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Date: 01-04-2019
Case Style:
Michael Wease v. Ocwen Loan Servicing, L.L.C.; Wells Fargo Bank, N.A.
Case Number: 17-10574
Judge: Stephen A. Higginson
Court: United States Court of Appeals for the Fifth Circuit on appeal from the Northern District of Texas (Dallas County)
Plaintiff's Attorney: Michael Patrick Moore, Jack B Peacock, Jr. and David M Vereeke
Defendant's Attorney: Mark D Cronenwett, Philip William Danaher
Description:
This Texas mortgage dispute presents contractual, statutory, and equitable issues. We discern ambiguity in the contract’s escrow provisions and therefore hold that the district court erred by granting summary judgment to the defendants on claims arising from that ambiguity. Otherwise, we affirm.
BACKGROUND
I. Factual
In 2003, Michael Wease executed a home equity note on his Texas property and secured the loan with a deed of trust.
the current beneficiary of the deed of trust and Ocwen Loan Servicing, L.L.C.,
the loan servicer.1
Among the promises the parties exchanged was the Escrow Waiver
Agreement (the Waiver Agreement), which was appended to the deed of trust.
It provided that the lender would “elect[] not to collect monthly escrow deposits
to pay real estate taxes” subject to the condition that “[a]ll real estate taxes are
paid when due, and evidence is furnished to Lender at that time.” The Waiver
Agreement warned:
In the event Borrower fails to comply with [the] above condition[],
Lender has the right and Borrower agrees to pay sufficient funds
to establish a fully funded escrow account and to have the monthly
payment adjusted to include a monthly escrow deposit.
This action is an election not to collect escrows at this time and
should not be deemed a waiver of Lender’s right to do so at some
future date.
Sections 3, 9, and 14 in the deed of trust also contained agreements about
escrow. Section 3 explained when and how the lender could establish an
escrow. It defined “Escrow Items” to include “taxes and assessments” and
explained:
If Borrower is obligated to pay Escrow Items directly, pursuant to
a waiver, and Borrower fails to pay the amount due for an Escrow
Item, Lender may exercise its rights under Section 9 and pay such
amount and Borrower shall then be obligated under Section 9 to
repay to Lender any such amount. Lender may revoke the waiver
as to any or all Escrow Items at any time by a notice given in
accordance with Section 14 and, upon such revocation, Borrower
shall pay to Lender all Funds, and in such amounts, that are then
required under this Section 3.
1 Although both are named as defendants, we follow the parties’ lead and refer to them
collectively as “Ocwen.”
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Section 9 provided that if “Borrower fails to perform the covenants and
agreements contained in this Security Instrument,” then “Lender may do and
pay for whatever is reasonable or appropriate to protect Lender’s interest in
the Property and rights under this Security Instrument.” The section defined
those actions to include, but not be limited to, “paying any sums secured by a
lien which has priority over this Security Instrument.”2
Section 14 addressed notice. It required that all notices “given by
Borrower or Lender in connection with this Security Agreement” be “in
writing.” It also provided that “[a]ny notice to Borrower . . . shall be deemed
to have been given to Borrower when mailed by first class mail or when
actually delivered to Borrower’s notice address if sent by other means.”
For seven years, the arrangement functioned amicably. But in April
2010, Wease’s loan servicer—then HomEq Servicing—sent Wease a letter
advising him that HomeEq had performed an “examination of past due
property taxes” which revealed that Wease was “delinquent” on his taxes for
the prior year (2009). The letter warned:
The terms of your loan agreement require that you pay all taxes
and assessments on your property when due. In accordance with
the terms of your Mortgage/Deed of Trust, HomeEq may advance
funds to protect its interest in your property if this is not done. If
HomeEq advances funds to pay the delinquent property taxes, an
escrow account will be established and will remain in effect for the
remaining term of your loan. Your monthly payment will increase
to reflect the escrow payment due.
The letter requested that Wease pay the taxes within 30 days of the date of the
notice or, if he had already paid the taxes, that he forward proof of payment.
Five days later, HomEq sent an identical letter. Wease did not pay his 2009
2 The parties do not dispute that, as a matter of law, a tax lien has priority over a
creditor’s interest and that a tax lien attaches on January 1 of each year. Tex. Tax Code §
32.05(b); Tex. Tax Code § 32.01.
