Waterfall Victoria Master Fund LTD v. Avery et al
MEMORANDUM OPINION AND ORDER denying 16 Motion for Summary Judgment. (Ordered by Judge Jane J. Boyle on 2/6/2017) (Judge Jane J. Boyle) Modified text and document type on 2/6/2017 (ykp).
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
WATERFALL VICTORIA MASTER
CLIFFORD C. AVERY and ROSSIA L. §
CIVIL ACTION NO. 3:16-CV-0173-B
MEMORANDUM OPINION AND ORDER
Before the Court is Plaintiff’s Motion for Summary Judgment. Doc. 16. For the following
reasons, the Court DENIES Plaintiff’s Motion.
This is a foreclosure case. The parties agree on the basic facts. See Doc. 19-1, Defs.’ Resp. Br.
to Pl.’s Mot. Summ. J. 3 [hereinafter Defs.’ Br.]. In April 1999, Defendants executed an Adjustable
Rate Note with The Mortgage Company of Michigan to obtain a home equity loan. Id.; see also Doc.
16-1, Pl.’s Br. Supp. Pl.’s Mot. Summ. J. 2 [hereinafter Pl.’s Br.]. To secure the Note, Defendants
executed a Texas Home Equity Security Instrument that put up some of Defendants’ property as
collateral. See Doc. 16-1, Pl.’s Br. 3.
Under the Note’s terms, The Mortgage Company of Michigan loaned Defendants
$71,250.00. Id. at 2. Defendants were to make monthly payments on the Note’s principal and
interest until the full balance was paid. Id. To that end, the Note included an acceleration clause that
provided that if Defendants defaulted on their payments, then the Note’s holder could mature the
Note, at which point its entire balance would be due. Id.
Plaintiff maintains that Defendants are in default because they stopped paying down the Note
in September 2010 and have not made a payment since. Id. at 3. In December 2015, Plaintiff sent
Defendants notice through its mortgage servicer that it would accelerate the Note if Defendants did
not pay off their delinquent installments within 30 days. Id. at 3. They did not. Id. So Plaintiff
accelerated the Note and, to protect its interest in the property, paid ad valorem property taxes and
insurance premiums. Id. at 3–4.
Plaintiff then filed its Complaint (Doc. 1) in January 2016. There, Plaintiff asserts four claims
to recover on the Note and Security Instrument and for its expenditures to protect the property:
(1) judicial foreclosure of the contract lien in place on Defendants’ property by virtue of the Security
Instrument that Defendants signed; (2) equitable subrogation for Plaintiff’s payment of ad valorem
taxes and insurance premiums; (3) judicial foreclosure of an equitable lien in place on Defendants’
property by virtue of Plaintiff’s payment of ad valorem taxes and insurance premiums; and
(4) attorneys’ fees. Doc. 1, Pl.’s Compl. ¶¶ 15–25. Plaintiff then moved for summary judgment on
all four claims. Doc. 16, Pl.’s Mot. Summ. J. Defendants responded but Plaintiff did not reply. See
Doc. 19, Defs.’ Resp. Pl.’s Mot. Summ. J. Thus, Plaintiff’s Motion for Summary Judgment (Doc. 16)
is ripe for the Court’s review.
Summary judgment is appropriate “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 “is ‘genuine’ if the evidence is sufficient for a reasonable jury to return a verdict for the
non-moving party.” Burrell v. Dr. Pepper/Seven Up Bottling Grp., 482 F.3d 408, 411 (5th Cir. 2007).
And a fact “is ‘material’ if its resolution could affect the outcome of the action.” Id.
The summary judgment movant bears the burden of proving that no genuine issue of material
fact exists. Latimer v. Smithkline & French Labs., 919 F.2d 301, 303 (5th Cir. 1990). Usually, this
requires the movant to identify “those portions of the pleadings, depositions, answers to
interrogatories, and admissions on file, together with affidavits, if any, which it believes demonstrate
the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)
(internal quotation marks omitted). But if the non-movant ultimately bears the burden of proof at
trial, the movant may satisfy its burden just by pointing to the absence of evidence supporting the
non-movant’s case. Id. at 322–23.
If the movant meets that burden, then it falls to the non-movant to “show with significant
probative evidence that there exists a genuine issue of material fact.” Hamilton v. Segue Software Inc.,
232 F.3d 473, 477 (5th Cir. 2000) (internal quotation marks omitted) (citing Conkling v. Turner, 18
F.3d 1285, 1295 (5th Cir. 1994)). And significant probative evidence is just that: significant. See
Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (per curiam). “[M]etaphysical doubt
as to material facts,” “conclusory allegations,” “unsubstantiated assertions,” or a mere “scintilla of
evidence” will not do. Id.(internal citations and quotation marks omitted). Rather, “the non-movant
must go beyond the pleadings and present specific facts indicating a genuine issue for trial.”
