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Murphy v. HSBC Bank USA
Citations: 95 F. Supp. 3d 1025; 2015 U.S. Dist. LEXIS 37401; 2015 WL 1392789Docket: Civil Action No. H-12-3278
Court: District Court, S.D. Texas; March 25, 2015; Federal District Court
A motion for rehearing and reconsideration has been filed by Defendant HSBC Bank USA, challenging the validity of the assignment of the Murphys' mortgage note. HSBC argues that the Court's prior decision was inequitable, citing the Murphys’ intentional default on their loan to compel negotiations for refinancing and their efforts to obstruct HSBC's foreclosure attempts. HSBC presents three key points for reconsideration: 1. The Court mistakenly found that the Murphys objected to the dismissal of a 2008 non-judicial foreclosure proceeding, whereas they were responsible for its dismissal. 2. The Court overlooked several reasons for dismissing the Murphys' claim, particularly that the statute of limitations was tolled during their first lawsuit. 3. HSBC contends that it was denied the opportunity to respond or conduct discovery prior to the judgment. Upon review, the Court acknowledges errors in its previous Opinion and Order, particularly in misattributing arguments between the parties. The Court decides to grant both the Murphys' and HSBC's motions for reconsideration and will reevaluate the issues presented by both sides. Additionally, the text outlines the standards for a Rule 59(e) motion, emphasizing that such motions should not revisit arguments that could have been presented before judgment but should correct manifest errors or address new evidence. The case's procedural history reveals that after refinancing their loan in 2006, the Murphys intentionally defaulted in 2008 to pressure Wells Fargo into renegotiating their mortgage, leading to a notice of acceleration and subsequent assignment of the mortgage to HSBC. On July 12, 2008, Wells Fargo and HSBC initiated an expedited non-judicial foreclosure application in the 295th Judicial District Court of Harris County, Texas. In response, the Murphys filed a lawsuit against both banks in the 55th Judicial Court for fraud, breach of contract, and violations of the Texas Deceptive Trade Practices Act, seeking a declaratory judgment. Following the Texas Rule of Civil Procedure 736.10, the court abated and dismissed the foreclosure application on November 24, 2008. Subsequently, on March 29, 2011, the district court granted summary judgment in favor of Wells Fargo and HSBC, dismissing the Murphys' claims and awarding fees and costs against them. This judgment was upheld by the 14th Court of Appeals on February 12, 2013, but the court reversed the award of fees against the Murphys personally, stating that only property could be subjected to such recovery. The Texas Supreme Court later reinstated the district court's judgment regarding fees. After the dismissal of HSBC's initial foreclosure application, the bank issued a new notice of intent to accelerate on December 30, 2011, followed by an acceleration notice on June 20, 2012. HSBC subsequently filed a new application for non-judicial foreclosure on August 16, 2012. In response, the Murphys filed a new suit on September 26, 2012, claiming an invalid chain of title and unenforceable Note and Deed of Trust based on limitations, seeking a declaratory judgment. This suit was transferred to the 270th Judicial District, where HSBC had filed its second foreclosure application, and was later removed to federal court on diversity jurisdiction. HSBC moved to dismiss the Murphys' suit, arguing it was barred by res judicata from the prior lawsuit and asserting that the statute of limitations did not apply. The Murphys countered with a motion for summary judgment based on the four-year statute of limitations for foreclosure after note acceleration. The court denied the motion to dismiss concerning res judicata due to the ongoing appeal of the previous case and stayed proceedings until a final ruling was issued. The court determined that the Murphys had adequately alleged that the foreclosure claim accrued on June 12, 2008, when HSBC accelerated the Note, and that HSBC's subsequent foreclosure application was filed after the four-year limitations period had expired, rendering it void. The Court found that the Murphys had sufficiently challenged the validity of the lien on their house but ruled their limitations claim was legally insufficient. Under Tex. Prac. Rem. Code § 16.035, the Court determined that the first acceleration of the note in 2008 was abandoned by mutual agreement when the Murphys filed their First Lawsuit, which led to the automatic dismissal of HSBC’s initial