Salvagio et al v. Madison Realty Capital, L.P. et al

Filing 17

FINDINGS OF FACT AND CONCLUSIONS OF LAW, AND ORDER ON HEARING FOR PRELIMINARY INJUNCTION.(Signed by Judge Ewing Werlein, Jr) Parties notified.(kcarr, )

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
JAMES D. SALVAGIO and FAY M.
BOURGEOIS, AS TRUSTEES OF GULF
COAST ARMS,
Plaintiffs,
v.
MADISON REALTY CAPITAL, L.P,
WILLIAM G. LAWHON, STEPHEN C.
PAINE and BEVERLY VEAL, EACH
AS SUBSTITUTE TRUSTEES,
Defendants.

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CIVIL ACTION NO. H-11-2183

FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER
ON HEARING FOR PRELIMINARY INJUNCTION

Pending

is

Plaintiffs'

Motion

for

Temporary

Injunction

(Document No. 9), to which Defendant Madison Realty Capital, L.P.
("Madison") has filed its response in opposition.

On June 21,

2011, the Court conducted an evidentiary hearing at which both
parties by and through their counsel presented certain affidavits
and exhibits that were received in evidence. Having considered the
motion, response, the evidence admitted during the hearing, the
arguments of the parties, the parties' supplemental briefing, and
the applicable law, the Court makes the following findings of fact
and conclusions of law.

Findinas of Fact
From

a

preponderance

of

the

evidence

presented

at

the

evidentiary hearing, the Court finds as follows:

1.

Plaintiffs James Salvagio and Fay Bourgeois are trustees of
Gulf Coast Arms

("Gulf Coastr'), owner of a HUD-subsidized

apartment complex located at 6603 Hirsch Road, Houston, Texas
77026 (the "Property") .
2.

Plaintiffs are citizens of Texas.

3.

Although it is Plaintiffs who seek a preliminary injunction in
this proceeding, neither of the trustees James Salvagio and
Fay Bourgeois

testified or

even

in person

attended

the

evidentiary hearing on their motion.
4.

On March 20, 2006, in exchange for a $4 million loan from
Madison, Plaintiffs, as trustees of Gulf Coast, executed and
delivered to Madison a Real Estate Lien Note

(the "Note")

whereby Gulf Coast promised to pay Madison the principal sum
of $4 million, plus interest thereon as provided in the Note.
Payment of the Note is secured by a Deed of Trust of even date
with the Note, conveying the Property to a trustee, which Deed
of Trust was recorded in the Official Real Property Records of
Harris County, Texas on March 24, 2006.

The Deed of Trust is

subject to a prior first mortgage lien on the Property in
favor of the Department of Housing and Urban Development

("HUD") .

Plaintiff James Salvagio, individually, executed a

Guaranty,

guaranteeing

the

payment

of

the

indebtedness

evidenced by the Note.
5.

The Note had an original maturity date of March 20, 2007.

6.

Plaintiffs have made no principal or interest payments on the
Note since November 2008.

7.

There is now past due and owing on the Note in excess of
$5,060,000, including interest.

8.

Due to Gulf Coast's default in its payment obligations under
the Note, Madison posted the Property for foreclosure sale on
December 7, 2010, but Gulf Coast on the eve of that sale filed
for Chapter 11 bankruptcy.

See In re Gulf Coast Arms, a Non-

Profit Trust, No. 10-40929-HI-11 (Bankr. S.D. Tex. Apr. 29,
2011).
9.

On April 29, 2011, pursuant to an agreement of HUD, Gulf
Coast,

and Madison,

Coastfs

bankruptcy

the Bankruptcy Court dismissed
case

with

prejudice

to

Gulf

re-filing

in

bankruptcy for 180 days.
10.

With the Note still in default, Madison again posted the
Property for a foreclosure sale set for June 7, 2011.

11.

Plaintiffs filed this action against Madison in state court on
June 6, 2011, and obtained a Temporary Restraining Order (the
"TRO") enjoining the June 7, 2011 foreclosure sale.

12.

Plaintiffs named William G. Lawhon, Stephen C. Paine, and
Beverly Veal as additional defendants solely in their capacity
as substitute trustees.

13.

Madison is not a citizen of Texas.

14.

