Williams v. Countrywide Home Loans, Inc.

Citations: 504 F. Supp. 2d 176; 2007 U.S. Dist. LEXIS 57712; 2007 WL 2076960Docket: Civil Action No. H-06-2874

Court: District Court, S.D. Texas; August 8, 2007; Federal District Court

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Wayne E. Williams filed a lawsuit against Countrywide Home Loans, Inc., Banker's Trust of California, Deutsche Bank National Trust Company, and the Secretary of Veterans Affairs, alleging violations of federal and state mortgage statutes, breach of contract, and wrongful foreclosure related to his home. Williams claimed that the Note and Deed of Trust were invalid and that the defendants improperly foreclosed on his property. The defendants moved for summary judgment, citing the statute of limitations and Williams's inability to substantiate essential elements of his claims. The court granted the defendants' motion for summary judgment on all claims, with a separate final judgment to follow.

The background of the case reveals that Williams entered into a Deed of Trust Note in 1995 for $83,566, with Countrywide as the servicer. After multiple bankruptcies filed between 2003 and 2005, which were dismissed due to non-compliance, the bankruptcy court ruled that the automatic stay would not apply to Countrywide if further bankruptcy petitions were filed. A fourth bankruptcy was filed on June 1, 2005, but Williams defaulted again, leading to the foreclosure sale of the property to Deutsche Bank on April 4, 2006. Williams initiated the lawsuit in state court in April 2006, with Countrywide being served in August 2006.

Banker's Trust and Deutsche Bank, along with Countrywide, removed the case based on federal question jurisdiction. The Secretary of Veterans Affairs and John Does 1-10 were not served. Williams claims the lender defendants violated the Truth-in-Lending Act (TILA) by not providing necessary disclosures, including the right to rescind and the three-day cooling-off period. Additional allegations include violations of the Fair Debt Collection Practices Act, Real Estate Settlement Procedures Act, Uniform Commercial Code, breaches of fiduciary duty, Equal Credit Opportunity Act, mortgage loan contract, automatic bankruptcy stay, and the Texas Deceptive Trade Practices Act, as well as committing "unfair" acts. Williams seeks damages, foreclosure relief, and other equitable relief. The lender defendants have filed for summary judgment on all claims.

Summary judgment is deemed appropriate when no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law, per FED. R. Civ. P. 56. The movant must identify the record portions demonstrating the absence of genuine issues. If the nonmoving party bears the burden of proof, the movant may either provide evidence negating an element of the opponent's claim or show that the opponent's evidence is insufficient. The moving party need not negate the nonmovant's case elements but must demonstrate the absence of a genuine issue of material fact. If the movant fails to meet this burden, the motion must be denied. The nonmoving party cannot rely solely on pleadings; it must present specific evidence supporting its claims. Summary judgment is granted against a party who fails to establish an essential element of their case after adequate time for discovery.

The Truth-in-Lending Act (TILA), under 15 U.S.C. 1601 et seq. and 12 C.F.R. 226 (Regulation Z), is a federal consumer protection law aimed at ensuring consumers are informed about credit terms and costs. It allows consumers to cancel certain credit transactions involving liens on their primary residence, regulates credit card practices, and provides resolution mechanisms for billing disputes. TILA applies when credit is offered to consumers regularly, subject to finance charges or payable in more than four installments, and primarily for personal or household use.

In this case, Williams qualifies as a consumer while the lender defendants are considered creditors. They offered Williams credit that met TILA's criteria, including being subject to a finance charge and used for personal purposes. Under TILA, consumers have the right to rescind mortgage transactions within three days of consummation, as stated in 15 U.S.C. 1635(a), which requires lenders to provide notice of this right at loan signing. Williams alleges the lenders failed to provide this notice and the necessary rescission forms, violating TILA.

Furthermore, the right to rescind expires three years after the transaction or upon property sale, regardless of whether required disclosures were made (15 U.S.C. 1635(f)). The Supreme Court case Beach v. Ocwen Federal Bank clarified that this expiration provision is not a statute of limitations but an absolute cutoff for rescission rights after three years. Consequently, even if a borrower is entitled to damages under other TILA provisions, the right to rescind is lost after the three-year period has lapsed.