Bluebonnet Hotel Ventures, L.L.C. v. Wells Fargo Bank, N.A., 754 F.3d 272, 276 (5th Cir. 2014)
(citing Celotex, 477 U.S. at 324).
To be sure, the court views evidence in the light most favorable to the non-movant when
determining whether a genuine issue exists. Munoz v. Orr, 200 F.3d 291, 302 (5th Cir. 2000). Yet
it need not “sift through the record in search of evidence to support a party’s opposition to summary
judgment.” Ragas v. Tenn. Gas Pipeline Co., 136 F.3d 455, 458 (5th Cir. 1998) (quoting Skotak v.
Tenneco Resins, Inc., 953 F.2d 909, 915–16 & n.7 (5th Cir. 1992)). Simply put, the non-movant must
“identify specific evidence in the record” and “articulate the precise manner in which that evidence
supports [its] claim.” Id. If it cannot, then the court must grant summary judgment. Little, 37 F.3d
Defendants sound a one note response to all of Plaintiff’s claims:1 Plaintiff neither owns nor
holds the Note or Security Interest that Defendants executed with the Mortgage Company of
Michigan, so it has no right to enforce them. See Doc. 19-1, Defs.’ Br. 3. Defendants extend that
argument to Plaintiff’s equitable subrogation claim—if Plaintiff had no right to the property, then
its tax and insurance premium payments were voluntary and do not entitle it to relief. Id. at 7. And
if Plaintiff’s other claims fail, Defendants conclude, then it cannot recover attorneys’ fees. Id. The
Court finds this line of reasoning persuasive.
As referenced, Plaintiff did not reply to Defendants’ argument. But Plaintiff does claim that
it is the Note’s holder in its Motion. See Doc. 16-1, Pl.’s Br. 2. The Court’s charge, then, is to
determine whether Defendants have raised a genuine issue as to who holds the Note and Security
Defendants also dispute the amount in which they are in default. See Doc. 19-1, Defs.’ Br. 6–7. That
distinction, however, is one of degree and, as explained below, does not impact the Court’s analysis.
Texas law is clear that, generally speaking, “[w]here a debt is ‘secured by a note, which is, in
turn, secured by a lien, the lien and the note constitute separate obligations.’” Martins v. BAC Home
Loans Serv., L.P., 722 F.3d 249, 255 (5th Cir. 2013) (quoting Aguero v. Ramirez, 70 S.W.3d 372, 374
(Tex. App.—Corpus Christi 2002, pet. denied). Put another way, a party seeking to foreclose
through a security instrument such as a deed of trust need not “additionally prove ownership of the
note” that it secures. Morlock, L.L.C. v. Bank of N.Y., 448 S.W.3d 514, 519 (Tex. App.—Houston
[1st Dist.] 2014, pet. denied). For that reason, Plaintiff would normally satisfy its burden by proving
its ownership of the Security Agreement. See id.
Here, however, Plaintiff advances an equally accepted but different tenet of Texas law: the
lien follows the note. See Doc. 16-1, Pl.’s Br. 2 n.1. That is, “[w]hen a mortgage note is transferred,
the mortgage or deed of trust is also automatically transferred to the note holder by virtue of the
common-law rule that ‘the mortgage follows the note.’” Campbell v. Mortg. Elec. Reg. Sys., Inc., No.
03-11-0049-cv, 2012 WL 1839357, at *4 (Tex. App.—Austin May 18, 2012, pet. denied) (mem.
op.) (quoting J.W.D., Inc. v. Fed. Ins. Co., 806 S.W.2d 327, 329–30 (Tex. App.—Austin 1991, no
writ)); Tex. Bus. & Com. Code § 9.203(g); see also EverBank, N.A. v. Seedergy Ventures, Inc., 499
S.W.3d 534, 538–40 (Tex. App.—Houston [14th Dist.] 2016, no pet.). In other words, while notes
and liens are separate obligations most often with separate proofs of ownership, here they are bound
together because Plaintiff claims that it holds the Security Interest because it holds the Note.
“‘To recover for a debt due and owing under a promissory note, a party must [first] establish
that it is the legal holder of an existing note.’” Henning v. OneWest Bank FSB, 405 S.W.3d 950, 958
(Tex. App.—Dallas 2013, no pet.) (quoting Austin v. Countrywide Homes Loans, 261 S.W.3d 68, 72
(Tex. App.—Houston [1st Dist.] 2008, pet. denied)). The same goes for equitable subrogation in
this context. See Murray v. Cadle Co., 257 S.W.3d 291, 299–300 (Tex. App.—Dallas 2008, pet
denied) (emphasis added) (internal citations omitted) (explaining that equitable subrogation is
unavailable to a “volunteer” “who has paid the debt of another, without any assignment or
agreement for subrogation, without being under any legal obligation to make payment, and without
being compelled to do so for the preservation of any rights or property of his own.”).
