Indymac Loan: Stranger to the Note and Property, Amy Powell Receives Free $800k Home From Texas Judiciary

S U B S T I T U T E    O P I N I O N 1

This appeal arises out of a dispute between a property owner and a bank seeking to foreclose its lien on the property. The bank’s assignor acquired the lien

1 We grant appellee’s motion for rehearing in part, deny the motion in part, withdraw the memorandum opinion issued on December 15, 2016, and issue this substitute opinion.

in a reverse-mortgage transaction.

The borrower later died.

After his death, the property was transferred.

The property owner asserted that the statute of limitations barred the bank’s foreclosure action.

On appeal, the property owner asserts that the trial court erred in granting declaratory relief that the bank is entitled to foreclose based on a theory that the bank abandoned its purported acceleration of the promissory note, thereby resetting the accrual date for the claim.

We conclude that the trial court erred in granting declaratory relief because the claim accrued when all outstanding principal, accrued interest, and other charges became immediately due and payable upon the borrower’s death, without any ability of the creditor to accelerate the debt.

We reverse the portions of the trial court’s judgment in which the trial court granted declaratory relief and dismissed as moot the bank’s alternative quantum-meruit claim, and we affirm the remainder of the judgment.

We render judgment denying the bank’s requests for declaratory judgment, and we remand the bank’s quantum-meruit claim.

I.   Factual and Procedural Background

Patricia Siegel conveyed her interest in real property located at 11919 Cypress Park Drive, Houston, Texas (the “Property”) to her husband, Irving Siegel, in July 2005, through a warranty deed.

Irving obtained a reverse-mortgage loan in the amount of $273,079.50 from Financial Freedom Senior Funding Corporation (“Loan”).

In connection with the Loan, Irving executed a promissory note in that amount (“Note”), secured by a Deed of Trust in which he granted a lien against the Property to Financial Freedom as security for repayment of the Note.

Financial Freedom assigned the Note and Deed of Trust to appellee/defendant CIT Bank N.A., f/k/a OneWest Bank, N.A., f/k/a OneWest Bank, FSB (“CIT Bank”).

Irving died in May 2008.

Under the Note and Deed of Trust, all outstanding principal, accrued interest, and other charges became immediately due and payable when Irving died.

Upon Irving’s death in May 2008, title to the Property vested in his wife Patricia.

Several months later, in September 2008, Financial Freedom sent a notice to Irving’s estate, stating that the entire amount of the debt was due and payable because of Irving’s death.

The debt was not paid.

In February 2009, Financial Freedom sent a letter to Irving’s estate stating its intention to foreclose its lien on the Property.

Over a year later, Patricia deeded her interest in the Property to appellant/plaintiff Amy Powell.

Powell has not paid any entity any amount owing on the Note, nor has she paid taxes on the Property or insured the Property at any time.

CIT Bank filed suit against Powell in June 2011, seeking a declaratory judgment to reform the legal description in the Deed of Trust due to mutual mistake and to divest Irving’s estate and his heirs of right, title, and interest in the Property.

Powell filed a counterclaim against CIT Bank.

Nearly two years later, in May 2013, CIT Bank and Powell signed a mutual motion for nonsuit.

In it, CIT Bank states that it “no longer desires to pursue its claims,” and Powell states that Powell “no longer desires to pursue her claims for affirmative relief” against CIT Bank.

A few months later, in July 2013, Powell filed suit in this case against CIT Bank seeking to enjoin CIT Bank from foreclosing on the Property in the future.

CIT Bank filed a counterclaim, seeking a declaratory judgment that:

(1)     the Loan is a valid and enforceable contract;

(2)     CIT Bank performed all of its obligations under the Loan;

(3)      Powell and/or her predecessor in title failed to perform all of her obligations under the Loan;

(4)      Powell’s failure to pay the taxes and insurance on the Property constitutes a material breach of the terms of the Loan;

(5)     Powell has not discharged the total balance of the Loan;

(6)     CIT Bank is entitled to foreclose the Deed of Trust and sell the Property at a non-judicial foreclosure sale upon providing proper notice; and

(7)    upon foreclosure, CIT Bank is entitled to possession of the Property within thirty days after the sale if CIT Bank purchases the Property.

In the alternative, CIT Bank sought judicial foreclosure and a writ of possession or recovery based upon a quantum-meruit claim.

Following a bench trial, the trial court signed a judgment in which the court made the following declarations:

(1)   The Note and Deed of Trust are valid and enforceable instruments.

(2)   The Note and Deed of Trust are in default, due both to the death of Irving Siegel and to the nonpayment of taxes and insurance for each of the years from 2009 through 2015.

(3)   CIT Bank is the current servicer of the Loan.

(4)   CIT Bank is the current mortgagee of the Deed of Trust.

(5)    CIT Bank is entitled to proceed with foreclosure through any process permitted by Texas law.

(6)   CIT Bank has standing to proceed for foreclosure both as the mortgagee of the Deed of Trust and as the servicer of the Loan.

(7)    CIT Bank’s right to foreclose is not barred by the statute of limitations nor otherwise constrained by any other defense under law or equity.

In addition to granting CIT Bank declaratory relief, the trial court ruled that Powell take nothing on her request for permanent injunctive relief.

The trial court dismissed as moot CIT Bank’s quantum-meruit claim, as well as CIT Bank’s other alternative claims.

II.   Issues and Analysis

Powell does not specifically address which rulings she is challenging on appeal.

She argues that the trial court erred in concluding that CIT Bank’s potential future foreclosure claim is not time-barred.

According to Powell, the statute of limitations bars the foreclosure claim.

Liberally construing Powell’s appellate brief, we conclude Powell is attacking the trial court’s granting of declaratory relief.

But, even if Powell’s argument also could be construed as an attack on the trial court’s denial of Powell’s request for a permanent injunction, we conclude Powell cannot prevail on this point.

A.     Permanent Injunction

A permanent injunction is appropriate if evidence shows:

(1) the existence of a wrongful act,

(2) the existence of imminent harm,

(3) the existence of irreparable injury,

and

(4) the absence of an adequate remedy at law.