Williams filed a TILA claim in 2006, over a decade after his loan was consummated in 1995, resulting in the expiration of his right to rescind. He seeks actual damages, statutory damages, and litigation costs under 15 U.S.C. 1640, citing several violations by the lender defendants. Under TILA, actual damages (§ 1640(a)(1)), statutory damages (which can be twice the finance charge in individual cases), and litigation costs (including attorney fees) are recoverable. Statutory damages serve as an incentive for private enforcement and a penalty against violators.

Williams claims the lenders violated TILA by not verifying his income, which creates a presumption of violation if a pattern of such conduct exists. He also alleges failure to disclose the total sale price of the loan and did not receive notice of acceleration before foreclosure. TILA mandates that creditors disclose the total sale price and provide periodic statements with essential information.

The lender defendants argue for summary judgment based on the statute of limitations, which is one year from the violation date. Since the transaction was completed when the loan was consummated, the clock for the statute of limitations began then, and nondisclosure does not constitute a continuing violation.

In September 1995, a violation occurred during a loan transaction, but Williams did not initiate legal action until eleven years later. In his affidavit, he expressed that he felt inadequately informed about the loan process at the time of signing. Legal precedent establishes a "recoupment exception" to the statute of limitations for Truth in Lending Act (TILA) claims, as recognized in Moor v. Travelers Ins. Co. The Moor case involved a plaintiff who, like Williams, sued a lender for failure to disclose information, but his claims were barred by the statute of limitations—one year for damages and three years for rescission, as stipulated by 15 U.S.C. 1640(e) and 15 U.S.C. 1635(f), respectively. The court concluded that the plaintiff failed to meet the criteria for the recoupment exception because his claim was not defensive; instead, he initiated the lawsuit. Williams contends that his case is defensive since it arose in response to the lender's foreclosure action. The distinction between affirmative and defensive claims is critical, as illustrated in Coxson, where the court deemed the debtor's action to contest the loan as defensive, triggered by the lender's foreclosure efforts. The court has maintained that merely being the plaintiff does not negate the possibility of a defensive claim under TILA.

A debtor in bankruptcy can use the doctrine of recoupment to reduce a secured proof of claim by the amount of statutory TILA damages, as established in case law. However, in this case, Williams fails to meet the necessary elements for recoupment. He is pursuing affirmative relief for an independent claim rather than seeking to reduce the lender's claim. Williams has not provided facts to support a claim for actual damages, which requires proof of reliance on terms, deterrence from exploring alternatives, and that such alternatives would have saved money. Courts have ruled that statutory damages alone do not qualify for recoupment.

Williams's TILA claim also fails because he did not timely assert it in response to foreclosure efforts, unlike other cases where debtors filed TILA claims promptly to counter creditor actions. Instead, Williams filed for bankruptcy multiple times before finally filing his TILA claims in April 2006, after the bankruptcy court allowed the foreclosure sale. This indicates that his claims were not defensive but affirmative, and he is thus barred by the statute of limitations.

Regarding the Fair Debt Collection Practices Act (FDCPA), its purpose is to eliminate abusive debt collection practices and protect consumers. Williams alleges that the lender defendants violated the FDCPA by attempting to collect a debt without first obtaining verification. If a violation is found, the court may impose monetary damages.

Williams asserts that the lender defendants failed to provide essential information mandated by the Fair Debt Collection Practices Act (FDCPA), including details about the debt amount, creditor identity, and procedures for disputing the debt. He claims these actions amounted to "unfair or unconscionable" debt collection practices. However, Williams's claims are dismissed because the lender defendants do not qualify as "debt collectors" under the FDCPA, which exempts creditors and their employees from this classification when collecting debts on behalf of the creditor. Relevant case law establishes that mortgage companies are not considered debt collectors if they collect debts that were not in default at the time of assignment.

