provided the notice prescribed in § 50(g) at least twelve days
before the Loan closing took place on November 25, 2005. 2 As noted in the Report, “Plaintiffs
have not submitted any independent evidence in opposition to Defendants’ Motion for Summary
Judgment.” (Dkt. #168 at p. 19). However, attached to Plaintiffs’ Complaint (Dkt. #101) and also
in the summary judgment record as an attachment to Plaintiffs’ state court petition, which was an
exhibit to Defendants’ motion, are two letters. The first, a letter from Mosser Law, PLLC,
Plaintiffs’ counsel, to Long Beach Mortgage Company, which stated that the Loan did not comply
with the applicable provisions of the Texas Constitution (Dkt. #143, Exhibit 14; Dkt. #101,
Exhibit 2). The second, a letter from Mosser Law, PLLC, to Chase Fulfillment Center referring
Chase to the first letter sent to Long Beach Mortgage Company (Dkt. #143 Exhibit 14; Dkt. #101,
Exhibit 3). With that evidence, the Court looks to Defendants’ claim for foreclosure.
“To foreclose under a security instrument in Texas with a power of sale, the lender must
demonstrate that: (1) a debt exists; (2) the debt is secured by a lien created under Art. XVI,
§ 50(a)(6) of the Texas Constitution; (3) plaintiffs are in default under the note and security

2

In Plaintiffs’ response to the motion for summary judgment, Plaintiffs state that there are certain terms that need to
be included in the underlying loan documents to permit the lender to foreclose and that those terms are not in the note,
although in a different section (Dkt. #148 at ¶ 39). To the extent this is an additional allegation that the Loan does not
comply with the Constitution, the argument fails as it was not listed in Plaintiffs’ cure letter (Dkt. #143, Exhibit 14)
and Plaintiffs failed to object that it was not listed as another basis for invalidity in the Report (See Dkt. #168 at p. 29).

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instrument; and (4) plaintiffs received notices of default and acceleration.” Portillo v. DLJ Mortg.
Capital, Inc., No. H–13–3679, 2015 WL 729918, at *2 (S.D. Tex. Feb. 19, 2015) (citing TEX.
PROP. CODE § 51.002; Boren v. U.S. Nat. Bank Ass’n, No. H–13–2160, 2014 WL 5486100, at *3
(S.D. Tex. Oct. 29, 2014)). The Report correctly concluded that the summary judgment “evidence
establish[ed] the default, requisite notice of acceleration, and the outstanding balance of the Loan.”
(Dkt. #168 at p. 29).
However, the Report recommended, and the Court initially adopted the conclusion, that the
motion for summary judgment should be denied as to foreclosure because it concluded that
Defendants did not “present any evidence to dispute Plaintiffs’ allegations that the Loan failed to
comply with Section 50(a) of the Texas Constitution” (Dkt. #168 at p. 30). However, Defendants
did in fact attach the Affidavit as evidence to its summary judgment. The Affidavit states:
J. The Note and Security Instrument have not been signed before the twelfth (12th)
day after the later of the date the owner of the Property submitted an application to
the Lender, or the Lender’s representative for the Extension of Credit, or the date
that the Lender, or the Lender’s representative provided the owner of a copy of the
Notice Concerning Extensions of Credit defined by Section 50(a)(6), Article XVI
of the Texas Constitution (the ‘Notice’).
...
M. The Extension of Credit is being closed, that is I am signing the loan documents,
at the office of the Lender, an attorney at law, or a title company.
(Dkt. #143, Exhibit 4 at p. 3). This establishes that the Loan was signed in accordance with the
Texas Constitution as to the challenged provisions.
On the other hand, Plaintiffs did not submit any independent evidence on this issue. The
only piece of evidence that is part of the summary judgment record that could arguably be
construed as evidence that the Loan did not comply with the Texas Constitution are the two letters
from Plaintiffs’ counsel (Dkt. #143, Exhibit 14). However, “[m]ere denials of material facts,
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unsworn allegations, or arguments and assertions in briefs or legal memoranda will not suffice” at
the summary judgment stage. In re Mun. Bond Reporting Antitrust Litig., 672 F.2d 436, 440 (5th
Cir. 1982) (quoting Ferguson v. Nat’l Broad. Co., 584 F.2d 111, 114 (5th Cir. 1978)). 3 Allegations
made by Plaintiffs’ counsel in a letter to Defendants’ predecessors are the type of unsworn
allegations that are not sufficient to overcome summary judgment. See id. Accordingly, the
sufficient and uncontroverted evidence in the summary judgment record in this case demonstrates
that the Loan complied with the challenged sections of the Texas Constitution. There is no genuine
issue of material fact on the summary judgment record and the Court finds that summary judgment
should be granted on the issue of foreclosure.
Even if the Court did not grant summary judgment based on the fact that the uncontroverted
evidence established that the Loan complied with the Texas Constitution, the Court also
reconsiders its decision on quasi-estoppel. In its motion for summary judgment, Defendants
argued that Plaintiffs should be estopped from arguing the Loan did not comply with the Texas
Constitution because at the time of closing, Plaintiffs signed the Affidavit, which states that the
Loan complied with the Texas Constitution. The Report did not address Defendants’ estoppel
argument. Therefore, Defendants objected that
the undisputed summary judgment evidence shows Plaintiffs signed a Home Equity
Affidavit at closing in which they represented that the [L]oan was in compliance
with the Texas Constitution. The Report took the Plaintiffs’ pleadings in the Third
Amended Complaint as true for the proposition that the Loan was constitutionally
non-compliant, however Defendants provided uncontested summary judgment
evidence that the Plaintiffs themselves acknowledged that the [L]oan was in
compliance with the Texas Constitution in the affidavit they signed at closing.

