Kazmi v. BAC Home Loans Servicing, L.P.

Full title: IQBAL KAZMI and FARHAT KAZMI v. BAC HOME LOANS SERVICING, L.P., ET AL.

Court: United States District Court EASTERN DISTRICT OF TEXAS SHERMAN DIVISION

Date published: Feb 3, 2012

CASE NO. 4:11-CV-375 (E.D. Tex. Feb. 3, 2012)

Opinion

CASE NO. 4:11-CV-375

02-03-2012

IQBAL KAZMI and FARHAT KAZMI v. BAC HOME LOANS SERVICING, L.P., ET AL.

AMOS L. MAZZANT UNITED STATES MAGISTRATE JUDGE

Judge Schneider/Judge Mazzant REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

Pending before the Court is Defendants Bank of America, N.A., as successor by merger to BAC Home Loans Servicing, L.P. f/k/a Countrywide Home Loans Servicing, L.P. ("BAC"), and Federal National Mortgage Association's a/k/a Fannie Mae ("Fannie Mae") (collectively "Defendants") Motion to Dismiss for Lack of Subject Matter Jurisdiction and Motion for Summary Judgment (Dkt. #12). The Court, having considered the relevant pleadings, finds that Defendants' Motions should be granted.

BACKGROUND

On or about February 22, 2007, Plaintiff Iqbal Kazmi obtained a loan in the amount of $380,383.00 from Ark-La-Tex Financial Services, L.L.C. ("Ark-La-Tex") to purchase the subject property located at 7609 Valleen Drive, Plano, Texas 75024 (the "Note"). Simultaneous with Plaintiff Iqbal Kazmi's execution of the promissory note creating the Note, Plaintiff Iqbal Kazmi also executed a Notice of No Oral Agreements. In securing their obligations under the Note, Plaintiffs signed a Deed of Trust naming Mortgage Electronic Registration Systems, Inc. ("MERS") as the nominee for Ark-La-Tex and its successors and assigns. The Deed of Trust states that "MERS is the beneficiary under this Security Instrument." The Deed of Trust granted broad rights to MERS to act for the lender and its assigns:

Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender's successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument.

The Deed of Trust was assigned (the "Assignment") to Bank of America on November 17, 2010, with an effective date of October 25, 2010, and was recorded with the Official Public Records of Collin County, Texas. The Assignment was signed by Stephen C. Porter, Assistant Secretary for MERS. The assignment of the Deed of Trust also contained language that the assignment transferred all rights accrued under the loan agreement. Plaintiff Iqbal Kazmi failed to timely pay his mortgage. Specifically, Plaintiff Iqbal Kazmi made his last payment, albeit a partial one, on September 30, 2010, which paid the loan to July, 2010.

As a result of Plaintiff Iqbal Kazmi's default, Bank of America sent, via United States Certified Mail, Return Receipt Requested, a Notice of Default and Intent to Accelerate (the "Notice of Default") to Plaintiff Iqbal Kazmi on September 16, 2010. The Notice of Default expressly stated the following: Plaintiff Iqbal Kazmi was in default of his obligations; how Plaintiff Iqbal Kazmi could cure his default; and that Plaintiff Iqbal Kazmi's failure to cure his default would result in acceleration of the indebtedness. Plaintiff Iqbal Kazmi failed to cure his default and as a result, BAC foreclosed on the subject property on March 1, 2011.

In 2008, Farhat Kazmi had surgery and Iqbal Kazmi suffered from a stroke. In addition to the unexpected medical bills, Iqbal Kazmi's income was drastically reduced. Plaintiffs had signed a waiver of escrow and paid their property taxes and insurance. However, given Plaintiffs' financial situation at the time, Plaintiffs had to use Retax to pay their property taxes. In 2010, Plaintiffs contacted BAC to inquire about a loan modification. Plaintiffs spoke to several BAC employees about the loan modification process. BAC employees assured Plaintiffs that it would not foreclose during the loan modification process and that Plaintiffs were not to make any payments. BAC sent Plaintiffs a letter dated March 25, 2010, in connection with Plaintiffs' loan modification request. BAC instructed Plaintiffs to submit financial information, income tax returns, and the application. Plaintiffs submitted all the requested information.

Plaintiffs called frequently over the next several months to find out the status of their loan modification. Plaintiffs called on July 23, 2010, and spoke to Janet and Rodney. Plaintiffs called BAC on July 28, 2010, and talked to Melody. Plaintiffs called BAC on July 30, 2010, and spoke to Floyd. Each time, Plaintiffs were advised that the loan modification process takes time, and not to worry. Plaintiffs called BAC and spoke to Shan on August 3, 2010, and Rachel on August 16, 2010. Neither one could tell Plaintiffs the status of their loan modification. Plaintiffs called the Making Homes Affordable ("MHA") program on August 18, 2010, and spoke to Vanessa. Plaintiffs continued to call frequently to check on the status of their loan modification. Each time, BAC assured Plaintiffs that everything was fine, not to worry, and that the loan modification process takes time. In the meantime, BAC increased Plaintiffs' monthly payments from $2,500 to $3,300. Plaintiffs called BAC and reported that they were in the loan modification program trying to reduce their payments, not increase them.

In early November 2010, Plaintiffs received a notice of a foreclosure sale for December 7, 2010. Plaintiffs contacted an attorney to help with the loan modification process and to stop the December 2010 foreclosure sale. On November 11, 2010, BAC's home support specialist, Laura Reardon, emailed Plaintiffs acknowledging her telephone conversation with them regarding their loan modification. Ms. Reardon also attached a MHA/RMA loan modification package and the 4506-T form for Plaintiffs to fill out and sign. Additionally, Ms. Reardon requested copies of other documents including a tax return and a profit and loss statement. Plaintiffs then contacted their attorney with the information.