Madison removed the case to this Court and, on Monday,
June 13, 2011, the Court granted Madisonfs motion to clarify
the TRO to permit Madison to post notice for a July 5, 2011
foreclosure sale, which it has since done, and the Court set
for

hearing

on

June

21,

2011,

Plaintiffsr Motion

for

Preliminary Injunction.
15.

Plaintiffs allege three reasons for issuance of a preliminary
injunction: (1) that sale of the Property under the Deed of
Trust is barred by the four-year statute of limitations;
(2) that Madison's

lien was released as a result of two

alleged instances of assignment of the Deed of Trust without
an assignment of the Note; and
unjustly

enriched

"Plaintiffs

. . .

if

(3) that Madison will be

foreclosure

is

permitted

because

stand to lose approximately $1,800,000.00,

that in equity, justice, and law, belongs to Plaintiffs."
16.

Gulf Coast, Salvagio, and Madison, the original parties to the
Note, its Guaranty, and the Deed of Trust, agreed to extend
the due date of the Note for one year, until March 20, 2008,
by a letter agreement dated March 30, 2007
Agreement") .

(the "Letter

17.

The Letter Agreement was made in response to Gulf Coast's
request that Madison agree to extend the maturity date of the
Note.

18.

Madison later agreed further to forebear from exercising its
rights under the Note and Deed of Trust until July 31, 2008,
pursuant to a May 2, 2008 Forbearance Agreement between it,
Gulf Coast, and Salvagio, in which the parties acknowledged
that Gulf Coast had defaulted on the Note by failing fully to
repay the Loan on its new maturity date of March 20, 2008.

19.

Madison agreed to forbear even longer, until December 31,
2008, in the First Amendment to Forbearance Agreement.

20.

Plaintiffs and Gulf Coast sought and received the benefit of
the Letter Agreement, the Forbearance Agreement, and the First
Amendment to Forbearance Agreement.

21.

Neither the Letter Agreement, the Forbearance Agreement, or
the First Amendment to Forbearance Agreement was filed for
record in the Harris County clerk's office.

22.

Madison executed by and through its authorized representative,
Mark Bahiri, an allonge to the Note

(the "First Allonge")

dated April 7, 2006, whereby Madison indorsed the Note to
Capitalsource

Finance, LLC

("CapitalSource") .

The First

Allonge on its face is valid, authentic, and enforceable.
23.

There is no evidence that the First Allonge was a product of
fraud, or that it was executed on any date other than the date
it bears of April 7, 2006.
5

24.

There is nothing about the signature of Mark Bahiri on the
First Allonge to suggest that it was signed by anyone other
than the same Mark Bahiri whose like signatures are found also
on Madison's assignment to CapitalSource of the Deed of Trust
and the companion Assignment of Leases and Rents, both dated
May 10, 2006.

25.

Madison executed and delivered the May 10, 2006 assignment,
entitled "Assignment of Deed of Trust," to CapitalSource as
collateral

security

to CapitalSource.

for

Madison' s

obligations

The instrument expressly provided that it

"is given as collateral security for the obligations of
[Madison] to [CapitalSource] pursuant to that certain Credit
Agreement between [them] dated as of November 23, 2005," and
that the "collateral assigned hereunder will be re-assigned to
[Madison]" upon fulfillment of all of Madison's obligations to
CapitalSource under the November 23, 2005 agreement.
26.

Madison indorsed the Note to CapitalSource in the First
Allonge as collateral for its independent obligations to
CapitalSource.

27.

CapitalSource, by and through its authorized representative,
Sue J. Choi, executed an allonge to the Note
Allonge") , dated August

(the "Second

6, 2008, by which CapitalSource

indorsed the Note without recourse back to Madison.

The

Second

and

Allonge

enforceable.

on

its

face

is

valid,

authentic,

28.

The Second Allonge evidences that CapitalSource understood its
authority to indorse the Note back to Madison, which is
consistent with proof of Madison's previous indorsement of the
Note to CapitalSource by the First Allonge.

29.

CSE

Mortgage

LLC

("CSE"),

Successor

in

Interest

to

CapitalSource, LLC, executed by and through its authorized
representative, Sue J. Choi, an allonge (the "Third Allonge") ,
dated October 13, 2009, by which CSE, as successor in interest
to CapitalSource,
Madison.

indorsed the Note without

recourse to

The Third Allonge on its face is valid, authentic,

and enforceable as to any interest in the Note that CSE may
have

derived

from

its

being

successor

in

interest

to

CapitalSource.
30.

