Medcalf et al v. Ocwen Loan Servicing LLC et al
Filing
23
ORDER GRANTING 16 Motion to Dismiss for Failure to State a Claim. Signed by Judge Sam Sparks. (dm)
FILED
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEIi1SJUN 16 AM 9:20
AUSTIN DIVISION
uuslJcrcotJRT
WESTER?DISRICT Ot TEXAS
BY
LARRY MEDCALF and BRENDA MEDCALF,
Plaintiffs,
Case No. A-14-CA-096-SS
-vs-
OCWEN LOAN SERVICING LLC; INDYMAC
BANK, FSB; and ONE WEST BANK, FSB,
Defendants.
ORDER
BE IT REMEMBERED on this day the Court reviewed the file in the above-styled cause, and
specifically Defendants Ocwen Loan Servicing LLC and OneWest Bank, FSB's Motion to Dismiss
[#16], Plaintiffs Larry Medcalf and Brenda Medcalr s Response [#17], Defendants' Reply [#1 8], and
Defendants' Notice of Supplemental Authority [#20]. Having reviewed the documents, the
governing law, and the file as a whole, the Court now enters the following opinion and orders
GRANTING the motion to dismiss.
Background
The Medcalfs bring this suit wielding the Texas Constitution as their weapon. They contend
the Texas Constitution creates a trap for unwary mortgage lenders foolish enough to agree to modify
their customers' home equity
loansthus
allowing those customers to (hopefully) make their
mortgage payments and remain in their homeswithout essentially originating a new loan and
complying with the strictures of Article XVI, Section 50. According to the Medcalfs, the Defendants'
failure to comply with Section 50 entitles the Medcalfs to ownership of their home free and clear of
their mortgage lien.
The basic facts are straightforward. The Medcalfs purchased the real property located at
13305 Evergreen Way, Austin, Texas 78737 in 2007. The purchase was financed by a Note secured
by a Deed of Trust in favor of the original lender, IndyMac Bank, FSB.' At some point the Medcalfs
defaulted on the mortgage. Seeking to retain possession of the property, they entered into a loan
modification agreement which capitalized some $54,696.70 in arrearages and thereby increased the
principal balance of the loan. It is somewhat unclear what progress the Medcalfs made under the
modified loan agreement, but OneWest Bank, FSB obtained an order authorizing foreclosure
pursuant to Texas Rule of Civil Procedure 736 on September 3, 2013.
The Medcalfs filed this suit in Texas state court on January 6, 2014, and it was promptly
removed to this Court on the basis of diversity jurisdiction. In their Amended Complaint [#1 1], the
Medcalfs assert the following causes of action: (1) violations of Texas Constitution article XVI,
section 50; (2) "void foreclosure;" (3) "invalid 736 Order"; and (4) violation of Texas's fraudulent
presentment statute, Texas Civil Practice and Remedies Code section 12.002. Defendants now move
to dismiss under Federal Rule of Civil Procedure 12(b)(6).
Analysis
I.
Motion to
DismissRule 12(b)(6)Legal Standard
Federal Rule of Civil Procedure 8(a)(2) requires a complaint to contain "a short and plain
statement of the claim showing that the pleader is entitled to relief."
FED.
R. Civ. P. 8(a)(2). A
motion under Federal Rule of Civil Procedure 12(b)(6) asks a court to dismiss a complaint for
IndyMac is apparently a division of its parent company, OneWest Bank, FSB.
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"failure to state a claim upon which relief can be granted."
FED. R. Civ. P.
1
2(b)(6). The plaintiff
must plead sufficient facts to state a claim for relief that is facially plausible. Ashcrofi v. Iqbal, 556
U.S. 662, 678 (2009); Bell Atl. Corp.
v.
Twombly, 550 U.S. 544, 570 (2007). "A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged." Iqbal, 566 U.S. at 678. Although
a plaintiff's factual allegations need not establish that the defendant is probably liable, they must
establish more than a "sheer possibility" that a defendant has acted unlawfully. Id. Determining
plausibility is a "context-specific task," and must be performed in light of a court's "judicial
experience and common sense." Id. at 679.
In deciding a motion to dismiss under Rule 1 2(b)(6), a court generally accepts as true all
factual allegations contained within the complaint. Leatherman
v.
