Janos Farkas v. GMAC Mortgage, L.L.C.

Case: 12-20668 Document: 00512456829 Page: 1 Date Filed: 12/02/2013

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT United States Court of Appeals

Fifth Circuit

FILED

December 2, 2013

No. 12-20668 Lyle W. Cayce

Clerk

JANOS FARKAS,

Plaintiff-Appellant

v.

GMAC MORTGAGE, L.L.C.; DEUTSCHE BANK TRUST COMPANY

AMERICAS,

Defendants-Appellees

Appeal from the United States District Court

for the Southern District of Texas

Before JOLLY, DeMOSS, and SOUTHWICK, Circuit Judges.

PER CURIAM:

Janos Farkas appeals the district court’s ruling granting the defendants’

motion for summary judgment on claims arising out of the threatened

foreclosure on two residential investment properties he owned. Farkas argues

that the district court had no jurisdiction because of an insufficient amount in

controversy under Section 1332. He also argues that it was not shown that these

defendants had the right to foreclose. We AFFIRM.

Janos Farkas purchased two residential investment properties in 2006.

One of the properties is located on Claretfield Court in Humble, Texas, and the

other on Oakview Creek Lane in Houston. Cornerstone Mortgage Company was

the lender and the mortgage servicer at the time of the origination of the loans.

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The loans for each property were evidenced by a promissory note signed by

Farkas and secured by a deed of trust, also signed by Farkas. Each deed of trust

named Mortgage Electronic Registration Systems, Inc. (“MERS”), its successors

and assigns, as Cornerstone’s beneficiary with the right to enforce Cornerstone’s

legal interests. The purchase price was $87,288 for the Claretfield property and

$88,061 for the Oakview property.

Cornerstone sold both the Claretfield and Oakview promissory notes in

2006 to Residential Funding Corporation (“RFC”), an affiliate of GMAC

Mortgage. Later in 2006, the promissory notes for both loans were securitized

and pooled with others in a trust, with Deutsche Bank National Trust Company

Americas named as the trustee. The deeds of trust were registered with MERS

and were not conveyed with the promissory notes. MERS subsequently assigned

the Claretfield Deed of Trust on May 31, 2011 and the Oakview Deed of Trust

on June 17, 2010 to Deutsche Bank. Each assignment was recorded in the real

property records of Harris County, Texas.

The mortgage servicing rights were transferred separately from the deeds

of trust and the promissory notes. The servicing right for the Claretfield

promissory note was transferred from Cornerstone to Homecomings Financial,

LLC on July 1, 2006, who transferred it to GMAC on July 1, 2009. The servicing

right for the Oakview promissory note was transferred from Cornerstone to

Homecomings on August 1, 2006, then to GMAC on July 1, 2009. GMAC

continues to service both promissory notes.

Farkas made monthly payments on each note until December 2010.

During this time, Farkas acknowledged receiving notice of the change in

mortgage servicer for both the transfer of servicing to Homecomings and the

transfer to GMAC.

In August 2010, Farkas contacted GMAC as to each loan in separate

letters. He asked for confirmation under the Truth in Lending Act that GMAC

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was the “Rightful Holder in Due Course.” He also stated that if GMAC is “just

a servicer, I demand that you identify both the Holder in Due Course . . . and

written authorization that entitles you to service this instrument.” GMAC’s

responses, dated August 26, 2010 for the Claretfield note and August 27, 2010

for the Oakview note, did not provide the requested documentation proving the

right to service the loans. It provided the account’s payment history and the

basic originating documents for both loans. As to the Claretfield loan, GMAC

stated that the loan was registered with MERS. The response additionally said

the loan had been “transferred to GMAC Mortgage LLC for servicing on June 27,

2006,” and the current owner of the loan was Deutsche Bank. On the Oakview

loan, GMAC said that the “holder in due course” was Deutsche Bank.

Farkas sent GMAC notice of an “Intent to Litigate” as to both mortgages

in September 2010 as a result of his dissatisfaction with GMAC’s response. He

ceased making payments on both loans in December 2010.

