Gwendolyn Green v. Wells Fargo Bank, N.A.

Case: 14-10254 Document: 00512695486 Page: 1 Date Filed: 07/11/2014
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 14-10254 FILED
July 11, 2014
Lyle W. Cayce
GWENDOLYN GREEN, Clerk
Plaintiff – Appellee
v.
WELLS FARGO BANK, N.A.,
Defendant – Appellant
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 3:14-CV-464
Before HIGGINBOTHAM, JONES, and PRADO, Circuit Judges.
PER CURIAM:*
Plaintiff-Appellee Gwendolyn Green brought suit against Defendant–
Appellant Wells Fargo Bank, N.A. in Texas state court seeking to prevent
foreclosure on her home. Wells Fargo timely removed the suit to federal
district court, invoking diversity jurisdiction. Green sought, and obtained, a
preliminary injunction preventing Wells Fargo from foreclosing on her home.
Wells Fargo timely appeals the district court’s issuance of the preliminary
injunction.
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
Case: 14-10254 Document: 00512695486 Page: 2 Date Filed: 07/11/2014
No. 14-10254
I
With two purchase money loans, Green purchased a house located in
Cedar Hill, Texas on January 30, 2006. The first mortgage was in the amount
of $214,315.00 and the second was in the amount of $53,579.00. Wells Fargo
services both loans on behalf of Deutsche Bank National Trust Company,
Trustee for Morgan Stanley ABS Capital I Trust 2006-HE3, the owner and
holder of the notes.
Several years after purchasing the house, Green defaulted on both loans
and, on February 2, 2010, entered into two loan modification agreements. The
first loan modification agreement modified the first mortgage to capitalize
$19,006.15 of past-due amounts, 1 resulting in a new unpaid principal amount
of $230,272.59. This modification also lowered the fixed interest rate from
7.996 percent to 4.875 percent, resulting in a $184.06 reduction in Green’s
monthly principal and interest payment. Likewise, the second loan
modification agreement modified the second mortgage to capitalize $1,558.76
of past-due interest, resulting in an unpaid principal balance of $53,575.42.
This loan modification lowered the fixed interest rate from 8.990 percent to
5.500 percent, resulting in a $107.11 reduction in Green’s monthly principal
and interest payment. Despite these modifications, Green again fell behind on
her payments, and subsequently filed a voluntary Chapter 13 bankruptcy
petition on April 30, 2012. Although an amended Chapter 13 plan was
confirmed, Green obtained a voluntary dismissal of her bankruptcy case so as
to work directly with her creditors.
When foreclosure became imminent, Green brought a declaratory
judgment action against Wells Fargo in the Texas state courts. Wells Fargo
1 Wells Fargo explains that this amount consists of (i) $8,446.44 in past-due interest,
(ii) $10,522.11 in unpaid and past-due escrow items, and (iii) $1,199.68 in various recoverable
late charges.
2
Case: 14-10254 Document: 00512695486 Page: 3 Date Filed: 07/11/2014
No. 14-10254
timely removed the action to federal district court, invoking diversity
jurisdiction. Soon thereafter, Green moved for a preliminary injunction. The
district court granted the motion. Wells Fargo timely appeals.
II
We review the district court’s grant of a preliminary injunction for abuse
of discretion. 2 To prevail on a motion for a preliminary injunction, a plaintiff
must establish: “(1) a substantial likelihood that plaintiff will prevail on the
merits, (2) a substantial threat that plaintiff will suffer irreparable injury if
the injunction is not granted, (3) that the threatened injury to plaintiff
outweighs the threatened harm the injunction may do to defendant, and (4)
that granting the preliminary injunction will not disserve the public interest.” 3
On appeal, the parties sharply dispute the district court’s analysis of
Green’s likelihood of success on the merits. Green’s sole argument on the
merits is that “Wells Fargo has no lien to foreclose because . . . modifications
that fold past-due sums back into homestead mortgages are illegal in Texas.”
