IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF TEXAS

AUSTIN DIVISION

RAUL CHAVEZ §

§

v. § 1:20-cv-522-LY

§

FREEDOM MORTGAGE CORP. §

REPORT AND RECOMMENDATION

OF THE UNITED STATES MAGISTRATE JUDGE

TO: THE HONORABLE LEE YEAKEL

UNITED STATES DISTRICT JUDGE

Before the Court is Defendant’s Motion to Dismiss pursuant to Federal Rule of Civil

Procedure 12(b)(6). Dkt. No. 3. Plaintiff did not file a response. The District Court referred the

above-motion to the undersigned Magistrate Judge for a report and recommendation pursuant to 28

U.S.C. §636(b) and Rule 1(c) of Appendix C of the Local Rules of the United States District Court

for the Western District of Texas, Local Court Rules.

I. GENERAL BACKGROUND 

On November 3, 2017, Plaintiff Raul Chavez entered into a loan agreement with Freedom

Mortgage Corp., obtaining a home equity loan in the amount of $200,431 on residential property

located in Buda, Texas (the “Property”). Though not directly stated, it appears that at some point

Chavez began to have difficulties making payments and attempted to obtain a loan modification. 

Dkt. No. 1 at 7, ¶ 11. Chavez alleges that while he was trying to modify the loan, Freedom moved

forward with foreclosure proceedings on the Property. Id. at ¶ 12.

On November 26, 2019, Chavez filed this lawsuit against Freedom in state court to stop the

foreclosure of his property. See Chavez v. Freedom Mortgage Corp., Cause No. 19-2922 (22nd Dist.

Ct., Hays County, Tex.). Chavez alleges that Freedom failed to perform its duties as a mortgage

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servicer by avoiding Chavez’s inquiries regarding an appeal of his loan modification application,

failing to give proper notice of default as required under law as a prerequisite to foreclosure, and

failing to complywith certain United States Department of Housing and Urban Development (HUD)

regulations governing the foreclosure of mortgage loans insured by the Federal Housing Authority

(FHA). Chavez asserts claims for negligence and breach of contract, as well as claims under the

Real Estate Settlement Procedures Act (RESPA) and Texas Property Code § 51.002. Chavez also

seeks injunctive relief to stop the foreclosure. While the foreclosure of the Property was originally

scheduled for December 3, 2019, the foreclosure has yet to occur. 

Freedom removed this case to federal court on the basis of diversity jurisdiction under 28

U.S.C. §§ 1332 and 1441(a).1 Dkt. No. 1. The same day, Freedom filed the instant Motion to

Dismiss arguing that all of Chavez’s claims should be dismissed under Federal Rule of Civil

Procedure 12(b)(6). Dkt. No. 3. 

II. STANDARD OF REVIEW

Rule 12(b)(6) allows for dismissal of an action “for failure to state a claim upon which relief

can be granted.” While a complaint attacked by a Rule 12(b)(6) motion does not need detailed

factual allegations in order to avoid dismissal, the plaintiff's factual allegations “must be enough to

raise a right to relief above the speculative level.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544,

555 (2007). A plaintiff’s obligation “requires more than labels and conclusions, and a formulaic

recitation of the elements of a cause of action will not do.” Id. The Supreme Court has explained

that a complaint must contain sufficient factual matter “to state a claim to relief that is plausible on

1 Chavez is a citizen of Texas. Dkt. No. 1 at ¶ 8. Freedom is incorporated in New Jersey

with its principal place of business in New Jersey. Id. at ¶ 9. The amount in controversy is at least

$213,890. Id. at ¶ 10. 

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its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). “A claim

has facial plausibility when the plaintiff pleads factual content that allows the court to draw the

reasonable inference that the defendant is liable for the misconduct alleged.” Id. In evaluating a

motion to dismiss, the Court must construe the complaint liberally and accept all of the plaintiff's

factual allegations in the complaint as true. See In re Katrina Canal Breaches Litigation, 495 F.3d

191, 205 (5th Cir. 2009). However, “regardless of whether the plaintiff is proceeding pro se or is

represented by counsel, conclusory allegations or legal conclusions masquerading as factual

conclusions will not suffice to prevent a motion to dismiss.” Taylor v. Books A Million, Inc., 296

F.3d 376, 378 (5th Cir. 2002) (quotation marks omitted).

III. ANALYSIS

As noted, Chavez failed to respond to Freedom’s Motion to Dismiss. Pursuant to Local Rule

CV-7(e), if there is no response filed within the time period prescribed by the rules, the court may

grant a motion as unopposed. See Local Court Rule CV-7(e)(2) (responses to dispositive motions

due within 14 days of motion's filing). However, the Court will address the merits of the Motion

because dismissing a case other than on its merits is disfavored.

