Opinion
6:23-CV-00410-ADA-JCM
09-14-2023
U.S. BANK TRUST NATIONAL ASSOCIATION, Plaintiff, v. DIANE WHITE, et al, Defendants.
THE HONORABLE ALAN D ALBRIGHT, UNITED STATES DISTRICT JUDGE.
REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
JEFFREY C. MANSKE, UNITED STATES MAGISTRATE JUDGE.
This Report and Recommendation is submitted to the Court pursuant to 28 U.S.C. § 636(b)(1)(C), FED. R. CIV. P. 72(b), and Rules 1(f) and 4(b) of Appendix C of the Local Rules of the United States District Court for the Western District of Texas, Local Rules for the Assignment of Duties to United States Magistrate Judges. Before the Court is Plaintiff's Motion for Default Judgment (ECF No. 11) and Defendant Diane White's Answer (ECF No. 12). For the following reasons, the Court recommends Plaintiff's Motion for Default Judgment be GRANTED IN PART AND DENIED IN PART.
I. BACKGROUND
Plaintiff U.S. Bank Trust National Association as owner trustee for REO Trust 2017-RPLI files this Motion for Default Judgment against Defendants Diane White, Edna Lawson, and Juanita Everett. Plaintiff sued Defendants on May 26, 2023, seeking a declaratory judgment to foreclose on real property. Pl.'s Compl. (ECF No. 1) at ¶ 13. On the same day, Plaintiff requested summons. Req. for Issuance of Summons (ECF No. 3).
This proceeding concerns real property located at 3104 Zephyr Road, Killeen, Texas 76543 (“Property”). Pl.'s Compl. at ¶ 7. Betty Louise White (“Decedent”) executed a Note in the principal amount of $27,000 with an interest rate of 11.250% per annum. Id. at ¶ 17. The Note was originally payable to Firstplus Financial, Inc. as lender on a loan secured by the Property. Id.
Along with the Note, Decedent executed a security instrument (“Security Instrument” and together with the Note, “Loan Agreement”), granting Firstplus Financial Inc., its successors and assigns, a security interest in the Property. Id. at ¶ 18. The Security Instrument was recorded in the Official Public Records of Bell County, Texas as Instrument No. 041909 on December 3, 1998. Id.
Firstplus Financial Inc. transferred and assigned the Loan Agreement to Mortgage Electronic Registration Systems, Inc. Id. at ¶ 19. The assignment was recorded in the Official Public Records of Bell County, Texas in Book 4905, Page 28, as Instrument No. 003575 on January 27, 2003. Id. Mortgage Electronic Registration Systems, Inc. transferred and assigned the Loan Agreement to Household Realty Corporation. Id. at ¶ 20. This assignment was recorded in the Official Public Records of Bell County, Texas in Volume 10513, Page 713, as Instrument No. 2018-27540 on July 3, 2018. Id.
Household Realty Corporation transferred and assigned the Loan Agreement to MTGLQ Investors, L.P. Id. at ¶ 21. This assignment was recorded in the Official Public Records of Bell County, Texas in Volume 10071, Page 92, as Instrument No. 2017-21914 on May 30, 2017. Id. MTGLQ Investors, L.P. transferred and assigned the Loan Agreement to Loan Acquisition Trust 2017-RPLI. Id. at ¶ 22. This assignment was recorded in the Official Public Records of Bell County, Texas in Volume 10415, Page 551, as Instrument No. 2018-14257 on April 10, 2018. Id.
Loan Acquisition Trust 2017-RPLI transferred and assigned the Loan Agreement to REO Trust 2017-RPLI. Id. at ¶ 23. This assignment was recorded in the Official Public Records of Bell County, Texas in Volume 10416, Page 830, as Instrument No. 2018-14438 on April 11, 2018. Id. REO Trust 2017-RPLI transferred the Loan Agreement to Plaintiff. Id. at ¶ 24. The transfer was recorded in the Official Public Records of Bell County, Texas as Instrument No. 2023021216 on May 17, 2023. Id. Plaintiff is the current holder of the Note and beneficiary of the Security Instrument. Id. at ¶ 25.