In analyzing Green’s likelihood of success on the merits, the district court noted
that “Green has raised colorable claims that present serious and difficult state
constitutional questions.” The district court then held that,
In light of the Court’s earlier findings—that
foreclosure of Green’s homestead, which is set to occur
within days of this Order, would impose irreparable
harm; that the balance of harm weighs heavily in favor
of Green; and there appears to be little to no harm to
the public interest in granting this injunction, but
rather the public interest weighs in favor of granting
2 Miss. Power & Light Co. v. United Gas Pipe Line Co., 760 F.2d 618, 621 (5th Cir.
1985); see Lake Charles Diesel, Inc. v. Gen. Motors Corp., 328 F.3d 192, 195 (5th Cir. 2003).
3 Canal Auth. of State of Fla. v. Callaway, 489 F.2d 567, 572 (5th Cir. 1974); see also
Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20 (2008) (“A plaintiff seeking a
preliminary injunction must establish that he is likely to succeed on the merits, that he is
likely to suffer irreparable harm in the absence of preliminary relief, that the balance of
equities tips in his favor, and that an injunction is in the public interest.”).
3
Case: 14-10254 Document: 00512695486 Page: 4 Date Filed: 07/11/2014
No. 14-10254
such an injunction—the Court holds that Green has
met her burden of adequately showing this factor.
Wells Fargo argues that the district court abused its discretion by applying (i)
a ‘sliding scale’ approach and (ii) a ‘serious question’ standard for evaluating
plaintiff’s likelihood of success on the merits.
Although Wells Fargo’s challenge to the analysis of plaintiff’s likelihood
of success on the merits has purchase, we need not reach this question: a recent
Texas Supreme Court opinion all but forecloses Green’s arguments. Shortly
after the filing of this appeal, the Texas Supreme Court issued its opinion in
Sims v. Carrington Mortgage Services. 4 In Sims, the Texas Supreme Court
answered four questions certified to it by this Court, addressing whether the
restructuring of a home equity loan was a refinancing or a modification of a
mortgage under Article XVI, § 50 of the Texas Constitution. The Texas
Supreme Court held that such restructuring are modifications, explaining
the restructuring of a home equity loan that, as in the
context from which the question arises, involves
capitalization of past-due amounts owed under the
terms of the initial loan and a lowering of the interest
rate and the amount of installment payments, but
does not involve the satisfaction or replacement of the
original note, an advancement of new funds, or an
increase in the obligations created by the original note,
is not a new extension of credit that must meet the
requirements of Section 50. 5
Although Sims specifically addressed modifications of home equity loans, we
see no sound basis for distinguishing Sims from cases where, as here, the
modification was of a purchase money mortgage. Indeed, Green acknowledges
4 --- S.W.3d ---, No. 13-0638, 2014 WL 1998397 (Tex. May 16, 2014).
5 Id. at *4.
4
Case: 14-10254 Document: 00512695486 Page: 5 Date Filed: 07/11/2014
No. 14-10254
as much, stating that Sims “has mooted most but not all of the underlying
substantive claims in this case.” 6
Green argues that she may still prevail on the merits, insofar as she
alleges (i) that Sims does not address the effect of capitalizing future property
taxes and insurance not yet due at the time of the modification, 7 and (ii) that
an issue of fact remains as to whether such amounts were added to her loans.
Wells Fargo responds by noting that such amounts do not change the Sims
analysis, as the mortgages at issue in Sims included the capitalization of
unpaid, past-due escrow items, 8 and that only unpaid, past-due escrow items
were capitalized. We agree. As presented here, the restructuring and re-
establishment of the escrow account was incident to the loan modification, a
restructuring of existing obligations.
In sum, controlled by Sims, we conclude that Green has failed to
demonstrate a likelihood of success on the merits. We VACATE the
preliminary injunction and REMAND to the district court for any necessary
further proceedings.
6 See Appellee’s Rule 28(j) Letter at 1, Green v. Wells Fargo, No. 14-10254 (5th Cir.
May 24, 2014).
7 Green notes that there is currently a pending petition for rehearing in Sims asking
the Texas Supreme Court to address this question.
8 See Sims, --- S.W.3d ---, 2014 WL 1998397 at *1, *1 n.3.
5