Seddiq v. Federal National Mortgage Association
ORDER Granting in part and Denying in part 5 Motion to Dismiss.(Signed by Judge Gray H Miller) Parties notified.(rkonieczny, 4)
United States District Court
Southern District of Texas
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
FEDERAL NATIONAL MORTGAGE ASSOCIATION, §
July 27, 2017
David J. Bradley, Clerk
ROHOLLAH R. SEDDIQ,
CIVIL ACTION H-16-3326
Pending before the court is the defendant Federal National Mortgage Association’s (“Fannie
Mae”) motion to dismiss (Dkt. 5) a suit filed by plaintiff Rohollah Seddiq. Having considered the
motion, responses, reply, and applicable law, the court finds that Fannie Mae’s motion to dismiss
should be GRANTED IN PART and DENIED IN PART.
This case relates to the refinancing of a property located at 23102 North Waterlily Drive,
Richmond, Fort Bend County, Texas 77406 (the “Property”).
Dkt. 1, Ex. 1 at 9.
September 20, 2017, Seddiq filed suit against Fannie Mae in the 268th Judicial District Court in Fort
Bend County, Texas. Dkt. 1 at 1. Seddiq asserts that he executed a Texas Home Equity Note and
a Home Equity Security Agreement (“Deed of Trust” or “DOT”) on August 29, 2012, with Nations
Reliable Lending, L.L.C. (“Lender”). Id. Ex. 1 at 9. Further, Seddiq asserts that he has complied
with his obligations under the DOT and that he is current on his mortgage payments. Id. The DOT
specifies that the parties expressly intend to conform to Article XVI, Section 50(a)(6)(E) of the
Texas Constitution. Id.
According to Seddiq’s original complaint, Lender, and Fannie Mae as Lender’s successor in
interest, violated Section 50(a)(6)(E) by charging Seddiq more than the constitutional limit on home
equity loan fees—3 percent of the loan principle. Dkt. 1, Ex. 1 at 10. Seddiq alleges he was required
to pay $5,231.39. Dkt. 1, Ex. 1 at 10. Fannie Mae asserts Seddiq was only required to pay
$2,893.74. Dkt. 5 at 6. Seddiq claims that he sent a Notice to Cure the violations to Fannie Mae on
April 20, 2016, and that as of the filing date Fannie Mae had failed to cure the violations. Id. Seddiq
also alleges that Fannie Mae breached its contract by breaching its obligations under the DOT. Id.
at 11. Seddiq requests remedies of quiet title, declaratory judgment, a permanent injunction, and
attorney’s fees. Id. at 13-16.
On November 10, 2016, Fannie Mae removed the case to this court on the basis of diversity
jurisdiction under 28 U.S.C. § 1332. Dkt. 1. On November 17, 2016, Fannie Mae filed a motion
to dismiss. Dkt. 5. On December 8, 2016, Seddiq filed a response to Fannie Mae’s motion. Dkt. 13.
On December 14, 2016, Seddiq filed a supplemental response. Dkt. 15. On December 23, 2016,
Fannie Mae filed its reply. Dkt. 16.
II. LEGAL STANDARD
“Federal Rule of Civil Procedure 8(a)(2) requires only ‘a short and plain statement of the
claim showing that the pleader is entitled to relief.’” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555
127 S. Ct. 1955 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S. Ct. 99 (1957)). In
considering a Rule 12(b)(6) motion to dismiss a complaint, courts generally must accept the factual
allegations contained in the complaint as true. Kaiser Aluminum & Chem. Sales, Inc. v. Avondale
Shipyards, Inc., 677 F.2d 1045, 1050 (5th Cir. 1982). The court does not look beyond the face of
the pleadings in determining whether the plaintiff has stated a claim under Rule 12(b)(6). Spivey v.
Robertson, 197 F.3d 772, 774 (5th Cir. 1999).