On December 1, 2010, Ms. Reardon emailed Plaintiffs and acknowledged receiving all the required loan modification documents from Plaintiffs' attorneys. Ms. Reardon advised that it would take approximately three to four weeks to hear back from BAC regarding their loan modification. On December 6, 2010, Plaintiffs' attorney notified them that the December 7, 2010 foreclosure sale was postponed and moved temporarily to January 4, 2011, in order to give BAC time to process the loan modification, and if not processed by that date, then the foreclosure would be postponed again. Further, Ms. Reardon told Plaintiffs' attorney that she had received the complete loan modification file, that it was so complete that she was submitting it to the underwriter for final approval. Ms. Reardon then provided her direct extension to Plaintiffs' counsel in case Plaintiffs' attorney needed to contact her directly.

Plaintiffs then received a letter dated December 9, 2010, from BAC's attorneys notifying Plaintiffs of a January 4, 2011 foreclosure sale. Plaintiffs called BAC about the notice and were told to disregard the letter since they were in the loan modification program. On December 21, 2010, BAC sent Plaintiffs a letter declining their loan modification. However, the letter stated that BAC was exploring other modification programs and that any hold on a pending foreclosure would continue and remain in effect while BAC considered Plaintiffs for other home retention programs. Conversely, Plaintiffs' attorney told Plaintiffs that the loan modification was approved, the loan modification agreement was on the way, and Plaintiffs were to start making payments. Plaintiffs never received the documents, and when they spoke to their attorney about the loan modification documents, their attorney reported that BAC told him that Plaintiffs had rejected the modification.

On January 5, 2011, BAC's attorneys sent Plaintiffs another notice of foreclosure for February 1, 2011. Plaintiffs called again and were told that BAC was still reviewing other home retention options and that the foreclosure for February was on hold. Plaintiffs and their attorney contacted BAC frequently about the loan modification. Each time, BAC showed the foreclosure sale for February 1, 2011. Finally, Ms. Reardon, on January 31, 2011, was able to get the foreclosure sale put off for 30 more days so that the underwriter could review Plaintiffs' loan modification. Further, the correspondence from Ms. Reardon showed that BAC was to be responsible for all fees and costs related to the postponement.

Plaintiffs then received another foreclosure letter for March 1, 2011. Plaintiffs contacted BAC on February 16, 2011, again requesting that the March foreclosure sale be postponed according to their agreement to keep the foreclosure on hold pending the loan modification review. Mike Miller, a BAC employee, was now working on Plaintiffs' loan modification. Plaintiffs called him around February 20th to find out the status of the loan modification and the March 1, 2011 foreclosure sale. He was not available, so Plaintiffs left a message for him to return their call. Plaintiffs called Mr. Miller again on February 25, 2011, because he had not returned their call. Mr. Miller asked for updated financial information and told Plaintiffs that the foreclosure sale was still scheduled for March 1, 2011. Plaintiffs again contacted Ms. Reardon, with BAC, and she requested that the foreclosure sale be postponed.

Unbeknownst to Plaintiffs, BAC sold Plaintiffs' home at the foreclosure sale on March 1, 2011. On March 10, 2011, BAC mailed Plaintiffs a letter stating their loan modification was denied and provided other steps to avoid foreclosure. At that point it did not matter, because BAC had already foreclosed. Plaintiffs received another letter dated March 10, 2011, stating that Plaintiffs' loan did not qualify for a modification and if the loan was in foreclosure, a scheduled foreclosure sale would be conducted unless BAC agreed in writing to suspend or cancel the sale.

On April 18, 2011, Plaintiffs filed this lawsuit in the 380th District Court of Collin County, Texas, against Defendants. On June 20, 2011, Defendants removed this lawsuit to this Court (Dkt. #1). On June 22, 2011, this Court ordered the parties to "replead as necessary to comply with the Federal Rules of Civil Procedure and the Court's Local Rules" (Dkt. #7). On July 22, 2011, Plaintiffs filed their Amended Complaint (Dkt. #10). On September 19, 2011, Defendants filed a Motion to Dismiss for Lack of Subject Matter Jurisdiction and Motion for Summary Judgment (Dkt. #12). On October 4, 2011, Plaintiffs filed a Preliminary Response and Brief in Opposition (Dkt. #18). With permission, Plaintiffs filed their final response on November 28, 2011, which takes the place of the preliminary response (Dkt. #21).

LEGAL STANDARD

The purpose of summary judgment is to isolate and dispose of factually unsupported claims or defenses. See Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986). Summary judgment is proper if "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). A dispute about a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The trial court must resolve all reasonable doubts in favor of the party opposing the motion for summary judgment. Casey Enterprises, Inc. v. American Hardware Mut. Ins. Co., 655 F.2d 598, 602 (5th Cir. 1981) (citations omitted). The substantive law identifies which facts are material. Anderson, 477 U.S. at 248.

The party moving for summary judgment has the burden to show that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Id. at 247. If the movant bears the burden of proof on a claim or defense on which it is moving for summary judgment, it must come forward with evidence that establishes "beyond peradventure all of the essential elements of the claim or defense." Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986). But if the nonmovant bears the burden of proof, the movant may discharge its burden by showing that there is an absence of evidence to support the nonmovant's case. Celotex, 477 U.S. at 325; Byers v. Dallas Morning News, Inc., 209 F.3d 419, 424 (5th Cir. 2000). Once the movant has carried its burden, the nonmovant must "set out specific facts showing a genuine issue for trial." Fed. R. Civ. P. 56(e)(2). The nonmovant must adduce affirmative evidence. See Anderson, 477 U.S. at 257.

A motion under Federal Rule of Civil Procedure 12(b)(1) should be granted only if it appears beyond doubt that the plaintiff cannot prove a plausible set of facts in support of its claim. Lane v. Halliburton, 529 F.3d 548, 557 (5th Cir. 2008) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556-57 (2007)). The Court may find a plausible set of facts by considering: "(1) the complaint alone; (2) the complaint supplemented by the undisputed facts evidenced in the record; or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts." Lane, 529 F.3d at 557 (quoting Barrera-Montenegro v. United States, 74 F.3d 657, 659 (5th Cir. 1996)). The Court will accept all well-pleaded allegations in the complaint as true, and construe those allegations in a light most favorable to Plaintiffs. Truman v. United States, 26 F.3d 592, 594 (5th Cir. 1994). The party asserting jurisdiction bears the burden of proof for a 12(b)(1) motion to dismiss. Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001). "A case is properly dismissed for lack of subject matter jurisdiction when the court lacks the statutory or constitutional power to adjudicate the case." CleanCOALition v. TXU Power, 536 F.3d 469, 473 (5th Cir. 2008) (quoting Home Builders Ass'n of Miss., Inc. v. City of Madison, 143 F.3d 1006, 1010 (5th Cir. 1998)).