There is no evidence that CSE was the successor in interest of
CapitalSource as early as August 6, 2008, the date of the
Second Allonge.

31.

There is no evidence that either return of the Note by
indorsement to Madison was invalid.

32.

On March 25, 2011, CapitalSource transferred the Deed of Trust
that it held as collateral back to Madison following Madison's
fulfillment of its obligations to CapitalSource.

33.

Plaintiff James Salvagio, as Managing Trustee of Gulf Coast,
reported the Property as currently having a value of $5.5
million

in his Verified Schedule of Real

Property dated

December 20, 2010, and signed by him under penalty of perjury
7

in Gulf Coast's Chapter 11 bankruptcy proceeding in the United
States Bankruptcy Court.
34.

During pendency of its Chapter 11 bankruptcy proceeding, Gulf
Coast on February 3, 2011, entered into an Agreement to sell
the Property to Marquis Acquisitions, Inc., for $5.5 million,
subject to approval of the Bankruptcy Court.

35.

The Bankruptcy Court did not act to approve the sale of the
Property to Marquis before Gulf Coastfs bankruptcy proceeding
was dismissed, but Salvagiofs sworn Bankruptcy Schedule and
his sales contract with Marquis provide the most credible
current estimates of the Property's approximate value.

36.

As of the date of the preliminary injunction hearing, the Note
remained in default with more than $5,060,000 due and owing,
including past due interest.

37.

In addition to Madison's llen, the Property is encumbered by
two other liens: (1) a lien superior to Madison's in favor of
HUD in the approximate amount of $100,000, and (2) a lien

junior to Madisonfs in favor of Mr. Samuel J. Henderson, Jr.,
in the amount of $1.5 million.
38.

There is no evidence that the substitute trustee's sale of the
Property

at

the

posted

foreclosure

will

entail

any

irregularity to cause the Property to be sold for a grossly
inadequate price.
39.

Plaintiffs have not shown themselves or Gulf Coast to have
equity of $1.8 million in the Property.
8

40.

Plaintiffs have not shown themselves or Gulf Coast to have any
equity in the Property over and above the total indebtedness
that encumbers the Property.

41.

After Madison's
extension

of

accession to Plaintiffs'

the

due

date

of

the

Note

requests for an
and

additional

forbearances on Madison's part, and with Plaintiffs still in
default and having made no payments of principal or interest
for more

than two years, Plaintiffs

filed a Chapter

11

bankruptcy proceeding, since dismissed, to avoid a foreclosure
sale posted for December 7 , 2010, by use of the automatic stay
of the Bankruptcy Act, and later filed this suit to obtain a
temporary restraining order the day before the posted June 7 ,
2011, foreclosure sale.
42.

In what appears to be a far darker undertaking, Plaintiffs
James D. Salvagio and Fay M. Bourgeois on January 25, 2010,
filed in the County Clerk's office of Fayette County, Texas,
the following documents, all said to be prepared by Plaintiff
James D. Salvagio:
(1) "Notice of Correction to Deed of Trust,
Substitution of Trustee, and Full Reconveyance,"
wherein Plaintiff Salvagio purports (a) to name
himself, Plaintiff Salvagio, as the current Trustee
of the Deed of Trust; (b) to name Gulf Coast Arms
as the current beneficiary of the Deed of Trust
instead of Madison; and (c) to name Capitalsource
Finance LLC as the holder in due course of the Note
secured by the Deed of Trust instead of Madison;
(2) "Notice of Rescission of Signatures," in which
Plaintiffs Salvagio and Bourgeois purport to

"rescind any and all signatures that I may have
placed" on the Note, Deed of Trust, and other
related documents on May 20, 2006;
(3) "Notice of Revocation of Power of Attorney"
purporting to "revoke, cancel, and annul all Powers
of Attorney," signed by Plaintiffs Salvagio and
Bourgeois "with, to and/or for" Madison and its
attorneys; and
(4) "Notice of Right to Cancel," bearing signatures
for Plaintiffs Salvagio and Bourgeois and sworn to
by them under oath, purporting to cancel the Note
and Deed of Trust under the Truth in Lending Act.
43.

