Morlock, L.L.C. v. HSBC Bank USA, N.A.
ORDER ADOPTING 27 Memorandum and Recommendations GRANTING 23 MOTION for Summary Judgment .(Signed by Judge Gray H Miller) Parties notified.(rkonieczny, 4)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HSBC BANK USA, N.A.,
CIVIL ACTION H-15-2304
MEMORANDUM OPINION & ORDER
Pending before the court is a memorandum and recommendation (“M&R”) filed by
Magistrate Judge Nancy Johnson. Dkt. 27. The Magistrate Judge considered a motion for summary
judgment filed by defendant HSBC Bank U.S.A., N.A. (“HSBC”) (Dkt. 23), plaintiff Morlock,
L.L.C.’s (“Morlock”) response (Dkt. 25), and HSBC’s reply (Dkt. 26). Having considered the M&R,
the motions, Morlock’s objections (Dkt. 28), HSBC’s response (Dkt. 29), and other relevant
materials in the record, the court is of the opinion that Morlock’s objections should be
OVERRULED and the M&R should be ADOPTED IN FULL.
In April 2005, George G. George executed an Adjustable Rate Note (the “Note”) to purchase
property located at 17606 Meadow Crossing Lane, Houston, Texas 77095 (the “Property”) with a
loan from People’s Choice Home Loan, Inc. (“People’s Choice”). Dkt. 23, Ex. A-1 at 8–12. The
Note was secured by a deed of trust granting a security interest in the form of a lien on the Property
to People’s Choice. Dkt. 23, Ex. A-2 at 14–40. On December 6, 2007, (but effective as of October
30, 2007), both the Note and the deed of trust were assigned to HSBC. See Dkt. 23, Ex. A-3 at
42–43. George defaulted several times on the Note by failing to make timely payments. Dkt. 23,
Exs. A, A-7. HSBC’s loan servicer sent George a notice of default on September 15, 2012. Dkt.
23, Ex. A-4 at 52–58. On December 6, 2011, Morlock purchased the Property subject to any existing
liens. Dkt. 23, Ex. B-1. On November 29, 2012, after George continued to default on the mortgage,
HSBC’s loan servicer sent George a notice of acceleration, and a notice of sale to take place on
January 1, 2013. Dkt. 23, Ex. B-1 at 5–8. On July 10, 2015, HSBC sent George a notice of
rescission of acceleration on the Note. Dkt. 23, Ex. A-6 at 67–68.
In December 2012, Morlock filed suit against HSBC in the 295th District Court of Harris
County, Texas seeking a temporary restraining order to prevent a sale of the Property and a
determination of HSBC’s assignment of the lien and interest in the Property. Dkt. 23, Ex. B-5. The
case was removed to federal court and Morlock’s claims were dismissed on July 23, 2014, for failure
to state a claim. Dkt. 23, Ex. B-5 at 63–72.
On July 6, 2015, Morlock brought a second suit against HSBC in the 133rd District Court
Of Harris County, Texas. Dkt. 1, Ex. B-1. Morlock requested a temporary restraining order
preventing any action by HSBC and claimed that HSBC’s right to enforce the lien was barred by
section 16.035 of the Texas Civil Practice and Remedies Code. Dkt. 1, Ex. B-1. On August 11,
2015, HSBC removed this case on the basis of diversity jurisdiction. Dkt. 1. On August 18, 2015,
HSBC filed a motion to dismiss (Dkt. 3) which the Magistrate Judge recommended denying on
October 21, 2015 (Dkt. 15). The court adopted the Magistrate Judge’s decision on the motion to
dismiss on December 3, 2015. Dkt. 17. On June 10, 2016, HSBC filed a motion for summary
judgment. Dkt. 23. The Magistrate Judge considered HSBC’s motion for summary judgment and
issued an M&R recommending that the court grant HSBC’s motion. See Dkt. 23.