3
Defendants also objected to the Report because Defendants contend the Report “mis-applie[d] the burden of proof
on summary judgment. Federal Rule of Civil Procedure 8(c) requires matters of ‘avoidance’ to be pleaded as an
affirmative defense. Similarly, ‘the party asserting an affirmative defense has the burden of both pleading and proving
the defense.” (Dkt. #183 at pp. 2–3) (citations omitted). As demonstrated above, even if the burden on this issue is
on Defendants, Plaintiffs, as the “nonmovant must present affirmative evidence to defeat a properly supported motion
for summary judgment.” Anderson, 477 U.S. at 257. Therefore, regardless of who carries the burden on this issue,
the uncontroverted evidence shows that the Loan complied with the Texas Constitution.

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(Dkt. #183 at pp. 5–6) (emphasis in original). The Court overruled the objection finding that the
Defendants did not adequately brief the required elements of estoppel, specifically pointing to the
element of detrimental reliance (Dkt. #194 at p. 10). However, the Court cited the elements of
equitable estoppel as opposed to quasi-estoppel (or estoppel by contract). Therefore, alternatively
the Court reconsiders its ruling on estoppel.
In response to Defendants’ estoppel argument, Plaintiffs assert that Defendants cannot use
estoppel against a home equity borrower. In Texas,
[a]s a general matter, the home equity lender has the burden to prove that a lien
exists for some reason other than estoppel. Only after that burden is discharged can
there be a basis to support a claim of waiver or estoppel. In other words, while a
homestead claimant may, under certain circumstances, be estopped to deny the
validity of an existing lien, “[a] lien cannot be estopped into existence. Moreover,
any failure by the lender to comply with the requirements for creating a
constitutionally permissible lien against a homestead may not be waived or ratified
by the homestead claimant.”
In re Chambers, 419 B.R. 652, 670 (Bankr. E.D. Tex. 2009) (quoting Hruska et ux. v. First State
Bank of Deanville, 747 S.W.2d 783, 785 (Tex. 1988)). As already noted, Defendants, the home
equity lender, proved through its motion for summary judgment and attached evidence that the
Loan exists without using estoppel. As such, because that burden is discharged, while they cannot
use waiver or ratification, Defendants may use an estoppel argument to prevent Plaintiffs from
denying the validity of the existing lien, the Loan. See id.
“Estoppel by contract, a form of quasi-estoppel, applies to preclude a person from
asserting, to another’s disadvantage, a right inconsistent with a position previously taken.” Salas
v. LNV Corp., 409 S.W.3d 209, 217 n.2 (Tex. App.—Houston [14th Dist.] 2013, no pet.) (citing
Forney 921 Lot Dev. Partners, I, L.P. v. Paul Taylor Homes, Ltd., 349 S.W.3d 258, 268 (Tex.
App.—Dallas 2011, pet denied)).

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The elements of quasi-estoppel are: (1) the party being estopped acquiesced to or
benefited from a position inconsistent with his present position; (2) it would be
unconscionable to allow the party being estopped to maintain his present position;
and (3) the party being estopped had knowledge of all material facts at the time of
the conduct on which estoppel is based.
In re Pirani, 579 B.R. 396, 406 (Bankr. E.D. Tex. 2017) (citing In re Liao, 553 B.R. 584, 607
(Bankr. S.D. Tex. 2016)).
The Priesters signed the Affidavit as part of the closing on the extension of credit
(Dkt. #143, Exhibit 4) (“I understand that this Texas Home Equity Affidavit and Agreement is part
of the Extension of Credit documentation.”). The HUD-1 Settlement Statement, which shows that
a large portion of the Loan went to pay off a prior lien, demonstrates that the Priesters accepted
the benefits of the Loan from Long Beach Mortgage (Dkt. #143, Exhibit 12). The Affidavit states
that the Loan was closed in the appropriate place, and that they received the required notice in the
appropriate time frame. Plaintiffs now, after accepting the benefit of the extension of credit, argue
contrary to the Affidavit, without any documentary evidence, that they did not receive the notice
required by the Texas Constitution at least twelve days before the Loan closing took place and that
the Loan closing took place in the Priesters’ living room. Because the benefit has already been
accepted, it is unconscionable to now challenge the validity of the extension of credit. Enochs v.
Brown, 872 S.W.2d 312, 317 (Tex. App.—Austin 2003) disapproved of on other grounds by,
Roberts v. Williamson, 111 S.W.3d 113 (Tex. 2003).
Finally, the Priesters are presumed to have had knowledge of all material facts at the time
they signed the Affidavit. “If no fraud is involved, one who signs an agreement without knowledge
of its contents is presumed to have consented to its terms and is charged with knowledge of the
agreement’s legal effect; in those circumstances, a party’s failure to read an instrument before
signing it is not a ground for avoiding it.” Sosa v. Long Beach Mortg. Co., No. 03-06-00326-CV,
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2007 WL 1711788, at *3 (Tex. App.—Austin 2007, no pet.) (citing G-W-L, Inc. v. Robichaux, 643
S.W.2d 392, 393 (Tex.1982), overruled on other grounds by Melody Home Mfg. Co. v. Barnes,
741 S.W.2d 349 (Tex.1987)). Therefore, Plaintiffs are presumed to know the contents.
As such, the Court agrees with Defendants’ objection that the undisputed and uncontested
summary judgment evidence shows that the quasi-estoppel should apply to this set of facts. 4
IV.