All

four of the foregoing putative documents, all dated

January 25, 2010, purport to be sworn to by one or both
Plaintiffs Salvagio and Bourgeois in the presence of a Notary
Public.
44.

Each of the foregoing four documents purporting variously "to
correct,
and/or

If

"to rescind," "to revoke," and "to cancel" the Note

Deed

of

Trust

and/or

related

instruments,

were

discovered by Madison and attached to Madison's motion filed
in Bankruptcy Court

to

dismiss Gulf Coast's

Chapter

11

proceeding as having been commenced in bad faith.
45.

Each of the foregoing four documents filed for record by
Plaintiff Salvagio in Fayette County, Texas, is a spurious
document,

unilaterally

prepared

and

filed

by

Plaintiff

Salvagio.
46.

Plaintiffs offered no evidence of any non-fraudulent purpose
for Plaintiff Salvagio to have filed the

foregoing four

documents for record in Fayette County, Texas, on January 25,

2010.

Indeed, Plaintiffsr counsel represented that he had no

prior knowledge of such until he saw Madison's evidence.
47.

In a balancing of the equities on whether a preliminary
injunction should issue, and taking into consideration all of
the Findings of Fact, the equities weigh heavily, in fact,
overwhelmingly

against

the

issuance

of

a

preliminary

injunction. Although Plaintiffs will be harmed by loss of the
property at a foreclosure sale, Madison will

suffer far

greater harm by a continued, unjustified delay of the exercise
of its rights under the agreements Plaintiffs made with
Madison.
48.

Under the totality of the facts and based on the evidence
presented, it is in the public interest that an injunction be
denied.
Conclusions of Law
The Court makes the following conclusions of law:

1.

Because Defendants William G. Lawhon, Stephen C. Paine, and
Beverly Veal were named solely in their capacity as substitute
trustees, their citizenship is not considered for diversity
jurisdiction purposes.

See 28 U.S.C.

§

1441 (a) Smallwood v.
;

Illinois Cent. R.R. Co., 385 F.3d 568, 572-73 (5th Cir. 2004).

2.

Defendants William G. Lawhon, Stephen C. Paine, and Beverly
Veal must be dismissed without prejudice.
§

3.

TEX. PROP.CODEANN.

51.007 (c) (West 2007) .

The Court has diversity jurisdiction over the parties and the
subject matter of this case.

4.

To

obtain

a

preliminary

injunction,

an

applicant

must

establish:
that he is likely to succeed on the merits, that he
is likely to suffer irreparable harm in the absence
of preliminary relief, that the balance of equities
tips in his favor, and that an injunction is in the
public interest.
Penderqest-Holt v. Certain Underwriters at Llovd' s of London,
600 F.3d 562, 568-69 (5th Cir. 2010) (citing Winter v. Natural
Res. Def. Council, Inc., 129 S. Ct. 365, 374 (2008)).
5.

Injunctive relief is "an extraordinary remedy that may only be
awarded upon a clear showing that the plaintiff is entitled to
such relief."

6.

Winter, 129 S. Ct. at 376.

Although Texas law governs Madison's

intended foreclosure

under the Deed of Trust, and also governs Plaintiffs' causes
of action, the Note by its express choice of law clause is to
be "governed by, and construed and enforced in accordance
with, the internal laws of the State of New York."
7.

The Texas Civil Practice and Remedies Code provides:
(b) A sale of real property under a power of sale
in a mortgage or deed of trust that creates a real

property lien must be made not later than four
years after the day the cause of action accrues.

(e) If a series of notes or obligations or a note
or obligation payable in installments is secured by
a real property lien, the four-year limitations
period does not begin to run until the maturity
date of the last note, obligation, or installment.
TEX. CIV. PRAC.

&

REM. CODE ANN. 5 16.035 (West 2002).

This is

the four-year statute of limitations that applies to the sale
of real property at foreclosure under a deed of trust.
8.

"On the expiration of the four-year limitations period, the
real property lien and a power of sale to enforce the real
property lien become void."

9.

I . § 16.035(d).
d

Although section 16.036 of the Civil Practice and Remedies
Code requires recording and acknowledgment of an extension of
the maturity date on a debt underlying a real property lien,
"as between the parties, and those holding under them in
subordination to the mort

formal, unrecorded extensions

of the debt, not meeting the standards of section 16.036
suffice also to extend the lien."

. ..