DISCUSSION AND ANALYSIS

Plaintiffs' Amended Complaint raises legal challenges to the foreclosure proceedings. Plaintiffs contend BAC had no standing to foreclose on the property, that MERS never held an assignable interest in the Note, and that the "bifurcation" of the Note from the Deed of Trust renders the foreclosure void. Based on these allegations, Plaintiffs assert: (1) causes of action for breach of contract and anticipatory breach of contract; (2) violations of the Texas Debt Collections Act (the "TDCA"); (3) breach of the common law tort of unreasonable collection efforts; and (4) negligence and gross negligence. Plaintiffs also seek various forms of relief, including an accounting of loan transactions, declaratory judgment, injunctive relief and an order quieting title to the property.

Defendants assert that "[t]his is another lawsuit in which a party that has defaulted on his obligation to repay a loan advances meritless legal theories in an attempt to reverse the foreclosure of the property securing the loan. This case has no legal merit and summary judgment is appropriate." Defendants further assert that Plaintiff Farhat Kazmi lacks standing to assert causes of action for violations of the Texas Debt Collections Act, breach of the common law tort of unreasonable collection efforts, negligent misrepresentation, and gross negligence because she is not an obligor on the Note creating the indebtedness at issue.

Plaintiffs assert that fact issues have been raised in all of the causes of action challenged by Defendants, therefore, summary judgment is improper. Further, Plaintiffs argue that Farhat Kazmi does have standing to assert causes of action for violations of the Texas Debt Collections Act, the common law tort of unreasonable collection efforts, negligent misrepresentation and gross negligence.

The Owner of the Note Question and MERS

Defendants move for summary judgment asserting that Plaintiffs' attack on the MERS system is meritless.

Plaintiffs argue that the Deed of Trust named MERS solely as Ark-la-Tex's nominee, as the beneficiary and the Note does not make any reference to MERS. MERS, as nominee for Ark-la-Tex, assigned the Deed of Trust to BAC on November 17, 2010, with an effective date of October 25, 2010. Plaintiffs assert that proving the transaction through which the Note was acquired, in the case at bar, requires BAC to show that the Note, in addition to the Deed of Trust, was transferred to it via assignment. In other words, Plaintiffs argue that BAC must prove a chain of custody of the Note (not the Deed of Trust) ending with it, in order for it to show it can enforce or foreclose upon the Note. Plaintiff assert that the problematic fact is that BAC was never a holder or owner of the Note in question, and therefore cannot enforce the Note.

Defendants argue that Plaintiffs' Deed of Trust clearly, expressly, and unequivocally authorized MERS to act as the beneficiary in the Deed of Trust as nominee of the lender and its successors. The Deed of Trust states that the "beneficiary of this Security Instrument is MERS." It goes on to state that MERS can exercise "any or all" of the interests granted by the borrower, and has "the right to foreclose and sell the Property; and to take any action required of Lender." Defendants argue that courts have repeatedly held, under these circumstances, there is no basis under Texas law for Plaintiffs to assert that despite MERS's designation as the beneficiary of the Deed of Trust, MERS is somehow not the beneficiary. Defendants further assert that Plaintiffs' contention that once named as the beneficiary, as nominee, MERS could not transfer or assign its interests is similarly meritless. To the contrary, as the beneficiary under the Deed of Trust, Defendants argue that MERS had the right to assign its interests, as the courts have again repeatedly made clear.

A good explanation of MERS and Texas law can be found in Richardson v. CitiMortgage, Inc., No. 6:10cv119, 2010 WL 4818556, at *5 (E.D. Tex. Nov. 22, 2010). U.S. Magistrate Judge Judith K. Guthrie explained as follows:

Under Texas law, where a deed of trust, as here, expressly provides for MERS to have the power of sale, then MERS has the power of sale. Athey v. MERS, 314 S.W.3d 161, 166 (Tex. App.-Eastland 2010). MERS was the nominee for Southside Bank and its successors and assigns. MERS had the authority to transfer the rights and interests in the Deed of Trust to CitiMortgage. The Plaintiffs' complaints about the role of MERS in this matter lack merit.

It is further noted that the role of MERS has been the subject of federal multidistrict litigation in In re: Mortgage Electronic Registration Systems (MERS) Litigation, 659 F. Supp.2d 1368 (U.S. Jud. Pan. Mult. Lit. 2009). The MERS system is merely an electronic mortgage registration system and clearinghouse that tracks beneficial ownerships in, and servicing rights to, mortgage loans. Id. at 1370. The system is designed to track transfers and avoid recording and other transfer fees that are otherwise associated with the sale. Id. at 1370 n. 6. MERS is defined in Texas Property Code § 51.0001(1) as a "book entry system," which means a "national book system for registering a beneficial interest in security instrument and its successors and assigns." As noted in Athey, mortgage documents provide for the use of MERS and the provisions are enforceable to the extent provided by the terms of the documents. The role of MERS in this case was consistent with the Note and Deed of Trust.

Under the Texas Property Code, a mortgagee may authorize a mortgage servicer to service a mortgage and conduct a foreclosure sale. See Tex. Prop. Code. Ann. § 51.0025. MERS is a mortgagee under the Texas Property Code. See Tex. Prop. Code Ann. § 51.0001(4). Since the Deed of Trust identifies MERS as the beneficiary and the nominee for the original lender and its successors and assigns, this makes MERS a mortgagee under the Texas Property Code. As a mortgagee, MERS could authorize BAC to service the loan and foreclose, regardless of whether MERS was the true owner of the Note. In addition, Plaintiffs point to no provision of the Texas Property Code that requires a mortgagee or mortgage servicer to produce the original Note or Deed of Trust before conducting a non-judicial foreclosure. See Sawyer v. Mortg. Elec. Registration Sys., Inc., No. 3-09-CV-2303-K, 2010 WL 996768, at *3 (N.D. Tex. Feb. 1, 2010).