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property taxes until June 30, 2010. The record does not indicate whether
HomEq ever advanced or escrowed any money.
Six weeks later, Wease received a “Notice of Transfer” dated August 11,
2010. This letter informed him that Ocwen would replace HomEq as servicer.
The terms of the financing agreement would remain in place. “If you are
currently responsible for payment of your real estate taxes,” the letter clarified,
“you will continue to be responsible for payment of these items after your
account transfers to Ocwen.” Towards the end of the letter, Ocwen included a
paragraph expressly concerning “Section 6 of RESPA (12 USC 2605).” The
letter explained that the statute mandates servicers to acknowledge a
“qualified written request” within 20 business days of receipt. Then the letter
stated, “If you want to send a ‘qualified written request’ regarding the servicing
of your loan, it must be sent to [an Orlando, FL] address[.]” At that time, Wease
was current on his loan and tax payments.
On December 16, 2010—without prior notice—Ocwen paid Wease’s 2010
property taxes. Unaware of Ocwen’s payment, Wease paid his 2010 taxes in
January 2011; the tax authorities subsequently refunded that amount. Six
months later, on June 6, 2011, Ocwen sent Wease a letter labeled, “Annual
Escrow Account Disclosure Statement Account History.” It began by
explaining: “This is a statement of actual and scheduled activity in your escrow
account from August 2010 through July 2011.” The statement did not mention,
let alone expressly revoke, the Waiver Agreement. Instead, the letter asserted
that Wease had a “total shortage for coming escrow period” worth $4,740.64,
which Ocwen would collect “over 12 monthly payments” starting August 1,
2011. That would constitute an increase in Wease’s monthly mortgage
payment from approximately $700 to $1,355.88.
Wease defaulted in August 2011. He attempted to cure by sending
partial payments in October and November, but Ocwen rejected them and, on
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January 3, 2012, sent a notice of default and intent to accelerate. On January
27, 2012, Wease sent his first of three alleged qualified written requests, or
QWRs, to a West Palm Beach, FL address. Wease’s letter requested “all
documentation concerning [his] loan including transaction history for the
duration of the loan and any documentation proving who actually owns the
property along with me.” But Wease did not send this purported QWR to the
exclusive QWR address in Orlando, FL.
The misaddressed letter nonetheless elicited a response from Ocwen on
February 13, 2012, stating that Wease’s partial payments were “insufficient to
cure the default on the loan.” The letter closed by telling Wease that he “may .
. . send written correspondence” to the same West Palm Beach address where
Wease had sent the letter—which, again, differed from the exclusive QWR
address.
Wease sent two more alleged QWRs in the next few months, one to a
Springfield, OH address and another via email. Neither went to Ocwen’s
exclusive QWR address listed in the notice of transfer and neither elicited an
answer. Instead, in May 2012, Ocwen sent a notice of acceleration. Wease
responded with this lawsuit.
II. Procedural
Wease originally filed suit in Texas state court and Ocwen removed to
the Northern District of Texas. The operative complaint alleges, in relevant
part: (1) breach of contract; (2) “equitable relief,” i.e., a preemptive “unclean
hands” defense to a potential foreclosure action; (3) violation of the Real Estate
Settlement Procedures Act (RESPA); and (4) violation of the Texas Debt
Collection Practices Act (TDCA). Ocwen filed a counterclaim for foreclosure.
Ocwen prevailed entirely on its motion for summary judgment and Wease
appealed.
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STANDARD OF REVIEW
We assess summary judgment de novo, viewing the evidence in the light
most favorable to the nonmoving party and drawing all reasonable inferences
in the nonmovant’s favor. Kariuki v. Tarango, 709 F.3d 495, 501 (5th Cir.
2013). The movant prevails by showing “that 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).
ANALYSIS
I. Breach of Contract, Unclean Hands, and Foreclosure
Wease argues that Ocwen breached the deed of trust by paying Wease’s
2010 taxes, starting to escrow, and increasing monthly mortgage payments—
all without notice. Although “unclean hands” is “an affirmative defense,” Cantu
v. Guerra Moore, LLP, 448 S.W.3d 485, 496 (Tex. App.—San Antonio 2014, pet.
denied), Wease’s complaint invoked it as a “cause of action” to prevent Ocwen
from foreclosing on his home. Ocwen’s answer counterclaimed for foreclosure
on the grounds that Wease breached the deed of trust and remains in default.