CONCLUSION
It is therefore ORDERED that Defendants’ Motion for Summary Judgment on

Defendants’ counterclaim for judicial foreclosure (Dkt. #143) is hereby GRANTED.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
However, even if the Court did not reconsider the Order on Defendants’ Motion for
Summary Judgment, after considering the evidence submitted at trial, the Court finds that
Defendants are entitled to judicial foreclosure. On March 5, 2018, the parties appeared before the
Court for a trial of this case, at which time the Court heard evidence and argument of counsel.
During the trial, Plaintiffs objected to the testimony of Linda Holmes because they argued she had
not been properly designated, which the Court took under advisement. Further, there were certain
evidentiary objections that the Court either took under advisement or the parties re-urged in
post-trial briefing. Accordingly, the Court first addresses the motion to strike and evidentiary
objections, and then enters its Findings of Fact and Conclusions of Law pursuant to Federal Rule
of Civil Procedure 52. Any finding of fact which constitutes a conclusion of law shall be deemed
a conclusion of law, and any conclusion of law which constitutes a finding of fact shall be deemed
a finding of fact.

4

The Court does not hold that estoppel will or should apply in every judicial foreclosure case with a home equity
affidavit, but with the current set of facts, the Court alternatively finds that estoppel applies.

10

MOTION TO STRIKE LINDA HOLMES
The Court proceeded to trial on Defendants’ counterclaim for judicial foreclosure on March
5, 2018. The Court ordered the parties to “file pretrial materials no later than 5:00 p.m. on January
31, 2018.” (Dkt. #170). On January 31, 2018, Defendants filed their pretrial materials, including
their witness list, which listed “Corporate Representative Select Portfolio Servicing, Inc., Mark
Syphus, or a similarly authorized corporate representative of Select Portfolio Servicing, Inc.,
depending on availability pending trial setting” and indicates that “the exact identification of SPS’
corporate witness will be promptly supplied upon the Court’s designation of a final trial date.”
(Dkt. #175 at p. 1; Dkt. #200, Exhibit B at p. 2). Defendants did not supply the exact identification
after the Court set the final trial date. On March 5, 2018, Linda Holmes (“Holmes”), a case
manager at Select Portfolio Servicing, Inc. (“SPS”), appeared to testify. Plaintiffs objected to
Holmes as a witness and moved to strike her testimony because she was not properly designated.
According to the Federal Rules, parties must provide “the name and, if not previously
provided, the address and telephone number of each witness—separately identifying those the
party expects to present and those it may call if the need arises . . .” prior to trial. FED. R. CIV. P.
26(a)(3)(A)(i). Under Rule 37(c), “[i]f a party fails to provide information or identify a witness as
required by Rule 26(a) or (e), the party is not allowed to use that information or witness to supply
evidence on a motion, at a hearing, or at a trial unless the failure was substantially justified or
harmless.” Torres v. City of San Antonio, No. SA:14-CV-555-DAE, 2014 WL 7339122 at *1
(W.D. Tex. Dec. 23, 2014). When evaluating whether a violation of Rule 26 is harmless for
purposes of Rule 37(c)(1), the Court looks to four factors: (1) the explanation for the failure to
disclose; (2) the importance of the testimony/evidence; (3) potential prejudice to the opposing