non-judicial foreclosure application. Both parties had signed an order for this dismissal, and HSBC did not oppose it. Texas law allows for the restoration of a contract to its original terms if the note-holder abandons acceleration, as established in Khan v. GBAK Properties, Inc. The Court noted that a property sale under a power of sale must occur within four years of the claim's accrual; otherwise, the lien and enforcement rights become void. The Court concluded that the original acceleration from June 12, 2008, was abandoned, and a new cause of action was triggered when HSBC sent the Murphys a notice of intent to accelerate on December 30, 2011, followed by a second notice on June 20, 2012. HSBC filed a timely new application for non-judicial foreclosure on August 16, 2012, leading to the Murphys' suit on September 26, 2012. Consequently, the Court ruled that the Murphys' claim regarding foreclosure limitations failed as a matter of law and was to be dismissed under Rule 12(b)(6). The Murphys later sought a rehearing on the limitations issue, arguing that both parties must agree to abandon acceleration, claiming the Court misinterpreted the dismissal order as a mutual agreement. HSBC countered that a formal written agreement was not necessary for abandonment, asserting that the Court correctly identified the abandonment through the conduct of both parties and the dismissal order. Magistrate Judge Stacy upheld the Court's conclusion that HSBC had abandoned its 2008 acceleration of the note due to the agreed dismissal of the foreclosure proceeding related to the Murphys' state court litigation. She determined that a noteholder can unilaterally abandon acceleration without explicit consent from the mortgagor through “other action,” as supported by case law. The Magistrate Judge found that the Court properly acknowledged public documents and those attached to the complaint, confirming that the Murphys’ attorney had approved the dismissal order, which amounted to abandonment of the 2008 acceleration. Consequently, HSBC was barred from pursuing expedited foreclosure while the Murphys' lawsuit was active and was not mandated to file a counterclaim for foreclosure. The Murphys filed objections regarding the Magistrate Judge's recommendation, asserting that the Court erroneously interpreted the state court order as an agreed order representing abandonment of acceleration. They argued that the order merely reflected mandatory abatement under TRCP 736 and did not indicate the parties' agreement to abandon the prior acceleration. The Murphys contended that the approval of the order's form did not equate to a consent judgment and that more evidence was needed to demonstrate mutual agreement. Additionally, they pointed out HSBC’s opposition during hearings related to the motion to dismiss. The Court, upon reviewing the objections, agreed with the Murphys that the dismissal order did not legally reflect an agreed abandonment of the acceleration and reaffirmed its earlier legal conclusion to that effect. There is a division among Texas courts of appeals regarding the interpretation of "approval as to form and substance." Some courts affirm that such approval results in a consent judgment that is not subject to appeal, referencing cases like DeLee v. Allied Finance Co. and Cisneros v. Cisneros. Approval as to substance indicates that the signatory agrees the judgment meets all essential requirements, which leads to a waiver of errors in the judgment. However, merely noting "Approved" is considered too vague to constitute a consent judgment. It is recommended to clarify approval by explicitly stating "Approved as to Form Only" or similar phrases. The State's lack of agreement with the order allows it to appeal, as supported by Allied First Nat’l Bank of Mesquite v. Jones and related cases. While some courts have ruled that neither "approved as to form" nor "approved as to form and substance" alone creates a consent judgment, the majority of courts maintain that such approvals do not suffice for an appealable agreed judgment. The situation differs here, as the state court's ruling regarding HSBC's non-judicial foreclosure was mandated by law, not discretionary, due to the Murphys contesting HSBC's foreclosure rights under Texas Rule of Civil Procedure 736(10). The state court's dismissal was not appealable under Texas Rule of Civil Procedure 736(8), rendering the varying interpretations of “approval” irrelevant. The Murphys contend that the cases cited by the magistrate judge, which support a lender's unilateral withdrawal of acceleration, involved public actions indicating withdrawal, not written agreements to abandon. They reference Clawson