Texas substantive law governs the contract claims.3 In Texas, breach of
contract requires four elements: (1) a valid contract, (2) plaintiff’s performance,
(3) defendant’s breach, and (4) resulting damages. See Henning v. OneWest
Bank FSB, 405 S.W.3d 950, 969 (Tex. App.—Dallas 2013, no pet.). To
determine the meaning of contractual terms, Texas courts focus on the parties’
intentions as expressed in the contract itself. Italian Cowboy Partners, Ltd. v.
Prudential Ins. Co. of Am., 341 S.W.3d 323, 333 (Tex. 2011). We must “examine
and consider the entire writing in an effort to harmonize and give effect to all
the provisions of the contract so that none will be rendered meaningless.” Id.
3 The contract named Texas as its source of governing law. Applicable choice-of-law
rules give effect to that clause. W.–S. Life Assurance Co. v. Kaleh, 879 F.3d 653, 658 (5th Cir.
2018).
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(quotation omitted). The starting point is the express language, El Paso Field
Servs., L.P. v. MasTec N. Am., Inc., 389 S.W.3d 802, 805–06 (Tex. 2012), which
we will “strictly construe[]” when reading a deed of trust, Bonilla v. Roberson,
918 S.W.2d 17, 23 (Tex. App.—Corpus Christi 1996, no writ). We will interpret
those terms as a matter of law if they carry a “certain or definite legal meaning
or interpretation.” El Paso, 389 S.W.3d at 806. “[W]hether the contract is
ambiguous is itself a question of law for the court to decide.” First Bank v.
Brumitt, 519 S.W.3d 95, 105 (Tex. 2017). If we find the contract ambiguous, its
correct reading presents a jury question. El Paso, 389 S.W.3d at 806.
The first breach-of-contract question is whether the contract permitted
Ocwen to pay Wease’s non-delinquent 2010 taxes on December 16, 2010. The
second issue is whether Ocwen provided contractually required notice of that
action and of Ocwen’s revocation of the Waiver Agreement.
Ocwen’s strongest argument that the contract permitted Ocwen to pay
Wease’s 2010 taxes is Section 9’s provision that Wease’s “fail[ure] to perform
the covenants and agreements contained in” the deed of trust permits the
lender to “do and pay for whatever is reasonable or appropriate to protect
Lender’s interest in the Property and rights under this Security Instrument.”
Ocwen reads that section to mean that when Wease failed to timely pay his
2009 taxes, Ocwen acquired the right to pay Wease’s 2010 taxes, even though
at the time Ocwen paid the 2010 taxes, Wease had already paid his 2009 taxes
and the 2010 taxes were not yet delinquent. The parties do not dispute that a
2010 tax lien would not have attached to the property until January 1, 2011.
See Tex. Tax Code § 32.01. In addition to the fact-specific resolution called for
by Section 9’s “reasonable or appropriate” provision, Ocwen faces a problem
under Section 3, which provides: “If Borrower is obligated to pay Escrow Items
directly, pursuant to a waiver, and Borrower fails to pay the amount due for an
Escrow Item, Lender may exercise its rights under Section 9 and pay such
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amount . . . . ” (emphasis added). Section 3 uses the singular, backward-looking
“amount due” and permits the lender to pay “such amount.” Under that
interpretation, the contract would have permitted Ocwen only to pay Wease’s
past-due 2009 taxes—not to pre-pay his 2010 taxes.4 To be sure, Section 3 also
states that Ocwen “may revoke the [escrow] waiver as to any or all Escrow
Items at any time . . . .”5 A strong reading of that clause would suggest that
Ocwen might have the right to pay taxes preemptively without a triggering
condition.6
A contract is ambiguous if it “is subject to two or more reasonable
interpretations.” Nat’l Union Fire Ins. Co. of Pitt., PA v. CBI Indus., Inc., 907
S.W.2d 517, 520 (Tex. 1995). Given the two plausible readings above, the deed
of trust is ambiguous. And because ambiguity precludes summary judgment,
El Paso, 389 S.W.3d at 806, Wease was entitled to proceed to trial on his claim
that Ocwen breached the contract by paying his 2010 taxes before the tax lien
attached and before they became delinquent.