A. Negligence Claims

Chavez alleges that Freedom “had a duty to Plaintiff to provide notice of any transfer,

assignment, or sale of the note, to properly manage the loan and the escrow amount, to comply with

the notice provisions contained in the deed of trust before accelerating the note and foreclosing on

the property, and, when applying for a mortgage modification, to protect their rights and not mislead

them,” and that Freedom “breached the duties it owed to Plaintiff and as a result of this breach

Plaintiff was damaged.” Dkt. No. 1 at 8, ¶ 13. Chavez asserts that Freedom’s duty “can be found

in the regulation of the Department of Housing and Urban Development (“HUD”) which is

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incorporated with the Deed of Trust.” Id. at 8, ¶ 14. Chavez further alleges that “Defendant’s

mishandling of Plaintiff’s loss mitigation constitutes a negligent misrepresentation.” Id. at 9, ¶ 17.

To state a claim for negligence under Texas law, Chavez must establish that Freedom owed

him a legal duty. Pemberton v. PNC Bank Nat. Ass’n, 2012 WL 2122201, at *3 (S.D. Tex. June 11,

2012); Nabors Drilling, U.S.A ., Inc. v. Escoto, 288 S.W.3d 401, 404 (Tex. 2009). To show there

is a duty in tort based on a contract, a plaintiff must show there is a special relationship between the

parties. Farah v. Mafridge &Kormanik, P.C., 927 S.W.2d 663, 675 (Tex.App.—Houston [1st Dist.]

1996, no writ). It is well established that no such relationship exists under a contract between a

mortgagor and a mortgagee. Thomas v. EMC Mortg. Corp., 499 Fed.App’x. 337, 341 (5th Cir.

2012); Collier v. Wells Fargo Home Mortg., 2006 WL 1464170, *8 (N.D. Tex. May 26, 2006). 

Because Chavez cannot show any duty owed to him by Freedom, his negligence claim fails.

Likewise, Chavez fails to allege a viable negligent misrepresentation claim. Chavez alleges

that “Defendant failed to use reasonable care in communicating to Plaintiff the options of loss

mitigation,” and that Chavez relied on Freedom’s false representations to his detriment. Dkt. No.

1 at 8, ¶¶ 15, 17. To state a claim for negligent misrepresentation, a plaintiff must allege facts

showing that (1) a misrepresentation was made by the defendant in the course of his business or in

a transaction in which the defendant has a pecuniary interest; (2) the defendant supplied “false

information” for the guidance of others in their business; (3) the defendant did not exercise

reasonable care or competence in obtaining or communicating the information; and (4) the plaintiff

suffered a pecuniary loss by justifiably relying on the representation. Biggers v. BAC Home Loans

Servicing, LP, 767 F.Supp.2d 725, 734 (N.D. Tex. Feb.10, 2011). In Texas, the economic loss rule

may bar recovery for negligent representation claims. Lamar Homes, Inc. v. Mid-Continent Cas.

Co., 242 S.W.3d 1, 12 (Tex. 2007). “In determining whether a tort claim is merely a repackaged

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breach of contract claim, a court must consider: (1) whether the claim is for breach of duty created

by contract, as opposed to a duty imposed by law; and (2) whether the injury is only the economic

loss to the subject of the contract itself.” Stanley Indus. of S. Fla. v. J.C. Penney Co., 2006 WL

2432309, at *5 (N.D. Tex. Aug. 18, 2006). 

Here, Chavez’s claim that Freedom made misrepresentations and failed to communicate his

options of loss mitigation merely repackages his breach of contract claim as a negligent

misrepresentation claim. Chavez’s negligent misrepresentation claim rests on his allegation that

Freedom breached their Loan Agreement, and the alleged loss complained of is the subject matter

of that Loan Agreement. Accordingly, his claim is barred by the economic loss rule. See Myers v.

Bank of America, N.A., 2012 WL 1107687, at *4 (E.D. Tex. Mar. 31, 2012) (finding that plaintiffs’

negligent misrepresentation allegations relating to a loan modification are barred by economic loss

rule since they flow solely from the note and deed of trust); Narvaez v. Wilshire Credit Corp., 757

F. Supp. 2d 621, 634 (N.D. Tex. 2010) (dismissing negligent misrepresentation claim where

mortgagor’s injuries were only for economic loss to the subject matter of his contract with loan

servicer and mortgagee). Accordingly, Chavez’s negligent misrepresentation claim fails as well. 

