Court Opinion

ID: 5128389
Source: CourtListenerOpinion
Date Created: 2021-11-22 19:00:37.758214+00
Date Added: 2024-06-11T08:23:06.667835
License: Public Domain

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   opinion should not be published and is not precedent except under the limited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).

                                         2
Case: 21-10493       Document: 00516102896         Page: 3   Date Filed: 11/22/2021

                                    No. 21-10493

          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

                                          3
Case: 21-10493      Document: 00516102896          Page: 4   Date Filed: 11/22/2021

                                    No. 21-10493

   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.

                                          4
Case: 21-10493      Document: 00516102896           Page: 5     Date Filed: 11/22/2021

                                     No. 21-10493

          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

                                           5
Case: 21-10493      Document: 00516102896             Page: 6   Date Filed: 11/22/2021

                                       No. 21-10493

   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.

                                            6