Decedent died on or about July 6, 2021. Id. at ¶ 26. No probate was ever opened for her. Id. Thus, her heirs acquired all of her interest in the Property immediately upon her death, subject to the Loan Agreement debt owed to Plaintiff. Id.
Plaintiff filed this lawsuit seeking a declaration from the Court that it is the owner and holder of the Note, beneficiary of the Security Instrument, and authorized to enforce the power of sale in the Security Instrument through foreclosure of the Property. Id. at ¶ 25. Plaintiff also seeks a declaration that it has a statutory probate lien against the Property under the terms of the Loan Agreement. Id. at ¶ 27. Plaintiff further seeks non-judicial foreclosure of the Property, or alternatively judicial foreclosure, and to sell the Property at a public auction. Id. at ¶ 30-34. Finally, Plaintiff requests damages for reasonable attorney's fees. Id. at ¶ 35.
Plaintiff served Defendant Juanita Everett on June 8, 2023. ECF No. 5. Her answer or response was due June 29, 2023. Plaintiff served Defendants Edna Lawson and Diane White on June 9, 2023. ECF No. 6; ECF No. 7. Their answers or responses were due June 30, 2023. Defendant Everett and Lawson have not appeared or otherwise defended the suit. Defendant White filed an answer on July 17, 2023. Def. White's Answer (ECF No. 12).
Exhibit A-1 shows that Defendants are not on active-duty military status. Ex. A-1, Decl. of Mark Cronenwett. Plaintiff filed a Motion for Clerk's Entry of Default against Defendants on July 3, 2023. ECF No. 8. The Clerk entered default against Defendants on July 5, 2023. ECF No. 9; ECF No. 10. Plaintiff filed this Motion for Default Judgment on July 6, 2023. Defendants have not responded.
II. RELEVANT LAW
Default may be entered against a party when it fails to answer or otherwise defend a suit. FED. R. CIV. P. 55. The following three steps must be followed to obtain a default judgment: (1) default by the defendant; (2) entry of default by the Clerk; and (3) entry of default judgment by the court. N.Y. Life Ins. Co. v. Brown, 84 F.3d 137, 141 (5th Cir. 1996). To enter default judgment, courts typically determine whether default judgment is appropriate by considering the Lindsey v. Prive Corp., 161 F.3d 886 (5th Cir. 1998) factors and whether the pleadings have a sufficient basis for judgment. Nautilus Ins. Co. v. A Best American Roofing, LLC, EP-18-CV-320-PRM, 2019 WL 1473140, at *2 (W.D. Tex. Apr. 3, 2019) (citing Lindsey, 161 F.3d at 893 and Nishimatsu Constr. Co. v. Houston Nat'l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975)); Yeti Coolers, LLC v. Zhejiang Zhuosheng Indus. & Trade Co., Ltd., 1:17-CV-821-RP, 2019 WL 2568748, at *2 (W.D. Tex. June 21, 2019).
Plaintiff's well-pleaded factual allegations are taken as true after default, and default functions as an admission of those allegations. Jackson v. FIE Corp., 302 F.3d 515, 524-25 (5th Cir. 2002). Failure to answer or otherwise defend is admission of liability but not agreement with proposed damages. Id. An evidentiary hearing is not necessary to determine damages if damages are liquidated or mathematically calculable. United Artists Corp. v. Freeman, 605 F.2d 854, 857 (5th Cir. 1979).
III. ANALYSIS
Plaintiff seeks a declaration that it is the owner and holder of the Note and beneficiary of the Security Instrument, authorized to enforce the power of sale in the Security Instrument through foreclosure of the Property. Pl.'s Compl. at ¶ 34. The Court must determine first whether default judgment is appropriate, and second what relief, if any, should be awarded.
First, the Court must determine whether default judgment may be entered. To obtain default judgment, the following must occur: (1) default by the defendant; (2) entry of default by the Clerk; and (3) entry of default judgment by the court. N.Y. Life Ins. Co., 84 F.3d at 141. Defendants defaulted by failing to answer or otherwise defend this suit. FED. R. CIV. P. 55. Service was properly executed on Defendants, yet they had not appeared, answered, or otherwise defended this suit when Plaintiff filed its Motion for Clerk's Entry of Default. Pl.'s Mot. for Clerk's Entry of Default. The Court Clerk entered default against Defendants on July 3, 2023. ECF No. 9; ECF No. 10. Defendants Lawson and Everett still have not appeared, answered, or otherwise defended this suit. Therefore, default judgment may be entered by the Court against Defendants Lawson and Everett.