“[A] complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual
allegations, [but] a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’
requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of
action will not do.” Twombly, 550 U.S. at 555 (citations omitted). The “[f]actual allegations must
be enough to raise a right to relief above the speculative level.” Id. The supporting facts must be
plausible—enough to raise a reasonable expectation that discovery will reveal further supporting
evidence. Id. at 556.
Fannie Mae seeks dismissal of Seddiq’s claims for constitutional violations and breach of
contract in addition to Seddiq’s requests for quiet title, declaratory judgment, injunctive relief, and
attorney’s fees. Dkt. 5. The court will address the causes of action and the requests for relief in turn.
The Three Percent Rule
Seddiq contends that Fannie Mae violated the Texas Constitution by charging fees exceeding
the three percent cap. Dkt. 1, Ex. 1 at 10. Under the Texas Constitution a home equity loan must:
not require the owner or owner’s spouse to pay, in addition to any interest, fees to any
person that are necessary to originate, evaluate, maintain, record, insure, or service
the extension of credit that exceed, in the aggregate, three percent of the original
principal amount of the extension of credit.
TEX. CONST. art. XVI, § 50(a)(6)(E) (amended 2013). To state a claim under this provision of the
Texas Constitution, Seddiq must allege that he was required to pay fees in excess of three percent.
Both parties agree that three percent of the $114,400.00 loan is $3,432.00. Dkt. 1, Ex. 1
at 10; Dkt. 5 at 3; Dkt. 13 at 3; Dkt. 16 at 2. Seddiq claims that he was charged, and Lender required
him to pay, “fees . . . equal[ing] or exceed[ing] $5,231.39.” Dkt. 1, Ex. 1 at 10; Dkt. 13 at 3. For
a motion to dismiss, the court accepts all well-pled facts contained in Seddiq’s original petition.
Twombly, 550 U.S. at 555; Avondale Shipyards, 677 F.2d at 1050. Attached to his original petition,
Seddiq included an unofficial copy of the settlement statement (the “HUD-1”) executed at the
closing on the Property. Dkt. 1, Ex. 1 at 39-42.
Seddiq alleges that he was charged the following fees: origination ($1,290.00); appraisal
($350.00); credit report ($30.00); flood certification ($20.00); underwriting ($530.00); attorney
review ($150.00); processing ($500.00); funding ($110.00); title services and lender’s title insurance
($1,494.26); escrow ($350.00); lender’s coverage ($400.13), T3, T30, T36, T17, T19, T19.2, T42,
T42.1 Texas forms ($195.25); tax certificate ($59.75); Texas policy guarantee ($2.00); government
recording ($100.00); and HOA refinancing ($50.00). Id. at 10-11. The total of these fees is
$5,631.39. Dkt. 13 at 4. However, in his response to Fannie Mae’s motion to dismiss, Seddiq
accounts for the lender credit of $400.00 and argues that the total fees charged equal $5,231.39. Id.
Fannie Mae argues that Seddiq’s allegations misrepresent and overstate the amount charged
at settlement by attempting to double many of the fees. Dkt. 5 at 3-7. Fannie Mae points out that
the underwriting, attorney review, processing, and funding fees equal the origination fee when
totaled ($530.00 + $150.00 + $500.00 + $110.00 = $1,290.00). Dkt. 5 at 6. Further, Fannie Mae
notes that the appraisal, credit report, and flood certification fees equal $400.00. Id. It argues that
the HUD-1 shows a $400.00 Lender Credit on line 204, which was applied to counteract these
charges. Id. Fannie Mae contends that the correct calculation of fees actually charged which apply
to the three percent fee cap are as follows: origination ($1,290.00), title services and lender’s title
insurance ($1,494.26), government recording ($100.00), and HOA refinance ($50.00). Dkt. 5 at 5-6.
Further, Fannie Mae argues that the daily interest charges in the amount of $40.52 should be
subtracted from the total charged. Id. Fannie Mae’s calculated total fee charge equals $2,893.74,
less than the three percent fee cap of $3,432.00. Id.