See Wiese v. Healthlake Comm’n Ass’n, Inc., 384 S.W.3d 395, 399 (Tex. App.—Houston [14th Dist.] 2012, no pet.).

Powell has not addressed any of these elements, nor has Powell cited any legal authority in support of the proposition that the trial court abused its discretion in denying her request for a permanent injunction.

By failing to articulate any argument in this regard, Powell has waived any complaint as to the trial court’s denial of her request for a permanent injunction.2

See San Saba Energy, L.P., 171 S.W.3d 323, 337 (Tex. App.—Houston [14th Dist.] 2005, no pet.).

Accordingly, to the extent Powell asserts a challenge to the permanent injunction, we overrule it.

B.     Declaratory Judgment

We review declaratory judgments under the same standards as other judgments.

See Van Dam v. Lewis, 307 S.W.3d 336, 339 (Tex. App.—San Antonio 2009, no pet.).

We employ the same rules for interpreting a note that we use to interpret a contract.

Financial Freedom Sr. Funding Corp. v. Horrocks, 294 S.W.3d 749, 753 (Tex. App.—Houston [14th Dist.] 2009, no pet.).

In construing a

2 Having concluded Powell did not sufficiently brief an attack on the trial court’s denial of her request for a permanent injunction, we need not address CIT Bank’s arguments that granting Powell a permanent injunction would be inequitable.

contract, our primary concern is to ascertain and give effect to the intentions of the parties as expressed in the contract. Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex. 1989).

To ascertain the parties’ intentions, we examine the entire agreement in an effort to harmonize and give effect to all provisions of the contract so that none will be rendered meaningless.

MCI Telecomms. Corp. v. Tex. Utilis. Elec. Co., 995 S.W.2d 647, 652 (Tex. 1999).

We give contract terms their plain, ordinary, and generally accepted meanings unless the contract itself shows them to be used in a technical or different sense.

Horrocks, 294 S.W.3d at 753.

1.     Accrual of Claim and Statute of Limitations

A person must bring suit for the recovery of real property under a real- property lien or the foreclosure of a real-property lien not later than four years after the day the claim accrues.

Tex. Civ. Prac. & Rem. Code Ann. § 16.035(a) (West, Westlaw through 2015 R.S.).

A sale of real property under a power of sale in a mortgage or deed of trust that creates a real-property lien must be made not later than four years after the day the claim accrues.

Tex. Civ. Prac. & Rem. Code Ann. § 16.035(b) (West, Westlaw through 2015 R.S.); Holy Cross Church of God in Christ v. Wolf, 44 S.W.3d 562, 567 (Tex. 2001).

When the four-year limitations period expires, the real-property lien and the power of sale to enforce the lien become void. Tex. Civ. Prac. & Rem. Code Ann. § 16.035(d) (West, Westlaw through 2015 R.S.); Holy Cross, 44 S.W.3d at 567.

Generally, if a note secured by a real-property lien is payable in installments, the statute of limitations does not begin to run until the maturity date of the last installment.

Tex. Civ. Prac. & Rem. Code Ann. § 16.035(e) (West, Westlaw through 2015 R.S.); Holy Cross, 44 S.W.3d at 566.

If a note or deed of trust contains an optional acceleration clause and the holder exercises its option to accelerate, the claim accrues when the holder actually exercises the option to accelerate.  Tex. Civ. Prac. & Rem. Code Ann.§16.035(e); Holy Cross, 44 S.W.3d at 566.

Powell asserts that the limitations period began to run on May 8, 2008, the date Irving died, and ended four years later on May 8, 2012.

Paragraph three of the Note, entitled “Payment,” provides:

“I will pay principal and interest when an event described in Section 7 occurs.”

The Note provides in section 7(A) that, “All outstanding principal, accrued interest, and other charges shall be immediately due and payable if (i) all Borrowers die, or (ii) the Property is sold or otherwise transferred.”

Section 7(G) provides that if an event described by section 7(A) occurs, “the Note Holder will send me a written notice, as required by applicable law, telling me that I am required to pay immediately the full amount of principal, interest, and other charges I owe under this Note.” The Deed of Trust provides that “[a]ll sums secured by this Security Instrument shall be immediately due and payable if . . . all Borrowers die.”

Under the unambiguous language of the non-recourse, reverse-mortgage Note, no payments are due until an event described in section 7 occurs, and when such an event occurs, all outstanding principal, accrued interest, and other charges become immediately due and payable.

Thus, the Note does not provide for installment payments whose maturity date may be accelerated.

Neither the Note nor the Deed of Trust contains a clause giving the creditor the option of accelerating the indebtedness in the event that the sole borrower dies.

Instead, under the plain terms of the Note and the Deed of Trust, all outstanding principal, accrued interest, and other charges under the Note and all sums secured by the Deed of Trust became immediately due and payable on May 8, 2008, when Irving — the only borrower under the Note — died.

See Horrocks, 294 S.W.3d at 754 (noting that case involving note with acceleration clause was not on point because the reverse-mortgage notes at issue in Horrocks did not provide for repayment through periodic installments or for acceleration in the event of default).

As Financial Freedom stated in the September 4, 2008 notice that it sent to the Estate of Irving Siegel, “[u]pon the occurrence of a maturity event, of which the borrower’s passing is one, the loan becomes due and payable.”3

The trial evidence proved as a matter of law that the claim for foreclosure of the lien in the Property under the Deed of Trust and the claim for sale of the Property under the power of sale in the Deed of Trust accrued on May 8, 2008, when Irving died, more than four years before Powell filed this suit and CIT Bank filed its counterclaim.4

See Horrocks, 294 S.W.3d at 754

(holding that the creditor’s claim to enforce the deed-of-trust lien created in a reverse-mortgage transaction accrued when one or more of the conditions listed in the note occurred).