Davidson v. Fed. Deposit

Ins. Corp., 44 F.3d 246, 254 (5th Cir. 1995) (emphasis added) ;
see also The Cadle Co. v. Butler, 951 S.W.2d 901, 910 (Tex.
App.--Corpus Christi 1997, no pet.)
extensions of a debt's

(stating that "[olral

maturity are valid and enforceable

between the parties to the agreement," and that "[sluch

agreements are enforceable between the parties despite their
failure to comply with statutory provisions" (citing, inter
alia, Yates v. Darbv, 133 Tex. 593, 603-04, 131 S.W.2d 95, 101

10.

Section 16.035 of the Civil Practice and Remedies Code sets
forth

the

purpose

of

the

recording

and

acknowledgment

requirements of section 16.036:
The running of the statute of limitations is not
suspended against a bona fide purchaser for value,
a lienholder, or a lessee who has no notice or
knowledge of the suspension of the limitations
period and who acquires an interest in the property
when a cause of action on an outstanding real
property lien has accrued for more than four years,
except as provided by:
(1) Section 16.062, providing for suspension
in the event of death; or
(2) Section 16.036, providing for extensions
of real property liens.
TEX. CIV. PRAC. & REM. CODE ANN. 5 1 6 . 0 3 5 ( ~.
)
11.

The purpose of the statutory requirement that an extension of
a debt secured by a real property lien be acknowledged and
recorded is to protect good-faith purchasers or subsequent
lienholders of the real property who: (1) have no notice or
knowledge of the extension agreement and

(2) acquire an

interest in the property after the expiration of the four-year
statute of limitations.

See The Cadle Co., 951 S.W.2d at 910

(noting that extensions that do not "comply with statutory

provisions

. . .

are binding against subsequent lienholders

only if the prior lien did not appear to be barred of record
when the later lien was acquired" (citing Mercer v. Daoran
Corp., 676 S.W.2d 580, 582 (Tex. 1984); Hushes v. Hess, 172
S.W.2d 301, 304 (Tex. 1943)) ) ; accord Davidson, 44 F. 3d at 254
("To be

sure, Texas law strives to protect

from secret

tollings or extensions the unknowing bona fide purchaser who
acquires the land when the limitations period on the debt has
facially expired."); Jollv v. Fid. Union Trust Co., 118 Tex.
58, 72, 10 S.W.2d 539, 541 (1928) ("It is our opinion that the
above-quoted

provisions

[of the

predecessor

to

section

16.035(c)] were not intended by the Legislature to have
application where an unbarred lien is extended by the parties
to it, and no other persons are affected by the extension,
except those holding under voluntary conveyance from the
mortgagor in subordination to the lien.").
Plaintiffs were parties

to the extension agreement with

Madison, with actual notice of the Letter extending the Note's
original March 20, 2007 maturity date for one year, until
March 20, 2008, and therefore Madison is not barred from
foreclosing on the Property due to Plaintiff's default at any
time within four years after March 20, 2008.
Notwithstanding the lack of conditional language in Madison's
indorsement

to

Capitalsource

in

the

First Allonge,

the

statements in the "Assignment of Deed of Trust" dated May 10,
2006, and the affidavit of Brian Shatz, are both reliable
evidence that Madison indorsed the Note to Capitalsource as
collateral.

See Mantovani v. Fast Fuel Corp., 494 F. Supp.

72, 76 (S.D.N.Y. 1980) ("It is evident that such a collateral
agreement, although denominated as an assignment of interest,
falls far short of the type of 'perfected transactionr which
marks a valid assignment." (citing Miller v. Wells Farqo Bank,
540 F.2d 548, 557-58 (2d Cir. 1976)) ) ; Frensdorf v. Stumpf, 30
N.Y.S.2d 211, 218 (N.Y. Sup. Ct. 1941) (holding that, despite
an assignment being written

in absolute terms, evidence

extraneous to the assignment may show that the assignment was
in fact a pledge as collateral security).
14.

An

indorsement

as

collateral

constitutes

a

conditional

assignment e

, a pledge) under New York law, pursuant to

which Madison,

as the

conditional assignor, or pledgor,

retained the right to enforce the Note.