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party in allowing the testimony/evidence; and (4) the possibility of a continuance to cure such
prejudice. Id.; Hamburger v. State Farm Mut. Auto Ins. Co., 361 F.3d 875, 883 (5th Cir. 2004).
Here, Defendants admit that they failed to disclose Holmes’s name, address, and telephone
number as required by the Federal Rules, but maintain that the Court should permit her testimony
because the failure to disclose this information was harmless. Plaintiffs assert that Defendants
failure to disclose caused a great deal of harm to Plaintiffs and that harm cannot be cured.
As to the first factor, Defendants contend that they did not know who would testify until
the trial time was set and, due to an oversight, Defendants failed to supplement the witness list
after the identity was known. The Court finds that an oversight is not an adequate explanation for
a failure to disclose; however, the late designation was not made with any ill intent. As such, this
factor weighs slightly in favor of excluding Holmes.
Under the second factor, the Court must consider the importance of Holmes’s testimony.
However, “[t]he importance of such proposed testimony cannot singularly override the
enforcement of local rules and scheduling orders.” Barrett v. A. Richfield Co., 95 F.3d 375, 381
(5th Cir. 1996). Here, both parties agree that Holmes’s testimony is of the utmost importance. As
such, this factor weighs in favor of allowing Holmes’s testimony.
For the last two factors, the Court considers whether or not there is any prejudice and if a
continuance could cure the prejudice. Plaintiffs maintain that they suffer great prejudice if her
testimony is allowed because “they had no opportunity to prepare for the trial testimony.”
(Dkt. #208 at p. 14). Defendants contend that there is no prejudice “because the Plaintiffs received
and were aware of every exhibit referenced by Ms. Holmes, and because Plaintiffs had the
opportunity to conduct an examination of a corporate representative of SPS and/or Deutsche Bank
as Trustee, but declined to do so.” (Dkt. #203 at p. 3). While Plaintiffs did not know that Holmes
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specifically would be the person testifying, Plaintiffs were on notice that an employee of SPS
would be testifying. Further, Plaintiffs were well aware of the exhibits admitted based on
Holmes’s testimony.
After a review of the testimony, Holmes testified to facts known to any SPS employee who
had access to SPS’s books and records relating to mortgage loans that it services. There was
nothing unique to Holmes’s testimony that could not also have been discovered through the
deposition of another SPS “corporate representative.” 5 While Plaintiffs were not required to
request a deposition of Holmes, which the Court agrees they could not have done because they did
not know of her existence, Plaintiffs could have discovered the substance of her testimony from
another witness, such as Mark Syphus. Plaintiffs failed to identify what exactly from Holmes’s
testimony came as an unreasonable surprise due to Defendants’ failure to properly disclose the
identification of this witness. Therefore, the Court finds that allowing Holmes’s testimony does
not prejudice Plaintiffs and there is no need for a continuance to cure any prejudice.
Accordingly, the Court finds the final two factors weigh in favor of allowing Holmes’s
testimony. Because three out of the four factors weigh in favor of allowing Holmes’s testimony,
the Court denies Plaintiffs’ motion to strike.
EVIDENTIARY OBJECTIONS
Defendants’ Exhibit 18
At trial, Defendants offered Exhibit 18, the GMAC Deed of Trust. Plaintiffs objected to
the exhibit because they assert it is not authenticated and contains hearsay. Defendants contend
that the exhibit should not be excluded by the rule against hearsay because it is a public record that
is excepted from the rule pursuant to Rule 803(8) and is authenticated as a public record pursuant

5

Again, the Court acknowledges there was no “corporate representative” for the purposes of this trial.

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to Rule 901(b)(7). Plaintiffs counter that Rule 901(b)(7) only applies to evidence about public
records and, that to be self-authenticating, a public record needs to be an official document or a
certified copy, and that this document is neither. As will be demonstrated throughout the Findings
of Fact and Conclusions of Law, the Court does not use Exhibit 18 for its determinations on judicial
foreclosure. Accordingly, the Court declines to rule on this objection.
Judicial Notice
During the trial, Plaintiffs sought to admit, and have the Court take judicial notice of, a
registration statement filed with the Securities and Exchange Commission related to the 2006-1
certificate series. Defendants objected on the basis that Plaintiffs did not have the document and
that the issue went to standing, which the Court already decided and therefore the document is
irrelevant. Plaintiffs, in their post-trial brief, argue that the Court improperly denied taking judicial
notice of the document. According to the Federal Rules of Evidence, the Court “must take judicial
notice if a party requests it and the [C]ourt is supplied with the necessary information.” FED. R.
EVID. 201(c)(2). Plaintiffs did not supply the Court with the “necessary information”, that is
Plaintiffs did not provide the document for which they sought judicial notice. Moreover, even if
the Court were to take judicial notice of the document, which was never supplied, it goes to an
issue that has already been decided and is not relevant to the current proceedings. As such, the
Court’s ruling in trial stands.
FINDINGS OF FACT
The Property
1.

Plaintiffs own the real property located at 1406 Oakwood Drive, Allen, Texas

75013 (the “Property”) (Defendants’ Exhibit 1; Defendants’ Exhibit 2).

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2.

The Property is more particularly described as: LOT 10, BLOCK A, SUNCREEK

1, TRACT 3, AN ADDITION TO THE CITY OF ALLEN, COLLIN COUNTY, TEXAS,
ACCORDING TO THE PLAT THEREOF RECORDED IN CABINET J, SLIDE 586, MAP
RECORDS, COLLIN COUNTY, TEXAS (Defendants’ Exhibit 1; Defendants’ Exhibit 2).
Acquiring the Loan
3.

On November 25, 2005, Plaintiffs obtained a Home Equity Loan (the “Loan”),

which consists of the Texas Home Equity Fixed Adjustable Rate Note (the “Note”) and Texas
Home Equity Security Instrument (the “Security Instrument”), encumbering the Property in the
amount of $180,000.00 (Defendants’ Exhibit 1; Defendants’ Exhibit 2).
4.

Plaintiffs additionally signed the Texas Home Equity Affidavit and Agreement

(“the Affidavit”) as part of closing the Loan.
The GMAC Lien
5.

On November 25, 2005, Plaintiffs executed a HUD-1 Settlement Statement (the

“HUD-1”) for the closing of the Loan on the Property with Long Beach Mortgage Company
(Defendants’ Exhibit 11).
6.