2.     Alleged Abandonment of Acceleration

CIT Bank filed its first suit within the statute of limitations. But, CIT Bank nonsuited. Powell then filed this lawsuit in July 2013, more than four years after the statute of limitations began running.

CIT Bank did not file its counterclaim until September 2015.

3 In its motion for rehearing, CIT Bank asserts that this court’s analysis centers on the fact that acceleration of the debt was mandatory upon the death of the borrower.

In this statement, CIT Bank mischaracterizes the terms of the Note.

The Note does not provide for any acceleration of the debt upon the death of the borrower; rather, all outstanding principal, accrued interest, and other charges under the Note became immediately due and payable on May 8, 2008, when the only borrower under the Note died.

4 In an attempt to satisfy the requirements of article XVI, section 50(a)(7) of the Texas Constitution, the drafters of the Note included a provision that if the sole borrower dies, the holder of the Note is required to send a written notice that the full amount of principal, accrued interest, and other charges under the Note have become immediately due and payable.

See Tex. Const. art. XVI, § 50(a)(7).

Though the four-year limitations period to enforce the lien began running on May 8, 2008, rather than on the date of this notice, Financial Freedom sent this notice on September 4, 2008, more than four years before this lawsuit was filed in the trial court.

CIT Bank asserts that the statute of limitations was tolled because CIT Bank abandoned its acceleration of the Note.

As discussed above, all outstanding principal, accrued interest, and other charges under the Note and all sums secured by the Deed of Trust became immediately due and payable on May 8, 2008, and neither CIT Bank nor any of its predecessors in interest had the option of accelerating the indebtedness in the event that the sole borrower died.

Because neither CIT Bank nor its predecessors accelerated the Note, none of these entities could abandon an acceleration of the Note.

See id.

Therefore, the trial evidence proved as a matter of law that neither CIT Bank nor its predecessors could have avoided the bar of the statute of limitations by abandoning the acceleration of the Note.

CIT Bank argues that it could have abandoned the “acceleration” of the Note and that CIT Bank did abandon acceleration when CIT Bank and Powell signed and filed the mutual motion for nonsuit in the prior lawsuit.

Though neither CIT Bank nor its predecessors could abandon an acceleration of the Note, even presuming for the sake of argument that CIT Bank could have abandoned acceleration, the trial evidence is legally insufficient to support the trial court’s conclusion that the filing of the mutual motion for nonsuit effected an abandonment of the Note’s acceleration with the consent of Powell and CIT Bank.

See Residential Credit Solutions v. Burg, No. 01-15-00067-CV, 2016 WL 3162205, at *3–5 (Tex. App.—Houston [1st Dist.] Jun. 2, 2016, no pet.) (mem. op.).

In the mutual motion for nonsuit, CIT Bank stated that it no longer desired to pursue its claims against Powell and requested the court to sign an order “nonsuiting” these claims without prejudice, and Powell stated that she no longer desired to pursue her claims against CIT Bank and requested the court to sign an order “nonsuiting” these claims without prejudice.

The dismissal without prejudice of these claims returned the parties to the positions they occupied before any suit was filed, as if the first suit had never existed.

See Cunningham v. Fox, 879 S.W.2d 210, 212 (Tex. App.—Houston [14th Dist.] 1994, writ denied).

By joining and agreeing to this motion neither CIT Bank nor Powell agreed that any alleged acceleration of the amounts due and owing under the Note would be abandoned.

Each party agreed to nonsuit without prejudice the party’s claims for affirmative relief.5

CIT Bank appears to argue that the mutual motion for nonsuit must be an abandonment of acceleration because the parties agreed that each nonsuit would be “without prejudice” and because, if the motion is not an abandonment of acceleration, the dismissal would be “with prejudice.”

Any such argument misconstrues the meaning of a voluntary dismissal without prejudice.

The “without prejudice” denomination means that the dismissal of the claims does not prevent the re-filing of the claims; it does not mean that the pendency of the first suit tolled the statute of limitations as to a later suit or that any other party in the case waived any defenses to the voluntarily dismissed claims.

See id.; Hammonds v. Texas Dept. of Criminal Justice, No. 04-11-00009-CV, 2011 WL 3610406, at *1–2 (Tex. App.—San Antonio Aug. 17, 2011, no pet.) (mem. op.).

Because the four-year limitations period expired before Powell filed this lawsuit in July 2013, the real-property lien and the power of sale to enforce the lien

5 CIT Bank cites Denbina v. City of Hurst for the proposition that nonsuiting a foreclosure action constitutes an abandonment of acceleration.

See 516 S.W.2d 460 (Tex. App.—Tyler 1974, no writ).

The Denbina court did not hold that a nonsuit of a foreclosure action necessarily constitutes an abandonment of acceleration.

See id. at 462–63.

Rather, the Denbina court concluded that the City of Hurst exercised its option to accelerate the assessment obligation by means of its counterclaim in the first suit and that the City withdrew or abandoned its decision to accelerate by nonsuiting this counterclaim.

See id.

Because that fact pattern is not present in today’s case, Denbina is not on point.

See id.

became unenforceable.6

Tex. Civ. Prac. & Rem. Code Ann. § 16.035(d).

And, because CIT Bank’s power to enforce the lien is unenforceable, the trial court erred in granting CIT Bank declaratory relief.7

See id.

Therefore, we sustain Powell’s issue challenging the trial court’s declarations, reverse the portion of the trial court’s judgment granting CIT Bank declaratory relief, and render judgment denying CIT Bank’s requests for declaratory relief.

C.     Quantum-Meruit Claim

In the trial court, CIT Bank asserted, in the alternative, a quantum-meruit claim, seeking to recover from Powell more than $83,000 that CIT Bank advanced for taxes and insurance on the Property, plus reasonable attorney’s fees, prejudgment and postjudgment interest, and costs of court.

In its final judgment, the trial court granted CIT Bank declaratory relief and dismissed its alternative quantum-meruit claim as moot.

In its appellee’s brief, CIT Bank did not request any relief regarding the quantum-meruit claim in the event that this court were to reverse the trial court’s judgment granting declaratory relief.