Additionally, Williams challenges Deutsche Bank's standing to foreclose, arguing that a discrepancy in the trust names in the foreclosure documents invalidated the action. The court finds that this clerical error did not violate Texas Property Code protections and that Williams was properly notified of the foreclosure proceedings. Evidence, including an affidavit from Countrywide Home Loans, confirms Deutsche Bank's authority to foreclose. Lastly, Williams's assertion that the lender defendants should be held liable for their attorneys' alleged FDCPA violations is also rejected, as vicarious liability has not been recognized for lenders under the FDCPA.

A company that is not classified as a debt collector cannot be held vicariously liable for a collection suit that violates the Fair Debt Collection Practices Act (FDCPA) simply because the attorney involved is a debt collector. Consequently, the lender defendants are granted summary judgment on Williams's FDCPA claims.

Under the Real Estate Settlement Procedures Act (RESPA), which aims to provide consumers with timely information about settlement processes and protect them from excessive charges, Williams alleges that the lender defendants failed to comply with the statute's 15-day notice requirement regarding the transfer of loan servicing. Specifically, he claims he did not receive the required notice within 15 days before the effective transfer date. However, Williams's claim is barred by the three-year statute of limitations, as the violation occurred in 1995, and he did not file suit until 2005. Thus, the defendants are entitled to summary judgment on the RESPA claim.

Regarding the Uniform Commercial Code (UCC), Williams asserts that the lender defendants violated Article 9 by not obtaining a UCC-1 lien on his property and that he never signed lien papers. However, Article 9 does not apply to real property transactions, as established in Texas law. Instead, Williams executed a Deed of Trust, which involves the creation or transfer of a lien on real property. Therefore, he cannot pursue a claim under the UCC. The lender defendants are granted summary judgment on this claim as well.

Under Texas law, a breach of fiduciary duty claim requires proof of (1) the existence of a fiduciary relationship between the plaintiff and defendant, (2) a breach of that duty by the defendant, and (3) resulting injury to the plaintiff. This claim fails for Williams because no fiduciary relationship is established; formal relationships like attorney-client or trustee relationships automatically create such duties, but not all trusted relationships qualify. Specifically, Texas courts have determined that the borrower-lender relationship is not fiduciary, as it is generally an arm's length transaction where both parties prioritize their own interests. Williams's assertion of a breach lacks specificity regarding the duty breached and the injury suffered, merely suggesting that the lender's role as an advisor creates a quasi-fiduciary obligation, which does not suffice. As he does not raise factual issues regarding all three essential elements, the defendants' motion for summary judgment is granted.

Regarding the Equal Credit Opportunity Act (ECOA), the lender had an obligation to provide Williams with a copy of the appraisal report due to the lien on his home. Williams claims the lenders failed to fulfill this duty, which could lead to civil liability under the ECOA for non-compliance. However, his claim is barred by the statute of limitations.

The ECOA allows civil actions to be filed in a U.S. district court within two years of a violation or within one year after an administrative enforcement proceeding begins. The alleged violation occurred in September 1995, but Williams did not file a suit until April 2006, exceeding the statute of limitations, which entitles the lender defendants to summary judgment on the ECOA claim.

Williams claims the lender defendants breached the Note and Deed of Trust by foreclosing on his property without proper notice of acceleration. He cites a provision he mistakenly identifies as an acceleration clause; it is actually a "due-on-sale" clause, which prevents the property from being sold without lender consent. An acceleration clause allows the lender to demand full payment upon default, while the Note and Deed of Trust included a waiver of notice for immediate payment upon default. Since the lender defendants acted within their rights, they are entitled to summary judgment on this breach of contract claim as well.

Regarding the breach of the automatic stay claim, bankruptcy filings automatically stay actions against the debtor, effective upon filing, regardless of notice to the parties involved.

Acts taken in violation of the automatic stay in bankruptcy are generally deemed void unless the bankruptcy court annuls the stay, which can retroactively validate such actions. A foreclosure sale that occurs during an automatic stay remains invalid unless the stay is annulled. Dismissal of a bankruptcy proceeding terminates the automatic stay, reverting property rights to the entity vested before the case began. Williams filed four bankruptcy petitions, with the first three dismissed. His fourth, filed on June 1, 2005, included a conditional automatic stay tied to his mortgage payments. Although Countrywide initiated foreclosure proceedings on June 7, 2005, the sale was rescinded by mutual agreement. The stay was contingent on timely mortgage payments; upon Williams defaulting in April 2006, the stay was lifted, allowing foreclosure by the lender, Deutsche Bank, on April 4, 2006. Since the foreclosure occurred after Williams defaulted, the lenders did not violate the automatic stay and are entitled to summary judgment on this claim. 

