Myers et al v. Ditech Financial LLC

Filing 26

ORDER granting 23 Motion for Summary Judgment.(Signed by Magistrate Judge Stephen Wm Smith) Parties notified.(jmarchand, 4)

United States District Court
Southern District of Texas

ENTERED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
L EEROY M. M YERS, ET AL.,
Plaintiffs,
vs.
D ITECH F INANCIAL LLC, ET AL.,
Defendants.

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June 14, 2017
David J. Bradley, Clerk

C IVIL A CTION H-16-1053

ORDER
This case challenging defendants’ right to foreclose on plaintiffs’ property is before
the court on defendants’1 motion for summary judgment (Dkt. 23). Having considered the
parties’ submissions and the law, the court grants the motion.
Background
On March 27, 2006, Leeroy M. Myers signed a Texas Home Equity Note in the
amount of $50,000. The lender was Home 123 Corporation. The loan was secured by a lien
on the property located at 12215 Carola Forest Drive, Houston, Texas 77044, as evidenced
by a Texas Home Equity Security Instrument, otherwise known as a deed of trust, signed by
Leeroy M. Myers and Barbara C. Myers. In 2008, the deed of trust was assigned to Mortgage
Electronic Registration Systems, Inc. MERS assigned the note and deed of trust to Litton
Loan Servicing LP effective September 22, 2009.

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Plaintiffs have named as defendants Ditech Financial LLC, successor to Green Tree
Servicing, and Fannie Mae, allegedly the holder of the note. As far as the court can tell, only
Ditech has taken steps to foreclose on plaintiffs’ property and the current record is unclear
as to whether Fannie Mae currently holds the note. Nonetheless, counsel has filed the motion
for summary judgment on behalf of both defendants.

On October 5, 2009 Litton notified plaintiffs it was accelerating the loan maturity date
due to non-payment. Litton obtained a court order authorizing non-judicial foreclosure in
2010. However, Litton did not pursue foreclosure prior to January 26, 2011 when it assigned
the deed of trust to Green Tree Servicing LLC. Thereafter, Green Tree accepted a payment
from plaintiffs in January 2012 and applied it to the outstanding loan balance.
On August 19, 2013, counsel representing Green Tree sent plaintiffs a “Rescission of
Acceleration” notice stating that “the notice of acceleration dated October 5, 2009 and all
prior notices of acceleration” are rescinded, and instructing plaintiffs to continue making
payments to Green Tree. Green Tree accepted and applied another payment on the debt on
September 27, 2013.
On April 23, 2014, counsel representing Green Tree in its capacity as both the
mortgage servicer and mortgagee of the note and deed of trust, sent a Notice of Default and
Intent to Accelerate giving plaintiffs 30 days to cure the default in order to avoid acceleration
and foreclosure. On January 13, 2015 Green Tree sent another notice of default to plaintiffs.
Plaintiff made no further payments. On October 30, 2015, Green Tree, now known as Ditech
Financial, LLC, filed in state court an “Application for an Expedited Order under Rule 736
on a Home Equity Loan” seeking authorization for non-judicial foreclosure on the property
for failure to pay the loan.
Plaintiffs filed suit in state court in February 2016. Defendants removed the case to
this federal court based on diversity jurisdiction. Plaintiffs seek declaratory relief and to quiet
title because:
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[A]s the cause of action based on default accrued in October 2009 and no valid
foreclosure had taken place six years later in 2015, the four-year statute of
limitations to foreclose has expired, the lien and power of sale have expired,
the Defendants cannot foreclose, and they must release the lien in the Deed of
Trust immediately.
Dkt. 6 at 8. Plaintiffs also allege that Ditech violated the Fair Debt Collection Practices Act
and Texas Debt Collection Act in the notices of default. Defendants seek summary judgment
dismissing plaintiffs’ case in its entirety.
Summary Judgment Standards
Summary judgment is appropriate if no genuine issues of material fact exist, and the
moving party is entitled to judgment as a matter of law. F ED. R. C IV. P. 56(c). The party
moving for summary judgment has the initial burden to prove there are no genuine issues of
material fact for trial. Provident Life & Accident Ins. Co. v. Goel, 274 F.3d 984, 991 (5th Cir.
2001). Dispute about a material fact is “genuine” if the evidence could lead a reasonable jury
to find for the nonmoving party. In re Segerstrom, 247 F.3d 218, 223 (5th Cir. 2001). “An
issue is material if its resolution could affect the outcome of the action.” Terrebonne Parish
Sch. Bd. v. Columbia Gulf Transmission Co., 290 F.3d 303, 310 (5th Cir. 2002). If the
evidence presented to rebut the summary judgment is not significantly probative, summary
judgment should be granted. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986).
In determining whether a genuine issue of material fact exists, the court views the evidence
and draws inferences in the light most favorable to the nonmoving party. Id. at 255.
In a non-jury trial, the judge is the ultimate trier of fact. In such cases, the court may
grant summary judgment where a trial would not enhance the court’s ability to draw
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inferences and conclusions. Nunez v. Superior Oil Co., 572 F.2d 1119, 1123-24 (5th Cir.
1978); In re Placid Oil Co., 932 F.2d 394, 398 (5th Cir. 1991).
Analysis
Plaintiffs contend that the 4-year statute of limitations for defendants to foreclose on
their property began running on October 5, 2009 and expired prior to Ditech’s 2015
Application in state court seeking authority to foreclose.2
Section 16.035(b) of the Texas Civil Practice and Remedies Code provides “[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.” A cause of action for non-judicial foreclosure accrues “when the holder actually
exercises its option to accelerate” the maturity date of the loan. Holy Cross Church of God
in Christ v. Wolf, 44 S.W.3d 562, 566 (Tex. 2001). The issue here is whether Ditech
effectively rescinded or abandoned the October 5, 2009 acceleration within the 4-year
limitations period, thereby reinstating the parties’ rights under the original deed of trust.
Section 16.038 of the Texas Civil Practice and Remedies Code was enacted in 2015
to address this issue.3 Pursuant to § 16.038, an effective rescission or waiver can be made by
serving a written notice by first class or certified mail. Graham v. LNV Corp., No. 03-16-