Defendant White, on the other hand, has answered and intends to defend against this suit. Def. White's Answer. Defendant White acknowledges that she received summons in this case, but “truly thought that as long as [Defendant] had been contacted that [Plaintiffs] were okay.” Id. at 1. She “did not know it had to be in person and not by phone.” Id. She also noted that her delay in responding to Plaintiff's Motion for Default Judgment was due to the notice being delivered to her neighbor's house. Id. Nonetheless, Defendant White is currently in default for failing to timely answer, and the Court must determine whether default judgment against any of the defendants is appropriate.
Under Lindsey, the Court must consider the following:
whether material issues of fact are at issue, whether there has been substantial prejudice, whether the grounds for default are clearly established, whether the default was caused by a good faith mistake or excusable neglect, the harshness of a default judgment, and whether the court would think itself obliged to set aside the default on the defendant's motion.Lindsey, 161 F.3d at 893. All of the factors weigh in favor of default judgment against Defendants Lawson and Everett. There are no issues of material fact as Defendants Lawson and Everett failed to respond to Plaintiff's allegation sin any manner. They also do not face prejudice because they admitted to the allegations through their default. Jackson, 302 F.3d at 524. Grounds for default are “clearly established” as Plaintiff properly served Defendants Lawson and Everett, and they have not defended the suit. Defendants have not claimed any good faith mistake or excusable neglect. Id. Defendants failed to respond though they had time to do so, mitigating the harshness of default judgment. Id. While default judgment is not a favored remedy of the courts, no good cause is apparent which would oblige the Court to set aside default judgment. Id.; Lewis v. Lynn, 236 F.3d 766, 767 (5th Cir. 2001) (per curiam). Therefore, the Lindsey factors weigh in favor of default judgment against Defendants Lawson and Everett.
The factors do not, however, weigh in favor of granting default judgment against Defendant White. Here, material facts are at issue because White responded to the complaint, indicating that she “would like to reinstate a payment plan . . . asap.” Def. White's Answer at 1. There has also not been substantial prejudice to Plaintiff yet. “There is no prejudice to the plaintiff where ‘the setting aside of the default has done no harm to plaintiff except to require it to prove its case.'” Lacy v. Sitel Corp., 227 F.3d 290, 293 (5th Cir. 2000) (citations omitted). Thus, where default judgment has not been entered yet and the defendant appears, a plaintiff cannot be said to have suffered substantial prejudice. Defendant White has also established that that her default was caused by a good faith mistake. In her answer, she notes that she truly believed that calling Defendant to speak with it about the matter was sufficient to satisfy her obligation to respond to the lawsuit. Id. She also notes that she spoke with Plaintiff's counsel's secretary about this case on the phone. Id.
Default judgment would be particularly harsh in this case. Defendant White alleged in her answer that her son and grandson currently live at the property, and she plans to live there soon. Id. Finally, this Court would likely find itself obliged to set aside an entry of default judgment against Defendant White on her motion. Accordingly, default judgment against Defendant White would be inappropriate, and Plaintiff's Motion for Default Judgment against White should be denied.
A. Plaintiff is entitled to a declaration of foreclosure on the Property against Defendants Lawson and Everett.
Next, the Court must determine whether there is a sufficient basis in the pleadings for default judgment against Defendants Lawson and Everett. Nishimatsu Const. Co., Ltd., 515 F.2d at 1206. Plaintiff seeks a declaratory judgment that Plaintiff “is authorized to enforce the power of sale in the Security Instrument through foreclosure of the Property.” Pl.'s Compl. at ¶ 34. To foreclose under a security instrument with a power of sale in Texas, the lender must demonstrate that: (1) a debt exists; (2) the debt is secured by a lien created under Art. 16, § 50(a)(6) of the Texas Constitution; (3) defendant is in default under the note and security instrument; and (4) defendant received notice of default and acceleration. Huston v. U.S. Bank. Nat. Ass'n, 988 F.Supp.2d 732, 740 (S.D. Tex. 2013) citing Tex. Prop. Code § 51.002.