The court’s inquiry into the correct fee calculation must stop at whether Seddiq stated a claim
showing that he is plausibly entitled to relief. A claim may be plausible “even if doubtful in fact.”
Twombly, 550 U.S. at 555. Seddiq properly alleged that he was required to pay fees exceeding the
three percent cap and provided a factual basis for such allegations in his original complaint. Dkt. 1,
Ex. 1 at 10. Therefore, Fannie Mae’s motion to dismiss with regard to Seddiq’s constitutional claims
Breach of Contract
Next Seddiq argues that Fannie Mae has breached its contract to Seddiq under the DOT.
Dkt. 1, Ex. 1 at 11. To prevail on a claim for breach of contract under Texas law, a plaintiff must
prove that (1) a contract exists, (2) the plaintiff performed, (3) the defendant breached, and (4) the
plaintiff suffered damages resulting from the defendant’s breach. See Crose v. Humana Ins. Co., 823
F.3d 344, 347 (5th Cir. 2016) (citing Hunn v. Dan Wilson Homes, Inc., 789 F.3d 573, 579
(5th Cir. 2009)).
Fannie Mae argues that Seddiq’s breach of contract claim fails because (1) there are no
constitutional violations, and (2) the claim was brought outside the acceptable statute of limitations.
The court will address each in turn.
First, Seddiq claims Fannie Mae breached its contract under the settlement agreement by
violating Section 50(a)(6)(E) of Article XVI of the Texas Constitution. Dkt. 1, Ex. 1 at 11. Seddiq
asserts a claim that the DOT and HUD-1 contract was breached. Id. He contends that he performed
and that Fannie Mae breached the contract when it failed to cure violations of Section 50(a)(6)(E).
Id.; Dkt. 13 at 8-9. The DOT states that if Seddiq is charged in excess of the permitted limit, the
extension of credit “shall be reduced by the amount necessary to reduce the charge to the permitted
limit,” and the amount paid in excess of the limit “will be refunded.” Dkt. 1, Ex. 1 at 11. Further,
the DOT specifies that before Seddiq can take action on a violation of Section 50(a)(6), he must
provide Fannie Mae, as Lender’s successor in interest, with notice of noncompliance and allow it
60 days to comply. Id. at 12; Dkt. 13 at 8. The agreement further states that if Lender fails to cure
such violations “all principal and interest [shall] be forfeited by Lender.” Dkt. 1, Ex. 1 at 12; Dkt. 13
at 8. Seddiq contends that he notified Fannie Mae of its noncompliance on April 20, 2016. Dkt. 1,
Ex. 1 at 13. Further, the violation was not cured within the allotted 60 days, and had still not been
cured at the time of filing on September 20, 2016. Id. Finally, Seddiq alleges that the payments he
made to the Lender since the inception of the loan must be reimbursed because the “lender was not
entitled to receive any of these payments because the lien is void.” Id.
Fannie Mae argues that the breach of contract claim must be dismissed because Seddiq was
not charged fees in excess of the three percent cap and therefore does not allege facts which support
a claim for breach of contract or that Seddiq suffered damages from such a breach. Dkt. 5 at 8. The
court has determined that Seddiq pled sufficient facts for the constitutional allegations to survive this
motion to dismiss. Therefore, this argument is insufficient to grant Fannie Mae’s motion to dismiss
the breach of contract claim.