In our opinion on original submission, we did not remand the quantum-meruit claim to the trial court.

In its motion for rehearing, CIT Bank asserts that, unless this court changes its judgment reversing the trial court’s granting of declaratory relief, the quantum-

6 In its motion for rehearing, CIT Bank asserts that it had the right to extend the maturity date of the debt.

Presuming for the sake of argument that CIT Bank had this right, the trial evidence is legally insufficient to support a finding that CIT Bank extended the maturity date of outstanding principal, accrued interest, and other charges due and payable under the Note on May 8, 2008, the date the sole borrower died.

7 In its motion for rehearing, CIT Bank argues that this court’s rulings are inconsistent because, after concluding that Powell failed to sufficiently brief a challenge to the trial court’s denial of her request for a permanent injunction, this court then holds that CIT Bank is permanently enjoined from foreclosing on its lien. This argument is based on a false premise.

This court does not hold that CIT Bank is permanently enjoined from foreclosing on its lien; rather, this court concludes that the trial court erred in granting CIT Bank declaratory relief because the limitations period has expired and because the real-property lien and the power of sale to enforce the lien have become unenforceable.

meruit claim no longer is moot and should be remanded to the trial court.

We conclude that CIT Bank is not procedurally barred from asserting this argument in its motion for rehearing, even though CIT Bank did not file a notice of appeal and even though CIT Bank did not raise this point on original submission.

See Chesshir v. First State Bank, 620 S.W.2d 101, 101–02 (Tex. 1981) (per curiam).

Under the trial court’s judgment, CIT Bank received relief it had requested on its primary claim, and CIT Bank apparently had no issue with the alternative quantum-meruit claim being dismissed as moot.

Once this court reversed the trial court’s judgment as to CIT Bank’s primary claim, the trial court’s basis for dismissing the quantum-meruit claim as moot disappeared, and CIT Bank was free to assert on rehearing that the quantum-meruit claim should be remanded to the trial court.

See id.

In light of our reversal of the trial court’s judgment granting CIT Bank declaratory relief and our rendition of judgment denying CIT Bank’s requests for declaratory relief, the basis for the trial court’s mootness determination as to the quantum-meruit claim is no longer present.

We thus conclude that we should reverse the trial court’s judgment dismissing the quantum-meruit claim as moot and remand the quantum-meruit claim to the trial court for further proceedings.8

We grant CIT Bank’s motion for rehearing to the extent CIT Bank seeks a remand of the quantum-meruit claim, and we deny the remainder of the motion.

III.   Conclusion

The trial evidence proved as a matter of law that the claim for foreclosure of the lien in the Property under the Deed of Trust and the claim for sale of the

8 We make no comment whatsoever on the merits of the quantum-meruit claim.

It is for the trial court to determine on remand whether CIT Bank may recover under its quantum-meruit claim, and, if so, to what extent.

Property under the power of sale in the Deed of Trust accrued on May 8, 2008, when Irving died, more than four years before Powell filed this suit and CIT Bank filed its counterclaim.

The trial evidence also proved as a matter of law that, because the four-year limitations periods under subsections (a) and (b) of Civil Practice and Remedies Code section 16.035 expired before Powell filed this lawsuit, the real-property lien and the power of sale to enforce the lien became unenforceable before Powell filed this lawsuit.

Thus, the trial court erred in granting CIT Bank declaratory relief.

We reverse the portions of the trial court’s judgment in which the trial court grants CIT Bank declaratory relief and in which the trial court dismisses as moot the quantum-meruit claim; we render judgment denying CIT Bank’s requests for declaratory relief, remand the quantum-meruit claim to the trial court for further proceedings, and affirm the remainder of the trial court’s judgment.

/s/      Kem Thompson Frost Chief Justice

Panel consists of Chief Justice Frost and Justices Boyce and Christopher.

GENERAL BACKGROUND

In July, 2005, Irwin Siegel signed the underlying reverse mortgage instruments that granted the lender a lien on property at 11919 Cypress Park Drive in Houston.

Mr. Siegel died in May 2008, and title vested in his wife Patricia.

Mrs. Siegel deeded the property to Amy Powell in June, 2010.

This litigation began in June, 2011 when the bank sued Ms. Powell in Cause No. 2011-35128.

The bank sought foreclosure of its security interest.

The petition clearly indicates that the bank knew that Ms. Powell had received a deed from Ms. Siegel and was now the title holder of the house.

Furthermore, the bank’s witness Dion Kala admitted that as of 2011, the bank knew that Ms. Powell owned the house.

The case was nonsuited, and litigation resumed in 2013 under Cause No. 2013-44752.

On September 6, 2015 the bank filed a pleading seeking the right to foreclose, and, alternatively, quantum meruit recovery for its payments of taxes and insurance.

This Court ruled that the bank had a valid lien and was entitled to foreclose.

For that reason, the bank did not pursue its quantum meruit claim.

On appeal, the Court of Appeals held that the bank had no valid lien and therefore could not foreclose.

However, the Court of Appeals remanded the case to give the bank an opportunity to present its quantum meruit claim while noting that the Court of Appeals was not determining the validity of any such claim.

On May 11, 2018, the Court conducted an evidentiary hearing as the Court of Appeals had directed.

The Court asked counsel for a post-hearing brief.

I.                   THE TEXAS CONSTITUTION PREVENTS A PERSONAL JUDGMENT UNDER ANY THEORY.

The bank sought foreclosure of its reverse mortgage lien on the basis that Ms. Powell was in default because she had not paid taxes and insurance as required under the original deed of trust.

Being barred by the Court of Appeals from foreclosure, the bank now seeks a quantum meruit personal judgment against Ms. Powell for the taxes and insurance that the bank paid.

Any such judgment, however, is not permissible under Article XVI, Section 50 of the Texas Constitution, the provisions dealing with reverse mortgages and home equity loans.

