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Zepeda v. Federal Home Loan Mortgage Association

United States District Court, S.D. Texas, Houston Division

April 25, 2018

SYLVIA ZEPEDA, Plaintiff,
v.
FEDERAL HOME LOAN MORTGAGE ASSOCIATION Defendant.

          MEMORANDUM AND ORDER

          HON. KEITH P. ELLISON UNITED STATES DISTRICT JUDGE

         Pending before the Court is Defendant's Motion to Alter or Amend Judgment (Doc. No. 38).

         I. INTRODUCTION

         On February 20, 2018, the Court entered Final Judgment in this matter (Doc. No. 36). As explained in the Court's February 8, 2018 Memorandum and Order (Doc. No. 35), the Court granted summary judgment to Plaintiff Sylvia Zepeda (“Ms. Zepeda” or “Plaintiff”) on her claim for quiet title and against Defendant Federal Home Loan Mortgage Association (“Defendant” or “FHLMC”) on its counterclaims for equitable and contractual subrogation. Defendant now moves to alter and/or amend the Final Judgment pursuant to Federal Rule of Procedure 59(e) on the ground that the Court's Memorandum and Order was based upon an error of law that leads to manifest injustice. For the reasons discussed below, the Court denies Defendant's Motion.

         II. STANDARD OF REVIEW

         “[Motions] to alter or amend a judgment must clearly establish either a manifest error of law or fact or must present newly discovered evidence. These motions cannot be used to raise arguments which could, and should, have been made before the judgment issued.” Simon v. United States, 891 F.2d 1154, 1159 (5th Cir. 1990) (internal citation omitted). “A manifest error is an error that is plain and indisputable, and that amounts to a complete disregard of the controlling law.” Lyles v. Medtronic Sofamor Danek, USA, Inc., 871 F.3d 305, 311 (5th Cir. 2017), cert. denied, 138 S.Ct. 1037 (2018) (citations omitted). “Reconsideration of a judgment after its entry is an extraordinary remedy that should be used sparingly.” Templet v. HydroChem Inc., 367 F.3d 473, 479 (5th Cir. 2004).

         III. ANALYSIS

         Defendant argues that the Court erred in its contractual subrogation analysis as well as its equitable subrogation analysis. Each will be taken in turn.

         a. Contractual Subrogation

         Defendant's motion cites authority from 1996 suggesting that “contractual subrogation clauses continue to operate in the context of a refinance even if the new security instrument and lien are originated in violation of the Texas Constitution.” (Doc. No. 38 at 4, citing Benchmark Bank v. Crowder, 919 S.W.2d 657, 662 (Tex. 1996)). In Benchmark, the lender became contractually subrogated to a prior-existing federal tax lien notwithstanding the fact that the lender's deed of trust was void because it did not secure one of the three types of liens that could be secured against homestead property under the existing law. FHLMC insists that the case establishes that “[e]ven if the Security Instrument is not ‘foreclosure eligible, ' the remaining clauses in the contract - including the subrogation clause - remain intact.” (Id. at 5.) The problem for Defendant is that the subrogation clause in Plaintiff's Security Instrument expressly precludes recourse to Ms. Zepeda's personal liability. (Doc. No. 21, Exhibit #2, ¶ 24.) (“This means that, absent actual fraud, Lender can enforce its rights under this Security Instrument solely against the Property and not personally against the owner of the Property or the spouse of an owner.”) Because the Property is not foreclosure-eligible and Ms. Zepeda's personal liability was, by contract, inaccessible, Defendant has no available recourse.

         FHLMC also cites Priester v. Long Beach Mortg. Co., No. 4:16-cv-00449, 2018 U.S. Dist. LEXIS 31954, at *18 (E.D. Tex. Feb. 28, 2018) which again holds that a lender was contractually subrogated to a prior-existing lien despite uncured constitutional violations making the security instrument void. But again in Priester, there is no discussion of a no-personal-liability provision. Therefore, it does not alter the Court's analysis.

         Defendant's Motion raises, for the first time, a new legal theory based on the Security Instrument's severability clause. (Doc. No. 38 at 6.) “[M]otions [to Amend Judgment] cannot be used to raise arguments which could, and should, have been made before the judgment issued.” Simon v. United States, 891 F.2d 1154, 1159 (5th Cir. 1990) (internal citation omitted). Accordingly, the Court does not credit that argument at this time.

         Defendant has failed to illuminate a manifest error of law or fact or any newly discovered evidence. Therefore, the Court's holding with respect to contractual subrogation shall not be amended.

         b. Equitab ...


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