Bartolomeo USA v. HUD

Case: 21-10493 Document: 00516102896 Page: 1 Date Filed: 11/22/2021
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
November 22, 2021
No. 21-10493
Lyle W. Cayce
Clerk
Bartolomeo USA, L.L.C.,
Plaintiff—Appellant,
versus
United States Department of Housing and Urban
Development; Marcia Fudge, Secretary, U.S.
Department of Housing and Urban Development,
Defendants—Appellees.
Appeal from the United States District Court
for the Northern District of Texas
No. 4:19-CV-1020
Before Barksdale, Engelhardt, and Oldham, Circuit Judges.
Per Curiam:*
The question presented is whether the U.S. Department of Housing
and Urban Development properly foreclosed on a loan. The district court
said yes and granted summary judgment to the Government. We affirm.
*
Pursuant to 5th Circuit Rule 47.5, the court has determined that this
opinion should not be published and is not precedent except under the limited
circumstances set forth in 5th Circuit Rule 47.5.4.
Case: 21-10493 Document: 00516102896 Page: 2 Date Filed: 11/22/2021
No. 21-10493
I.
In 2009, Gloria Carter took out a reverse mortgage (also called a
Home Equity Conversion Mortgage or “HECM”) in Fort Worth, Texas.
She took out the HECM under a program run by the U.S. Department of
Housing and Urban Development (“HUD”). It is called a reverse mortgage
“because the borrower is not required to make monthly or other periodic
payments to repay the loan” unlike a traditional mortgage. Johnson v. World
All. Fin. Corp., 830 F.3d 192, 195–96 (5th Cir. 2016); see also 12 U.S.C.
§ 1715z-20(b)(3). “Instead, the loan balance increases over time and does not
become due and payable until one of a number of specified events occurs.”
Johnson, 830 F.3d at 196; see also 12 U.S.C. § 1715z-20(j). The lender may
only recover the borrower’s house or its sale value. 12 U.S.C. § 1715z-
20(d)(7).
Under the program, HUD “insures reverse mortgages originated by
private lenders.” Johnson, 830 F.3d at 196 n.2. This means that HUD
provides the borrower any funds that the private lender is obligated to pay
but for some reason does not. 12 U.S.C. § 1715z-20(i); 24 C.F.R. §§ 206.117,
206.121(a). To implement this program, the parties agree that in general two
deeds of trust are issued and recorded reflecting two mortgages. See, e.g., 24
C.F.R. §§ 206.27, 206.117, 206.121. The private lender originates the loan
through a First Note and secures that note in a First Deed of Trust (the first
mortgage). 12 U.S.C. § 1715z-20. The borrower executes a Second Note and
secures that note in a Second Deed of Trust (the second mortgage). See, e.g.,
24 C.F.R. §§ 206.27(d), 206.121(c). The second mortgage becomes relevant
if HUD makes payments instead of the private lender. Id. § 206.121(c). To
protect the private lender, the HECM program lets the lender transfer the
First Note and First Deed of Trust to HUD before repayment from the
borrower but only when the borrower’s indebtedness reaches 98% of the
maximum loan. Id. §§ 206.107(a), 206.123(a).
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Here, there are two deeds of trust, and both of them were timely
recorded. There is no dispute that at the time of recording the deeds were
valid. By July 2014, Carter’s indebtedness reached 98% of the maximum loan,
and the private lender transferred the lien in the First Deed of Trust to HUD.
HUD therefore owned both deeds of trust. But because the private lender
paid all the funds for the loan, HUD never made any payments to Carter.
This meant that repayment by Carter was only necessary under the first
mortgage involving the First Deed of Trust—not the second mortgage
involving the Second Deed of Trust. In 2016, the required preconditions
occurred making the loan due.
On January 3, 2018, HUD’s limited power of attorney recorded a
“Release of Lien” (or “Release”) for the Second Deed of Trust. There is no
dispute that the Release is valid. The Release is two pages: The first page has
definitions; the second page has the operative language. Put together, the
Release states:
Holder of Note and Lien [HUD] acknowledges payment in full
of the Original Note [note described in Deed of Trust, recorded
in Instrument Number D209166845, 06/23/2009, Real
Property Records of Tarrant County, TX], releases the
Property from the Lien [Lien described in Deed of Trust,
recorded in Instrument Number D209166845, 06/23/2009,
Real Property Records of Tarrant County, TX] and expressly
waives and releases all present and future rights to establish or
enforce the Lien as a security for payment of any future
advance or other indebtedness.
