In a recent published opinion, the United States Court of Appeals for the Fifth Circuit rejected a borrower's claims for breach of contract, negligence, wrongful foreclosure, and violations of the Texas Deceptive Trade Practices Act ("DTPA"). The plaintiff was awarded legal possession of the property as part of a divorce proceeding. At origination, the plaintiff's husband was the sole obligor on the note. After the divorce, however, the plaintiff became the sole obligor on the loan, and the loan went into default again after the divorce proceedings concluded. The bank sent statutorily required notices of default, intent to accelerate, and acceleration to the property and the husband's mother's residence. When the plaintiff did not cure the default, the bank foreclosed.
The plaintiff sued the bank, contending that it failed to send notices to the plaintiff's new address, which was different than the address of the property. Plaintiff also claimed that the bank negligently failed to make automatic withdrawals from her checking account to pay her mortgage. In upholding the decision from the United States District Court for the Southern District of Texas, the Fifth Circuit noted that a plaintiff must allege her own performance because a party to a contract who is herself in default cannot maintain a suit for its breach. In this case, the notices attached to the motion to dismiss revealed that the plaintiff was in default by over $7,000. Thus, because the plaintiff "failed to allege any facts showing her own performance and did not refute the facts in documents referred to in her complaint, central to her claims, and attached to the motion to dismiss, the dismissal of the breach-of-contract claim was proper."
In dismissing her claim for negligence, the court noted that the plaintiff never asserted that either the duty to make automatic withdrawal or to send statutorily required notices to her new residence "would exist but for the contract between her and the bank. Thus, any damages stemming from an alleged violation of those solely contractual duties are not redressable in tort." Therefore, the dismissal of the negligence claim was proper.
The court also dismissed the plaintiff's wrongful foreclosure claim stating that she did not allege that the bank "disposed of the house at a 'grossly inadequate selling price,' nor d[id] she allege that [the bank] fraudulently chilled the bidding at the foreclosure sale."
Finally, the court rejected the plaintiff's theory that failing to make automatic withdrawals to pay the loan violated the DTPA. Under Texas law, to qualify as a consumer, the plaintiff "must have sought or acquired goods or services by purchase or lease," and those "goods or services … must form the basis of the complaint. ... [T]he key principle in determining consumer status is that the goods or services purchased must be an objective of the transaction, not merely incidental to it." The Fifth Circuit concluded that those "'services' cannot form the basis of a DTPA claim because they are 'incidental to the loan' and would 'serve[] no purpose apart from facilitating [the] mortgage loan.'" Thus, the dismissal of the DTPA claim by the district court was proper.
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