Specifically, Section 50(a)(6) places restrictions on the lender that do not apply to a conventional purchase money loan –

(i) the lender must seek judicial recourse before foreclosure;

(ii) the amount of the loan combined with the amount of the existing mortgage cannot exceed 80% of the value of the home;

and

(iii) most importantly for the purposes of this case, the lender cannot obtain a personal judgment in the event of a default.

So if there is a default in a home equity loan or reverse mortgage, the lender’s sole remedy is foreclosure of its lien.

Admittedly this is a disadvantage a lender does not face in the case of a conventional home mortgage.

But these constitutional protections were a legislative decision necessary to resolve the often contentious debate about whether home equity loans should be allowed at all.

We should not forget that Texas was the last state to allow this kind of loan.

It does not matter that Mr. Siegel rather than Ms. Powell was the party to the original mortgage documents.

The bank is seeking to hold Ms. Powell responsible for the obligations Mr. Siegel undertook in the contract for the reverse mortgage.

If the bank had sought foreclosure against Ms. Powell in 2012 rather than in 2015, the bank would no doubt argue that the contract gave the bank the right to proceed against her.

II.        SUBSTANTIAL PARTS OF THE CLAIMS ARE INVALID WITHOUT REGARD TO QUANTUM MERUIT.

Before discussing quantum meruit, I should note that about a third of the claims are invalid without the need for any consideration of quantum meruit.

That is because those portions are barred by the statute of limitations.

Plaintiff’s Exhibit 32 is an itemization of the tax and insurance payments for which the bank seeks recovery.

There are insurance payments of February 4, 2009 ($6,797.00); September 21, 2009 ($6,797.00); and September 22, 2010 ($8,231.00).

As for taxes, there are entries for August 31, 2009 ($988.08); July 19, 2010 ($5,915.17); and July 19, 2010 ($3,381.83).

The bank made these payments totaling $32,109.08 before the four year statute of limitations period began on September 6, 2011.

So that amount of the claimed $98,474.16 can be eliminated before any analysis of quantum meruit begins.

III.             IS QUANTUM MERUIT A VALID REMEDY?

Quantum meruit does not apply to the facts of this case.

The best way to begin the discussion is to look to the definition of quantum meruit itself.

The Texas Supreme Court said the following in the very recent decision of Hill vs. Shamoun & Norman, 544 S.W.3d 728, 732-733 (Tex. 2018)(internal citations and quotation marks omitted):

To recover under a quantum-meruit claim, a claimant must prove that:

(i) valuable services were rendered or materials furnished;

(2) for the person sought to be charged:

(3) those services and materials were accepted by the person sought to be charged, and were used and enjoyed by him;

and

(4) the person sought to be charged was reasonably notified that the plaintiff performing such services or furnishing such materials was expecting to be paid by the person sought to be charged.

A party generally cannot recover under a quantum-meruit claim when there is a valid contract covering the services or materials furnished.

This is very close to the Court’s description of quantum meruit at the hearing. Given this definition, it follows that the quantum meruit theory cannot avail the bank.

First, quantum meruit applies only if there is no contract. If there is one, the party alleging breach may seek only the remedies under the contract. Quantum meruit is not one of those remedies.

Here there is a perfectly valid contract.

The lien provisions may be unenforceable because the Court of Appeals ruled the bank took too long to seek foreclosure.

The bank should not be able to obtain a remedy beyond the foreclosure remedy in the contract and bypass the statute of limitations.

Moreover, quantum meruit requires that there must be some notice from the bank to Ms. Powell that the bank was paying bills for which the bank expected reimbursement from Ms. Powell.

Here it is undisputed that the bank never provided any notice to Ms. Powell or to her attorney that the bank would be making payments if Ms. Powell did not. Indeed, the bank never corresponded with Ms. Powell at all.

The only evidence that the bank ever communicated with anyone about the insurance was only after the bank had already made the payments.

And those notices were addressed to Mr. Siegel, not to Ms. Powell.

And there is no evidence that the bank ever communicated with anyone at all about taxes.

The lack of notice to Ms. Powell is not just some legal technicality but had critical consequences.

Mr. Kala testified that “force placement” of insurance by the bank is very expensive.

That insurance can cost over five times what the homeowner herself can expect to pay if given the chance to do so.

The Court heard testimony that in one year, an insurance company billed Ms. Powell $1,530 for insurance, while the bank was charging her $8,231 for the same coverage.

At the hearing, the Court asked if notice is necessary if the bank made the tax payments for fear that its security interest would be at risk if it did not?

Or put another way, isn’t it reasonable for the property owner to assume that the lender is paying taxes and therefore no additional notice is necessary?

My legal research did not locate any case law on this precise point.

But the answer to the Court’s concern falls within the “voluntary payment” doctrine.

“This common law principle provides that money voluntarily paid on a claim of right, with full knowledge of all the facts, in the absence of fraud, duress, or compulsion, cannot be recovered back merely because the party at the time of payment was ignorant of or mistook the law as to his liability.”

Miga vs. Jensen, 299 S.W.3d 98, 103 (Tex. 2009)(internal citations and quotation marks omitted).

There is no evidence that the bank’s tax payments resulted from duress or coercion.

There is no evidence that the taxing authorities threatened foreclosure if the bank did not pay the taxes.

Indeed, Exhibit 32 shows that the bank has not paid taxes since 2015.

The bank even made an insurance payment in September, 2017, three months after the Court of Appeals ruled that the bank had no lien.

These actions show a bank guided not by coercion, but rather by inattention.

Furthermore, we know that the bank did not have a lien beginning as of May, 2012.

Any attempted foreclosure by the taxing authorities after that date could not jeopardize the bank’s lien because there was no lien.

If the bank “mistook the law as to [its] liability” and paid nonetheless, the voluntary payment doctrine precludes the bank from recovery.

For all of these reasons, the bank cannot recover under quantum meruit, and the Court should enter judgment for Ms. Powell.