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This is the only basis on which plaintiffs’ first amended complaint challenges defendants’
right to foreclose. Therefore, the court will not address the validity of the assignments of the
note and deed of trust.

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Section 16.038 applies to notices of acceleration and notices of rescission served before, on,
or after its June 17, 2015 effective date. See Graham, 2016 WL 6407306 at *4.
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00235-CV, 2016 WL 6407306 at *4 (Tex. App. -- Austin Oct. 26, 2016, pet. denied). The
Fifth Circuit has also held that a lender may unilaterally rescind a notice of acceleration.
Boren v. Nat. Bank Assoc., 807 F.3d 99, 106 (5th Cir. 2015); Nunnery v. Ocwen Loan Serv.,
LLC, 641 F. App’x 430, 433 (5th Cir. 2016). See also Costello v. U.S. Bank Trust, N.A., Civ.
A. No. H-16-702, 2016 WL 5871459 at *4 (S.D. Tex. Oct. 7, 2016); Mendoza v. Wells Fargo
Bank, N.A., Civ. A. No. H-14-554, 2015 WL 338909 at *5 (S.D. Tex. Jan. 23, 2015). In
addition, acceleration of a note may be abandoned by the holder by acceptance of an
installment payment. Wolf, 44 S.W.3d at 566-67; Boren, 807 F.3d at 104; Smither v. Ditech
Fin. LLC, No. 16-20392, __ F. App’x ___, 2017 WL 58314 at *5 (5th Cir. Mar. 10, 2017).
Plaintiffs have not presented any legal authority to support their assertion that
unilateral rescission or abandonment of acceleration is contrary to the Texas Constitution.
Garofolo v. Ocwen Loan Serv., LLC, 497 S.W.3d 474 (Tex. 2016), does not support
plaintiffs’ position. Garofolo holds that foreclosure of a homestead is an available remedy
for default on a home equity loan only if the underlying loan documents contain all the
required terms and conditions set forth in the Texas Constitution. 497 S.W.3d at 478.
Garofolo does not hold that the holder of an otherwise constitutionally compliant note or
deed of trust cannot unilaterally rescind or abandon a notice of acceleration. See id. at 479
(“The constitution prohibits foreclosure when a home-equity loan fails to include a
constitutionally mandated term or condition, but it does not address post-origination
enforcement of a loan’s provision.”).

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The record conclusively establishes that Ditech effectively and timely rescinded the
2009 acceleration by its August 19, 2013 notice. Ditech also effectively abandoned the 2009
acceleration by other acts, including acceptance of an installment payment in September
2013. Ditech’s cause of action for foreclosure therefore accrued at some point after
September 2013. Defendants are not time-barred from seeking foreclosure, and the motion
for summary judgment on plaintiffs’ declaratory judgment and quiet title claims is granted.
Plaintiffs summary judgment response does not address their Fair Debt Collection
Practices Act (FDCPA) claim based on the January 13, 2015 default letter or their Texas
Debt Collection Act (TDCA) claim based on the 2015 state court Application for nonjudicial foreclosure. Plaintiffs are deemed to have abandoned such claims. Alternatively, to
the extent the FDCPA and TDCA claims are based on the assertion that Ditech wrongfully
attempted to collect an expired debt, the claim is without merit for the reasons discussed
above.
In addition, the January 13, 2015 notice does not contain an actionable false
representation of “the character, amount, or legal status of the debt.” 15 U.S.C.
§ 1692e(2)(A). The January 13, 2015 letter states “You may be held personally liable under
state law, if any, for any deficiency balance not realized from the sale of the property.” Dkt.
6-5 at 3 (emphasis added). While Home Equity Loans are generally without recourse for
personal liability against an owner and spouse, personal liability may exist if the loan was
obtained through fraud. T EX. C ONST. art. XVI, § 50(a)(6)(C). Thus, the letter, does not
misrepresent the creditor’s legal remedies. Finally, an FDCPA claim based on statements in
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the January 13, 2015 letter is barred by 15 U.S.C. § 1692k(d), which requires claims to be
brought within one year from the date of the violation. Ditech is entitled to summary
judgment on plaintiffs’ FDCPA and TDCA claims.
Conclusion
For the reasons discussed above, Ditech’s motion for summary judgment (Dkt. 23) is
granted. The court will issue a separate final judgment.
Signed at Houston, Texas on June 14, 2017.

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