A court recently addressed this issue and found as follows:

Plaintiff has no standing to contest the various assignments as she was not a party to the assignments. Even if she has standing, her allegations are without merit because MERS was given the authority to transfer the documents in the Deed of Trust. The Restatement (3d) of Property offers no support for Plaintiff's claims. As MERS is a beneficiary and nominee for both the originating lender and its successors and assigns by the express language in the Deed of Trust, the situation falls within an exception to the general rule that a party holding only the deed of trust cannot enforce the mortgage. See Comment e to the Restatement (3d) of Property (Mortgages) § 5.4. Section 5.4 additionally notes that a "transfer of an obligation secured by a mortgage also transfers the mortgage unless the parties to the transfer agree otherwise." Plaintiff makes no allegations that the parties in this case agreed otherwise. Finally, while the Note may not specifically mention MERS, the Note and Deed of Trust must be read together in evaluating the terms...thus, the Note and Deed of Trust are construed together as a single instrument.

Eskridge v. Fed. Home Loan Mortg. Corp. et al., No. 6:10-CV-00285-WSS, 2011 WL 2163989, at *5 (W.D. Tex. Feb. 24, 2011). Defendants argue, and the Court agrees, that Plaintiffs do not have standing to challenge the assignment.

Defendants assert that Plaintiffs' challenges to MERS are entirely meritless. The Court agrees. Plaintiffs' response fails to cite any authority from this jurisdiction that would support the arguments they put forth that attack MERS. These attacks have been repeatedly rejected by this Court as well as others. See Wigginton v. Bank of New York Mellon, No. 3:10-CV-2128-G, 2011 WL 2669071, at *2 (N.D. Tex. July 7, 2011); Anderson v. CitiMortgage, Inc., No. 4:10-CV-398, 2011 WL 1113494, at *4 (E.D. Tex. Mar. 24, 2011); Richardson, 2010 WL 4818556, at *5; Eskridge, 2011 WL 2163989, at *5; Williams v. Bank of New York Mellon, No. 3:09-CV-1622-BH, 2010 WL 3929007, at *1 (N.D. Tex. Oct. 7, 2010); Santarose v. Aurora Bank FSB, No. H-10-720, 2010 WL 2232819, at *5 (S.D. Tex. June 2, 2010); Athey v. Mortg. Elec. Registration Sys., Inc., 314 S.W.3d 161, 162 (Tex. App.-Eastland 2010, pet. denied); Hornbuckle v. Countrywide Home Loans, Inc., No. 02-09-00330-CV, 2011 WL 1901975, at *4 (Tex. App.-Fort Worth May 19, 2011, no pet.).

MERS was the beneficiary under the Deed of Trust. BAC was authorized to act under the Deed of Trust to enforce the indebtedness at issue. "In other words, a transfer of an obligation secured by a note also transfers the note because the deed of trust and note are read together to evaluate their provisions." DeFranchesci v. Wells Fargo Bank, N.A., No. 4:10-cv-455, 2011 WL 3875338, at *4 (N.D. Tex. Aug. 31, 2011). "Because the deed of trust specifically provided that MERS would have the power of sale, MERS had the power of sale that was passed to [BAC] upon MERS's assignment." Id. (quoting Richardson, 2010 WL 4818556, at *5). In short, there is no merit to Plaintiffs' argument that the Deed of Trust and Note were 'split,' rendering any attempted foreclosure defective. Therefore, summary judgment should be granted and all claims dismissed that are based upon these attacks on MERS.

Breach of Contract Claims

Defendants move for summary judgment on Plaintiffs' contract claims, asserting that Plaintiffs premise their breach of contract and anticipatory breach of contract claims on the following three fatally flawed theories: (1) BAC had no enforceable interest in the Note due to MERS's lack of any assignable interest; (2) BAC did not provide Plaintiffs twenty-one (21) days to cure the default before accelerating the indebtedness; and (3) BAC breached the duty of good faith and fair dealing in enforcing its security interest in the property.

In order to establish a claim for breach of contract, a plaintiff must establish: (1) the existence of a valid, enforceable contract; (2) they performed or tendered performance; (3) defendant breached the contract; and (4) defendant's breach caused plaintiffs' damages. Valero Mktg. & Supply Co. v. Kalama Int'l, 51 S.W.3d 345, 351 (Tex. App.—Houston [1st Dist.] 2001, no pet.).

Defendants assert that Plaintiff Iqbal Kazmi defaulted on his contractual obligations to timely pay his mortgage. Plaintiffs do not dispute that timely mortgage payments were not made. However, Plaintiffs argue that Defendants waived any breach by Plaintiffs. Plaintiffs assert that Defendants breached the contract by causing Plaintiffs' performance of the contractual obligation to become impossible. Plaintiffs further argue that Defendants waived any of Plaintiffs' prior breaches, and they then breached the contracts prior to any additional breach by Plaintiffs. Plaintiffs assert that Defendants, are, in fact, the first to breach the contracts. Plaintiffs assert that when the BAC representative stated that Plaintiffs' loan modification was being approved, Defendants were waiving whatever rights and remedies they had available to any defects existing at that time. Plaintiffs point to BAC's own letter, which stated that if a foreclosure proceeding or foreclosure sale is pending and on hold, "that hold will continue and remain in effect while you are considered for other home retention programs."

Plaintiffs argue that since Defendants' breach was material, Plaintiffs can (1) rescind the contract, (2) cease performance and sue for a total breach of the contract, or (3) continue performance and sue for a partial breach.