Defendants executed the Note and Security Interest with The Mortgage Company of
Michigan. Doc. 16-1, Pl.’s Br. 2. Neither mentions Plaintiff. See Doc. 16-2, Pl.’s App. Supp. Mot.
Summ. J. 5, 12 [hereinafter Pl.’s App.]. So Plaintiff must prove how it came to hold Note because
“‘[a] person not identified in a note who is seeking to enforce it as the owner or holder must prove
the transfer by which he acquired the note.’” Bittinger v. Wells Fargo Bank NA, No. H-10-1745, 2011
WL 5415664, at *8 (S.D. Tex. Nov. 8, 2011) (quoting Leavings v. Mills, 175 S.W.3d 301, 309 (Tex.
App.—Houston [1st Dist.] 2004, no pet.)).2 Put another way, Plaintiff must show “the [N]ote’s
‘chain of title.’” Puig v. Citibank, N.A., 514 F. App’x 483, 485 (5th Cir. 2013) (quoting Leavings, 175
S.W.3d at 309–10).
Plaintiff purports to do just that in its briefing. The Mortgage Company of Michigan, Plaintiff
says, assigned its interest to NationsCredit Financial Services Corporation. Doc. 16-1, Pl.’s Br. 3.
NationsCredit, Plaintiff continues, then indorsed the Note in blank, thus rendering it bearer paper.
Id. Plaintiff now possesses the Note and so, Plaintiff concludes, it is the Note’s holder. Id. To support
The Court recognizes that Leavings has been criticized by the Fifth Circuit on different grounds for
applying the “split-the-note” theory that says a party must hold a note to execute a lien. See Martins, 722 F.3d
at 254. That case, though, dealt with a lienholder’s ability to foreclose when it was not also the noteholder.
See id. at 254–56. Thus, it is inapposite here because Plaintiff asserts the exact opposite theory. See Doc. 16-1,
Pl.’s Br. 2; cf. id.
its position, Plaintiff provides a single page: an Allonge purportedly indorsed in blank by
NationsCredit’s senior vice president.3 See Doc. 16-2, Pl.’s App. 9.
Defendants’ Response tells a more complicated, if not altogether different, story. See Doc. 191, Defs.’ Br. 3–6. For starters, it appears that NationsCredit jumped the gun in assigning its interest.
Id. at 3. The Mortgage Company of Michigan assigned its interest to NationsCredit in May 2000, but
NationsCredit assigned its interest to another entity that Plaintiff fails to mention in December 1999,
some five months before it had a claim to either the Note or Security Interest. See id.; Doc. 19-2,
Defs.’ App. Supp. Defs.’ Resp. 2–4 [hereinafter Defs.’ App.]. Defendants go on to describe a series
of assignments and transfers—some of which purport to backdate the effective date by a matter of
years—that Plaintiff either omits or glosses over. See Doc. 19-1, Defs.’ Br. 3–6. And while Plaintiff
supports its position with a single page, Defendants provide a well-documented trail to support theirs.
See Doc. 19-2, Defs.’ App. 2–26. Absent from the chain of title that Defendants present is
NationsCredit’s blank indorsement or any other indication that the Note is bearer paper payable to
Plaintiff by virtue of possession alone. Id.; see Henning, 405 S.W.3d at 958. Viewed as a whole, the
Court concludes that the record as it stands today presents an unexplained gap in the chain of title.
To be sure, Plaintiff could have explained that gap or otherwise shown the Note’s chain of
title in a reply. See Puig, 514 F. App’x at 485. Yet it chose not to despite bearing the burden of proof.
See Latimer, 919 F.2d at 303. On that basis, the Court concludes that there is an issue of material fact
To be clear, Plaintiff provides more than one page of evidence. See Doc. 16-2, Pl.’s App. 1–38. And
it cites to more than one page to support its claim that it owns and holds the note. See Doc. 16-1, Pl.’s Br. 2
(citing id. at 3, 26–27). But that all hinges on Plaintiff’s underlying claim that NationsCredit indorsed the
Note in blank—a claim that Plaintiff supports with the Allonge alone. Doc. 16-1, Pl.’s Br. 3 (citing Doc. 16-2,
Pl.’s App. 9).
as to whether Plaintiff holds the Note and, by extension, the Security Interest. See, e.g., Leavings, 175
S.W.3d at 309) (“An issue of material fact on the issue of ownership of a note is presented when
there is an unexplained gap in the chain of title.”). And as explained above, Plaintiff must own or
hold some obligation on Defendants’ property to prove its claims. Thus, the Court DENIES
Plaintiff’s Motion for Summary Judgment.
Based on the foregoing, the Court DENIES Plaintiff’s Motion for Summary Judgment.
SIGNED: February 6, 2017.
JANE J. BOYLE
UNITED STATES DISTRICT JUDGE
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