GMAC sent Farkas notices of default and intent to accelerate payments

for the Claretfield note on May 16, 2011 and for the Oakview note on May 13,

2011. At the time Farkas suspended payment, the unpaid principal and interest

on the notes were $85,773.20 on the Claretfield property and $88,092.20 on the

Oakview property. Neither property, though, has been subject to a foreclosure

sale due to a restraining order granted by the state court prior to removal to

federal district court.

Farkas brought suit in state court against GMAC and Deutsche Bank.

The defendants removed the case to the United States District Court for the

Southern District of Texas. The parties consented to proceed before a magistrate

judge pursuant to 28 U.S.C. § 636(c). We will refer to the magistrate judge’s

rulings as being those of the district court. In a detailed opinion, the district

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court granted the defendants’ motion for summary judgment, denied Farkas’

motion for partial summary judgment, and dismissed defendants’ motion for

judgment on the pleadings as moot. Farkas appeals.

DISCUSSION

We review a district court’s grant of summary judgment de novo. Onoh v.

Nw. Airlines, Inc., 613 F.3d 596, 599 (5th Cir. 2010). We view all evidence in the

light most favorable to the non-moving party. Id. Summary judgment should

be granted only if “there is no genuine dispute as to any material fact and the

movant is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a).

I. Subject-Matter Jurisdiction

Farkas argues that his claim did not meet the minimum amount in

controversy for removal to federal court. Our review of jurisdictional issues is

de novo. Volvo Trucks N. Am., Inc. v. Crescent Ford Truck Sales, Inc., 666 F.3d

932, 935 (5th Cir. 2012). Federal courts have original jurisdiction over civil

actions where the parties are diverse and the amount in controversy exceeds

$75,000. 28 U.S.C. 1332(a). In his initial claim, Farkas sought damages “not to

exceed $60,000,” a temporary restraining order, declaratory judgment, and a

permanent injunction to stop the foreclosure actions on both properties.

“In actions seeking declaratory or injunctive relief, it is well established

that the amount in controversy is measured by the value of the object of the

litigation.” Hunt v. Wash. State Apple Adver. Comm’n, 432 U.S. 333, 347 (1977).

The purpose of the injunctive and declaratory relief, to stop the foreclosure sale

of the properties by GMAC and Deutsche Bank, establishes the properties as the

object of the present litigation. As this court has explained, “the amount in

controversy, in an action for declaratory or injunctive relief, is the value of the

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right to be protected or the extent of the injury to be prevented.” Leininger v.

Leininger, 705 F.2d 727, 729 (5th Cir. 1983). Farkas’ claimed injury was the

potential loss of use and ownership of the properties. In actions enjoining a

lender from transferring property and preserving an individual’s ownership

interest, it is the property itself that is the object of the litigation; the value of

that property represents the amount in controversy. Garfinkle v. Wells Fargo

Bank, 483 F.2d 1074, 1076 (9th Cir. 1973). Under any reasonable basis for

valuing the properties, whether purchase price, market value, or outstanding

principal and interest, the amount in controversy threshold is exceeded and

federal subject-matter jurisdiction exists.

II. Validity of Defendants’ Foreclosure

Farkas challenges the validity of the foreclosure action initiated by the

defendants. Farkas contends that Deutsche Bank is not a proper grantee,

beneficiary, owner, or holder of the deeds of trust; that the transfer of the notes

to Deutsche Bank was improper under the Pooling & Services Agreement

(“PSA”); that GMAC is not a proper servicer; and that no evidence supports

GMAC’s continued role as servicer after assignment to Deutsche Bank. We will

address each argument.

A. Whether Deutsche Bank was a Mortgagee

“[W]here federal jurisdiction is based on diversity of citizenship . . . a

federal court is in effect only another court of the state in which it sits and

applies the same law that would be applied if the action had been brought in

state courts.” Aerosonic Corp. v. Trodyne Corp., 402 F.2d 223, 229 (5th Cir.