B. RESPA Claim

Chavez’s Original Petition asserts that he brings suit against Freedom alleging a “violation

of RESPA, 12 USC Sec. 1024, et seq.” Dkt. No. 1 at 7, ¶ 8. To recover on a RESPA claim, a

claimant must show that actual damages resulted from a RESPA violation. 12 U.S.C. § 2605(e), (f);

Steele v. Quantum Servicing Corp., 2013 WL 3196544, at *6 (N.D. Tex. June 25, 2013). While

Chavez’s Original Petition references RESPA generally, it fails to identify any specific provision of

RESPA allegedly violated by Freedom. Further, Chavez fails to allege any actual damages resulting

from a RESPA violation. As such, Chavez’s RESPA claim must be dismissed. 

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C. Claim for Violation of Texas Property Code § 51.002

Texas PropertyCode § 51.002 governs a foreclosure sale of real property pursuant to a deed

of trust and provides specific requirements as to the time and place a foreclosure sale must be held,

as well as to the notices that must be given before the sale. See, e.g., Texas Property Code §

51.002(b). Chavez alleges that “[B]ased on belief and information, Defendant failed to give the

notice required by law which is a prerequisite to foreclose on the property,” and that “[t]he failure

of the Defendant to provide a vaild (sic) notice makes any action to take a foreclosure action a

violation of Tex. Prop. Code Ann. 51.0002.” Dkt. No. 1 at 9, ¶¶ 22, 23. “A pleading that offers

‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of action’” is not

sufficient. Iqbal, 129 S.Ct. at 1949 (citation omitted). Because Chavez’s petition does not contain

factual allegations supporting anyinference that Freedom failed to complywithTexas PropertyCode

§ 51.002, Chavez has failed to state a viable cause of action under that statute, and Freedom’s motion

to dismiss should be granted, without prejudice to Chavez repleading.

D. Breach of Contract Claim

Lastly, Chavez asserts a breach of contract claim, alleging that Freedom breached the Loan

Agreement because Freedom (1) “failed to comply with HUD regulations outlining procedures that

must be followed prior to accelerating and foreclosing a loan subject to the FHA,” (2) failed to make

reasonable efforts to inform Chavez of any assistance options before accelerating the loan and

proceeding with foreclosure, and (3) failed to provide all proper notice as contractually required by

the deed of trust prior to attempting foreclosure. Dkt. No. 1 at 10-11, ¶¶ 25-32. Under Texas law,

a breach of contract claim requires showing “(1) the existence of a valid contract; (2) performance

or tendered performance by the plaintiff; (3) breach of contract by the defendant; and (4) damages

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sustained by the plaintiff as a result of the breach.” Smith Int'l, Inc. v. Eagle Group, LLC, 490 F.3d

380, 387 (5th Cir. 2007). 

As an initial matter, it is well established that a mortgagor has no private right of action for

a mortgagee’s failure to comply with HUD regulations. See, e.g., Klein v. Wells Fargo Bank, N.A.,

2014 WL 5685113, at *5 (W.D. Tex. Nov. 4, 2014) (“[HUD] regulations govern relations between

the mortgagee and government, and give the mortgagor no claim for duty owed or for the failure to

follow said regulations.”); Bassie v. Bank of Am., N.A., 2012 WL6530482, at *3 (S.D. Tex. Dec. 13,

2012) (“[P]laintiffs’ breach of contract claim based on Bank of America’s alleged failure to comply

with regulations of [HUD] must be dismissed because those regulations, too, do not provide for a

private cause of action.”). Accordingly, Chavez’s breach of contract claim based on Freedom’s

alleged failure to comply with HUD regulations fails as a matter of law. 

Chavez’s claims that Freedom breached the Loan Agreement by failing to make reasonable

efforts to inform Chavez of assistance options and failing to provide Chavez with proper notice prior

to foreclosing on the Property also fail. In its motion to dismiss, Freedom argues Chavez’s breach

of contract claims should be dismissed because “Plaintiff fails to identify the alleged provision of

the deed of trust that was breached by Defendant,” and “fails to allege any damages suffered as a

result of any alleged breach.” Dkt. No. 3 at 7. The Court agrees. Chavez’s petition does not contain

factual allegations supporting any inference that Freedom breached its contractual obligations to

Chavez. Even if Chavez had alleged sufficient facts to show that Freedom breached the Loan

Agreement, his breach of contract claims would fail nevertheless because he has failed to allege that

he suffered any actual damages as a result of the alleged breach of contract. As noted, because

Chavez’s Property has not been foreclosed upon, he cannot rely on any alleged damages due to a

foreclosure. See De La Mora v. CitiMortgage, Inc., 2015 WL 12803712, at *2 (S.D. Tex. 2015)

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(“Plaintiff cannot show damages resulting from any such breach because no foreclosure sale has

occurred.”). To the extent that Chavez asserts he suffered damages in the form of attorneys’ fees,

such a claim does not constitute actual damages sufficient to sustain a breach of contract claim. See

Vianet Grp. PLC v. Tap Acquisition, 2016 WL 4368302, at *9 (N.D. Tex. 2016) (concluding that

the Supreme Court of Texas would not characterize attorneys’ fees as damages “if they were

subsequently incurred from prosecuting a breach of contract claim”). Since Chavez has not

identified any contractual provision that was breached by Freedom, in damages, his breach of

contract claim must be dismissed, without prejudice to repleading.