Tarrant Cnly. Narcotics
Intelligence & Coordination Unit, 507 U.S. 163, 164(1993). However, a court is not bound to accept
legal conclusions couched as factual allegations. Papasan
v.
Allain, 478 U.S. 265, 286 (1986).
Although all reasonable inferences will be resolved in favor of the plaintiff, the plaintiff must plead
"specific facts, not mere conclusory allegations." Tuchman v. DSC Commc 'ns Corp., 14 F.3d 1061,
1067 (5th Cir. 1994). In deciding a motion to dismiss, courts may consider the complaint, as well
as other sources such as documents incorporated into the complaint by reference, and matters of
which a court may take judicial notice. Tellabs, Inc.
v.
Makor Issues & Rights, Ltd., 551 U.S. 308,
322 (2007).
II.
Application
The crux of the Medcalfs' case is that the loan modification agreement they entered into is
actually what the Texas Constitution refers to as an "extension of credit." As an extension of credit,
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so the argument goes, the modification agreement must comply with numerous restrictions placed
on the origination of home equity loans. This Court previously dismissed a similar suit styled as a
class action seeking free houses for thousands of homeowners who entered into modifications in
order to save their houses from foreclosure. Hawkins v. JPMorgan Chase Bank, NA. ,No. A- 12-CA892-SS, 2013 WL 443954, at *1 (W.D. Tex. Jan. 29, 2013). A similar case filed in the Northern
District of Texas was also dismissed a few months before this Court rendered its decision in
Hawkins. See Sims
in part, questions
v.
Carrington Mortg. Servs., LLC, 889 F. Supp. 2d 883 (N.D. Tex. 2012), aff'd
certfled, 538 F. App'x 537 (5th Cir. 2013) (unpublished). Most recently, the
Texas Supreme Court answered the certified questions posed by the Fifth Circuit in Sims. See Sims
v.
Carrington Mortg. Servs., L.L.C., No. 13-0638, 2014 WL 1998397 (Tex. May 16, 2014).
The Texas Supreme Court's unanimous opinion in Sims resolves this case in Defendants'
favor. Stated simply, "[i]f the restructuring of a home equity loan does not involve a new extension
of credit, the requirements of Section 50(a)(6) do not apply." Id. at * 3. Summarizing the core of its
holding, the court explained:
the restructuring of a home equity loan that, as in the context from which the question
arises, involves capitalization ofpast-due amounts owed under the terms of the initial
loan and a lowering of the interest rate and the amount of installment payments, but
does not involve the satisfaction or replacement ofthe original note, an advancement
of new funds, or an increase in the obligations created by the original note, is not a
new extension of credit that must meet the requirements of Section 50.
Id. at *4 The Texas Supreme Court has thus made clear the capitalization
of past-due amounts "is
not a new extension of credit under Section 50(a)(6)," nor "an 'advance of additional funds," and
therefore loan modifications like the Medcalfs' do not violate the Texas Constitution. Id. at
*5
The Medcalfs' claims cannot survive in a post-Sims world. The modification the Medcalfs
entered into did not satisfy and replace their original Note. Mot. Dism. [#16-3], Ex. C (Loan
Modification Agreement),
§
4F ("nothing in this Agreement shall be understood or construed to be
a satisfaction or release in whole or in part of the obligations contained in the Loan Documents").
It did not advance any new funds. See Sims, 2014 WL 1998397, at *4 (capitalization of past-due
arrearages does not amount to an advance of additional funds). And it did not increase the
obligations created by the original Note. See id. (rejecting the argument "any change in principal is
a new extension ofcredit" as "inconsistent with Section 50"). Like the modifications at issue in Sims
and Hawkins, the modification agreement the Medcalfs signed did not trigger the panoply of
requirements the Medcalfs allege were violated here.
Having disposed of the Medcalfs' constitutional claims, the rest of their claims fall as
derivative. First, their "void foreclosure" claim is premised on the idea the Note itself had been
rendered void by the modification. It had not. Additionally, Texas law does not recognize "void
foreclosure" as a cause of action, and to the extent the Medcalfs are attempting to assert a wrongful
foreclosure claim they are premature because they do not allege a foreclosure has occurred or that
they have been dispossessed of the property. See Peterson
App.San Antonio
v.