In conjunction with the closing of the Loan, the HUD-1 settlement statement shows

that Plaintiffs’ prior lender, GMAC Mortgage Corporation (“GMAC”) was paid $156,152.59 from
the proceeds of the Loan by Long Beach Mortgage Company as the payoff of a prior lien on the
Property (Defendants’ Exhibit 11).
7.

Plaintiffs made no payments towards the GMAC lien after it was paid off by the

Loan (Trial Tr. at 130:6–14).

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History of the Loan
8.

The original lender for Plaintiffs’ Loan was Long Beach Mortgage Company

(Defendants’ Exhibit 1; Defendants’ Exhibit 2).
9.

Long Beach Mortgage merged into Washington Mutual Bank. When Washington

Mutual Bank failed, JP Morgan Chase Bank, N.A. (“J.P. Morgan”) acquired all of the assets of
Washington Mutual Bank, including the assets of Long Beach Mortgage, from the Federal Deposit
Insurance Corporation.
10.

JP Morgan transferred the deed of trust to Defendant Deutsche Bank National Trust

Company, as Trustee for Long Beach Mortgage Loan Trust 2006-1 which subsequently filed an
assignment placing the lien in the name of Deutsche Bank National Trust Company, as Trustee for
Long Beach Mortgage Loan Trust 2006-1, Asset Backed Certificates, Series 2006-1 (Defendants’
Exhibit 6; Defendants’ Exhibit 7).
11.

Defendant SPS is the current servicer of the Loan.

The Affidavit
12.

In connection with the Loan, Plaintiffs signed the Affidavit (Defendants’

Exhibit 3).
13.

The Affidavit, in relevant part, states:

J. The Note and Security Instrument have not been signed before the twelfth (12th)
day after the later of the date the owner of the Property submitted an application to
the Lender, or the Lender’s representative for the Extension of Credit, or the date
that the Lender, or the Lender’s representative provided the owner of a copy of the
Notice Concerning Extensions of Credit defined by Section 50(a)(6), Article XVI
of the Texas Constitution (the ‘Notice’).
...
M. The Extension of Credit is being closed, that is I am signing the loan documents,
at the office of the Lender, an attorney at law, or a title company.
16

...
III. STATEMENT UNDER OATH
I hereby swear under oath that the representations and warranties referred to and
set forth in Section I above are true and correct. I understand that this Texas Home
Equity Affidavit and Agreement is part of the Extension of Credit documentation.
(Defendants’ Exhibit 3 at pp. 2, 4).
14.

The Notary Public, Ms. Kristin Tinsley (“Tinsley”), was present at the time the

Priesters signed the Affidavit (Trial Tr. 122:7–10).
15.

Tinsley explained the Affidavit to the Priesters but did not detail every line in the

Affidavit (Trial Tr. 122:9-10, 131:3–10).
16.

Tinsley gave the Priesters the opportunity to read the Affidavit before signing it;

however, the Priesters declined to read the entirety of the Affidavit (Trial Tr. 131:4–5).
17.

Tinsley signed the document and placed her notary stamp on the Affidavit on

November 25, 2005, the same date that the Priesters signed the Note and the Security Instrument
(Defendants’ Exhibit 1; Defendants’ Exhibit 2; Defendants’ Exhibit3).
Defendants’ Use of the Affidavit
18.

Defendants were not present at the Loan closing and did not have knowledge or the

ability to determine whether the Plaintiffs’ Loan was closed in their living room or whether
Plaintiffs received the twelve-day notice (See Trial Tr. at 52:12–16).
19.

Defendants used the Affidavit and other like closing documents to establish the

viability of the Loan when boarding it (See Trial Tr. at 51:25–52:16; 53:17–19).
Default
20.

The Priesters stopped making payments on the Loan in 2010 (Trial Tr. at 108:5).

21.

By November 18, 2013, Plaintiffs had been in default under the Loan for three years

(Defendants’ Exhibit 4; Defendants’ Exhibit 10).
17

22.

On November 18, 2013, Defendants sent Plaintiffs a notice of default and intent to

accelerate due to Plaintiffs’ failure to make payments required under the Loan (Defendants’
Exhibit 8).
23.

When Plaintiffs failed to cure their defaults, on November 10, 2014, Defendants

sent a notice of acceleration (Defendants’ Exhibit 9).
24.

Plaintiffs are currently due for the January 1, 2010 payment and all subsequent

payments (Defendants’ Exhibit 10).
25.

The balance due on the Loan as of November 1, 2017 is $325,551.35.

26.

Defendants have advanced $49,748.94 in taxes on the property in order to protect

Defendants’ lien interest (See Trial Tr. at 60:6).
The First Lawsuit
27.

Plaintiffs brought suit against Long Beach Mortgage Company, JPMorgan Bank,

N.A., and JPMorgan Chase & Co. seeking declaratory relief and asserting claims for defamation,
fraudulent concealment, exemplary damages, and attorneys’ fees on October 26, 2010 in state
court, which was removed to the Eastern District of Texas on November 19, 2010, Priester v. Long
Beach Mortgage Company, et al., 4:10-cv-641 (“Priester I”).
28.

Plaintiffs in Priester I argued that the Loan was constitutionally void.

29.