1968). Under this principle, and applying Texas law, we conclude that the

district court was correct in its determination that Deutsche Bank was a

mortgagee and could proceed with the foreclosure action. Under Texas law, a

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non-judicial foreclosure may be initiated by the current mortgagee including:

“the grantee, beneficiary, owner, or holder of a security instrument;” a “book

entry system;” or “the last person to whom the security interest has been

assigned of record.” TEX. PROP. CODE § 51.0001(4). As the record demonstrates,

the deeds of trust named MERS the beneficiary of Cornerstone and MERS later

assigned the deeds of trust to Deutsche Bank. As this court has concluded,

“[b]ecause MERS is a book-entry system, it qualifies as a mortgagee.” Martins

v. BAC Home Loan Servicing, L.P., 722 F.3d 249, 255 (5th Cir. 2013). Our

holding in Martins permits MERS and its assigns to bring foreclosure actions

under the Texas Property Code. Deutsche Bank became the mortgagee as

defined under Section 51.0001(4) by valid and recorded transfer of the deeds of

trust and therefore was an appropriate party to initiate non-judicial foreclosure

actions against the Oakview and Claretfield properties.

B. Challenge to the Assignment to Deutsche Bank Under the PSA

Farkas next challenges the assignment of the notes to Deutsche Bank. He

asserts that they are void because they were in violation of the PSA governing

the RAI Series 2006-QS9 trust. He argues that the improper assignment

precludes Deutsche Bank from properly assuming the status of mortgagee and

foreclosing on the properties. Farkas concedes, though, that he is not a party to

the PSA, the terms of which he seeks to enforce. We have addressed a similar

challenge to a foreclosure action based on the violation of the terms of a PSA and

found that borrowers lacked standing to challenge the transfer of a note in

violation of the terms of the PSA. Reinagel v. Deutsche Bank Nat’l Trust Co., 12-

50569, 2013 WL 5832812, at *5 (5th Cir. Oct. 29, 2013). We explained that

borrowers, as non-parties to the PSA, “have no right to enforce its terms unless

they are its intended third-party beneficiaries.” Id. Further, the “Texas

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Supreme Court has established ‘a presumption . . . that parties contracted for

themselves,’ which applies ‘unless it clearly appears that they intended a third

party to benefit from the contract.’” Id. (internal citations omitted). As a non-

party mortgagor, and without any evidence showing Farkas to be an intended

third-party beneficiary, we conclude that Farkas lacks the requisite standing to

bring suit to enforce the terms of the PSA that govern the assignment of the

mortgagor’s note.

C. Challenge to GMAC’s Status as Mortgage Servicer

Finally, Farkas argues that the district court erred in concluding that

GMAC was the mortgage servicer under Section 51.0001(3) of the Texas

Property Code. See TEX. PROP. CODE § 51.0001(3). Farkas contends that GMAC

was not the mortgage servicer and was therefore incapable of initiating a

foreclosure proceeding under Section 51.0025.

A “‘[m]ortgage servicer’ means the last person to whom a mortgagor has

been instructed by the current mortgagee to send payments for the debt secured

by a security instrument.” TEX. PROP. CODE § 51.0001(3). A later provision in

the same statute allows mortgage servicers to initiate and process foreclosures.

See TEX. PROP. CODE § 51.0025. Farkas argues that GMAC, who initiated the

challenged foreclosures, was not a valid mortgage servicer because he had never

been properly notified of that fact.

We have already quoted Section 51.0001(3), which provides the

mechanism by which a debtor will come to know the identity of its mortgage

servicer: it is the entity that the current mortgagee identified in notice sent to

the mortgagor. The entity so identified has the rights and responsibilities

permitted mortgage servicers under the statutory scheme, including the ability

to foreclose on behalf of a mortgagee.

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It is undisputed that Farkas made monthly payments on both the

Claretfield and Oakview mortgages to companies identified to him as mortgage

servicers beginning with the origination of the mortgages in 2006 and extending

until December 2010. The servicing for each mortgage was transferred from

Cornerstone to Homecomings in 2006 and to GMAC in 2009. In each case, the

preceding mortgage servicer and not the new mortgagee notified Farkas of the

identity of the succeeding mortgage servicer. When Deutsche Bank became the

“current mortgagee” of the Oakview property in 2010, no notice was given

Farkas by anyone that GMAC remained the servicer. MERS remained the

mortgagee on the Claretfield deed of trust until after Farkas went into default.