See Miller, 540 F.2d

at 559 (applying New York law) ("Thus, the essential feature
of a valid 'conditional assignment for purposes of security'
is that title to the collateral
assignor

subject

to

his

. . .

performance

is retained by the
of

an

independent

obligation owed to the assignee."); Malloney v. John Hancock
Mut. Life Ins. Co., 271 F.2d 609, 614 (2d Cir. 1959) (noting
that

"numerous

decisions

of

this

circuit

recognize

the

validity of conditional assignments under New York law," and
that such an assignment constitutes "a transfer by way of
security for a loan of claims to become payable in the future,
[and] transfer is conditioned upon the assignor's default and
repayment of the loan
&

. . .

. I r )

;

accord Sheehan v. Mun. Liaht

Power Co., 151 F.2d 65, 70 (2d Cir. 1945) (applying New York

law to determine that a former holder of notes who had
"endorsed the notes in blank without recourse and pledged them
to secure a loan" from another party could, upon regaining
possession of the notes from the other party, properly bring
suit upon them).
15.

The same rule would apply under Texas law.

See Randolph v.

Citizens Nat'l Bank of Lubbock, 141 S.W.2d 1030, 1034-35 (Tex.
Civ. App.--Amarillo 1940, writ dism'd

judgmrt cor.) ("As a

general rule the pledgee of commercial paper holds it as a
trustee for the pledgor and, as such trustee, it is his duty
to collect it when it becomes due

. . . .

It does not follow,

however, that the pledgor is not permitted to collect the
indebtedness, enforce the security and file suit if necessary
under an agreement with the pledgee which entitles him to do
so.") ;' accord McAllen State Bank v. Tex. Bank

&

Trust Co.,

Even if Texas law governed Madison's authority, and if
Madison's agreement with Capitalsource did not permit Madison to
collect and enforce the pledged Note, it was Plaintiffsr burden to
prove that fact; they made no attempt to do so.

433 S.W.2d 167, 171 (Tex. 1968) (stating elements of a pledge
of

property,

including

that

"possession

of

the

pledged

property pass[es] from the pledgor to the pledgee," and that
"legal

title

of

the

pledged

remain[s]

property

in

the

pledgor") .
16.

Madison at all times therefore retained authority to enter
into the Letter Agreement with Plaintiffs.

17.

Plaintiffs sought fromMadison and received the benefit of the
extension

agreement,

challenging Madison's
Agreement.

and

are

therefore

estopped

from

authority to enter into the Letter

See Eckland Consultants, Inc. v. Ryder, Stilwell

Inc., 176 S.W.3d 80, 87 (Tex. App.--Houston [lst Dist.] 2004,
no pet.) (Hanks, J.) (noting that "quasi-estoppel forbids a
party from accepting the benefits of a transaction and then
subsequently

taking

an

inconsistent

position

to

avoid

corresponding obligations or effects," and holding that the
appellant, a party to a contract, was estopped from arguing
that another entity was neither a party nor a third-party
beneficiary of the contract where the appellant "accepted the
benefits of its contract" with respect to the other party).
18.

Plaintiffs have not shown a substantial likelihood that they
will prevail on the merits of their statute of limitations
claim.

19.

The First Allonge, like the Note itself, is not required to be
notarized or witnessed.

20.

Because there is no evidence that the First Allonge is a
product of

fraud or

is otherwise suspect, there was no

assignment of the Deed of Trust without a prior indorsement of
the Note.
21.

Because there is no evidence that either return indorsement of
the Note to Madison is invalid, Madison has authority to
conduct a foreclosure sale under the Deed of Trust.

See

Bittinqer v. Wells Farqo Bank NA, 744 F. Supp. 2d 619, 625
(S.D. Tex. 2010) ("[Ulnder Texas law, the ability to foreclose
on

a

deed

of

trust

is

transferred

when

the

note

is

transferred, not when an assignment of deed of trust is either
prepared or recorded." (citing JWD, Inc. v. Fed. Ins. Co., 806
S.W.2d 327, 329-30 (Tex. App.--Austin 1991, no writ))).
22.

Plaintiffs have not shown a substantial likelihood that they
will prevail on the merits of their claim that Madison's lien
on the property was released and that the Deed of Trust was
rendered invalid.

23.

To recover for an inadequate price at a foreclosure sale,
there must be "some irregularity in the foreclosure which
caused or contributed to cause the real property to be sold
for a grossly inadequate price."

Savers Fed. Sav.

