Veronica Rodriguez and Jeanette Rodriguez v. Jose Juan Reyes and Alma Canales Reyes

Opinion issued August 3, 2023
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-22-00652-CV
———————————
VERONICA RODRIGUEZ AND JEANETTE RODRIGUEZ, Appellants
V.
JOSE JUAN REYES AND ALMA CANALES REYES, Appellees
On Appeal from the 333rd District Court
Harris County, Texas
Trial Court Case No. 2022-33300
MEMORANDUM OPINION
This interlocutory appeal arises from the trial court’s order denying a
temporary injunction to enjoin a foreclosure sale of a residential property. For the
reasons discussed below, we affirm the trial court’s order.
BACKGROUND
The relevant facts are undisputed. In 2009, appellant Jeanette Rodriguez
bought a residential property, secured by a deed of trust, from the appellees, Jose
Juan Reyes and Alma Canales Reyes. Under the deed of trust, Jeanette is the
borrower and the grantor, and the appellees are the lenders and the beneficiaries. The
deed of trust requires the beneficiaries—the appellants—to give notice of default:
If Grantor defaults on the note or fails to perform any of
Grantor’s obligations or if default occurs on a prior lien note or other
instrument, and the default continues after Beneficiary gives Grantor
notice of the default and the time within which it must be cured, as may
be required by law or by written agreement, then Beneficiary may . . .
request Trustee to foreclose this lien, in which case Beneficiary’s agent
shall give notice of the foreclosure sale as provided by the Texas
Property Code as then amended . . . . (emphasis added)
Jeanette and her mother, appellant Veronica Rodriguez, lived together at the
property for a few years until Jeanette moved to the house next door. Veronica still
lives at the property. Although only Jeanette signed the deed of trust, Veronica was
the one making payments under the note. Veronica defaulted on her loan payments
in August 2021.
The appellees appointed their attorney, Bernardo Garcia, as the substitute
trustee under the deed of trust in March 2022. A month later, Garcia sent Veronica
and Jeanette a notice of default and intent to accelerate the loan. The letter stated:
This Law Firm represent[s] Jose Juan Reyes and wife, Alma
Canales Reyes, hereinafter referred to as “Lenders[.]”[]
2
One or more defaults have occurred under the Note and Deed of
Trust because all of the monthly installments of Principal, Interest and
Escrow that are due and payable by the terms of the Note and the Deed
of Trust, have not been received.
Accordingly, as counsel for Lender and on behalf of Lender,
notice of and demand is hereby made for payment of (i) all due and
unpaid installments of principal, interest, and escrow; (ii) accrued and
unpaid late fees; and (iii) attorney’s fees, as itemized below.
Garcia later sent Veronica and Jeanette a notice of acceleration of the loan and
notice of a nonjudicial foreclosure sale of the property, scheduled to take place June
7, 2022. Veronica and Jeanette filed this lawsuit asserting breach of contract,
requesting a declaratory judgment that the substitute trustee acted improperly and
that the loan was improperly accelerated, and requesting a temporary restraining
order and temporary injunction to enjoin the scheduled foreclosure sale. The trial
court issued a temporary restraining order and set the temporary injunction for
hearing two weeks later.
After the hearing, the trial court denied the temporary injunction. Veronica
and Jeanette filed this interlocutory appeal.
DISCUSSION
Veronica and Jeanette argue the trial court erred in denying the temporary
injunction. They argue they have evidence that the appellees violated a foreclosure
statute by having the substitute trustee send the required default notice. Because
strict compliance with foreclosure statutes is necessary for a valid foreclosure sale,
Veronica and Jeanette argue a future foreclosure sale based on that default notice
3
would be void. Therefore, Veronica and Jeanette argue, the appellees should be
enjoined from conducting the foreclosure sale.
Temporary Injunction
Standard of Review
The purpose of a temporary injunction is “to preserve the status quo of the
litigation’s subject matter pending a trial on the merits.” Butnaru v. Ford Motor Co.,
84 S.W.3d 198, 204 (Tex. 2002). The “status quo” is the “last, actual, peaceable,
non-contested status which preceded the pending controversy.” Clint Indep. Sch.
