LIT Comment: As Soon As Judge Higginbotham is on a Panel, Judge Higginson Complies with the Majority.
Tafacory v. Deutsche Bank (5th Cir., Dec. 2021)
DEC 17, 2021 | REPUBLISHED BY LIT: DEC 17, 2021
Alig v. Quicken 4th Cir. 2021; “Where a lender induces a borrower to enter a loan through deceptive practices that relate to the heart of the loan-formation process, thereby compromising the integrity and fairness of that process, W. Virginia law provides the borrower with a remedy”.
Before Higginbotham, Higginson, and Duncan, Circuit Judges. Per Curiam:*
The Texas Constitution provides that a home equity loan may not exceed eighty percent of the home’s fair market value on the date the loan is made. TEX. CONST. art. XVI, § 50(a)(6)(B).
If a lender violates this provision, it forfeits the loan’s principal and interest. Id. § 50(a)(6)(Q)(x).
However, a lender may conclusively rely on a homeowner’s written acknowledgement of a property’s fair market value when the acknowledged value matches the property’s appraised value, unless the lender has actual knowledge that this value is incorrect. Id. § 50(h).
On May 25, 2006, Masoud Michael Tafacory executed a $584,000 home equity loan with Long Beach Mortgage Company.
That same day, Tafacory signed a fair market value acknowledgement stating that his home had a value of $730,000, which was consistent with both the home’s appraised value and the Texas Constitution’s requirement that a home equity loan not exceed eighty percent of a home’s value. Tafacory subsequently defaulted on the loan.
Deutsche Bank (the “Bank”) was assigned Tafacory’s loan in December 2017.
In October 2019, the Bank informed Tafacory that it had decided to accelerate the maturity of the debt and to foreclose on the property.
Tafacory responded by filing suit against the Bank in Texas state court.
The Bank removed the case to federal court, filed a counterclaim for an order authorizing foreclosure, and moved for summary judgment, arguing that the court should dismiss Tafacory’s claims and enter judgment on its counterclaim.
Tafacory filed a response to the motion.
As the district court explained in its ruling on the motion, the “parties concur that the case turns on . . . whether the principal of the home equity loan at issue exceeded eighty percent of the fair market value of [Tafacory’s home], in violation of the Texas Constitution.”
COMPARE THIS FIFTH CIRCUIT OPINION WITH FOURTH CIRCUIT
Tafacory attached to his response an affidavit stating that a fire had occurred at his home on May 19, 2006, after the home had been appraised but before the loan had closed, that as a result of this fire his home’s fair market value had been lower than its appraised value on the date that the loan had closed, and that Long Beach had known about the fire before the loan had closed.
Tafacory further explained that he subsequently signed the fair market value acknowledgement stating that his home had a value of $730,000 only because Long Beach representatives had insisted that he sign the closing documents without reading them.
The district court struck Tafacory’s affidavit under the sham affidavit doctrine, explaining that Tafacory’s statement that his home had a fair market value of less than $730,000 “impeach[es] his own sworn, written statements in 2006.”
The court also struck an appraiser’s affidavit that Tafacory submitted because it relied entirely on the representations that Tafacory made in his affidavit.
The court then granted Deutsche Bank’s motion for summary judgment in its entirety and dismissed Tafacory’s claims.
On appeal, Tafacory argues that the district court erred in disregarding the affidavits of Tafacory and the appraiser.
We review a district court’s decision to strike an affidavit under the sham affidavit doctrine for abuse of discretion.
Winzer v. Kaufman Cty., 916 F.3d 464, 472 (5th Cir. 2019).
“Under the sham affidavit doctrine, a district court may refuse to consider statements made in an affidavit that are ‘so markedly inconsistent’ with a prior statement as to ‘constitute an obvious sham.’” Id. (citation omitted).
Because Tafacory’s statement in his affidavit that his home had a fair market value of less than $730,000 in 2006 directly contradicts his 2006 fair market value acknowledgement (which he signed post-fire) stating that his home was worth $730,000, the district court did not abuse its discretion by striking Tafacory’s affidavit.
The district court also did not err by disregarding the appraiser’s affidavit on the grounds that it relied entirely on Tafacory’s stricken affidavit.
See Jones v. Gulf Coast Rest. Grp., Inc., 8 F.4th 363, 368 (5th Cir. 2021) (explaining that a summary judgment motion cannot be defeated through “unsubstantiated assertions” (citation omitted)).
Tafacory does not challenge the district court’s judgment on any other grounds.
Accordingly, the district court’s order granting summary judgment for Deutsche Bank and dismissing Tafacory’s claims is AFFIRMED.
MEMORANDUM ADOPTING THE REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
Came on for consideration the Report and Recommendation of the United States Magistrate Judge (“Report”), this matter having been referred to the Magistrate Judge pursuant to 28 U.S.C. § 636.