v. GMAC Mortgage, where the lender publicly recorded a rescission of acceleration, and Khan, where an agreed order allowed a debtor to make payments without foreclosure. The Murphys note that there was no re-commencement of regular payments on their mortgage, nor did HSBC accept such payments to imply abandonment of acceleration; instead, HSBC filed a counterclaim for default, contradicting any claim of abandonment. They argue that despite having remedies under Texas Rule of Civil Practice 735, HSBC did not act within the limitations period. The Murphys assert that there was no valid agreement to dismiss the case or actions that would constitute abandonment of the 2008 acceleration. They highlight that the Security Agreement requires HSBC to inform the debtor of their right to contest foreclosure and that foreclosure requires a court order. The Murphys maintain that the dismissal order did not prejudice either party and that they did not obstruct HSBC's enforcement of rights. They argue the court erred in concluding that abandonment occurred, asserting that a noteholder cannot unilaterally rescind acceleration without the debtor's consent and that both parties must jointly act to modify the creditor’s rights. HSBC failed to file its second foreclosure action in a timely manner due to the absence of an agreement or joint action indicating abandonment of its acceleration rights. The court vacated its previous order, denied the defendants' motion to dismiss, and granted the Murphys' motion for summary judgment based on statute of limitations. HSBC's motion for reconsideration claimed misunderstanding of facts, asserting that the Murphys did not contest the dismissal of HSBC's acceleration proceeding and had initiated the dismissal by filing a state court suit. HSBC also contested the claim of multiple hearings on the dismissal, clarifying that one hearing was reset twice. The court found HSBC's arguments valid, noting that the Murphys filed their suit just three days before the last hearing. HSBC argued that the court misapplied the case of San Antonio Real Estate, stating that the facts differed significantly; in that case, the lender lacked the option to accelerate the loan. The Texas Supreme Court held that while neither party could impair the other's rights, each could waive their own. In this context, the Murphys did not gain any new rights from HSBC's acceleration, and HSBC contended that its actions indicated abandonment of that acceleration. Specifically, a notice of intent to accelerate from Wells Fargo to the Murphys indicated that while the loan was in default, the Murphys could remedy the default by paying overdue amounts, thus implying the previous acceleration was abandoned. HSBC argued that this notice halted any running statute of limitations and did not receive objections from the Murphys, aligning with the court's interpretation of the San Antonio Real Estate case. Additionally, HSBC's actions—including agreeing to the dismissal of the first proceeding and issuing a new notice of intent to accelerate—demonstrated a clear indication of abandoning the previous acceleration. HSBC contends that the court overlooked the argument regarding the tolling of the limitations period due to the ongoing First Lawsuit, asserting that this tolling renders the Murphys’ claims invalid. Under Texas law, the time a legal remedy is unavailable due to pending legal proceedings is not counted against the claimant (Hughes v. Mahaney, Higgins). HSBC maintains that it possessed the right to pursue an expedited, non-judicial foreclosure under Rule 736, which the Murphys cannot negate by filing a lawsuit demanding a different remedy (Huston v. U.S. Bank Nat’l Ass’n). There are three foreclosure options available to a party: judicial foreclosure, seeking a judgment allowing foreclosure under the security instrument and Texas Property Code §51.002, or applying under Rule 736 for an order permitting foreclosure. It is argued that a mortgagor should not be able to impede a mortgagee’s contractual right to foreclosure by instituting a lawsuit, allowing the mortgagor to control the available remedies (Douglas v. NCNB Texas Nat’l Bank). HSBC claims that even if the limitations period began on June 12, 2008, it was tolled from November 13, 2008, until at least March 29, 2011, due to the state court judgment, making the subsequent foreclosure application filed on August 16, 2012, timely. HSBC requests the court to withdraw its Opinion and Order to allow for filing an answer and conducting discovery regarding potential abandonment by the parties. The Murphys argue that HSBC had alternative remedies and that both parties were aware all claims, including