Dist. v. Marquez, 487 S.W.3d 538, 555 (Tex. 2016) (quoting In re Newton, 146
S.W.3d 648, 651 (Tex. 2004) (orig. proceeding)). “A temporary injunction is an
extraordinary remedy and does not issue as a matter of right.” Butnaru, 84 S.W.3d
at 204. To obtain a temporary injunction, the applicant must plead and prove: “(1) a
cause of action against the defendant; (2) a probable right to the relief sought; and
(3) a probable, imminent, and irreparable injury in the interim.” Id. To show a
probable right to the relief sought, the applicant does not need to offer evidence
proving she will prevail on the merits; she need only “plead a cause of action and
present some evidence that tends to sustain it.” Stewart Beach Condo. Homeowners
Ass’n, Inc. v. Gili N Prop Invs., LLC, 481 S.W.3d 336, 346 (Tex. App.—Houston
[1st Dist.] 2015, no pet.) (quoting Intercontinental Terminals Co., LLC v. Vopak N.
Am., Inc., 354 S.W.3d 887, 897 (Tex. App.—Houston [1st Dist.] 2011, no pet.)).
4
“The evidence must be sufficient to raise a bona fide issue as to the applicant’s right
to ultimate relief.” Id. (quoting Intercontinental Terminals, 354 S.W.3d at 897).
Particularly, to obtain a temporary injunction to enjoin a foreclosure, the applicant
“must establish a probable right to recovery based on a lienholder’s wrongful attempt
to foreclose.” Alpha Adventure Ranch at Nocona, LLC v. Warrior Golf Mgmt., LLC,
No. 02-19-00030-CV, 2019 WL 6768123, at *2 (Tex. App.—Fort Worth Dec. 12,
2019, no pet.) (mem. op.).
We review a trial court’s decision to grant or deny a temporary injunction for
an abuse of discretion.1 Butnaru, 84 S.W.3d at 204. “A trial court abuses its
discretion when it acts with disregard of guiding rules or principles or when it acts
in an arbitrary or unreasonable manner.” In re Acad., Ltd., 625 S.W.3d 19, 25 (Tex.
2021) (orig. proceeding). We may not substitute our judgment for that of the trial
court. Butnaru, 84 S.W.3d at 204. We review the evidence submitted to the trial
court in the light most favorable to its ruling, drawing all legitimate inferences from
the evidence and deferring to the trial court’s resolution of any conflicting evidence.
Shor v. Pelican Oil & Gas Mgmt., LLC, 405 S.W.3d 737, 748 (Tex. App.—Houston
[1st Dist.] 2013, no pet.).
1
Appellate courts have jurisdiction to review a trial court’s interlocutory order
granting or refusing a temporary injunction. See TEX. CIV. PRAC. & REM. CODE
§ 51.014(a)(4).
5
Applicable Law
Chapter 51 of the Property Code governs nonjudicial foreclosure sales under
a deed of trust. See TEX. PROP. CODE §§ 51.0001–51.016. A trustee is the person
authorized to exercise the power of sale, and the beneficiary under a deed of trust
may appoint a substitute trustee to succeed to all powers and duties of the original
trustee. Id. §§ 51.0001(7), (8), 51.0075–76.
The trustee or substitute trustee is a “special agent” for both the beneficiary
and the grantor under the deed of trust and must act “with absolute impartiality and
with fairness to all concerned” when conducting a foreclosure sale. Powell v. Stacy,
117 S.W.3d 70, 74 (Tex. App.—Fort Worth 2003, no pet.). Section 51.0074(b) of
the Property Code prohibits a trustee or substitute trustee from being assigned any
duty under a deed of trust other than to exercise the power of sale in accordance with
the terms of the deed of trust. TEX. PROP. CODE § 51.0074(b).
The trustee or substitute trustee must strictly comply with the terms of the
deed of trust and all applicable statutes to lawfully foreclose on a property.2 See
Univ. Sav. Ass’n v. Springwoods Shopping Ctr., 644 S.W.2d 705, 706 (Tex. 1982)
2
Section 51.002(d) of the Property Code imposes certain requirements for sending a
default notice, but those requirements only apply when the property is the debtor’s
residence. Parker v. Frost Nat’l Bank of San Antonio, 852 S.W.2d 741, 745 (Tex.