The Deed of Trust recorded in Instrument Number D209166845 is the
Second Deed of Trust; the First Deed of Trust has a different number.
In March 2019, Carter sold the house to RMDC, LLC. On April 11,
HUD filed a notice with the relevant county clerk that a foreclosure sale
would occur on May 7; the notice was posted at the relevant courthouse. On
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April 16, among other days, HUD published notice in the county’s
commercial record. Also on April 16, Bartolomeo USA, LLC
(“Bartolomeo”) purported to purchase the property. It also made about
$80,000 worth of improvements to the property. The foreclosure sale
occurred on May 7, and HUD bought the property back on May 14.
Soon after, Bartolomeo sued HUD and sought equitable relief. The
district court granted summary judgment to HUD. Bartolomeo timely
appealed. Our review is de novo. Playa Vista Conroe v. Ins. Co. of the W., 989
F.3d 411, 414 (5th Cir. 2021).
II.
Applying Texas law, the district court made three relevant
determinations. First, the court determined that the Release only
extinguished the Second Deed of Trust, so HUD properly foreclosed on the
property under the First Deed of Trust. Specifically, the court concluded that
the relevant language released a specific lien, not a particular loan. It
emphasized that the Release expressly names the “Lien described in Deed of
Trust, recorded in Instrument Number D209166845”—the Second Deed of
Trust—and does not mention the First Deed of Trust. Because “[e]ach note
was made out to [a] separate lender, and each lender had a separately
recorded lien,” continued the court, the “obligations and duties are
separate.” So the Release, by invoking only the Second Deed of Trust, “did
not affect the First Deed of Trust.”
Second, the court determined that Bartolomeo was neither a good-
faith purchaser nor a good-faith improver. That is because, the court
explained, Bartolomeo was on constructive notice of the properly recorded
First Deed of Trust and thus had constructive knowledge of HUD’s superior
right to the property.
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Third, the court determined that 28 U.S.C. § 2410 did not apply
because HUD had title to the property and not just a security interest. The
court thus granted HUD summary judgment and dismissed all of
Bartolomeo’s claims with prejudice.
We see no reversible error in the district court’s determinations. One
issue, however, warrants brief discussion.
The district court dismissed Bartolomeo’s claim under 28 U.S.C.
§ 2410 with prejudice. This was so even though the court referred to “subject
matter jurisdiction.” That might give the reader pause because dismissals for
lack of jurisdiction are generally without prejudice. See, e.g., Sullivan v. Texas
A&M Univ. Sys., 986 F.3d 593, 595 (5th Cir. 2021).
We hold the district court correctly dismissed the § 2410 claim with
prejudice. Section 2410 creates a right of action and waives sovereign
immunity. See Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 545
U.S. 308, 317 n.4 (2005) (“Federal law does provide a quiet title cause of
action against the Federal Government. 28 U.S.C. § 2410.”); Lewis v. Hunt,
492 F.3d 565, 571 (5th Cir. 2007) (“Under 28 U.S.C. § 2410, Congress has
waived the government’s sovereign immunity to a limited class of civil
actions . . . .”); cf. Caleb Nelson, “Standing” and Remedial Rights in
Administrative Law, 105 Va. L. Rev. 703, 705 n.2 (2019) (acknowledging
that today the terms “cause of action” and “right of action” are
interchangeable but also explaining how the terms were not always
considered the same). As a result, the jurisdictional question here (whether
the United States waived sovereign immunity) is identical to a merits
question (whether Bartolomeo has a right of action under § 2410). So, in
these circumstances, it was appropriate for the district court to dismiss
Bartolomeo’s § 2410 claim with prejudice. See Brownback v. King, 141 S. Ct.
740, 749 (2021) (“But where, as here, pleading a claim and pleading
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jurisdiction entirely overlap, a ruling that the court lacks subject-matter
jurisdiction may simultaneously be a judgment on the merits.”); id. at 749 n.8
(“In cases such as this one where a plaintiff fails to plausibly allege an element
that is both a merit element of a claim and a jurisdictional element, the district
court may dismiss the claim under Rule 12(b)(1) or Rule 12(b)(6). Or both.”).
* * *
We have considered Bartolomeo’s other arguments and find them
unpersuasive. For the foregoing reasons, and for substantially the same
reasons given in the district court’s thorough opinion, we refuse to disturb
the judgment.
AFFIRMED.
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