Under Texas law, "[t]he elements of waiver are: (1) an existing right, benefit, or advantage; (2) knowledge, actual or constructive, of its existence; and (3) an actual intent to relinquish the right (which can be inferred from conduct)." G.H. Bass & Company v. Dalsan Properties—Abilene, 885 S.W.2d 572, 577 (Tex. App.-Dallas 1994, no writ); Wigginton, 2011 WL 2669071, at *4. "Waiver is largely a matter of intent," but "[t]he law on waiver distinguishes between a showing of intent by actual renunciation and a showing of intent based on inference." Motor Vehicle Bd. of the Texas Dep't of Transp. v. El Paso Indep. Auto. Dealers Ass'n, Inc., 1 S.W.3d 108, 111 (Tex. 1999); G.H. Bass & Company, 885 S.W.2d at 577. Where waiver is based on inference, "it is the burden of the party who is to benefit by a showing of waiver to produce conclusive evidence that the opposite party 'unequivocably [sic] manifested' its intent to no longer assert its claim." G.H. Bass & Company, 885 S.W.2d at 577.

Defendants assert that Plaintiffs have not shown, nor can they show, that BAC manifested any intent to not enforce the mortgage. The Court agrees. The Court further agrees that the alleged oral representations that Plaintiffs rely upon in support of their waiver argument fail as a matter of law because of the statute of frauds.

Because the alleged oral contract relates to a loan agreement, Defendants contend that the alleged oral contract must be in writing to satisfy the statute of frauds as defined by Section 26.02(a)(2) of the Texas Business and Commerce Code.¹ See Tex. Bus. & Com. Code § 26.02 (Vernon 2009); see Fed. Land Bank Ass'n of Tyler v. Sloane, 825 S.W.2d 439, 442 (Tex. 1991) (explaining that any contract subject to the statute of frauds that is not in writing is unenforceable under Texas law). Defendants conclude the claim is barred by the statute of frauds because it stems from an alleged oral agreement which was never reduced to writing.

1 Section 26.02(b) states that a "loan agreement in which the amount involved in the loan agreement exceeds $50,000 in value is not enforceable unless the agreement is in writing and signed by the party to be bound or by that party's authorized representative." Tex. Bus. & Com. Code § 26.02(b).

As to the original agreement, the statute of frauds requires that it be in writing. See Tex. Bus. & Com. Code § 26.02(a) (stating that any promise, undertaking, commitment, or agreement where the financial institution loans, delays repayment, agrees to loan or delay repayment, or otherwise makes a financial accommodation to which the amount in question exceeds $50,000 must be in writing). Neither party disputes that the original document satisfies the statute of frauds.

As to the alleged oral modification, when a modification relates to a matter that must be in writing, the modification must also be in writing. Deuley v. Chase Home Fin. LLC, No. Civil Action H-05-04253, 2006 WL 1155230, at *2 (S.D. Tex. April 26, 2006); see Am. Garment Prop., Inc. v. CB Richard Ellis-El Paso, L.L.C., 155 S.W.3d 431, 435 (Tex. App.—El Paso 2004, no pet.). Because the modification alleged by Plaintiffs was oral and was never reduced to writing, it is unenforceable as a matter of law.

Plaintiffs assert the defense of promissory estoppel to the statute of frauds as well as partial performance. To establish the defense of promissory estoppel, a plaintiff must establish: (1) a promise; (2) reliance thereon that was foreseeable to promissor; and (3) substantial reliance by promissee to her detriment. Lozada v. Farrall & Blackwell Agency, Inc., 323 S.W.3d 278, 291 (Tex. App.—El Paso 2010, no pet.). However, when promissory estoppel is raised as a defense to the statute of frauds, "there is an additional requirement that the promisor promised to sign a written document complying with the statute of frauds." Ford v. City Bank of Palacios, 44 S.W.3d 121, 139 (Tex. App.—Corpus Christi 2001, no pet.). There is no evidence offered that Defendants promised to execute a written document incorporating the alleged oral agreement. Therefore, Plaintiffs have not established a material fact question on the defense of promissory estoppel to the statute of frauds. Accordingly, Plaintiffs' claim for breach of contract as related to any oral modification should be dismissed.

Defendants further assert that "notwithstanding the fact that anticipatory repudiation is a defense to a breach of contract claim, in this matter, Plaintiffs have not presented, nor can they present, any evidence establishing a genuine issue of material fact that Bank of America manifested a fixed intention to abandon, renounce, and refuse to perform the terms of the Deed of Trust." The Court agrees. Anticipatory repudiation is a defense to a claim for breach of contract. El Paso Prod. Co. v. Valence Oper. Co., 112 S.W.3d 616, 621 (Tex. App.-Houston [1st Dist.] 2003, pet. denied). In order to successfully assert the defense, a party must show a fixed intention to abandon, renounce, and refuse to perform the contract. City of The Colony v. N. Texas Muni. Water Dist., 272 S.W.3d 699, 738 (Tex. App -Fort Worth 2008, pet. dism'd). The Court agrees that Plaintiffs' anticipatory repudiation of contract claim fails as a matter of law.

Plaintiffs assert that Defendants breached the terms of the Deed of Trust and Note by failing to provide the legally required notices to Plaintiffs before foreclosure. Texas Property Code § 51.002 contains two notice provisions. Section 51.002(b) requires that notice of the foreclosure sale be given at least 21 days before the sale. Section 51.002(d) requires that the debtor be informed that he is in default and given at least 20 days to cure the default. Defendants assert that BAC's predecessor in interest, Countrywide Home Loans Servicing, L.P., sent the Notice of Default to Plaintiff Iqbal Kazmi on September 16, 2010, and because the foreclosure on the property did not occur until March 1, 2011, there can be absolutely no genuine issue of material fact that Plaintiff Iqbal Kazmi was provided at least thirty (30) days' notice of his default and an opportunity to cure same prior to the foreclosure of the property at issue.