The second breach-of-contract issue is whether Ocwen failed to provide
adequate notice of its actions. Section 3 provides that “Lender may revoke the
[escrow] waiver as to any or all Escrow Items at any time by a notice given in
accordance with Section 14.” Section 14 simply requires that a notice be given
“in writing” and delivered to the borrower. The record reflects, and Ocwen
acknowledged at oral argument, that Ocwen did not provide notice that it
would begin collecting taxes through an escrow account until June 6, 2011. But
the record is also clear that Ocwen had paid Wease’s 2010 taxes six months
4 By the time Ocwen took over the loan from HomeEq, Wease had already paid his
2009 taxes.
5 The crucial end of that sentence—“by a notice given in accordance with Section 14”—
is explained below.
6 The record is unclear as to whether and, if so, how Ocwen ever revoked the Waiver
Agreement.
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before that notice was sent. Indeed, the June letter informed Wease that his
(presumably already-existent) escrow account had a shortage of $4,740.64,
which Ocwen would collect over the following twelve-month period. With these
facts in the record, it was error for the district to conclude as a matter of law
that Ocwen had provided contractually adequate notice of its revocation of the
Waiver Agreement.7
The district court rejected Wease’s unclean hands argument and granted
summary judgment on Ocwen’s foreclosure counterclaim based on the
reasoning that Ocwen’s actions “concerning the payment of taxes,
implementing an escrow account, and pursuing foreclosure, were proper.” As
set forth above, there is a factual question as to whether Ocwen’s actions
breached the contract; however, unclean hands is only a defense to a request
for equitable relief. We therefore affirm the district court’s summary judgment
for Ocwen on Wease’s unclean hands “cause of action” (a mislabeled affirmative
defense). Contrastingly, foreclosure is a contractual remedy. Our breach-ofcontract
holding here does not mean that Ocwen is barred from recovery of
money that may be owed on the property, or eventual foreclosure—but we
highlight that the foreclosure remedy would only be available if Ocwen shows
that it complied with contractual requirements. At this stage, it is premature
to conclude that Ocwen is entitled to summary judgment on its foreclosure
counterclaim. We therefore vacate the foreclosure ruling and remand for
reconsideration.
7 Ocwen maintains that it had no obligation at all to provide notice of revocation of
the Waiver Agreement. But at oral argument, Ocwen contended that if such notice were
required, the June letter sufficed to put Wease on notice of actions that Ocwen had taken in
the past—namely, paying Wease’s 2010 taxes and opening the escrow account. As Ocwen’s
counsel candidly put it, “The notice was sent in June but the action was taken in [the
previous] December.”
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II. Real Estate Settlement Procedures Act (RESPA)
RESPA is a consumer protection statute that, in relevant part, obligates
a covered loan servicer to respond to a borrower’s qualified written requests
(QWRs). 12 U.S.C. § 2605(e). A QWR is a written request “for information
relating to the servicing of [a] loan.” Id. § 2605(e)(1)(A). When a borrower sends
a QWR, the loan servicer must, among other actions, return “a written
response acknowledging receipt of the correspondence.” Id. § 2605(e)(2)(A)–(C).
Pursuant to § 2605(f), a borrower can sue a servicer who fails to reply as
required.
Federal regulation permits servicers to “establish a separate and
exclusive office and address for the receipt and handling of” QWRs.
24 C.F.R. § 3500.21(e)(1) (repealed 2014).8 “[If] the servicer establishes such an
office and complies with all the necessary notice provisions of this rule, then
the borrower must deliver its request to that office in order for the inquiry to
be a ‘qualified written request.’” Real Estate Settlement Procedures Act,
8 RESPA originally authorized the Department of Housing and Urban Development
(HUD) “to prescribe such rules and regulations” and “make such interpretations . . . as may
be necessary to achieve [the statute’s] purposes.” 12 U.S.C. § 2617 (repealed 2011). With that
authority, HUD issued the cited regulation. The Dodd-Frank Act transferred HUD’s
rulemaking authority over RESPA to the Consumer Financial Protection Bureau (CFPB).