Respectfully submitted,

/s/ Bertrand C. Moser

Bertrand C. Moser
TBN: 1457200
2415 Robinhood
Houston, Texas 77005
Telephone: 713 807 7455

Facsimile: 713 807 0051
bcmoser@sbcglobal.net
Attorney for Amy Powell

CERTIFICATE OF SERVICE

I certify that on August 16 , 2018, I provided electronically a copy of Amy Powell’s Post Hearing Brief to opposing counsel Thomas M. Hanson thanson@mcglinchey.com.

/s/ Bertrand C. Moser

Bertrand C. Moser

Pursuant to the Court’s request following the bench trial held on May 11th, 2018, Defendant CIT Bank hereby submits its Post-Trial Brief.

INTRODUCTION AND SUMMARY OF ARGUMENT

This action was remanded for the Court’s determination on CIT Bank’s counterclaim for quantum meruit; as such, this case sounds in equity.

In the previous trial in this matter, this Court concluded, as a matter of law, that “[t]he balance of equities as between Plaintiff and CIT Bank favors CIT Bank.”

This conclusion was expressly undisturbed by the Court of Appeals’ reversal; as such, it stands as law of the case.

This conclusion was well-supported by this Court’s findings of fact in the prior trial, none of which were disturbed by the Court of Appeals’ Opinion or rebutted by contrary evidence submitted at the May 11th bench trial:

·                     CIT Bank has advanced $83,098.33 for payment of taxes and insurance on the Property for each of the years 2009-2015, which amount remains unpaid.

·                     Plaintiff paid nothing for title to the Property.

·                     Plaintiff has not insured the Property at any time.

·                     Plaintiff has not paid the taxes for the Property at any time.

·                     Plaintiff remains in possession of the Property at CIT Bank’s expense.

·                     Plaintiff was given notice by CIT Bank and has actual knowledge of the $83,098.33 advanced by CIT Bank for payment of taxes and insurance on the Property for each of the years 2009-2015. Plaintiff has failed and refused to pay such amount.

These findings of fact were expressly requested by Plaintiff following the prior trial, at which both Plaintiff and CIT Bank’s representative Dion Kala testified. Plaintiff did not contest this Court’s findings of fact either by post-trial motion or on appeal.

As the Court will recall, Plaintiff declined to testify at the May 11th bench trial, although she was present.

CIT Bank re-submitted the evidence from the prior trial, and offered testimony from Mr. Kala to authenticate its exhibits and to testify as to the additional amounts CIT Bank had expended to Plaintiff’s benefit since the prior trial.

At the conclusion of the hearing, the Court requested additional briefing as to the legal arguments raised by Plaintiff’s counsel.

As discussed more fully below, those arguments are without merit for the following reasons:

·                     CIT Bank is not barred from recovery because Mr. Siegel’s loan was a non- recourse home equity loan, for the simple reason that Plaintiff was not a party to Mr. Siegel’s loan and thus its terms do not apply to her;

·                     None of CIT Bank’s claimed damages are barred by limitations because CIT Bank’s claim for quantum meruit accrued, at the earliest, on May 8, 2012, and thus CIT Bank’s counterclaim was filed well within the statute of limitations;

·                     As found by this Court following the first trial, CIT Bank met its burden of establishing each of the elements of a claim for quantum meruit; and Plaintiff offered no evidence to rebut the Court’s findings; and

·                     The voluntary payment doctrine does not apply because CIT Bank’s payments were not voluntary, but rather were compelled to protect CIT Bank’s business interests.

For these reasons, and those set forth more fully below, CIT Bank requests that the Court enter judgment in CIT Bank’s favor in the amount of $84,880.16.

ARGUMENT AND AUTHORITIES

I.                   CIT Bank’s Claims are not Barred by the Texas Constitution’s Proscription Against Personal Liability in Reverse Mortgages

Plaintiff’s primary argument – that the Texas Constitution bars recovery of any personal judgment against her – wholly misunderstands the nature of CIT Bank’s quantum meruit claim.

CIT Bank is not, as Plaintiff argues, “seeking to hold Ms. Powell responsible for the obligations Mr. Siegel undertook in the contract for the reverse mortgage.”

(Pltf’s. Post Hearing Brief, at 3.)

To the contrary, it is undisputed that CIT Bank and Plaintiff have no contractual relationship, which is why CIT Bank brought a claim for quantum meruit rather than a claim for breach of contract.

Even more to the point, the Constitution’s prohibition of personal judgments relates to enforcement of a loan obligation, and provides that for reverse mortgages, the sole means of enforcement is foreclosure.

CIT Bank, however, is not seeking to enforce Mr. Siegel’s loan obligations; indeed, following the Court of Appeals’ ruling in this case, CIT Bank has no means of enforcing those loan obligations.

That CIT Bank is not seeking to enforce the loan obligations is apparent from the evidence presented at trial:

CIT Bank did not offer any evidence of the unpaid loan balance, but rather offered evidence of dollars it has paid for Plaintiff’s benefit.

Accordingly, Plaintiff’s constitutional argument is without merit.

II.                CIT Bank’s Claims are not Barred by Limitations

As Plaintiff acknowledges, the statute of limitations for quantum meruit is four years.

Pepi Corp. v. Galliford, 254 S.W.3d 457, 461 (Tex. App. – Houston [1st Dist.] 2007, rev. denied).

Plaintiff argues that because the quantum meruit counterclaim was not filed until September 4, 2015, any amounts paid prior to September 4, 2011 are time-barred.

This argument overlooks that Texas follows the “legal injury” rule, under which “a cause of action generally accrues, and the statute of limitations begins to run, when facts come into existence that authorize a claimant to seek a judicial remedy.”

Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 514 (Tex. 1998); see also Lamajak, Inc. v. Frazin, 230 S.W.3d 786, 795-96 (Tex. App. – Dallas 2007, no pet.)

(holding that quantum meruit claim did not accrue until plaintiff expected to be paid, regardless of when services were performed).

In this case, CIT Bank expected to recover sums paid for taxes and insurance when it enforced its lien through foreclosure.

