The debtors executed a note and security instrument (the “loan agreement”) with the mortgagee, who held a security interest in the property under the security instrument. The loan agreement provided that the lender could sell the property if the debtors defaulted. The mortgagee assigned the loan to the Federal National Mortgage Association (“Fannie Mae”), which then assigned the loan agreement to an investment company. The debtors defaulted, and the investment company issued a notice of acceleration. The district court then entered a final judgment against the debtors and permitted a non-judicial foreclosure of the property. The debtors appealed the final judgment, and the Fifth Circuit affirmed the district court. However, while the appeal was pending, the investment company assigned the loan agreement to the bank. The bank sent a notice of default to the debtors with an option to cure, but the debtors still failed to pay on the note. The bank then filed suit and moved for summary judgment, asserting it could foreclose on the property because of the issuance of the previous final judgment. The magistrate judge recommended that the district court grant the bank’s motion for summary judgment in his report. In response, the debtors filed an unopposed motion to extend the deadline to file their objection to the magistrate judge’s report, which the district court granted. The debtors filed for a second extension on the day of the new deadline, but the request “was the same in form and substance as the first.” The debtors then filed a corrected second motion requesting an extension of the deadline, which the district court denied. The debtors then filed a motion for leave to file a motion and a motion for a new trial. The district court denied all the debtors’ motions and granted summary judgment for the bank, and the debtors appealed to the Fifth Circuit.
In United States Bank Tr. Nat'l Ass'n v. Walden, 124 F.4th 314 (5th Cir. 2024), the Fifth Circuit affirmed in part and reversed in part the district court, finding the district court did not abuse its discretion in denying the debtors’ motions but reversing the district court’s order granting summary judgment. First, the Fifth Circuit held that the district court did not abuse its discretion in denying the debtors’ second motion to extend the deadline. Fed. R. Civ. P. 72 provides that a party has 14 days to object to a magistrate judge's proposed findings and recommendations. However, the court explained that district courts have broad discretion over dockets and may extend deadlines before they expire for good cause. The court found that the debtors’ second motion to extend the time, filed on the day of the deadline from the first extension, was both substantively and procedurally insufficient. Although the debtors then fixed the insufficiencies in their corrected motion, that corrected motion was filed after the date of the deadline of the first extension. Under, Fed. R. Civ. P. 6(b)(1)(B), “the court may for good cause extend the time after it has expired ‘if the party failed to act because of excusable neglect.’” The court explained that a district court weighs several factors in determining if a party had excusable neglect in its failure to act, including danger of prejudice to parties, the length and impact of the delay on the proceedings, whether the moving party had control over the delay, and whether the moving party acted in good faith. United States v. Clark, 51 F.3d 42, 44 (5th Cir. 1995). In finding a lack of good faith from the debtors, the district court noted the initial errors in the debtors’ motion to extend, specifically their failure to check for mistakes regarding dates (even after being informed by the court they existed) and failure to conference with the opposing party to allow it sufficient time to note opposition to the motion. Therefore, the Fifth Circuit found the denial fell “well within” the district court’s discretion and did not constitute abuse. Second, the Fifth Circuit similarly concluded that the district court did not abuse its discretion in denying the debtors’ motion for leave to file objections to the magistrate judge’s report. The district court found no good cause to grant the motion. However, the debtors argued that the denial was improper because of the incorrect date on the motion. The Fifth Circuit explained that there is no abuse of discretion when a district court denies a motion raised after final judgment (Fed. R. Civ. P. 60(b) motion) if “‘the proffered justification for relief’ is the mistake or carelessness of the party’s own counsel.” Lozano v. Donna Indep. Sch. Dist., 648 F. App’x 412, 413 n.2 (5th Cir. 2016). Therefore, because the debtors admitted the mistake was their own, the court found the district court did not abuse its discretion in denying the motion based on the counsel’s “mistake or carelessness." Next, the Fifth Circuit reversed and remanded the district court’s order granting summary judgment in favor of the bank. The court first rejected the debtors’ argument that the bank lacked standing. The debtors argued that the investment company improperly assigned the loan to the bank, claiming it never had an interest in the loan agreement to transfer. The debtors claimed that Fannie Mae lacked the authority to assign the loan agreement to the investment company because the Federal Housing Finance Agency (FHFA) served as Fannie Mae’s receiver. The court then explained that the Housing and Economic Recovery Act of 2008 created the FHFA, giving it ultimate authority over Fannie Mae, but Fannie Mae retains the power to transfer assets without the need for approval given that the FHFA does “not control daily operations.” Therefore, the assignment was proper because the investment company had an interest in the loan agreement, which it was subsequently allowed to transfer to the bank. Additionally, the debtors argued that the bank “did not suffer a concrete injury,” which the court rejected. It explained that the bank suffered a financial loss, which is a well-established form of injury; this injury supported the bank’s possession of standing. Finally, the court addressed the debtors’ argument that the notice they received from the bank “was an unequivocal express notice of abandonment of any prior acceleration” brought by a prior party (here, the investment company). The district court granted summary judgment despite this argument, but the circuit court reasoned that the district court’s holding was contrary to controlling precedent. Boren v. U.S. Nat’l Bank Ass’n, 807 F.3d 99, 106 (5th Cir. 2015). Thus, the Fifth Circuit reversed the summary judgment entered in favor of the bank and remanded for proceedings consistent with precedent. Lastly, the debtors argued that the bank could abandon acceleration despite the court’s prior judgment because the foreclosure had been non-judicial, and the acceleration was later rescinded. This court instructed that on remand, the district court must address these arguments.
By Callighan Ard: [email protected]
Edited By Kristin Meurer: [email protected]
Edited By Ashley Boyce: [email protected]
Edited By Hayden Mariott: [email protected]