Black, 980 S.W.2d 818, 823 (Tex.
1998, no writ) (wrongful foreclosure claims are premised on "the disturbance
of the mortgagor's possession" and "[w]here the mortgagor's possession is undisturbed, he has
suffered no compensable damage"); Wieler v. United Say. Ass 'n of Tex., FSB, 887 S .W.2d 155, 159
n.2 (Tex. App.Texarkana 1994, writ denied) (Texas law does not recognize "attempted wrongful
foreclosure" as a cause of action). Even if a foreclosure had occurred, the Medcalfs' claims would
fail because the Medcalfs have not pleaded any facts suggesting the facially valid assignment of the
-5-
Deed of Trust to Ocwen is void. See Reinagel v. Deutsche BankNat'l Trust Co., 735 F.3d 220, 226
(5th Cir. 2013); see also Martins v. BAG Home Loans Servicing, L.P., 722 F.3d 249, 253-56 (5th
Cir. 2013) (foreclosing party need not hold the note in order to foreclose).
The Medcalfs' "invalid 736 order" claim seeks a declaration the order authorizing foreclosure
is void because the Ocwens were unable to attend the hearing because they were attending a divorce
proceeding at the same time. The Medcalfs' actions in filing this suit operated to impose an
automatic stay on the Rule 736 order, and the Medcalfs were required to file a motion to dismiss the
order in the state court, which the state court was obligated to grant. See TEX. R. Civ. P. 736.11(a),
(c). The Medcalfs' claim is thus moot.
Finally, the Medcalfs' fraudulent presentment claims fail. The elements of a fraudulent
presentment claim are that the defendant: (1) "made, presented, or used a document with knowledge
that it was a fraudulent lien; (2) intended the document to be given legal effect; and (3) intended to
cause [the plaintiffs] financial injury." Walker &Assocs. Surveying, Inc.
848 (Tex. App.Texarkana 2010, no pet.) (citing TEx. Civ. PRAC.
v.
Roberts, 306 S.W.3d 839,
& REM. CODE §
12.002(a)). The
accused documents here, an assignment and an appointment of a substitute trustee, do not fall within
the scope ofthe statute because it only applies to documents which are "fraudulent lien[s] or claim[s]
against real or personal property."
TEX.
Civ. PRAC.
&
REM. CODE § 12.002(a). The accused
documents here are not liens or claims against the property; they merely reflect an assignment of an
actual claim and the appointment
ofa trustee. See Rojas v.
Wells Fargo Bank, NA., No. A-12-CA-
996-SS, order at 6 (W.D. Tex. Jan. 25, 2013) (order granting judgment on the pleadings); Marsh
v.
JPMorgan Chase Bank, NA., 888 F. Supp. 2d 805, 813 (W.D. Tex. 2012); see also Golden v. Wells
Fargo Bank, NA., No. 13-50 158, 2014 WL 644549, at *3 n.2 (5th Cir. Feb.20, 2014) (unpublished)
(recognizing this view as the majority position among federal district courts in Texas). Additionally,
the Medcalfs have not pleaded any facts suggesting an intent to injure on the part of the Defendants.
The Fifth Circuit recently affirmed the dismissal of a similar claim where the plaintiffs merely
alleged the fraudulent documents were used in the foreclosure process.
644549,
See Golden, 2014
WL
at *3
Conclusion
The Medcalfs have failed to state any claim for which relief can be granted, and have not
shown themselves entitled to any relief in either law or equity. Additionally, because the Medcalfs'
claims rest primarily on a legal theory contrary to the Texas Supreme Court's recent decision in
Sims, leave to amend would be futile.
Accordingly,
IT IS ORDERED that Defendants Ocwen Loan Servicing LLC and OneWest Bank,
FSB's Motion to Dismiss
[#16]
is
GRANTED;
IT IS FINALLY ORDERED that all claims brought by Plaintiffs Larry Medcalf and
Brenda Medcalf in the above-styled cause are DISMISSED WITH PREJUDICE.
SIGNED this the
/
day of June
2014.
U
SAM SPARKS
UNITED STATES DISTRICT JUDGE
096 mtd ord kkt.frm
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