The Court dismissed Plaintiffs’ claims in Priester I because their claims were

barred by the applicable statute of limitations.
CONCLUSIONS OF LAW
1.

The Court has jurisdiction over the parties and over the subject matter of this action

based upon diversity of citizenship. 28 U.S.C. § 1332.

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2.

Texas substantive law applies to this action as well as the Federal Rules of Civil

Procedure.
3.

“To foreclose under a security instrument in Texas with a power of sale, the lender

must demonstrate that: (1) a debt exists; (2) the debt is secured by a lien created under Art. XVI,
§ 50(a)(6) of the Texas Constitution; (3) plaintiffs are in default under the note and security
instrument; and (4) plaintiffs received notices of default and acceleration.” Portillo v. DLJ Mortg.
Capital, Inc., No. H–13–3679, 2015 WL 729918, at *2 (S.D. Tex. Feb. 19, 2015) (citing TEX.
PROP. CODE § 51.002; Boren v. U.S. Nat. Bank Ass’n, No. H–13–2160, 2014 WL 5486100, at *3
(S.D. Tex. Oct. 29, 2014)).
4.

Defendants are the current holder and servicer of the note and deed of trust.

5.

Mr. Priester credibly testified that the Priesters signed the Note, the Security

Instrument, and the Affidavit. Defendants submitted the Note, the Security Instrument, and the
Affidavit as evidence to support Mr. Priester’s testimony. Further, Mr. Priester credibly testified
and Defendants submitted documentary evidence that the Priesters stopped making payments on
the Note in 2010. Moreover, Holmes credibly testified that SPS sent the Priesters a notice of
default and a notice of acceleration and Defendants submitted documentary evidence of the Notice
of Default and Notice of Acceleration.
Res Judicata Does Not Bar Plaintiffs from Arguing the Loan Does Not Comply with the
Constitution
6.

The only remaining issue, and the only contested element of foreclosure, is “the

debt is secured by a lien created under Art. XVI, § 50(a)(6) of the Texas Constitution.” Portillo,
2015 WL 729918, at *2 (citing TEX. PROP. CODE § 51.002; Boren, 2014 WL 5486100, at *3).
Defendants first argument as to this issue is that Plaintiffs are barred from asserting the Loan did

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not comply with Article XVI, § 50(a)(6) of the Texas Constitution because of the Court’s decision
in Priester I.
7.

The doctrine of res judicata, read in the broadest sense of the term, embraces two

distinct preclusion concepts: claim preclusion, often termed “res judicata,” and issue preclusion,
often referred to as “collateral estoppel.” United States v. Shanbaum, 10 F.3d 305, 310 (5th Cir.
1994). Claim preclusion, or “pure” res judicata, is the “venerable legal canon” that ensures the
finality of judgments and thereby conserves judicial resources and protects litigants from multiple
lawsuits. Medina v. I.N.S., 993 F.2d 499, 503 (5th Cir. 1993).
8.

“Under Texas law, three elements must be satisfied in order for res judicata to be

appropriate: ‘(1) a prior final judgment on the merits by a court of competent jurisdiction; (2)
identity of parties or those in privity with them; and (3) a second action based on the same claims
as were raised or could have been raised in the first action.’” Carrasco v. City of Bryan, Tex., No.
H-11-662, 2012 WL 950079, at *3 (S.D. Tex. March 19, 2012) (quoting Berkman v. City of Keene,
No. 3:10-cv-2378-B, 2011 WL 3268214 (N.D. Tex. July 29, 2011)); see also Hogue v. Royse City,
Tex., 939 F.2d 1249, 1252–54 (5th Cir. 1991). If these three conditions are satisfied, res judicata
prohibits either party from raising any claim or defense in the later action that was or could have
been raised in support of or in opposition to the cause of action asserted in the prior action. In re
Howe, 913 F.2d 1138, 1144 (5th Cir. 1990).
9.

This action (the second action) is not based on the same claims as were raised or

could have been raised in Priester I (the first action). In Priester I, Plaintiffs brought suit against
Long Beach Mortgage Company, JPMorgan Bank, N.A., and JPMorgan Chase & Co. seeking
declaratory relief and asserting claims for defamation, fraudulent concealment, exemplary
damages, and attorneys’ fees. Here, in the second action, Plaintiffs are asserting a defense that the
20

Loan is not compliant with the Constitution as a defense to Defendants’ claim for judicial
foreclosure. This is not the exact same claim that was asserted in Priester I. Moreover, Defendants
did not assert their claim for judicial foreclosure in Priester I. Accordingly, the defense could not
have been raised in Priester I because there was nothing to defend against.
10.

Thus, res judicata, or claim preclusion, does not act as a bar in this case.

11.

Issue preclusion, or collateral estoppel, in contrast, promotes the interests of judicial

economy by treating specific issues of fact or law that are validly and necessarily determined
between two parties as final and conclusive. Issue preclusion is appropriate only if the following
four conditions are met: (1) the issue under consideration in a subsequent action must be identical
to the issue litigated in a prior action; (2) the issue must have been fully and vigorously litigated
in the prior action; (3) the issue must have been necessary to support the judgment in the prior
case; and (4) there must be no special circumstance that would render preclusion inappropriate or
unfair. Universal Am. Barge Corp. v. J-Chem, Inc., 946 F.2d 1131, 1136 (5th Cir. 1991) (citing
Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326–32 (1979)).
12.