E. Injunctive and Declaratory Relief

Chavez also seeks injunctive and declaratory relief to enjoin Freedom from foreclosing on

the Property. Claims for injunctive relief and declaratory relief are remedial in nature, and are

therefore dependent on the plaintiff’s assertion of a viable cause of action. Collin Cty. v.

Homeowners Ass'n for Values Essential to Neighborhoods, 915 F.2d 167, 170-71 (5th Cir. 1990);

Ehninger v. PNC Bank N.A., 2019 WL 1746296, at *2 (N.D. Tex. Apr. 18, 2019); Mbache v.

Wilmington Trust, Nat'l Ass'n, 2016 WL 1162200, at *4 n.5 (S.D. Tex. Mar. 24, 2016). “Because

a declaratory judgment is ‘remedial in nature,’ where all of a plaintiff’s causes of action are

dismissed, a related declaratory judgment claim should also be dismissed.” Guajardo v. JP Morgan

Chase Bank, N.A., 605 F. App’x 240, 250 (5th Cir. 2015) (quoting Williams v. Wells Fargo Bank,

N.A., 560 F. App’x. 233, 243 (5th Cir. 2014)). Because Chavez has failed to plead any viable causes

of action in this case, Chavez’s requests for declaratory and injunctive relief are unavailable. See id. 

F. Leave to Amend

In its motion to dismiss, Freedom argues that all of Chavez’s claims fail as a matter of law,

and thus asserts that dismissal with prejudice is appropriate. Dkt. No. 3 at 7. When a plaintiff’s

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complaint fails to state a claim, the court should generally give the plaintiff at least one chance to

amend under Rule 15(a) before dismissing the action with prejudice. See Great Plains Trust Co. v.

Morgan Stanley Dean Witter & Co., 313 F.3d 305, 329 (5th Cir. 2002) (“[D]istrict courts often

afford plaintiffs at least one opportunity to cure pleading deficiencies before dismissing a case,

unless it is clear that the defects are incurable or the plaintiffs advise the court that they are unwilling

or unable to amend in a manner that will avoid dismissal.”); see also United States ex rel. Adrian

v. Regents of the Univ. of Cal., 363 F.3d 398, 403 (5th Cir. 2004) ( “Leave to amend should be freely

given, and outright refusal to grant leave to amend without a justification ... is considered an abuse

of discretion.” (internal citation omitted)). Accordingly, while the undersigned recommends that

Freedom’s motion to dismiss should be granted, the undersigned further recommends that dismissal

be without prejudice to Chavez repleading his claims. 

IV. RECOMMENDATION 

TheCourtRECOMMENDS that theDistrictCourt GRANT Defendant’s Motion to Dismiss

pursuant to Federal Rule of Civil Procedure 12(b)(6) (Dkt. No. 3) and DISMISS Plaintiff’s lawsuit

without prejudice, andFURTHER RECOMMENDS that the District Court set a deadline bywhich

Chavez shall file an amended complaint should he choose to do so.

The Clerk is directed to remove this case from the undersigned’s docket and return it to the

docket of the Honorable Lee Yeakel.

V. WARNINGS

The parties may file objections to this Report and Recommendation. A party filing

objections must specifically identify those findings or recommendations to which objections are

being made. The District Court need not consider frivolous, conclusive, or general objections. See

Battle v. United States Parole Comm’n, 834 F.2d 419, 421 (5th Cir. 1987). A party’s failure to file

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written objections to the proposed findings and recommendations contained in this Report within

fourteen (14) days after the party is served with a copy of the Report shall bar that party from de novo

review bythe District Court of the proposed findings and recommendations in the Report and, except

upon grounds of plain error, shall bar the party from appellate review of unobjected-to proposed

factual findings and legal conclusions accepted by the District Court. See 28 U.S.C. § 636(b)(1)(c);

Thomas v. Arn, 474 U.S. 140, 150-53, 106 S. Ct. 466, 472-74 (1985); Douglass v. United Servs.

Auto. Ass’n, 79 F.3d 1415, 1428-29 (5th Cir. 1996) (en banc).

SIGNED this 1st day of February, 2021.

_____________________________________

ANDREW W. AUSTIN

UNITED STATES MAGISTRATE JUDGE

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