Secondly, Fannie Mae alleges that Seddiq brought his complaint outside of the four-year
statute of limitations period. Id. (citing Tex. Civ. Prac. & Rem. Code § 16.004). “An action for
breach of contract is governed by a four-year statute of limitations.” Smith v. Ferguson, 160 S.W.3d
115, 123 (Tex. App.—Dallas 2005, pet. denied). “A breach of contract claim accrues when the
contract is breached.” Id. (citing Stine v. Stewart, 80 S.W.3d 586, 592, 45 Tex. Sup. Ct. J. 966
Fannie Mae argues that by bringing the breach of contract action on
September 20, 2016, Seddiq missed the statute of limitations window, which expired
August 29, 2016—four years after the August 29, 2012, settlement date. Id. Therefore, Fannie Mae
alleges that because Seddiq was aware of the supposed breach on August 29, 2012, the statute of
limitations began running, and expired, prior to his suit. Id. at 9 (citing Feuerbacher v. Wells Fargo
Bank, N.A., No. 4:15-CV-59, 2016 WL 3669744 (E.D. Tex. July 11, 2016) (Mazzant, J.) (mem. op.)
(holding that a breach of contract claim under Section 50(a)(6)(E) accrues when the loan violating
Section 50 is made)); see Via Net v. TIG Ins. Co., 211 S.W.3d 310, 314 (Tex. 2006) (per curiam)
(noting that a claim for breach of contract accrues upon breach and is not delayed by the discovery
Seddiq responds that his claim for breach of contract is not barred by the statute of limitations
because the claim for breach of contract did not arise until 61 days after Fannie Mae received notice
of its constitutional violation. Dkt. 13 at 8; Dkt. 15 at 2. Seddiq alleges that the breach of contract
occurred when Fannie Mae “failed to timely cure” the violation. Dkt. 13 at 8. Seddiq further argues
that the court in Wood held that borrowers may use a breach of contract claim to obtain a remedy of
forfeiture but the court “did not suggest that a breach of contract claim based on forfeiture occurred
at the time of origination.” Id. at 9 (citing Wood v. HSBC Bank USA, N.A., 505 S.W.3d 542, 550
However, Fannie Mae argues that a remedy of forfeiture and an underlying claim for breach
of contract are different. Dkt. 16 at 4 (referencing Garofolo v. Ocwen Loan Servicing, 497 S.W.3d
474, 481 (Tex. 2016). “[I]n arguing that a claim for breach of contract does not accrue until the
lender fails to cure an alleged defect in a home-equity loan, Seddiq confuses a contractual remedy . . .
with the cause of action itself.” Id. Fannie Mae contends that the court has been careful to
distinguish between forfeiture as a remedy and a claim for breach of contract in recent cases. Id.;
see Garofolo, 497 S.W.3d at 479.
This court agrees with Fannie Mae. “It is well-settled law that a breach of contract claim
accrues when the contract is breached.” Stine, 80 S.W.3d at 592 (citing Smith v. Fairbanks, Morse
& Co., 102 S.W. 908, 909 (Tex 1907)); see Waco Tap R. Co. v. Shirley, 45 Tex. 355, 375 (1876)
(“The cause of action accrues immediately on the breach; suit may be brought at once; . . . .”). Since
the breach of contract on the DOT and HUD-1 accrued at the time it was signed, the statute of
limitations on the claim began to accrue on August 29, 2012. The court finds that this claim was
brought outside the four-year statute of limitations and therefore Fannie Mae’s motion to dismiss
with regard to Seddiq’s breach of contract claim is GRANTED.
Quiet Title, Declaratory Judgment, Injunctive Relief, and Attorney’s Fees
Fannie Mae seeks dismissal of Seddiq’s requests for quiet title, declaratory judgment,
injunctive relief, and attorney’s fees. Dkt. 5. The court does not view these as causes of action; it
views them as remedies. As such, the court will make a determination with regard to these remedies
upon the adjudication of the underlying constitutional claim.
Fannie Mae’s motion to dismiss (Dkt. 5) is GRANTED IN PART with respect to the breach
of contract claim and DENIED IN PART with respect to the Texas constitutional violation claim.
Seddiq’s cause of action for breach of contract is DISMISSED WITH PREJUDICE. Id.
It is so ORDERED
Signed at Houston, Texas on July 27, 2017.
Gray H. Miller
United States District Judge
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