Indeed, this is why the quantum meruit claim was brought as an alternative to the foreclosure claim, and also why CIT Bank did not seek a quantum meruit judgment after the first trial, because the Court had entered judgment declaring that CIT Bank was entitled to foreclose.

Under this settled law, CIT Bank’s claim arguably did not accrue until after it released its lien following issuance of the Court of Appeals’ mandate on August 17, 2017.

And at the very earliest, CIT Bank’s quantum meruit claim would have accrued no sooner than May 8, 2012, the date on which, pursuant to the Court of Appeals’ opinion, CIT Bank’s right to foreclose expired.

Stated another way, even if CIT Bank is charged with retroactive knowledge that its lien expired on May 8, 2012, it is only after that date that CIT Bank could have possibly expected to have to bring a quantum meruit claim against Plaintiff to recover the sums it had paid for taxes and insurance.

CIT Bank’s claim was brought less than four years after that date, and accordingly is not barred in whole or in part by limitations.

III.             CIT Bank Established Each of the Elements of Quantum Meruit

“Quantum meruit is an equitable remedy that is ‘based upon the promise implied by law to pay for beneficial services rendered and knowingly accepted.’”

Hill v. Shamoun & Norman, LLP, 544 S.W.3d 724, 732 (Tex. 2018 (quoting In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 740 (Tex. 2005)).

The purpose of this common law doctrine is to prevent a party from being

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“unjustly enriched” by “retain[ing] the benefits of the … performance without paying anything in return.”

Truly v. Austin, 744 S.W.2d 934, 938 (Tex. 1988).

As the Supreme Court recently confirmed,

To recover under a quantum-meruit claim, a claimant must prove that:

(1) valuable services were rendered or materials furnished;

(2) for the person sought to be charged;

(3) those services and materials were accepted by the person sought to be charged, and were used and enjoyed by him;

and

(4) the person sought to be charged was reasonably notified that the plaintiff performing such services or furnishing such materials was expecting to be paid by the person sought to be charged.

Hill, 544 S.W.3d at 732-33.

The evidence in this case is undisputed that CIT Bank paid Plaintiff’s property taxes and provided hazard insurance for Plaintiff’s property, thereby conferring a benefit that inured exclusively to Plaintiff’s benefit.

Similarly, given that CIT Bank has been in near-constant litigation with Plaintiff since 2011, first in a foreclosure action and then in this suit, Plaintiff can scarcely be heard to argue that she had no notice that CIT Bank was providing these benefits and expected to be repaid for them.

To be sure, the Court’s findings of fact from the first trial – which Plaintiff neither disputed on appeal nor contested with contrary evidence in the second trial – conclusively establish CIT Bank’s right to its requested relief.

Nonetheless, Plaintiff first argues that Plaintiff should be entitled to retain the benefit because quantum meruit only applies if there is no contract.

This argument appears to rely upon CIT Bank’s loan with Mr. Siegel, which Plaintiff calls “a perfectly valid contract.”

Plaintiff, however, was not a party to that contract, and it is undisputed that there is no contractual relationship between CIT Bank and Plaintiff.

Thus, Plaintiff’s contract argument fails for the same reason as her constitutional argument.

Next Plaintiff asserts that Plaintiff had no notice that CIT Bank was providing these services.

As noted above, however, the Court has already found that “Plaintiff was given notice by CIT Bank and had actual knowledge of the [sums] advanced by CIT Bank for payment of taxes and insurance on the property …”

The evidentiary basis for this finding was only strengthened in the second trial, when CIT Bank submitted evidence showing that CIT Bank only procured insurance after sending notice to Plaintiff’s address that it was about to do so, and that confirmation of the placement of insurance – including the amounts paid – were sent directly to Plaintiff’s house.

(R.T. 40-41; Def’s. Exs. 22-31.)

The evidence in the second trial also established that property tax bills were sent directly from the taxing authority to Plaintiff, and it was only after CIT Bank received notification that the taxes were unpaid – and that a tax lien was about to be imposed – that CIT Bank paid the taxes.

(R.T. 44-46; Def’s. Ex. 20.)

Notably, Plaintiff was present at trial, but did not take the opportunity to offer any testimony (or any other evidence) to refute this Court’s prior finding that she had actual notice that CIT Bank both was providing these services and expected to be compensated for them.

Instead of offering evidence, Plaintiff offers only her counsel’s argument that the fact that CIT Bank’s communications were addressed to Mr. Siegel’s estate somehow negates the Court’s finding that Plaintiff had actual notice of the benefits she was incurring.

This argument rings particularly hollow with respect to the payment of property taxes.

Apparently, Plaintiff would have this Court believe that she received tax bills from the taxing authority, didn’t pay them, but was completely unaware that CIT Bank was thereafter paying the taxes on her behalf.

Such an argument strains credibility, particularly given that Plaintiff opted not to support it with her testimony.

Even as to the insurance payments, the limited evidence Plaintiff did provide – a single declaration page showing the existing of an insurance policy for the period immediately after she acquired the property – suggests that Plaintiff initially procured insurance when she acquired the property, but thereafter stopped purchasing insurance because she knew CIT Bank was purchasing it for her.

Plaintiff’s counsel argued that evidence that Plaintiff had insurance on the Property could not be supplied because old insurance records were difficult to obtain, but this begs the question:

Why didn’t Plaintiff offer her testimony on the matter?

And how is it that “old” insurance records are difficult to obtain, but it just so happened that the only record Plaintiff could produce was the oldest one?

Simply put, counsel’s argument should be given the credence it deserves, which is none.

The undisputed evidence supports the proposition that Plaintiff was well aware that CIT Bank was procuring hazard insurance for her benefit, and stopped buying her own insurance as soon as she knew CIT Bank was doing it for her.

In the final analysis, the Court’s finding that Plaintiff had actual knowledge of the tax and insurance payments was well-founded after the first trial, and even moreso following the second.

The undisputed and unrebutted evidence shows that CIT Bank established each element of its claim for quantum meruit, and that judgment should be entered in its favor.