See Pub. L. No. 111–203, § 1098, 124 Stat. 1376, 2104 (2010). Thus, in June 2014, HUD
rescinded its version of the regulation. See Removal of Regulations Transferred to the
Consumer Financial Protection Bureau, 79 Fed. Reg. 34,224, 34,224–25 (June 16, 2014), 2014
WL 2637011. The CFPB promulgated a new regulation resembling the one that HUD had
established. See 12 C.F.R. § 1024.36(b) (“A servicer may, by written notice provided to a
borrower, establish an address that a borrower must use to request information in accordance
with the procedures in this section.” (emphasis added)); see also id. § 1024.35(c) (“If a servicer
designates a specific address for receiving notices of error, the servicer shall designate the
same address for receiving information requests pursuant to § 1024.36(b).”). We apply HUD’s
regulation because Wease’s letters predate the CFPB’s regulation. Neither party has urged
that HUD’s regulation is inapplicable. Moreover, at least three other circuits have applied
HUD’s regulation to events occurring before the CFPB issued its new guidance. See Bivens
v. Bank of Am., N.A., 868 F.3d 915, 919–21 (11th Cir. 2017); Roth v. CitiMortgage Inc., 756
F.3d 178, 181–83 (2d Cir. 2014); Berneike v. CitiMortgage, Inc., 708 F.3d 1141, 1143, 1147–
50 (10th Cir. 2013).
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Section 6, Transfer of Servicing of Mortgage Loans, 59 Fed. Reg. 65,442, 65,446
(Dec. 19, 1994), 1994 WL 702481.
Ignoring an exclusive QWR address carries harsh consequences. Circuit
courts consistently conclude that a loan servicer need not answer a
misaddressed QWR—and that responding to such a letter does not trigger
RESPA duties—if the servicer set an exclusive address. See, e.g., Bivens v.
Bank of Am., N.A., 868 F.3d 915, 921 (11th Cir. 2017) (“Because [the borrower]
failed to address his QWR to [the servicer]’s designated address for QWR
receipt, [the servicer] had no duty to respond to it.”); Roth v. CitiMortgage Inc.,
756 F.3d 178, 182 (2d Cir. 2014) (“As long as a servicer complies with the notice
requirements of 24 C.F.R. § 3500.21 for designating a QWR address, a letter
sent to a different address is not a QWR, even if an employee at that address .
. . in fact responds to that letter.”); Berneike v. CitiMortgage, Inc., 708 F.3d
1141, 1149 (10th Cir. 2013) (“Communication failing to meet the requirements
of RESPA and its implementing regulation amounts to nothing more than
general correspondence between a borrower and servicer. Receipt at the
designated address is necessary to trigger RESPA duties . . . .”).9 Our court has
followed that approach. See Steele v. Green Tree Servicing, LLC, No. 3:09-CV-
0603-D, 2010 WL 3565415, at *3 (N.D. Tex. Sept. 7, 2010) (“Because . . . Green
Tree established an exclusive location at which it would accept [QWRs], and .
. . the Steeles never sent a proper request to that address, Green Tree had no
duty under RESPA to respond . . . .”), aff’d, 453 F. App’x 473, at *1 (5th Cir.
2011) (“We affirm for essentially the reasons stated by the district court.”).
9 While Roth and Berneike applied Chevron deference, Bivens employed Auer
deference. That distinction is not at issue here.
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In line with these authorities, the district court granted Ocwen summary
judgment on the RESPA claim because Wease neglected to send his letters to
Ocwen’s exclusive QWR address.10
On appeal, Wease makes two arguments for the first time: (1) even if
Ocwen designated an exclusive QWR address, the company subsequently
provided a different QWR address on every monthly statement, and (2) Ocwen
changed its exclusive address either through letters to Wease or when an
Ocwen employee verbally gave Wease a different address. “It is well settled in
this Circuit that the scope of appellate review on a summary judgment order
is limited to matters presented to the district court.” Keelan v. Majesco
Software, Inc., 407 F.3d 332, 339 (5th Cir. 2005). “We will consider an issue
raised for the first time on appeal . . . if it is a purely legal one and if
consideration is necessary to avoid a miscarriage of justice.” Langhoff Props.,
LLC v. BP Prods. N. Am. Inc., 519 F.3d 256, 261 n.12 (5th Cir. 2008). Wease’s
new arguments mix fact and law, and their consideration is not necessary to
avoid a miscarriage of justice. Accordingly, we affirm the district court’s grant
of summary judgment in Ocwen’s favor on the RESPA claim.