foreclosure rights, remained active. They assert accepting HSBC's position would undermine the limitations defense, allowing perpetual re-acceleration of claims. The Murphys also challenge HSBC's evidence of abandonment, stating that mere prior litigation does not toll limitations under Texas law. They differentiate their case from Hughes, emphasizing that initiating a foreclosure is not contradictory to HSBC's stance in earlier litigation, and claim HSBC failed to act on its rights in a timely manner. The court notes support for the Murphys’ position from a Fifth Circuit ruling (Industrial Indem. Co. v. Chapman and Cutler). Appellant's reference to Hughes v. Mahaney and Higgins is deemed inappropriate as those cases establish that a statute of limitations for attorney malpractice claims is suspended until all appeals in the underlying litigation are concluded. The Texas Supreme Court in Hughes emphasized this rule to prevent clients from taking contradictory legal positions in malpractice and underlying cases. Consequently, this Court dismisses HSBC's argument for tolling based on Hughes. The Murphys contend that HSBC's discovery requests resemble a fishing expedition that won't yield evidence of abandonment. They argue that Wells Fargo, acting for HSBC and previously involved in litigation with the Murphys, has already gathered relevant documents through extensive prior discovery. HSBC is expected to specify the documents it seeks to substantiate its abandonment claim. Additionally, HSBC references two recent cases—Leonard v. Ocwen Loan Servicing and Boren v. U.S. National Bank Assoc.—which support its position. In Leonard, it was determined that a party can unilaterally abandon acceleration without joint action. The Court distinguishes this situation from San Antonio Real Estate Building and Loan Assoc. v. Stewart, where automatic acceleration benefitted both parties, noting that the Murphys did not gain rights from the acceleration, allowing HSBC to abandon it unilaterally. HSBC asserts that evidence similar to that in Leonard and Boren exists in this case to show abandonment. Judge Atlas in Leonard determined that a loan servicer's issuance of a new notice of intent to accelerate, which demanded less than the total debt amount, indicated an abandonment of the prior acceleration notice. Similarly, Judge Miller in Boren ruled that acceleration was abandoned as a matter of law when the lender issued a new default letter and notice of intent, also demanding less than the full debt. HSBC requested the Court to grant its motion for rehearing and reconsideration, seeking dismissal of the limitations claims and denial of the Plaintiffs' summary judgment motion, or alternatively to rescind the summary judgment and allow HSBC to defend the case. The Court acknowledged errors in its previous Opinion and Order, agreeing to vacate those judgments and review the issues anew. The Court established that the Murphys did not object to the 2008 expedited foreclosure, but their independent state court suit against Wells Fargo led to an automatic dismissal of the foreclosure. The central issue was whether the first notice of acceleration had been abandoned. Texas case law indicates that abandonment can occur through either mutual agreement or unilateral actions by a party. The Court corrected its earlier position, concluding that HSBC could unilaterally abandon the acceleration without needing joint actions with the borrower. It cited precedents showing that a lender may abandon acceleration by accepting payments or issuing unilateral notices of rescission without borrower agreement. The Court reinforced that joint action is not necessary for abandonment and reconfirmed that sending notices requesting less than the total debt constitutes abandonment. Prior Notices of Acceleration issued by Citimortgage were deemed abandoned after Citimortgage dismissed its claims without prejudice in state court. The central issue revolves around whether HSBC's actions constituted the abandonment of its 2008 acceleration of the note. HSBC argues that its 2011 notice of intent to accelerate supports this claim, stating that despite the loan's default, the Murphys could remedy the situation by paying only overdue amounts rather than the full accelerated amount. HSBC contends this notice halts the statute of limitations and signifies abandonment of the second acceleration of the note. The Court finds this raises a genuine issue of material fact regarding the abandonment of the second acceleration. Consequently, HSBC's motion for rehearing and reconsideration is granted, vacating the prior Opinion and Order as well as the Final Summary Judgment. Dismissal