The Magistrate Judge’s M&R addresses HSBC’s motion for summary judgment (Dkt. 23)
along with Morlock’s response (Dkt. 25) and HSBC’s reply in support of its motion for summary
judgment (Dkt. 26). Dkt. 27. Morlock asserts that HSBC did not bring suit for foreclosure on the
lien within four years of accrual of the cause of action as required by section 16.035 of the Texas
Civil Practice and Remedies Code making the lien void and unenforceable. Dkt. 25. HSBC’s
motion for summary judgment asserts that the statute of limitations does not bar foreclosure because
HSBC abandoned all instances of acceleration. Dkt. 23, Exs. A-6, A-7, A-8. Further, HSBC argued
that the evidence shows that HSBC owns the Note and is the current beneficiary on the deed of trust
because Morlock purchased the Property subject to any existing liens. Dkt. 23, Ex. B-1 at 6.
The Magistrate Judge recommended that the court grant HSBC’s motion for summary
judgment (Dkt. 27 at 13) because, while HSBC exercised its option to accelerate more than four
years ago, HSBC abandoned both instances of acceleration (Dkt. 27 at 12–13). Therefore, HSBC
did not have to file a written extension because it acted to abandon the acceleration within the fouryear statute of limitations. Dkt. 27 at 12. Further, because Morlock purchased the property at a
foreclosure sale subject to any existing liens, George still owed a debt to HSBC, and HSBC could
foreclose on the property. Dkt. 27 at 13. Morlock filed timely objections to the M&R. Dkt. 28.
HSBC responded to the objections. Dkt. 29.
II. LEGAL STANDARD
For dispositive matters, the court “determine(s) de novo any part of the magistrate judge’s
disposition that has been properly objected to.” See Fed. R. Civ. P. 72(b)(3). “The district judge
may accept, reject, or modify the recommended disposition; receive further evidence; or return the
matter to the magistrate judge with instructions.” Id. “When no timely objection is filed, the court
need only satisfy itself that there is no clear error on the face of the record in order to accept the
recommendation.” Fed. R. Civ. P. 72(b), Advisory Comm. Note (1983). For non-dispositive
matters, the court may set aside the magistrate judge’s order only to the extent that it is “clearly
erroneous or contrary to law.” Fed. R. Civ. P. 72(a).
Motion for Summary Judgment
A court shall grant summary judgment when a “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(c). “[A] fact is genuinely in dispute only if a reasonable jury could return a verdict for
the non-moving party.” Fordoche, Inc. v. Texaco, Inc., 463 F.3d 388, 392 (5th Cir. 2006). The
moving party bears the initial burden of demonstrating the absence of a genuine issue of material
fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548 (1986). If the party meets its
burden, the burden shifts to the non-moving party to set forth specific facts showing a genuine issue
for trial. Fed. R. Civ. P. 56(e). The court must view the evidence in the light most favorable to the
non-movant and draw all justifiable inferences in favor of the non-movant. Envtl. Conservation Org.
v. City of Dall., Tex., 529 F.3d 519, 524 (5th Cir. 2008).
Morlock does not provide the court with an enumerated list of objections. However, because
the court reviews the Magistrate Judge’s recommendation de novo, the court will summarize and
address Morlock’s arguments (Dkt. 28) in reponse to the Magistrate Judge’s M&R (Dkt. 27).
Morlock asserts the following objections to the Magistrate Judge’s M&R: (1) the Magistrate Judge
erred in upholding HSBC’s lien on the property because HSBC’s enforcement of the deed of trust
is barred by the statute of limitations, or alternatively, that the statute of limitations was not extended
in compliance with section 16.036 of the Texas Civil Practice and Remedies Code; (2) the
Magistrate Judge misapplied Texas Law and Morlock is a bona fide purchaser entitled to statutory
protection under section 16.037 of the Texas Civil Practice and Remedies Code because there was
no recorded extension agreement.1 Dkt. 28.
First, Morlock argues that HSBC’s enforcement of the deed of trust is barred by the statute
of limitations. Dkt. 28. Texas law creates a four-year statute of limitations for a foreclosure sale of
real property under a deed of trust. Tex. Civ. Prac. & Rem. Code Ann. § 16.035(b). When the fouryear period expires, “the real property lien and power of sale to enforce the lien become void.” Id.