IV.             CIT Bank’s Claim is not Barred by the Voluntary Payment Doctrine

Plaintiff’s final argument is that CIT Bank is barred from recovery due to the voluntary payment doctrine.

Even Plaintiff’s sole cited case, however, acknowledges that the voluntary payment doctrine does not apply when payments are made under “duress.”

Miga v. Jensen, 299 S.W.3d 98, 103 (Tex. 2009).

Plaintiff fails to note, however, that Miga discussed in detail that Texas courts have held for decades that “duress” includes “business compulsion” or “economic duress,” and expressly noted cases in which payment of taxes constituted such duress:

Many courts have recognized a “modern” type of duress often referred to as “business compulsion” or “economic duress.”

Dallas County Cmty. Coll. Dist. v. Bolton, 185 S.W.3d 868, 877 (Tex. 2005);

State v. Akin Prods. Co., 155 Tex. 348, 286 S.W.2d 110, 111 (Tex. 1956);

Crow v. City of Corpus Christi, 146 Tex. 558, 562-63, 209 S.W.2d 922, 924-25 (1948).

Business compulsion and economic duress have been referred to as “implied duress,” because the pressure to pay these government exactions is indirect and flows from statutes or ordinances.

See Bolton, 185 S.W.3d at 877

(interpreting Miga I, 96 S.W.3d at 211, 224-25, by stating “compulsion ‘implied by the threat of statutory penalties and accruing interest’ constitutes economic duress”);

see also Highland Church of Christ v. Powell, 640 S.W.2d 235, 237 (Tex. 1982)

(holding that duress may be implied from a statute which imposes a penalty and interest for failure to timely pay a tax);

Nat’l Bisuit Co. (Nabisco) v. State, 134 Tex. 293, 303-04, 135 S.W.2d 687, 692-93 (1940)

(noting that where a statute imposed the penalties at issue, the taxes were paid under duress, and the taxpayer need not take the risk of incurring the statutory punishments while the case was being litigated);

Austin Nat’l Bank v. Sheppard, 123 Tex. 272, 71 S.W.2d 242, 245-46 (1934).

Miga, 214 S.W.3d at 91-92; see also Galveston Gas Co. v. Galveston Cty., 54 Tex. 287, 291-92 (Tex. 1881)

(payments made to taxing authority to prevent tax foreclosure sale was “so far compulsory as to allow of a recovery back”).

Although likely self-evident, Mr. Kala’s testimony established that payment of taxes was required to protect CIT Bank’s lien and to avoid imposition of a tax lien and subsequent foreclosure by the taxing authority.

(R.T., pp. 17-18.)

Mr. Kala further testified that if the lender does not receive notification that hazard insurance has been procured, the lender is required to obtain such insurance pursuant to its mortgage obligations.

(R.T., pp. 18-19.)

The “business compulsion” for making these payments is clear: for taxes, CIT Bank was ensuring that the taxing authority would obtain a superior lien, and for insurance, CIT Bank was protecting its collateral.

In both instances, CIT Bank was under an economic compulsion to make the payments, although they ultimately inured solely to Plaintiff’s benefit.

Accordingly, the voluntary payment doctrine provides Plaintiff no defense to CIT Bank’s claim.

IV.   The Court Should Enter Judgment in CIT Bank’s Favor in the Amount of $84,880.16.

As the Court will recall, CIT Bank submitted undisputed evidence that it had incurred $98,474.16 in tax and insurance payments.

(Def’s. Ex. 32.)

As the Court noted on the record, two force-placed insurance payments of $6,797.00 each were paid prior to Plaintiff’s acquisition of the Property.

Accordingly, CIT Bank is withdrawing its request for compensation of those sums, and is seeking judgment in the amount of $84,880.16.

The Court also raised the fact that a tax payment had also been made prior to Plaintiff acquiring the Property.

Respectfully, CIT Bank should be entitled to recover that payment in equity even though it predated Plaintiff’s ownership of the Property.

This is so because if CIT Bank had not paid that tax at that time, the taxing authority would ultimately have placed a lien upon the Property and sought to foreclose. CIT Bank would have either paid the tax prior to foreclosure, or let it go to sale.

In either event, Plaintiff was the direct (and, ultimately, sole) beneficiary of CIT Bank having made that tax payment.

Indeed, by paying the tax before a lien was placed and foreclosure fees incurred, CIT Bank clearly reduced the payment amount, thereby in the final analysis mitigating its claimed damages against Plaintiff.

CONCLUSION

This is a case that sounds in equity.

While CIT Bank has certainly submitted sufficient undisputed and unrebutted evidence to satisfy the elements of quantum meruit, it bears repeating that, as an equity case, the Court is also compelled to balance the equities between the parties.

The law of this case is that those equities tilt overwhelmingly in CIT Bank’s favor.

Plaintiff obtained a free house, and has not paid any taxes (and almost no insurance) for seven years.

Even if the Court awards CIT Bank the judgment requested herein, it is beyond dispute that Plaintiff will have reaped a once-in-a-lifetime windfall, and CIT Bank will have taken a significant loss.

For these reasons, CIT Bank requests that the Court enter judgment in CIT Bank’s favor in the amount of $84,880.16, plus pre- and post-judgment interest as permitted by law, and award CIT Bank such other and further relief as the Court deems just and proper.

Respectfully submitted,

/s/ Thomas M. Hanson

Thomas M . Hanson
State Bar No. 24068703

McGlinchey Stafford, PLLC
6688 N. Central Expressway, Suite 400
Dallas, Texas 752
Telephone: (214) 445-2445
Facsimile: (214) 445-2450

E-mail: thanson@mcglinchey.com

Attorneys for CIT Bank

CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy of the foregoing Motion has been served on all parties in accordance with the TEXAS RULES OF CIVIL PROCEDURE on this 12th day of November, 2018 as indicated below:

Via Texas E-Filing
Bertrand C. Moser
2415 Robinhood
Houston, Texas 77005
bcmoser@sbcglobal.net

Counsel for Plaintiff

/s/ Thomas M. Hanson
Thomas M. Hanson