App.—Austin 1993, writ dism’d by agr.). Jeanette, the only debtor under the deed
of trust, no longer lives at the property, so Section 51.002(d)’s requirements do not
apply here.
6
(“Texas courts have consistently held that the terms set out in a deed of trust must
be strictly followed.”); Houston First Am. Sav. v. Musick, 650 S.W.2d 764, 768 (Tex.
1983) (“Compliance with the notice condition contained in the deed of trust and as
prescribed by law is a prerequisite to the right of the trustee to make the sale.”); see
also Stephenson v. LeBoeuf, 16 S.W.3d 829, 836 (Tex. App.—Houston [14th Dist.]
2000, pet. denied) (“The powers conferred upon a trustee in a deed of trust must be
strictly followed.”).
But a minor defect in an otherwise valid foreclosure proceeding does not void
the entire proceeding. Hemyari v. Stephens, 355 S.W.3d 623, 628 (Tex. 2011) (per
curiam) (defect in signature line of deed of trust did not void foreclosure sale);
Powell, 117 S.W.3d at 74 (trustee’s default notice stating incorrect amount due did
not void foreclosure sale). A minor defect relating to a notice required under a deed
of trust does not void a foreclosure sale when the borrower has actual notice and
there is no prejudice or harm resulting from the defect. See Jasper Fed. Sav. & Loan
Ass’n v. Reddell, 730 S.W.2d 672, 675 (Tex. 1987) (failure to inform borrower of
right to reinstate, as required by deed of trust, did not void foreclosure when
borrowers had actual notice of right to reinstate); Univ. Sav. Ass’n, 644 S.W.2d at
706 (failure to record substitute trustee appointment before foreclosure sale did not
void foreclosure sale conducted by substitute trustee when borrower had actual
notice of substitute trustee’s substitution and identity); MMM 410 Bar & Grill, LLC
7
v. Fong, No. 04-18-00156-CV, 2018 WL 5018767, at *3 (Tex. App.—San Antonio
Oct. 17, 2018, no pet.) (mem. op.) (failure to send required default notice to address
stated in deed of trust would not have voided foreclosure sale when borrowers had
actual knowledge of default notice, in temporary-injunction appeal). If the defect
affects notice to the public about the foreclosure sale, however, strict compliance
must be observed because one of the purposes of Section 51.002 is to “adequately
inform the third party public in order to maximize the likelihood of a profitable
public sale at market value.” Jasper Fed. Sav. & Loan Ass’n, 730 S.W.2d at 674–
75; see also Villa v. Villa, 664 S.W.3d 415, 419 (Tex. App.—Eastland 2023, no pet.)
(voiding foreclosure sale because public notice of foreclosure sale was posted and
filed 20 days before sale instead of 21 days required by statute and deed of trust).
Analysis
Veronica and Jeanette argue the trial court abused its discretion in denying
their request for a temporary injunction to enjoin the foreclosure sale because the
appellees violated Section 51.0074(b) of the Property Code by assigning the
substitute trustee a duty other than exercising the power of sale. Veronica and
Jeannette argue the appellees assigned to Garcia the duty of sending the default
notice required by the deed of trust. This violation, Veronica and Jeanette argue,
shows the appellees did not strictly comply with the statute, and any foreclosure sale
resulting from this default notice would be void. Thus, Veronica and Jeanette argue,
8
they can show a probable right to the relief they seek, and the trial court should have
granted the temporary injunction.
Even assuming the appellees violated Section 51.0074(b) by assigning the
substitute trustee an additional duty, Veronica and Jeanette have not shown a
probable right to the relief they seek because they have not shown a resulting
foreclosure sale would be void. Veronica and Jeanette do not argue the default notice
was itself deficient. Nor do they dispute that the loan is in default or that they actually
received the default notice and notice of acceleration3 Garcia sent them; thus, they
had actual notice. They have not shown any prejudice or harm resulting from their
receiving the default notice from the substitute trustee rather than from the appellees
themselves. This minor defect, when they had actual notice and suffered no prejudice
or harm, would not void a foreclosure sale. See Jasper Fed. Sav. & Loan Ass’n, 730
S.W.2d at 675; Univ. Sav. Ass’n, 644 S.W.2d at 706; MMM 410 Bar & Grill, 2018
WL 5018767, at *3.