§ 16.035(d). Morlock asserts that he became the owner of the property in December 2011, which
was more than four years ago, and that the statute of limitations was not extended under section
16.036. Dkt. 28. Therefore, Morlock asserts that HSBC’s enforcement of the deed of trust is barred.
However, Morlock misapplies the law as applied to the accrual date of the action. If, as is
true here, the deed of trust contains an optional acceleration clause, “the action accrues only when
the holder actually exercises its option to accelerate.” Holy Cross Church of God in Christ v. Wolf,
44 S.W.3d 562, 566 (Tex. 2001) (first citing Hammann v. H.J. McMullen & Co., 62 S.W.2d 59, 61
(Tex. 1933); then citing Curtis v. Speck, 130 S.W.2d 348, 351 (Tex. Civ. App.—Galveston 1939,
writ ref’d)). “Effective acceleration requires two acts: (1) notice of intent to accelerate, and (2)
notice of acceleration.” Id. (first citing Shumway v. Horizon Credit Corp., 801 S.W.2d 890, 892
(Tex. 1991); then citing Ogden v. Gibraltar Sav. Ass’n, 640 S.W.2d 232, 233 (Tex. 1982)). Parties
can abandon acceleration by agreement. Khan v. GBAK Props., Inc., 371 S.W.3d 347, 356 (Tex.
App—Houston [1st Dist.] 2012, no pet.). A note holder can abandon acceleration by continuing to
Morlock’s objections originally assert that Morlock is entitled to statutory protection under
“the Texas Property Code”. Dkt. 28 at 1. The court assumes here that Morlock is actually referring
to the Texas Civil Practice and Remedies Code, which he later references in his objections.
accept payments on the loan after giving notice of acceleration. See Holy Cross, 44 S.W.3d at
566–67. When acceleration is abandoned, the original maturity date is restored. Id. at 567 (citing
Denbina v. City of Hurst, 516 S.W.2d 460, 463 (Tex. Civ. App.—Tyler 1974, no writ). In addition,
a note holder can abandon acceleration unilaterally by sending a notice of rescission. See Leonard
v. Ocwen Loan Servicing, L.L.C., 616 Fed. App’x 677, 679 (5th Cir. 2015) (unpublished) (a
unilateral notice of rescission is a valid expression of abandonment of acceleration under Texas law);
see Dkt. 27 at 10–11 (M&R) (discussing acceptance of unilateral rescission under Texas Law).
As indicated in the record, assuming that HSBC accelerated payment in late 2008 or early
2009 (see Dkt. 23, Ex. A), HSBC later abandoned the acceleration when it continued to accept
payments made pursuant to the loan modification. Dkt. 23, Exs. A-7, A-8. HSBC accelerated
payment a second time in November 2012 (Dkt. 23, Exs. A-4, A-5), but again, HSBC abandoned
its acceleration by sending a notice of rescission just four days later (Dkt. 23, Ex. A-6). Therefore,
HSBC did not have to file a written extension because HSBC successfully abandoned both instances
of acceleration within the applicable four-year statute of limitations. See Tex. Civ. Prac. & Rem.
Code Ann. § 16.036. The Magistrate Judge properly evaluated whether HSBC’s enforcement of the
deed of trust was barred by the four-year statute of limitations. Dkt. 27 at 8–12. The court accepts
the Magistrate Judge’s opinion that HSBC timely abandoned both instances of acceleration and that
HSBC did not need to file an extension.
Second, Morlock argues that because there was no extension agreement recorded in
compliance with section 16.036 of the Texas Civil Practice and Remedies Code, Morlock is a bona
fide purchaser entitled to protection under section 16.037. Dkt. 28. As previously stated in response
to Morlock’s first objection, both instances of acceleration were abandoned, eliminating the need for
HSBC to file an extension. The court need not address Morlock’s second objection in full because
protection of a bona fide purchaser by section 16.037 of the Texas Civil Practice and Remedies Code
only works to protect third parties when an extension agreement, in fact, exists. Tex. Civ. Prac. &
Rem. Code Ann. § 16.037. The court accepts the Magistrate Judge’s conclusion that Morlock
purchased the property subject to any existing liens, making Morlock’s interest in the property
subject to HSBC’s lien. Dkt. 27 at 13. Therefore, the court AFFIRMS the Magistrate Judge’s
opinion that the debt is properly owed to HSBC by George, and HSBC may foreclose on the
property. Dkt. 27 at 13.
Morlock’s objections are OVERRULED, and the M&R (Dkt. 27) is hereby ADOPTED IN
FULL. HSBC’s motion for summary judgment (Dkt. 23) is GRANTED.
Signed at Houston, Texas on March 24, 2017.
Gray H. Miller
United States District Judge
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