While the identical issue was raised in Priester I, the issue was not fully litigated

in Priester I. Although the Fifth Circuit stated that the district court decided the Loan was valid
in Priester I, Priester v. JP Morgan Chase Bank, N.A., 708 F.3d 667, 677 (5th Cir. 2013), upon
looking back at Priester I, the issue of whether or not the Loan is constitutionally valid was never
fully litigated. The Court dismissed Plaintiffs’ affirmative claims because they were barred by the
applicable statute of limitations. Indeed, the Report and Recommendation, which was adopted by
the Court, pointed out that
[a]lthough the Court holds that Plaintiffs’ claims are barred by the statute of
limitations, some question still exists in the Court’s opinion as to the validity of the
loan. If the closing of the loan violated the Texas Constitutional provisions, and
the Defendants have not cured the loan under the available cure provision, then the
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traditional enforcement remedies may not be available to Defendants. The simple
passing of the statute of limitations period may not be sufficient to cure a home
equity loan obtained in violation of the Texas Constitution. Thus[,] a question
arises whether Chase could ever foreclose a loan obtained in violation of the Texas
Constitution. However, the Court declines to consider this issue at this time, since
it is not raised before the Court.
Priester I, 2011 WL 6116491, at *6 n.2 (E.D. Tex. Oct. 13, 2011), report and recommendation
adopted by, 2011 WL 6116481 (E.D. Tex. Dec. 8, 2011).
13.

Thus, collateral estoppel, or issue preclusion, does not apply in this case and the

Priesters are not barred by the decision in Priester I.
The Priesters are Estopped from Arguing the Loan Does Not Violate the Texas Constitution
14.

Defendants additionally argue that Plaintiffs should be estopped from arguing that

the Loan is constitutionally void because they signed the Affidavit, which represented that the
Loan complied with the Texas Constitution and Defendants relied on that representation when
boarding the Loan.
15.

In Texas,

[a]s a general matter, the home equity lender has the burden to prove that a lien
exists for some reason other than estoppel. Only after that burden is discharged can
there be a basis to support a claim of waiver or estoppel. In other words, while a
homestead claimant may, under certain circumstances, be estopped to deny the
validity of an existing lien, “[a] lien cannot be estopped into existence. Moreover,
any failure by the lender to comply with the requirements for creating a
constitutionally permissible lien against a homestead may not be waived or ratified
by the homestead claimant.”
In re Chambers, 419 B.R. 652, 670 (Bankr. E.D. Tex. 2009) (quoting Hruska et ux. v. First State
Bank of Deanville, 747 S.W.2d 783, 785 (Tex. 1988)).
16.

However, it is of note that “[t]he Plaintiffs have the burden to establish that certain

constitutional requirements were not met.” Id. at 671 (citations omitted); Wilson v. Aames Capital
Corp., No. 14-06-00524-CV, 2007 WL 3072054, at *1 (Tex. App.—Houston [14th Dist.] 2007,
22

no pet.) (“If anything, judicial economy would dictate that a failure to comply with any of these
[Constitutional] requirements is in the nature of an affirmative defense so that judicial resources
are spent litigating the few requirements that are contested rather than the many that are not.”).
17.

As already noted, Defendants, the home equity lender, proved that the Loan exists

without using estoppel. As such, because that burden is discharged, while they cannot use waiver
or ratification, Defendants may use an estoppel argument to prevent Plaintiffs from denying the
validity of the existing lien, the Loan.
18.

“Estoppel by contract, a form of quasi-estoppel, applies to preclude a person from

asserting, to another’s disadvantage, a right inconsistent with a position previously taken.” Salas
v. LNV Corp., 409 S.W.3d 209, 217 n.2 (Tex. App.—Houston [14th Dist.] 2013, no pet.) (citing
Forney 921 Lot Dev. Partners, I, L.P. v. Paul Taylor Homes, Ltd., 349 S.W.3d 258, 268 (Tex.
App.—Dallas 2011, pet denied)).
The elements of quasi-estoppel are: (1) the party being estopped acquiesced to or
benefited from a position inconsistent with his present position; (2) it would be
unconscionable to allow the party being estopped to maintain his present position;
and (3) the party being estopped had knowledge of all material facts at the time of
the conduct on which estoppel is based.
In re Pirani, 579 B.R. 396, 406 (Bankr. E.D. Tex. 2017) (citing In re Liao, 553 B.R. 584, 607
(Bankr. S.D. Tex. 2016)).
19.

The Priesters signed the Affidavit as part of the closing on the extension of credit.

Mr. Priester credibly testified that the Priesters accepted the extension of credit from Long Beach
Mortgage.
20.

The Affidavit stated that the Loan was closed in the appropriate place, and that they

received the twelve-day notice. Plaintiffs now, after accepting the benefit of the extension of
credit, argue, contrary to the Affidavit, that they did not receive the notice required by the Texas
23

Constitution at least twelve days before the Loan closing took place and that the Loan closing took
place in the Priesters’ living room.