Plaintiffs assert that the only evidence of the notice is the letter sent to Plaintiff in September 2010, but Plaintiffs assert that they present evidence that this letter was never received. The relevant inquiry is whether notice was served. See King v. Bank of New York, No. 13-07-069-CV, 2008 WL 2764523, at *2 (Tex. App.—Corpus Christi July 17, 2008, no pet.). Because Plaintiffs fail to offer evidence that Defendants failed to serve notice, summary judgment is appropriate on this issue. Furthermore, Defendants offer the letter that was signed for by Plaintiff that notified him of the default and opportunity to cure.

Defendants also asserts that the breach of contract claim fails because the duty of good faith and fair dealing does not apply in the mortgage context. To the extent that Plaintiffs are asserting a breach of contract claim based upon an alleged breach of duty of good faith and fair dealing, the Court agrees. In Texas, there is "no special relationship between a mortgagor and mortgagee." Collier v. Wells Fargo Home Mort., No. 7:04-CV-86, 2006 WL 1464170, at *8 (N.D. Tex. May 26, 2006) (citing UMLIC VP LLC v. T & M Sales and Envtl. Systems, Inc., 176 S.W.3d 595, 612 (Tex. App.- Corpus Christi 2005, pet. denied)). "Ordinarily, there is no such duty in lender/lendee relationships." Vogel v. Travelers Indem. Co., 966 S.W.2d 748, 753 (Tex. App.-San Antonio 1998) (citing Federal Deposit Ins. Corp. v. Coleman, 795 S.W.2d 706, 709 (Tex. 1990); English v. Fischer, 660 S.W.2d 521, 522 (Tex. 1983)).

Plaintiffs assert that there is a duty of good faith and fair dealing in contractual relationships under the UCC. "Because the Deed of Trust places a lien on real property, it is not governed by the UCC." See Vogel, 966 S.W.2d at 758 (citing Tex. Bus. & Com. Code Ann. § 9.104(10); Long v.3 NCNB-Texas Nat'l Bank, 882 S.W.2d 861, 864 (Tex. App.-Corpus Christi 1994, no writ)).

Although Plaintiffs take issue with the cases cited by Defendants, Plaintiffs have not presented the Court with any authority to support their view that there is a duty of good faith and fair dealing in the mortgage context. See Casterline v. Indy Mac/One West, No. C-10-210, 2011 WL 11183, at *6 (S.D. Tex. Jan. 3, 2011); Smith v. National City Mortg, No. A-09-CV-881, 2010 WL 3338537, at *12 (W.D. Tex. Aug. 23, 2010). Therefore, any breach of contract claim based upon a duty of good faith and fair dealing should be dismissed.

Summary judgment should be granted in favor of Defendants on Plaintiffs' breach of contract claims as well as their claims for anticipatory breach of contract claims.

Texas Debt Collection Act

Section 392.304(a)(8) of the Texas Finance Code states that, in debt collection or obtaining information concerning a consumer, a debt collector may not use a fraudulent, deceptive, or misleading representation that misrepresents the character, extent, or amount of a consumer debt. Tex. Fin. Code § 392.304(a)(8). For a statement to constitute a misrepresentation under the TDCA, Defendant must have made a false or misleading assertion. Reynolds v. Sw. Bell Tel., L.P., No. 2-05-356-CV, 2006 WL 1791606, at *7 (Tex. App.-Fort Worth June 29, 2006, pet. denied).

Defendants move for summary judgment that there is no genuine issue of material fact that Defendants "us[ed] a deceptive means to collect a debt" or "threaten[ed] to take an action prohibited by law." See Tex. Fin. Code §§ 392.304, 301(a)(8). Defendants assert that they have only attempted to pursue their lawful, contractual rights to nonjudicial foreclosure under the Deed of Trust, and the TDCA "does not prevent a debt collector from . . . exercising or threatening to exercise a statutory or contractual right of seizure, repossession, or sale that does not require court proceedings." See Tex. Fin. Code §§ 392.304, 301(a)(8).

Plaintiffs have failed to offer summary judgment evidence that creates a fact issue on this claim. Defendants were free to pursue foreclosure after Plaintiffs defaulted. The Court has rejected Plaintiffs' theory that BAC did not have the power to foreclose. The evidence is that Plaintiffs breached first, and the Court has also rejected Plaintiffs' other contract claims. There is no evidence of a misrepresentation that would be actionable under the TDCA for the foreclosure.

Unreasonable Collection Efforts Claim

Under Texas law, "[u]nreasonable collection is an intentional tort." EMC Mortg. Corp. v. Jones, 252 S.W.3d 857, 868 (Tex. App.-Dallas 2008, no pet.). "[T]he elements are not clearly defined and the conduct deemed to constitute an unreasonable collection effort varies from case to case." Id. To recover on this claim, Plaintiffs must prove that Defendants' debt collection efforts "amount to a course of harassment that was willful, wanton, malicious, and intended to inflict mental anguish and bodily harm." Id.; Steele v. Green Tree Servicing, LLC, No. 3:09-CV-0603, 2010 WL 3565415, at *6 (N.D. Tex. Sept. 7, 2010). The reasonableness of conduct is judged on a case-by-case basis. B.F. Jackson, Inc. v. CoStar Realty Information, Inc., 4:08-CV-3244, 2009 WL 1812922, at *5 (S.D. Tex. May 20, 2009) (citing EMC Mortg. Corp., 252 S.W.3d at 868). Generally, "mental anguish damages alone will not establish a right of recovery; the plaintiff must suffer some physical or other actual damages in order to be entitled to relief." Id.

Defendants move to dismiss Plaintiffs' unreasonable collection efforts claim because the summary judgement evidence shows that Defendants did not engage in any egregious or unreasonable collection activity. Plaintiffs assert that BAC exceeded the bounds of reason because it continually failed to provide Plaintiffs with correct information regarding the loan modification process, misrepresented to Plaintiffs that their loan was approved for modification, and failed to give Plaintiffs the right to cure and reinstate.

The Court finds that the summary judgment evidence fails to demonstrate that BAC's conduct was willful, wanton, or malicious. Plaintiffs were in default and failed to tender the full amount which was required. Furthermore, notice was properly given. Defendants were merely exercising a contractual right to foreclose, which would not amount to an unreasonable collection effort.