On November 6, 2020, the Report of the Magistrate Judge, (Dkt. #32), was entered containing proposed findings of fact and recommendations that Defendant Deutsche Bank National Trust Company, as Trustee, in Trust for Registered Holders of Long Beach Mortgage Loan Trust 2006-6, Asset-backed Certificates, Series 2006-6’s Motion for Summary Judgment be granted and Motion for Judgment on the Pleadings be denied as moot. (Dkt. #20).1
Having assessed the Report and considered Plaintiff’s Objections, (Dkt. #33), and Defendant’s Response, (Dkt. #35), the Court determines that the Magistrate Judge’s Report and Recommendation should be adopted.
MICHAEL TAFACORY, ADDISON TEXAS AUTO BUSINESS OWNER
The underlying facts of this case are set forth in detail in the Report. As such, the Court describes only those facts pertinent to the Plaintiff’s Objections.
I. Texas Law on Homestead Liens
The Texas Constitution permits homeowners to voluntarily encumber their homesteads with a lien in return for an extension of credit, Tex. Const. art. XVI § 50(a)(6), but various requirements are imposed on such home equity loans, id.
As relevant here, one such requirement is that the amount of a home equity loan may not exceed eighty percent of the fair market value of the homestead on the date the extension of credit is made. Id. § 50(a)(6)(B). The remedy for a violation of this requirement is forfeiture of all principal and interest. Id.
Lenders may conclusively rely on a written acknowledgment by the property owner as to the fair market value of the homestead when it matches the value estimate in an appraisal prepared in accordance with state requirements for an extension of credit. Id. § 50(h). However, lenders may not rely on such an acknowledgment if they have actual knowledge that the fair market value included is incorrect. Id.
II. The History of the Lien on the Real Property at Issue
On May 25, 2006, Plaintiff Masoud Michael Tafacory executed a $584,000 home equity loan with Long Beach Mortgage Company (“Long Beach”). On the same date, Tafacory also executed a deed of trust, recorded in the real property records of Dallas County, Texas, establishing a first lien on real property located at 4527 Briar Oaks Circle, Dallas, Texas (the “Property”).
Tafacory also signed a fair market value acknowledgment which, consistent with an appraisal conducted on the Property, confirmed that the fair market value of the Property was $730,000 at the time these transactions occurred.
Accordingly, Tafacory’s home equity loan met the Texas Constitution’s requirement that the amount of a home equity loan may not exceed eighty percent of the fair market value of the homestead on the date the extension of credit is made.
Tafacory is in default on the home equity loan.
He is past due for the June 1, 2010 mortgage payment and all subsequent mortgage payments due under the loan.
In January 2013 and October 2015 notices of default were sent to Tafacory, but he failed to cure the default.
In December 2017, Deutsche Bank was assigned the deed of trust, and in March 2019, Deutsche Bank filed an application to foreclose Tafacory’s loan in the 296th Judicial District Court of Collin County, Texas.
In June 2019, the state court entered an Order of Foreclosure, and on October 14, 2019, a Notice of Acceleration and Posting was sent to Tafacory’s last known address, the Property.
The notice advised Tafacory that, because of his default on the monthly mortgage payments, Deutsche Bank, the mortgagee, had elected to accelerate the maturity of the debt such that all sums owed under the loan were immediately due and payable, and that Deutsche Bank would proceed to foreclose and sell the Property at public auction under the terms of the deed of trust.
III. The Litigation between Tafacory and Deutsche Bank
Seeking to halt foreclosure proceedings on the Property, Tafacory filed suit in the 429th Judicial District Court of Collin County, Texas on November 1, 2019. The foreclosure, which had been scheduled for November 5, 2019, was halted.
The case was subsequently removed to this Court.
Under his current, amended complaint, Tafacory asserts the following claims against Deutsche Bank:
(1) breach of contract;
(2) suit to quiet title;
(3) declaratory judgment and injunction;
(4) fraudulent misrepresentation;
(5) negligent misrepresentation;
(6) promissory estoppel;
(7) negligence and gross negligence:
(8) contest of right to foreclose.
Deutsche Bank has counterclaimed, seeking an order authorizing foreclosure or judicial foreclosure and a judgment authorizing a foreclosure sale under applicable law.
Deutsche Bank’s summary-judgment motion requests that Tafacory’s claims be dismissed with prejudice and that the Court enter a judgment on its counterclaim authorizing foreclosure.
Both parties concur that the case turns on the validity of the lien on the Property, and more specifically whether the principal of the home equity loan at issue exceeded eighty percent of the fair market value of the Property, in violation of the Texas Constitution.