Because the benefit has already been accepted, it is

unconscionable to now challenge the validity of the extension of credit. Enochs v. Brown, 872
S.W.2d 312, 317 (Tex. App.—Austin 2003) disapproved of on other grounds by, Roberts v.
Williamson, 111 S.W.3d 113 (Tex. 2003).
21.

As an additional element of unconscionability in this case, the only evidence

Plaintiffs have offered to contradict the Affidavit is Mr. Priester’s testimony. The Priesters have
no documentary evidence to suggest that their prior sworn testimony was not truthful and should
be disregarded.
22.

To further add to the unconscionability in this case, Holmes credibly testified that

Defendants relied on the Affidavit to determine the viability of the Loan when boarding it.
Although reliance is not a required element of quasi-estoppel, Salas, 409 S.W.3d at 217 n.2 (citing
Forney 921 Lot Dev. Partners, I, L.P., 349 S.W.3d at 268), under this set of facts, reliance makes
Plaintiffs’ challenge to the Loan’s validity further unconscionable.
23.

Finally, the Priesters are presumed to have had knowledge of all material facts at

the time they signed the Affidavit. Mr. Priester credibly testified that Tinsley explained the
document to the Priesters but did not tell them every detail of the Affidavit. However, he also
credibly testified that Tinsley gave the Priesters an opportunity to read the entire document and
they chose not to read through the Affidavit.
24.

Moreover, “[i]f no fraud is involved, one who signs an agreement without

knowledge of its contents is presumed to have consented to its terms and is charged with
knowledge of the agreement’s legal effect; in those circumstances, a party’s failure to read an
instrument before signing it is not a ground for avoiding it.” Sosa v. Long Beach Mortg. Co., No.
24

03-06-00326-CV, 2007 WL 1711788, at *3 (Tex. App.—Austin 2007, no pet.) (citing G-W-L, Inc.
v. Robichaux, 643 S.W.2d 392, 393 (Tex.1982), overruled on other grounds by Melody Home Mfg.
Co. v. Barnes, 741 S.W.2d 349 (Tex.1987)).
25.

Plaintiffs did not argue and the Court determines that there is no basis for a finding

of fraud in this case.
26.

Plaintiffs did argue that Tinsley did not sign the document or place the notary stamp

on the Affidavit in the Priesters presence and that she did not administer the oath. However, the
Affidavit contains a written oath (Defendants’ Exhibit 3 at p. 4). Moreover, the Court finds
convincing Mr. Priester’s testimony that Tinsley was with the Priesters when they signed the
Affidavit and that she signed and dated the Affidavit on the same day as the date contained on the
Note and the Security Instrument. Accordingly, the Court finds that the Affidavit was not procured
by fraud and is a valid document. Therefore, Plaintiffs are presumed to know the contents.
27.

Plaintiffs are estopped from arguing that the Loan does not comply with Article

XVI, Section 50 of the Constitution based on the Affidavit.
28.

Because Defendants proved all the elements of their claim, the Court finds that

Defendants are entitled to judicial foreclosure on the Property due to the uncured default.
The Weight of the Evidence Demonstrates that the Loan was Valid
29.

However, if the Priesters are not estopped from arguing the Loan does not comply

with the Constitution, the Court was presented with conflicting evidence as to whether the Loan
complied with the Texas Constitution: on one side, testimony from Mr. Priester. On the other side,
the Affidavit signed by the Priesters.
30.

The Affidavit was signed as part of the closing of the Loan. The Affidavit was

signed on the same day as the other documents. Tinsely explained what the Affidavit was to the
25

Priesters, although not line by line. The Priesters were given the chance to the read the Affidavit
before signing the Affidavit.
31.

Five years after the Loan was signed, for the first time, the Priesters made the

allegations that they did not receive the required notice twelve days prior to closing the Loan and
that they signed the Loan in their home as opposed to another place designated by the Texas
Constitution. The Court does not find it credible that five years after signing several closing
documents for a loan, a person would accurately remember not receiving a certain notice a specific
amount of time prior to signing the loan. Accordingly, the Court finds that Mr. Priester’s testimony
was not credible as to this point. While the Court does find possible a person could remember
where a loan was signed five years after signing it, because Mr. Priester’s credibility is already
tarnished with the Court, his testimony does not outweigh the other evidence presented.
32.

Therefore, even if Plaintiffs are not estopped from making the argument, the weight

of the evidence suggests that the Loan complied with the Texas Constitution and is not void.
33.

Because Defendants proved all the elements of their claim, the Court finds that

Defendants are entitled to judicial foreclosure on the Property due to the uncured default.
Subrogation
34.

The Magistrate Judge recommended, and the Court adopted a finding that

Defendants proved their equitable subrogation claim. Further, the Court found that Defendants
sufficiently proved their contractual subrogation claim.
35.

However, now that the Court finds that Defendants are entitled to judicial

foreclosure on the Property, Defendants may not have a double recovery. As such, Defendants
cannot recover on their alternative theories of contractual or equitable subrogation.

26

.
Conclusion
36.

In conjunction with these Findings of Facts and Conclusions of Law, the Court will

enter a Final Judgment allowing for the foreclosure of the Property.

SIGNED this 18th day of September, 2018.

___________________________________
AMOS L. MAZZANT
UNITED STATES DISTRICT JUDGE

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