Quiet Title and Trespass to Try Title Claims

Plaintiffs assert that Defendant Fannie Mae has impermissibly declared Plaintiffs to be a tenant at sufferance, in violation of state statutes and constitution. Plaintiffs assert that since the trustee's sale is void, Fannie Mae obtained no title. Defendants assert that Plaintiffs cannot sue to quiet title relying on nothing more than a purported weakness of Defendants' title.

"To prevail in a trespass-to-try-title action, Plaintiff must usually (1) prove a regular chain of conveyances from the sovereign, (2) establish superior title out of a common source, (3) prove title by limitations, or (4) prove title by prior possession coupled with proof that possession was not abandoned." Martin v. Amerman, 133 S.W.3d 262, 265 (Tex. 2004) (citation omitted). "The pleading rules are detailed and formal, and require a plaintiff to prevail on the superiority of his title, not on the weakness of a defendant's title." Id. (citation omitted).

Defendants assert that the only way Plaintiffs can extinguish their interest in the Property is to plead and prove a trespass-to-try-title action based upon Plaintiffs' superior title to the Property. The Court agrees. Plaintiffs do not assert a superior title to Fannie Mae, and they offer no facts that would support this claim. Furthermore, the Court has already rejected Plaintiffs' theory that there was a defect in how Fannie Mae obtained title to this property. Summary judgment should be granted.

Gross Negligence Claim

Defendants also argue that dismissal of Plaintiffs' gross negligence claim is appropriate because it is defective as a matter of law. Plaintiffs argue that Defendants breached a duty of care it owed to Plaintiffs. In order to establish gross negligence, a plaintiff must prove the following elements: (1) when viewed objectively from the defendant's standpoint, the act or omission complained of must involve an extreme degree of risk, considering the probability and magnitude of the potential harm to others; and (2) the defendant must have actual, subjective awareness of the risk involved, but nevertheless proceed in conscious indifference to the rights, safety, or welfare of others. Lee Lewis Constr., Inc. v. Harrisson, 70 S.W.3d 778, 785 (Tex. 2001).

"The threshold inquiry regarding a gross negligence claim is whether a legal duty existed." RT Realty, L.P. v. Texas Utilities Electric Co., 181 S.W.3d 905, 914 (Tex. App.—Dallas 2006, no pet.) "The Texas Supreme Court has declined to impose an implied duty of good faith and fair dealing in every contract, though it has recognized that such a duty may arise as a result of 'a special relationship between the parties governed or created by a contract.'" UMLIC VP LLC, 176 S.W.3d at 612 (quoting Arnold v. Nat'l Cnty. Mut. Fire Ins., 725 S.W.2d 165, 167 (Tex. 1987)). "Special relationships" include those relationships marked by shared trust or an imbalance in bargaining power." Id. "[A]bsent a 'special relationship,' any duty to act in good faith is contractual in nature and its breach does not amount to an independent tort." Id.

In Texas, there is "no special relationship between a mortgagor and mortgagee." Collier, 2006 WL 1464170, at *8. Here, any duty of good faith is ultimately based upon the parties' contractual obligations. Plaintiffs allege no facts indicating that Defendants' contractual obligations required them to act consistent with a duty of good faith. Without such an obligation, no duty of care arises that would support an independent claim for gross negligence. Accordingly, Plaintiffs' claim for gross negligence should be dismissed.

Negligent Misrepresentation Claim

In order to demonstrate a claim for negligent misrepresentation, Plaintiffs must show: (1) the defendant made a representation in the course of its business, or in a transaction in which it had a pecuniary interest; (2) the defendant supplied "false information" for the guidance of others in their business; (3) the defendant did not exercise reasonable care or competence in obtaining or communicating the information; and (4) the plaintiff suffered pecuniary loss by justifiably relying on the representations. Horizon Shipbuilding, Inc. v. BLyn II Holding, LLC, 324 S.W.3d 840, 850 (Tex. App.—Houston [14th Dist.] 2010, no pet.) (citing Henry Schein, Inc. v. Stromboe, 102 S.W.3d 675, 686 n.24 (Tex. 2002)). Notably, as to the second element of supplying false information, "the misrepresentation at issue must be one of existing fact." BCY Water Supply Corp. v. Residential Invs., Inc., 170 S.W.3d 596, 603 (Tex. App.—Tyler 2005, pet. denied). "A promise to do or refrain from doing an act in the future is not actionable because it does not concern an existing fact." Id.

Promises of future conduct are insufficient to support a claim for negligent misrepresentation. New York Life Ins. Co. v. Miller, 114 S.W.3d 114, 125 (Tex. App.—Austin 2003, no pet.). To be actionable, Defendant's statements must pertain to an existing fact. Id.

Defendants assert that this claim fails as a matter of law under the economic loss doctrine because the sole basis for liability, if any, against BAC is contractual in nature by the terms of the Note and Deed of Trust. Defendants further assert that this claim fails because promises of future conduct, in this case the alleged agreement to postpone the foreclosure of the property, are insufficient to support a claim for negligent misrepresentation.

The economic loss rule generally precludes recovery in tort where a plaintiff's only injury is an economic loss to the subject of a contract. Academy of Skills & Knowledge, Inc. v. Charter Schools, USA, Inc., 260 S.W.3d 529, 541 (Tex. App. - Tyler 2008, pet. denied) (citing Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1, 12 (Tex. 2007)); Sw. Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 495 (Tex. 1991)). "When the injury is only the economic loss to the subject of a contract itself, the action sounds in contract alone." UMLIC VP LLC, 176 S.W.3d at 614 (citing Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986)). The focus of the rule "is on determining whether the injury is to the subject of the contract itself." Academy, 260 S.W.3d at 541 (citing Lamar Homes, 242 S.W.3d at 12). The rule restricts contracting parties to contractual remedies for such economic losses, even when the breach might reasonably be viewed as a consequence of a contracting party's negligence. Id. (citing Lamar Homes, 242 S.W.3d at 12-13). "If the action depends entirely on pleading and proving the contract in order to establish a duty, the action remains one for breach of contract only, regardless of how it is framed by the pleadings." OXY USA, Inc. v. Cook, 127 S.W.3d 16, 20 (Tex. App. - Tyler 2003, pet. denied). Thus, in order for a tort duty to arise out of a contractual duty, i.e., negligent failure to perform a contract, the liability must arise independent of the fact that a contract exists between the parties; the defendant must breach a duty imposed by law rather than by the contract. DeLanney, 809 S.W.2d at 494.

