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Rideau v. Federal National Mortgage Association

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

April 24, 2019

JOSEPH RIDEAU and KIMBERLY RIDEAU, Plaintiffs,
v.
FEDERAL NATIONAL MORTGAGE ASSOCIATION and IMPAC MORTGAGE CORP. D/B/A CASHCALL MORTGAGE, Defendants.

          MEMORANDUM AND ORDER

          LEE H. ROSENTHAL CHIEF UNITED STATES DISTRICT JUDGE

         Joseph and Kimberly Rideau sued IMPAC Mortgage Corporation and the Federal National Mortgage Association (“Fannie Mae”) in Harris County District Court, alleging violations of the Texas Constitution's provisions on home equity loans and seeking damages, quiet title, declaratory judgment, a permanent injunction, and attorney's fees. (Docket Entry No. 1-1). IMPAC and Fannie Mae timely removed, and the Rideaus amended their complaint. (Docket Entry Nos. 1, 18). IMPAC and Fannie Mae have moved for summary judgment, the Rideaus responded, and IMPAC and Fannie Mae replied. (Docket Entry Nos. 19, 21, 22).

         Based on the motion, response, reply, the record evidence, and the applicable law, the court grants the summary judgment motion and enters final judgment by separate order. The reasons for this ruling are explained in detail below.

         I. Background

         In 2016, Joseph and Kimberly Rideau refinanced their home with a home equity loan from IMPAC Mortgage Corporation. (Docket Entry No. 8 at ¶ 6; Docket Entry No. 20-1 at 7). Their Home Equity Security Agreement with IMPAC securing the loan stated that it was structured “to conform to the provisions of the Texas Constitution applicable to Extension of Credit as defined by Section 50(a)(6), Article XVI of the Texas Constitution.” (Docket Entry No. 20-1 at 8). In March 2018, the Rideaus sent IMPAC a letter stating that their home equity loan violated several provisions of the Texas Constitution. (Docket Entry No. 21-3). In September 2018, the Rideaus filed their original state-court petition against Fannie Mae and IMPAC, and the defendants timely removed to federal court. (See Docket Entry No. 1).

         The Rideaus contend that Fannie Mae and IMPAC violated provisions of the Texas Constitution that regulate home equity loans within the State. The amended complaint alleges that: (1) the loan closed before 12 days after the original loan application was submitted to the lender or 12 days after the borrower received notice that Article XVI governed the loan, in violation of Tex. Const. art. XVI, § 50(a)(6)(M)(i); (2) the loan did not close one business day after the date that the owner received a final itemized disclosure, in violation of Tex. Const. art. XVI, § 50(a)(6)(M)(ii); (3) the loan did not close in the appropriate office, in violation of Tex. Const. art. XVI, § 50(a)(6)(N); (4) Fannie Mae and IMPAC did not provide the Rideaus a copy of the final loan application and documents signed at the closing, in violation of Tex. Const. art. XVI, § 50(a)(6)(Q)(v); and (5) the lender did not provide an acknowledgment of the fair market value of the property on the date that the extension of credit was made, in violation of Tex. Const. art. XVI, § 50(a)(6)(Q)(ix). (See Docket Entry No. 8 at ¶¶ 13(a)-(e)).

         The Rideaus argue that these alleged violations breached the security agreement. (Id. at ¶¶ 14-16). The Rideaus allege that they suffered damages “in the amount of all payments made to [Fannie Mae and IMPAC] since the inception of the loan, ” because the breaches made the lien void. (Id. at ¶ 16). The Rideaus seek a quiet-title ruling, arguing that “[t]he Note and Deed of Trust upon which the Defendant asserts an interest, although facially valid, is in fact invalid and of no force or effect because Defendant's uncured constitutional violations have rendered Defendant's underlying lien void ab initio.” (Id. at ¶ 20). They seek a declaratory judgment stating that their home equity loan is void because Fannie Mae and IMPAC failed to cure the constitutional defects in the loan documents. (Id. at ¶¶ 21, 23, 25). The Rideaus seek an injunction against foreclosure and reasonable attorneys' fees under Texas Civil Practice & Remedies Code § 38.001, et seq. (Id. at ¶ 26).