The Court should declare that Plaintiff is entitled to foreclose against Defendants Lawson and Everett. Plaintiff is permitted to seek foreclosure of the lien on the property due to Defendants' failure to pay the debt under the Loan Agreement. Originally payable to Firstplus Financial Inc., Plaintiff is now the beneficiary of the Loan Agreement pursuant to an assignment. Pl.'s Compl. at ¶ 17-25. Plaintiff alleged that the creation of the Loan Agreement created a debt. This debt is secured by a valid lien because the Security Instrument was recorded in the official public records of McLennan County, Texas. Id. at ¶ 18. Plaintiff alleges that the Loan Agreement fell into default because of the Defendants' failure to abide by the terms and make required payments. Id. at ¶ 26-29. Finally, Plaintiff asserts that notice of default and notice of acceleration were properly sent to Defendant. Id. at 29-30. By failing to answer the Complaint, Defendants have admitted these factual allegations. Therefore, the Court should declare that Plaintiff is entitled to foreclosure against Lawson and Everett.
Plaintiff's pleadings provide a sufficient basis for default judgment. Therefore, Plaintiff established a sufficient basis in the pleadings for default judgment to be entered against Defendants Lawson and Everett. Nishimatsu Const. Co., Ltd., 515 F.2d at 1206. Because the Lindsey factors weigh in favor of default judgment and the pleadings have a sufficient basis for default judgment to be entered, the Court may enter default judgment against Defendants Lawson and Everett.
B. Plaintiff is entitled to relief against Defendants Lawson and Everett.
Finally, the Court must determine what relief should be awarded to Plaintiff. The Court does not need to hold an evidentiary hearing on the issue of damages if damages are liquidated or mathematically calculable. United Artists Corp., 605 F.2d at 857. Plaintiff does not seek monetary damages against Defendants. Instead, Plaintiff seeks the following relief: (1) a declaration that Plaintiff is the owner and holder of the Note and beneficiary of the Deed of Trust and is authorized to enforce the power of sale in the Deed of Trust through foreclosure of the Property; (2) a declaration that Plaintiff's statutory probate lien against the Property shall be enforced by a non-judicial foreclosure at public auction; and (3) attorney fees and costs of suit. Pl.'s Compl. at 9.
Plaintiff is entitled to all of the relief it seeks against Defendants Lawson and Everett. Plaintiff requests that the award of attorneys' fees be made not as a money judgement against Defendants, but as a further obligation owed under the Loan Agreement in an amount to be determined in a post-judgment motion pursuant to Federal Rule of Civil Procedure 54(d)(2)(B)(i). Id. at ¶ 35. Plaintiff is entitled to attorneys' fees in an amount to be determined in a post-judgment motion. The Court, however, should not allow Plaintiff to foreclose on the Property until its claims against Defendant White are resolved.
IV. CONCLUSION
It is therefore RECOMMENDED Plaintiff's Motion for Default Judgment (ECF No. 11) be GRANTED IN PART AND DENIED IN PART. The Motion should be GRANTED to the extent that Plaintiff can seek attorneys' fees and costs against Defendants Lawson and Everett. The Motion should be DENIED in full as to Defendant White and Plaintiff may not seek attorneys' fees, costs, or foreclosure against her or her interest in the Property. Further, Plaintiff may not seek foreclosure on the Property until Plaintiff's claims against Defendant White are fully resolved in Plaintiff's favor.
V. OBJECTIONS
The parties may wish to file objections to this Report and Recommendation. A party filing objections must specifically identify those findings or recommendations to which objections are made. The District Court need not consider frivolous, conclusive, or general objections. Battle v. U.S. Parole Comm'n, 834 F.2d 419, 421 (5th Cir. 1987).
A party's failure to file written objections to the proposed findings and recommendations contained in this Report within fourteen (14) days after the party is served with a copy of the Report shall bar that party from de novo review by the District Court of the proposed findings and recommendations in the Report and, except upon grounds of plain error, shall bar the party from appellate review of unobjected-to proposed factual findings and legal conclusions accepted by the District Court. 28 U.S.C. § 636(b)(1)(C); Thomas v. Arn, 474 U.S. 140, 150-53 (1985); Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415 (5th Cir. 1996) (en banc).