"[W]hen a written contract exists, it is more difficult for a party to show reliance on subsequent oral representations." Beal Bank, S.S.B. v. Schleider, 124 S.W.3d 640, 651 (Tex. App.—Houston [14th Dist.] 2003, pet. denied). Generally, "negligent misrepresentation is a cause of action recognized in lieu of a breach of contract claim, not usually available where a contract was actually in force between the parties." Airborne Freight Corp. Inc. v. C.R. Lee Enters., Inc., 847 S.W.2d 289, 295 (Tex. App.—El Paso 1992, writ denied); see Scherer v. Angell, 253 S.W.3d 777, 781 (Tex. App.—Amarillo 2007, no. pet) (explaining that "there must be an independent injury, other than breach of contract, to support a negligent misrepresentation finding.").

In this case, Plaintiffs' claim arises from claims dependent upon the existence of a contract. Furthermore, the purported representations that Plaintiffs would receive a loan modification or that foreclosure would not occur pending modification is not actionable because it is a promise of future conduct. Summary judgment should be granted on this claim.

Declaratory and Other equitable relief

Defendants next move for summary judgment on Plaintiffs' claims for declaratory relief and for an accounting. When a declaratory judgment action filed in state court is removed to federal court, that action is, in effect, converted into one brought under the federal Declaratory Judgment Act, 28 U.S.C. §§ 2201, 2202. The federal Declaratory Judgment Act states, "[i]n a case of actual controversy within its jurisdiction, ... any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought." 28 U.S.C. § 2201. Federal courts have broad discretion to grant or refuse declaratory judgment. Torch, Inc. v. LeBlanc, 947 F.2d 193, 194 (5th Cir. 1991). "Since its inception, the Declaratory Judgment Act has been understood to confer on federal courts unique and substantial discretion in deciding whether to declare the rights of litigants." Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995). The Declaratory Judgment Act is "an authorization, not a command." Public Affairs Assocs., Inc. v. Rickover, 369 U.S. 111, 112 (1962). It gives federal courts the competence to declare rights, but does not impose a duty to do so. Id.

The Declaratory Judgment Act is a procedural device that creates no substantive rights, and requires the existence of a justiciable controversy. Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 239-241 (1937); Lowe v. Ingalls Shipbuilding, 723 F.2d 1173, 1179 (5th Cir. 1984). Thus, the Act provides no relief unless there is a justiciable controversy between the parties. The Fifth Circuit stated as follows:

In order to demonstrate that a case or controversy exists to meet the Article III standing requirement when a plaintiff is seeking injunctive or declaratory relief, a plaintiff must allege facts from which it appears there is a substantial likelihood that he will suffer injury in the future. Based on the facts alleged, there must be a substantial and continuing controversy between two adverse parties. The plaintiff must allege facts from which the continuation of the dispute may be reasonably inferred. Additionally, the continuing controversy may not be conjectural, hypothetical, or contingent; it must be real and immediate, and create a definite, rather than speculative threat of future injury.
Past exposure to illegal conduct does not in itself show a present case or controversy regarding injunctive relief ... if unaccompanied by any continuing, present adverse effects. To obtain equitable relief for past wrongs, a plaintiff must demonstrate either continuing harm or a real and immediate threat of repeated injury in the future. Similar reasoning has been applied to suits for declaratory judgments.

Bauer v. Texas, 341 F.3d 352, 358 (5th Cir. 2003) (citations and quotations omitted).

At the present time, there is no actual controversy between the parties that would allow for declaratory relief, and this claim should be denied. Furthermore, Plaintiffs are not entitled to these equitable remedies, including an accounting, because they have no viable cause of action. In addition, any claim for injunctive relief should also be dismissed since Plaintiffs have no viable cause of action.

Standing of Farhat Kazmi

Defendants assert that the only parties to the promissory note were Plaintiff Iqbal Kazmi and Ark-La-Tex and that because Plaintiff Farhat Kazmi was not a party to the promissory note surrounding the basis of Plaintiffs' claims, she cannot show that she suffered any injury in fact under her claims under the TDCA, negligence and gross negligence, or under the common law tort of unreasonable collections efforts, nor can she show that her alleged "injuries" can be redressed by the Court.

Plaintiff Farhat Kazmi is not obligated under the Note; however, she is a borrower under the Deed of Trust. Plaintiff Farhat Kazmi signed the contract. She and the lender both have duties under the Deed of Trust contract. Thus, Plaintiff Farhat Kazmi has standing.

RECOMMENDATION

Based upon the findings discussed above, the Court RECOMMENDS that Defendants Bank of America, N.A., as successor by merger to BAC Home Loans Servicing, L.P. f/k/a Countrywide Home Loans Servicing, L.P. and Federal National Mortgage Association a/k/a Fannie Mae's Motion for Summary Judgment (Dkt. #12) be GRANTED and all claims should be DISMISSED with prejudice.

Within fourteen (14) days after service of the magistrate judge's report, any party may serve and file written objections to the findings and recommendations of the magistrate judge. 28 U.S.C. § 636(b)(1)(C).

Failure to file written objections to the proposed findings and recommendations contained in this report within fourteen days after service shall bar an aggrieved party from de novo review by the district court of the proposed findings and recommendations and from appellate review of factual findings accepted or adopted by the district court except on grounds of plain error or manifest injustice. Thomas v. Arn, 474 U.S. 140, 148 (1985); Rodriguez v. Bowen, 857 F.2d 275, 276-77 (5th Cir. 1988).

SIGNED this 3rd day of February, 2012.

/s/_________

AMOS L. MAZZANT

UNITED STATES MAGISTRATE JUDGE