Under the Texas Deceptive Trade Practices Act (DTPA), which aims to protect consumers from deceptive practices, a plaintiff must qualify as a consumer to maintain a private cause of action. The DTPA applies to loan transactions if the loan is intended for purchasing goods or services.

The case involves Wayne Williams suing several lender defendants, including Countrywide Home Loans Inc. and Deutsche Bank National Trust Company, alleging violations of the Texas Deceptive Trade Practices Act (DTPA) related to a mortgage loan. Williams claims the lenders improperly accelerated the loan and foreclosed on his property without allowing him to cure the default, labeling this conduct as "unconscionable." The DTPA defines "goods" as tangible chattels or real property and "services" as work or labor, both of which apply since Williams used the loan to purchase a home.

However, the loan documents indicated that no notice of acceleration was required upon default, and evidence showed that Williams received proper notice of default and acceleration on March 13, 2006, with more than twenty days before the foreclosure sale on April 4, 2006. Consequently, the claim of a DTPA violation due to lack of notice lacks legal basis. Additionally, Williams's DTPA claim is barred by a two-year statute of limitations, as he filed the claim eleven years after the alleged violation.

Williams also alleges an unfair practice by the lenders, claiming their nondisclosure is immoral and unethical; however, a general claim of unfairness does not provide sufficient grounds for relief. The court granted summary judgment in favor of the lender defendants on all claims, dismissing the case. Williams subsequently filed a motion for a new trial regarding the summary judgment and dismissal order.

Williams's motion for a new trial, which reiterates arguments previously made, has been denied by the court. The court clarifies that a motion for new trial after summary judgment is treated as a motion to reconsider under Federal Rule of Civil Procedure 59(e). To succeed under Rule 59(e), a party must demonstrate either a manifest error of law or fact, present newly discovered evidence, or show an intervening change in the law. The court emphasizes that such motions are extraordinary remedies and should be used sparingly, with a preference for denial.

In the analysis, Williams presents three arguments, all of which he had raised before. He does not provide new evidence or indicate any change in law. First, he claims that an unauthorized party foreclosed on his property, questioning the appointment of Rex Kesler as a substitute trustee. However, the court references evidence from the defendants showing that Williams's mortgage was assigned to Vendee Mortgage Trust 1995-3, and no change in ownership has been proven. Second, he argues that even if Kesler were a substitute trustee for a different trust, he lacked the authority to foreclose on Williams's mortgage. The court previously found this argument insufficient for altering the judgment. Lastly, Williams challenges the defendants' "misnomer" argument, which was also considered and rejected in prior proceedings.

Plaintiff disputes the validity of a foreclosure and eviction conducted by a party lacking demonstrable authority, arguing that the distinct legal entities of Vendee Mortgage Trust 1995-2 and 1995-3 were not properly recognized. Williams asserts that the lender defendants did not have standing to foreclose on Vendee Mortgage Trust 1995-3, a point he unsuccessfully raised in prior proceedings. His arguments do not introduce new evidence and fail to demonstrate a significant legal or factual error. Consequently, his motion for a new trial has been denied. Furthermore, the court emphasizes the difference between statutory and actual damages, noting that statutory damages address minor violations, while actual damages require a direct causal link to the violation. Additionally, Williams has not substantiated claims of "unconscionable" or "unfair" actions under Section 1692(1). The document also clarifies that Deutsche Bank National Trust Company, as trustee for Vendee Mortgage Trust 1994-2, holds the authority to enforce related debts. Other legal definitions and procedural notes regarding mortgages, consumer rights, and service of process for claims against the Secretary of Veterans Affairs are provided, with specific claims dismissed without prejudice due to service failures. The court concluded that any clerical errors in foreclosure documents did not undermine Williams's due process rights under Texas law.