OBJECTIONS TO REPORT AND RECOMMENDATION
A party who files timely written objections to a magistrate judge’s report and recommendation is entitled to a de novo review of those findings or recommendations to which the party specifically objects. 28 U.S.C. § 636(b)(1)(C); FED. R. CIV. P. 72(b)(2)–(3).
Relevant to consideration of Tafacory’s objections herein, the Magistrate Judge recommended that the Court “disregard the statements in the Tafacory Affidavit and First and Supplemental Gardiner Affidavit that directly contradict both the Home Equity Affidavit and FMV Acknowledgement,” conclude “the Loan was executed under the requirements of the Texas Constitution and is valid,” grant Deutsche Bank summary judgment as to its counterclaim for foreclosure, and dismiss each of Tafacory’s claims and requests for relief. (Dkt. #32 at 15, 18, 22–30).
I. First Objection – Sham-Affidavit Doctrine
In his first objection to the Report, Tafacory argues that the Magistrate Judge improperly concluded that an affidavit submitted by Tafacory in this case (“Tafacory Affidavit”) falls within the scope of the sham-affidavit doctrine. (Dkt. #33 at 2–3).
The Tafacory Affidavit asserts that a fire occurred at the property before the home equity loan was closed, and that Tafacory told Long Beach about the fire before the loan was closed. According to the Tafacory Affidavit, as a result of the fire the fair market value of the Property was substantially lower than reflected in the home equity affidavit and fair market value acknowledgment executed by Tafacory at the time the loan was closed.
Tafacory contends that his “right to testify about the value of the Homestead is fundamental to Texas real-estate law, and the home equity affidavit does not extinguish that right” and, in any event, the home equity affidavit and fair market value acknowledgment “are not conclusive evidence of value.” (Dkt. #33 at 2–3).
In response, Deutsche Bank contends that Tafacory does not even attempt to provide a legitimate explanation for the stark contradictions between the Tafacory Affidavit, created in 2020 in connection with this litigation, and Tafacory’s sworn statements in 2006 concerning the fair market value of the Property. (Dkt. #35 at 4).
After de novo review, the Court agrees with the Magistrate Judge that the Tafacory Affidavit falls within the scope of the sham-affidavit doctrine.
A court can disregard an affidavit or unsworn declaration that contradicts the party’s own prior testimony, without an explanation for the change in the testimony, that attempts to create a fact issue and avoid summary judgment.
See Lujan v. Navistar, Inc., 555 S.W.3d 79, 85 (Tex. 2018); Winzer v. Kaufman Cty., 916 F.3d 464, 472 (5th Cir. 2019).
As the Magistrate Judge noted, Tafacory signed a home equity affidavit and fair market value acknowledgment in 2006 affirming, under oath, that the requirements for the origination of a Texas home equity loan had been met. (Dkt. #20-1 at 3, 22– 27, 30).
Now, some fourteen years after the fact, Tafacory claims there was a fire in the garage of the Property on May 19, 2006, that reduced the value of the Property and of which Long Beach was informed prior to closing. (Dkt. #23-1 at 2).
But Tafacory cannot impeach his own sworn, written statements in 2006 with a self- serving declaration in 2020.
See Deutsche Bank Nat’l Tr. Co. v. McGowen, No. A-16- cv-723-DAEML, 2017 WL 8809687, at *6 (W.D. Tex. Dec. 19, 2017).
Indeed, a borrower’s sworn statements at closing are conclusive on the issues of compliance with the Texas Constitution’s home-equity provisions.
See Summers v. PennyMac Corp., No. 3:12-CV-01235-L, 2012 WL 5944943, at *9 (N.D. Tex. Nov. 28, 2012); In re Erickson, No. 09-11933, 2012 WL 4434740, at *7–8 (W.D. Tex. Sept. 24, 2012).
Tafacory similarly argues that the Magistrate Judge improperly disregarded the affidavits of Allen W. Gardiner submitted by Tafacory concerning the fair market value of the Property (“Gardiner Affidavits”). (Dkt. #33 at 3–4).
Tafacory contends that the Gardiner Affidavits satisfy the requirements for expert testimony even though Gardiner wholly relied on Tafacory’s statements to find the existence of fire damage to the Property affecting its value. (Dkt. #33 at 3).
The Magistrate Judge properly concluded that the Gardiner Affidavits should be disregarded. (Dkt. #32 at 15).
The Gardiner Affidavits, which retroactively estimate the fair market value of the Property, rely entirely on the representations made in the Tafacory Affidavit regarding a purported fire at the Property in 2006. (Dkt. #25-1 at 13–15).
Because the Court has held that the Tafacory Affidavit is subject to the sham-affidavit doctrine, the reliance of Mr. Gardiner on the content of the Tafacory Affidavit as the foundation of his fair market value opinions renders the Gardiner Affidavits equally unreliable.
Tafacory’s objection is overruled.