         II. The Legal Standard

         “Summary judgment is required when ‘the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.'” Trent v. Wade, 776 F.3d 368, 376 (5th Cir. 2015) (quoting Fed.R.Civ.P. 56(a)). “A genuine dispute of material fact exists when the ‘evidence is such that a reasonable jury could return a verdict for the nonmoving party.'” Nola Spice Designs, LLC v. Haydel Enters., Inc., 783 F.3d 527, 536 (5th Cir. 2015) (quoting Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986)). “The moving party ‘bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact.'” Id. (quoting EEOC v. LHC Grp., Inc., 773 F.3d 688, 694 (5th Cir. 2014)); see also Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

         “Where the non-movant bears the burden of proof at trial, the movant may merely point to the absence of evidence and thereby shift to the non-movant the burden of demonstrating by competent summary judgment proof that there is an issue of material fact warranting trial.” Id. (quotation marks omitted); see also Celotex, 477 U.S. at 325. Although the party moving for summary judgment must demonstrate the absence of a genuine issue of material fact, it does not need to negate the elements of the nonmovant's case. Boudreaux v. Swift Transp. Co., 402 F.3d 536, 540 (5th Cir. 2005). “A fact is ‘material' if its resolution in favor of one party might affect the outcome of the lawsuit under governing law.” Sossamon v. Lone Star State of Tex., 560 F.3d 316, 326 (5th Cir. 2009) (quotation omitted). “If the moving party fails to meet [its] initial burden, the motion [for summary judgment] must be denied, regardless of the nonmovant's response.” United States v. $92, 203.00 in U.S. Currency, 537 F.3d 504, 507 (5th Cir. 2008) (quoting Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc)).

         “Once the moving party [meets its initial burden], the non-moving party must ‘go beyond the pleadings and by her own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine issue for trial.'” Nola Spice, 783 F.3d at 536 (quoting LHC Grp., 773 F.3d at 694). The nonmovant must identify specific evidence in the record and articulate how that evidence supports that party's claim. Baranowski v. Hart, 486 F.3d 112, 119 (5th Cir. 2007). “This burden will not be satisfied by ‘some metaphysical doubt as to the material facts, by conclusory allegations, by unsubstantiated assertions, or by only a scintilla of evidence.'” Boudreaux, 402 F.3d at 540 (quoting Little, 37 F.3d at 1075). In deciding a summary judgment motion, the court draws all reasonable inferences in the light most favorable to the nonmoving party. Connors v. Graves, 538 F.3d 373, 376 (5th Cir. 2008); see also Nola Spice, 783 F.3d at 536.

         III. Analysis

         In Texas, “the homestead has always been protected from forced sale, not merely by statute as in most states, but by the Constitution.” Garofolo v. Ocwen Loan Servicing, LLC, 497 S.W.3d 474, 477 (Tex. 2016) (quoting Fin. Comm'n of Tex. v. Norwood, 418 S.W.3d 566, 570 (Tex. 2013)). Article XVI, § 50(a)(6) of the Texas Constitution lists requirements that home equity loans must meet in order for a lender to have a valid lien on a borrower's homestead property. See T ex. Const. art. XVI, § 50(c); see Garofolo, 497 S.W.3d at 478 (“[Section 50(a)(6)] simply describes what a home-equity loan must look like if a lender wants the option to foreclose on a homestead upon borrower default.”). A plaintiff must allege violations of § 50(a)(6) in conjunction with a cause of action to state a claim. Garofolo, 497 S.W.3d at 478.

         Section 50(a)(6)(Q)(x) allows a lender that is in violation of the obligations of this section to cure its noncompliance. Tex. Const. art. XVI, § 50(a)(6)(Q)(x). To trigger the lender's obligation to cure, the borrower must notify the lender of its noncompliance. Id. The lender then has 60 days to cure. Id. If the lender does not, it “shall forfeit all principal and interest of the extension of credit.” Tex. Const. art. XVI, § 50(a)(6)(Q)(x). This provision does not create a ...


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