&

Loan

Ass'n v. Reetz, 888 F.2d 1497, 1503 (5th Cir. 1989); see also

Am. Sav.

&

Loan Ass'n v. Musick, 531 S.W.2d 581, 587 (Tex.

1975).
24.

An "anticipatory wrongful foreclosure" claim is not recognized

in Texas.

See Peoples v. BAC Home Loans Servicinq, LP, No.

4:lO-CV-489-A, 2011 WL 1107211, at *4 (N.D. Tex. Mar. 25,
2011)

(finding

it

"unnecessary

to

devote

substantial

attention" to an "anticipatory wrongful foreclosure" claim
because "such a claim is not a recognized cause of action in
Texas" (citations omitted) ) ; see also Avers v. Aurora Loan
Servs., LLC, --- F. Supp. 2d

---, 2011 WL 2120000, at

* 3 (E.D.

Tex. May 27, 2011) ("Indeed, an inadequate sale price is an
element of [a] wrongful foreclosure claim.

. . .

Because no

sale occurred, Plaintiff fails to state a claim."); GintherDavis Ctr., Ltd. v. Houston Natrl Bank, 600 S.W.2d 856, 865
(Tex. Civ. App.--Houston [lst Dist.] 1980, writ ref. n.r.e.)
(holding that the appellants' contention--that "unless the
foreclosure sale is enjoined they will lose their substantial
equity and investment in the property, apparently because they
fear the sale will bring a price greatly under the fair market
value of the landn--failed because they presented no evidence,
and because "even if proven, such allegations would not in
themselves

be

injunction") .

grounds

requiring

the

issuance

of

an

25.

Plaintiffs have not shown a substantial likelihood that they
will prevail on the merits of their unjust enrichment claim.

26.

While foreclosure of the Property will entail Plaintiffsf loss
of the Property, a potential "harm" to which Plaintiffs agreed
when they pledged the Property as security for a $4 million
loan upon which they wholly defaulted some three years ago,
Madison will suffer substantial harm from the continued delay
of the exercise of its rights.

The continued accrual of

interest, to which Plaintiffs point as the reason Madison is
not harmed, is meaningless when interest is not paid year
after year and the total debt begins to exceed the value of
the Property pledged to secure its payment.

Plaintiffs have

paid nothing on this sizable debt since November, 2008, almost
three years ago.

Gulf Coast's

bankruptcy action, which

avoided one foreclosure sale, and followed by this action-which avoided another foreclosure sale posted for this month-have provided ample opportunity to assess all of Plaintiffsf
arguments for further delay, and none has merit.

The recent

discovery of Plaintiffsr filings of spurious documents in
Fayette County, Texas, purporting to pertain to this Note and
Deed of Trust, portends further legal harm to Madison-directly caused by Plaintiffs--if a preliminary injunction
issues.
27.

Given the totality of the facts proven, Madison will continue
to suffer substantial and unjustified harm if a preliminary

injunction is issued.
28.

Accordingly, Plaintiffs have not shown that the balance of the
equities is in their favor; much to the contrary, the equities
weigh overwhelmingly against the issuance of an injunction.

29.

Plaintiffs have not shown a substantial likelihood that they
will prevail on the merits of their case; their claim of
threatened injury does not outweigh the far greater harm to
Madison if an injunction issues; and Plaintiffs have not shown
that the granting of a preliminary injunction under the
totality of the facts proven here would not disserve the
public interest.

30.

Plaintiffs have failed to carry their burden of proof and
persuasion that Madison's sale of the Property at foreclosure
should be preliminarily enjoined.

31.

If

any

of

the

foregoing

Findings

of

Fact

constitute

Conclusions of Law, they are adopted as such; if any of the
foregoing Conclusions of Law constitute Findings of Fact, they
are adopted as such.
Order

For the reasons set forth in the above Findings of Fact and
Conclusions of Law, it is
ORDERED that Plaintiffs' claims against Defendants William G.
Lawhon, Stephen C. Paine, and Beverly Veal, named as substitute

trustees, are DISMISSED without prejudice.
ORDERED that Plaintiffs'

Motion

It is further

for Temporary Injunction

(Document No. 9) is in all things DENIED.
The Clerk will enter this Order and send copies to all parties
of record.
SIGNED at Houston, Texas on this

27

Zay

of June, 7011.