or summary judgment based on abandonment is denied due to the factual dispute over the second notice of intent to foreclose. HSBC is permitted to refile a motion for summary judgment based on res judicata within 20 days, with the Murphys allowed to respond. The Court cannot resolve the Murphys' allegations regarding HSBC's discovery access based on the current record. Under Rule 56(d), vague claims for further discovery are insufficient without specific details on how such discovery would affect the case. However, since HSBC requested a continuance and the Court stayed proceedings pending the state court's ruling on standing, the stay is now lifted, and the case is referred to a United States Magistrate Judge to establish a new schedule. On December 19, 2012, the Court approved HSBC's request for a continuance to allow for discovery before responding to the Murphys' counter motion for summary judgment based on limitations. HSBC, unaware of this ruling, filed a response on December 26, 2012, despite the pending motion for continuance. HSBC expressed the need for further discovery to address the Murphys' claims regarding the abandonment of a 2008 loan acceleration. However, HSBC did not subsequently communicate a continued need for this discovery, leading the Murphys to question its necessity. The Court's review acknowledged HSBC's request while noting that the Murphys had admitted to withholding monthly payments. Wells Fargo's counterclaim sought a declaratory judgment of default and attorneys' fees, which was largely redundant given the Murphys' admission. Rule 736.10 (2010) stipulated that a proceeding would be automatically abated if a respondent filed a petition contesting foreclosure rights before an order was signed. This rule was amended to Rule 736.11 on January 1, 2012, which now stays rather than abates foreclosure applications when an independent suit challenging the foreclosure is filed. The respondent must notify the applicant to stop the scheduled foreclosure and file a motion to dismiss or vacate within ten days. Any foreclosure sale is void if the automatic stay is in effect. The Texas Supreme Court noted the Murphys’ initial lawsuit was filed under Rule 736.11, reinforcing the importance of timely action concerning foreclosure rights. Finally, it was clarified that the statute of limitations under section 16.035(a) does not necessitate the actual foreclosure occurring within four years; it only requires that suit be brought within that timeframe after the cause of action accrues. Therefore, if HSBC's first acceleration was not effectively abandoned, its second suit would be time-barred if it occurred outside the four-year limit. An optional acceleration clause in a note or deed of trust secured by real property triggers an action when the holder exercises the option to accelerate. Acceleration is effective only if two actions are taken: a notice of intent to accelerate and a notice of acceleration, as established in Shumway v. Horizon Credit Corp. The Murphys acknowledge clerical errors in party names within the Court's opinion but argue these do not warrant a reversal, viewing them as mistakes correctable under FRCP 60(a). They contend that the errors did not affect the Court's conclusion that a prior order dismissing the 736 action did not signal an abandonment of HSBC's acceleration of the note in 2008. The Court emphasizes that the resolution of confusion is better achieved through a fresh review of submissions. A signed approval can turn a judgment into a consent judgment, limiting appeals unless fraud or misrepresentation is alleged. Approval of a judgment as to form only does not waive the right to appeal. The text outlines procedures for foreclosure under Texas law, specifying that orders under Rule 736 do not have a res judicata effect and do not limit the parties' rights to seek further legal or equitable relief. The ability of a lender to abandon acceleration through a notice of rescission is further discussed in Callan v. Deutsch. Khan's sixth issue regarding the tolling of the statute of limitations due to ongoing litigation about property ownership is acknowledged but deemed unnecessary to address, as it would not yield greater relief. Rule 736 is highlighted as a quicker alternative to judicial foreclosure. The judgment in question was not final until the Texas Supreme Court's ruling on February 6, 2015. The court references authority indicating that acceleration of a loan cannot be unilaterally abandoned if the borrower has relied on that acceleration to their detriment. However, there are no claims in this case that the Murphys relied detrimentally on the 2008 acceleration of the note.