In his appellate brief, Farkas complains that he “has never been

instructed by the current mortgagee to make payments to GMAC,” and the

“notices contain no instructions by the current mortgagee to whom the

mortgagor needs to make payment to.” The district court rejected the

complaints by emphasizing the notice that was provided, the unbroken chain

of assignment of interests for both loans, and Farkas’ acknowledged awareness

of having to make payments to GMAC. It found these facts, in concert with the

absence of evidence suggesting an alternate mortgage servicer or that GMAC

was no longer the mortgage servicer, to render Farkas’ argument untenable.

We do not disagree, but we conclude that the requirement in Section 51.0001(3)

that the current mortgagee provide the notice requires us also to consider the

defendants’ argument that quasi-estoppel under Texas law precludes Farkas

from challenging GMAC’s status as mortgage servicer. Even though the district

court did not address the estoppel argument, we may affirm summary judgment

“on any grounds supported by the record.” Lifecare Hosp., Inc. v. Health Plus

of Louisiana, Inc., 418 F.3d 436, 439 (5th Cir. 2005).

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Texas courts apply the term “quasi-estoppel” to legal bars such as

ratification, election, acquiescence, waiver, or acceptance of benefits. See

Steubner Realty 19, Ltd. v. Cravens Rd. 88, Ltd., 817 S.W.2d 160, 164 (Tex. App.

– Houston 1991) (citing 31 C.J.S. Estoppel § 107 (1964)). Quasi-estoppel

“precludes a party from asserting, to another’s disadvantage, a right

inconsistent with a position previously taken. The doctrine applies when it

would be unconscionable to allow a person to maintain a position inconsistent

with one to which he acquiesced, or from which he accepted a benefit.” Lopez

v. Munoz, Hockema & Reed, L.L.P., 22 S.W.3d 857, 864 (Tex. 2000) (citations

omitted).

At any point after the 2006 origination of the mortgages, Farkas could

have raised the issue that only the current mortgagee could provide effective

notice of the identity of the mortgage servicer. He did not do so until this

litigation. Farkas made payments to GMAC, the entity whose status as

mortgage servicer is presently subject to challenge, from July 2009 until

December 2010. The duration and regularity of these continued payments to

mortgage servicers who had not been identified by current mortgagees

constitute acquiescence to the validity of notice of transfer from one mortgage

servicer to the next. The equitable relief afforded by quasi-estoppel assures

that a party’s position on a given issue is more than a matter of mere

convenience but is instead a stance to which it is bound.

Quasi-estoppel is supported by different facts as to each property. As to

the Claretfield property, the preceding mortgage servicer provided notice to

Farkas of a new servicer each time the mortgage servicing for the property was

transferred. The mortgagee of the Claretfield loan did not change until after

Farkas defaulted on the loan, as MERS transferred its interest to Deutsche

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Bank in May 2011. The only possible defect in the notice provided to Farkas

prior to default was that the wrong entity, the preceding mortgage servicer,

twice provided the notice of a new mortgage servicer. Quasi-estoppel precludes

Farkas from pressing this claim after he defaulted on the loan because he did

not object on this basis after the preceding changes in mortgage servicers.

As to the Oakview loan, though, MERS transferred its interest to

Deutsche Bank in July 2010. GMAC remained the mortgage servicer after the

transfer. GMAC’s August 2010 letter responding to Farkas’ inquiry assured

him that it was the current servicer. Farkas did not suggest in the course of his

exchange with GMAC that communications from a servicer were no longer

sufficient, though Farkas did demand that GMAC (not the current mortgagee)

provide documentation showing its status as servicer. The claimed statutory

violation, though, is not GMAC’s failure to document but Deutsche Bank’s

failure to notify Farkas of the identify of the mortgage servicer.1

Quasi-estoppel applies to Farkas’s challenge to GMAC’s status as

mortgage servicer of each loan. AFFIRMED.

1

We find no doubt on this record that Deutsche Bank was the mortgagee and GMAC

the servicer, despite possible defects in the manner in which Farkas was notified. That clarity

distinguishes this case from a decision by a Texas federal court denying a motion to dismiss

under Rule 12(b)(6), when there was doubt on the pleadings as to the identity of the mortgagee

and the servicer. Shelton v. Flagstar Bank, F.S.B., No. 4:11-cv-03805, 2012 WL 1231756, *2

(S.D. Tex. Apr. 12, 2012).

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