We further note that the default notice indicates Garcia sent the letter on behalf
of appellees: “This Law Firm represent[s] Jose Juan Reyes and wife, Alma Canales
Reyes, hereinafter referred to as ‘Lenders[.]’” To the extent Veronica and Jeanette
argue the substitute trustee’s sending the default notice on behalf of the appellees
3
In the trial court, Veronica and Jeanette also argued that the appellees improperly
accelerated the loan, but they have not raised this issue on appeal, so we do not
consider it here.
9
violated his duty to act with impartiality and fairness, a substitute trustee does not
breach this duty by also representing a lender or beneficiary in his capacity as an
attorney. Powell, 117 S.W.3d at 74 (holding substitute trustee did not breach his duty
of fairness and impartiality by also representing lender as attorney and sending
required notices of default). Nothing in these facts suggests that a foreclosure sale
would be unfair or void because Veronica and Jeanette received the required default
notice from Garcia rather than from the appellees themselves. Though we have
found no case addressing this specific issue of a trustee or substitute trustee sending
a notice required to be sent by the lender or mortgage servicer, some cases mention
in passing a trustee or substitute trustee sending a required notice and find no fault
with the practice. See, e.g., Jasper Fed. Sav. & Loan Ass’n, 730 S.W.2d at 673
(noting that substitute trustee sent notice to borrowers informing them that their
account was past due); Terra XXI, Ltd. v. Harmon, 279 S.W.3d 781, 784, 787 (Tex.
App.—Amarillo 2007, pet. denied) (explaining that lender, believing borrowers had
defaulted on their loan, “contacted Harmon to act as its trustee for foreclosure
proceedings” and, “[i]n furtherance of the foreclosure, Harmon sent notice to”
borrowers); Benitez v. Perales, No. 01-00-00211-CV, 2002 WL 1981189, at *1
(Tex. App.—Houston [1st Dist.] Aug. 29, 2002, no pet.) (not designated for
publication) (noting that trustee sent borrower notice of default).
10
Even if the appellees violated Section 51.0074, which we do not determine on
this interlocutory appeal, Veronica and Jeanette have not shown that this violation,
based on receiving the required default notice from the substitute trustee rather than
from the appellees themselves, would void a resulting foreclosure sale. Veronica and
Jeanette received actual notice and did not suffer any harm or prejudice from the
defect. See Jasper Fed. Sav. & Loan Ass’n, 730 S.W.2d at 675 Univ. Sav. Ass’n, 644
S.W.2d at 706; MMM 410 Bar & Grill, 2018 WL 5018767, at *3. Thus, they have
not shown a probable right to the relief they seek, and the trial court did not abuse
its discretion in denying the temporary injunction. See Butnaru, 84 S.W.3d at 204.
We overrule Veronica and Jeanette’s sole issue.
Appellate Sanctions
The appellees have requested that we award them damages because Veronica
and Jeanette have pursued a frivolous appeal.
Rule 45 of the Texas Rules of Appellate Procedure authorizes an appellate
court to award a prevailing party “just damages” for “frivolous” appeals. TEX. R.
APP. P. 45; Smith v. Brown, 51 S.W.3d 376, 380 (Tex. App.—Houston [1st Dist.]
2001, pet. denied). In objectively determining whether an appeal is frivolous, we
view the record from the advocate’s viewpoint and ask whether the advocate had
reasonable grounds to believe the judgment could be reversed. Smith, 51 S.W.3d at
381. We exercise prudence and caution and carefully deliberate before awarding
11
appellate sanctions. Id. Rule 45 does not require us to award damages in every case
in which an appeal is frivolous. R. Hassell Builders, Inc. v. Texan Floor Serv., Ltd.,
546 S.W.3d 816, 833 (Tex. App.—Houston [1st Dist.] 2018, pet. dism’d). Instead,
the decision to award damages falls within our discretion, and we will impose such
damages only under egregious circumstances. Id.; Durham v. Zarcades, 270 S.W.3d
708, 720 (Tex. App.—Fort Worth 2008, no pet.).
We decline the appellees’ request for damages under Rule 45.
CONCLUSION
We affirm the trial court’s order denying the temporary injunction.
Gordon Goodman
Justice
Panel consists of Justices Goodman, Landau, and Rivas-Molloy.
12