III. Texas Debt Collection Practices Act (TDCPA)
Wease’s complaint alleged that Ocwen violated the TDCA, Texas
Finance Code §§ 392.001 et seq., by, among other actions, calling Wease’s home
and leaving “numerous harassing messages.” When Ocwen moved for
summary judgment on the TDCA claim, Wease’s opposition focused exclusively
on the other actions. Accordingly, the district court properly concluded that
10 Wease puzzlingly avers that Ocwen did not designate an exclusive QWR address.
That argument plainly fails. Under 24 C.F.R. § 3500.21(e)(1), a servicer may “establish a
separate and exclusive office and address for the receipt and handling of qualified written
requests” through a “Notice of Transfer.” In a document entitled “Notice of Service Transfer
(RESPA),” Ocwen wrote: “If you want to send a ‘qualified written request’ regarding the
servicing of your loan, it must be sent to this address . . . .”
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“Wease elected not to address his TDCA claim based on Ocwen’s alleged
harassing phone calls” and therefore deemed that claim “abandoned.”11
On appeal, Wease contends that his opposition to summary judgment
included reference to his “sworn [d]eclaration that detailed Ocwen’s harassing
phone calls and messages.” But “[i]t is not our function to scour the record in
search of evidence to defeat a motion for summary judgment; we rely on the
nonmoving party to identify with reasonable particularity the evidence upon
which he relies.” Buehler v. City of Austin/Austin Police Dept., 824 F.3d 548,
555 n.7 (5th Cir. 2016) (quotation omitted). A brief’s stray reference to a fact—
with no explanation of its import—fails to defeat a summary judgment motion.
The district court did not err.
Wease also argues that the district court improperly granted summary
judgment because Ocwen never met its initial burden under Celotex Corp v.
Catrett, 477 U.S. 317 (1986), to show the absence of a genuine issue for trial.
That argument reflects a misunderstanding of the summary judgment
standard. A movant for summary judgment need not set forth evidence when
the nonmovant bears the burden of persuasion at trial. By urging otherwise,
Wease would resuscitate the rule that prompted certiorari in Celotex and was
therein rejected. See id. at 323 (“[U]nlike the [D.C.] Court of Appeals, we find
no express or implied requirement in Rule 56 that the moving party support
its motion with affidavits or other similar materials negating the opponent’s
claim.”) (emphasis in original).
Indeed, our court has squarely rejected this argument. In Stahl v.
Novartis Pharmaceuticals Corp., the plaintiff-appellant protested that the trial
court “improperly placed the summary judgment burden on him, the non-
11 The district court granted Ocwen summary judgment on all of Wease’s TDCA
claims, including those unrelated to phone calls. On appeal, Wease does not seek to revive
his other theories of TDCA liability.
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moving party, without first requiring [the defendant] to come forward with
documentary proof of the absence of a genuine issue of material fact regarding
[the plaintiff]’s claim.” 283 F.3d 254, 263 (5th Cir. 2002). We explained that
“Stahl misread[] both Rule 56 and the Celotex decision. . . . The moving party
may meet its burden to demonstrate the absence of a genuine issue of material
fact by pointing out that the record contains no support for the non-moving
party’s claim.” Id.
Here, Ocwen relied on Wease’s pleadings and pointed out gaps in the
record to demonstrate its entitlement to summary judgment on the TDCA
claim. The district court then properly shifted the burden to Wease and found
that he failed to carry it.
Outcome: We REVERSE summary judgment on the breach-of-contract claim and
VACATE and REMAND for reconsideration of the foreclosure counterclaim.
On all other claims, we AFFIRM.
Plaintiff's Experts:
Defendant's Experts:
Comments: