Flagstar Bank, FSB v. Walcott, Jr.

• Court: District Court, Virgin Islands
• Decided: August 15, 2023
• Docket: 1:18-cv-00037
• Status: Unknown

Opinion

DISTRICT COURT OF THE VIRGIN ISLANDS

DIVISION OF ST. CROIX ║ FLAGSTAR BANK, FSB ║ ║ Plaintiff, ║ 1:18-cv-00037-WAL-EAH ║ v. ║ ║ DEAN C. WALCOTT, JR., DENISE ║ WALCOTT, and SECRETARY OF ║ HOUSING AND URBAN DEVELOPMENT, ║ ║ Defendants. ║ ________________________________________________ ║ TO: A.J. Stone, III, Esq. For Plaintiff Denise Walcott, Pro Se Angela Tyson-Floyd, Esq., AUSA For Defendant Secretary of Housing and Urban Development

REPORT AND RECOMMENDATION THIS MATTER

comes before the Court on an Order by the District Judge for a Report & Recommendation (“R&R”) on Defendant Denise Walcott’s “Emergency Motion for Temporary Restraining Order, Emergency Motion for Preliminary Injunction to Enjoin Forclosure [sic] Sale Scheduled for August 17, 2023” (the “Injunctive Motion”), Dkt. No. 55. For the reasons that folloBwA, tChKeG CRouOrUt NreDc ommends that the motion be denied. Plaintiff Flagstar Bank, FSB, (“Flagstar”) filed the Complaint in this case in August 2018, seeking foreclosure of a real property mortgage. Dkt. No. 1. Specifically, it alleged 1:18-cv-00037-WAL-EAH R eport & Recommendation Page 2 Id amount of $126,704.00 together with interest at a rate of 3.545% per year. . ¶ 9. Pursuant to the terms of the note, payments were to be made by equal consecutive monthly installments of principal and interest in the amount of $572I.d15 per month, beginning September 1, 2012, and the note also had a late fee provision. . ¶¶ 10-11. To secure the note, Denise and Dean Walcott granted to Flagstar and Mortgage Electronic Registration Systems, Inc. (“MERS”), aIsd nominee for Flagstar, a first priority mortgage dated July 6, 2012 over the propertyId. . ¶ 12. In March 2014, MERS assigned its entire interest in the property to Flagstar. . ¶ 14. The note and mortgage were subsequently modified by a loan modification agreement dated May 24, 2017, between Denise and Dean Walcott and Flagstar, establishing a new principal amount of $120,739.77, wIdith annual interest of 3.545% and monthly payments of $545.21 beginning July 1, 2017. . ¶

15. As part of the modification of the note, Denise and Dean Walcott granted to the U.S. Department of Housing and Urban DevelopmenIdt (“HUD”) a partial claim mortgage in the amount of $37,102.25 against the property. . ¶ 16. On September 1, 2017, Denise Walcott defaulted undIedr the terms of the note and the mortgage by failing to pay the monthly installment. . ¶¶ 20-21. Flagstar gave her notice and advised her that her failurIed to cure results in an acceleration of the debt and foreclosure of Flagstar’s mortgage lien. . ¶ 22. Denise Walcott failed to cure the defauIdlt, and the whole principal sum with unpaid interest was due and payable immediately. . ¶¶ 23-24. Flagstar further alleged

that its mortgage lien was superior to HUD’s mortgage lien and sought, inter alia, declaratory judgment, a juIddgment of indebtedness, foreclosure of the liens, and an order 1:18-cv-00037-WAL-EAH R eport & Recommendation Page 3 and AUSA Tyson-Floyd appeared on behalf of HUD, which filed an answer. Dkt. Nos. 11- 13, 15, 19. However, the summons were returned unexecuted as to the Walcotts. Dkt. Nos. 14, 16-18. Thus, in November 2018, Flagstar moved to serve them by publication and for an extension of time to serve process. Dkt. No. 20. The motion was granted. Dkt. No. 21. In April 2019, Flagstar filed a motion for entry of default against the Walcotts based on their failure to answer or respond to the Complaint. Dkt. No. 22. In support of that motion, Flagstar included proof of the service by publication in two newspapers in 1 Florida and one in St. Croix. Dkt. Nos. 23-1, 23-2, 23-3. The clerk entered default against the Walcotts in July 2019. Dkt. No. 27. In December 2019, Flagstar filed a motion for default judgment and summary judgment against the Walcotts. Dkt. Nos. 29-33. In March 2021, the District Judge granted the motion for default and summary judgment. Dkt. Nos. 35, 36. That Judgment and Order, inter alia, awarded final judgment against the Walcotts, foreclosed the mortgage, barred the Walcotts from all rights of redemption except for their statutory rights, and ordered that the property be sold. Dkt. No. 35. The United States Marshals Service was directed to deliver that order, which was returned unexecuted. Dkt. Nos. 38, 39. In June 2022, Flagstar filed a praecipe for writ of execution, and a writ was issued. Dkt. Nos. 44, 45, 46. A process for the writ was returned executed as to Denise Walcott in April 2023. Dkt. No. 53. On August 11, 2023, Denise Walcott filed the Injunctive Motion, seeking a 2 temporary restraining order and a preliminary injunction. Dkt. No. 55. The following 1:18-cv-00037-WAL-EAH R eport & Recommendation Page 4 allegations are taken directly from the Motion and are not findings of the Court: Walcott stated that the property is her and her minor child’s primary residence, and they would suffer irreparable injury if the property was lost to foreclosure. Dkt. No. 55 ¶¶ 1-2. She added that she was seeking assistance through the “Virgin Islands Housing Authority HomeownIder Assistance Funds Program” and needed additional time for the approval process. . ¶ 3. Further, she alleged that she had submitted a completed packagIed to Flagstar for review for loan modification and/or other mortgage assistance options. . ¶ 4. Though Walcott had experienced unforeseen hardships causing her mortgage account to fall behind, she had been in communication with Flagstar about those hardships and her willingness to get current on the mortgage; she had alIsdo resolved her financial hardship and had been ready and willing to resume payments. . ¶¶ 5-6. Though Walcott

wanted to make pIdayments, she could not afford to pay the entire past due amount and outstanding fees. . ¶ 7. Since September 2021, she had made many good faith efforts to become current and had applied foIrd available mortgage assistance programs through Flagstar but had been unsuccessful. . ¶ 8. On July 20, 2023, after calling to check on the status of the loan modification request, a Flagstar representativeI idnformed Walcott that the home was in foreclosure, with a sale date of August 17, 2023. . ¶ 9. Though she haIdd sent Flagstar a completed loan modification application, Flagstar had not responded. . ¶ 10. On July 25, 2023, Walcott called Flagstar and was told that they required a

completed mortgage aIdssistance package thirty-seven days before a foreclosure sale date to suspend the sale. . ¶ 11. Notice of default was improperly sent to Walcott befoIrde 1:18-cv-00037-WAL-EAH R eport & Recommendation Page 5 ¶¶ 12-13. FlagstaIdr also refused to provide Walcott with written notification of the foreclosure sale. . ¶ 13. Flagstar continuously refused to cooperate with Walcott to resume payments or to provide written notification for denial for specific mortgage assistance programs in the last twIod years, leaving Walcott with the impression that the application was still under review. . ¶¶ 14-15. Thus, she sought a temporary restraining order and prIedliminary injunction “in order to allow more time for parties to come to an agreement.” . at 2. The same day Walcott filed her motion, the matter was referred to the undersigned by the District Judge, and the undersigned set a hearing for the matter on August 15, 2023. At the hearing, Flagstar was represented by A.J. Stone, III, Esq., and Eric Rose appeared as a litigation representative for Flagstar with full authority to speak and 3 make decisions on Flagstar’s behalf. Defendants Denise and Dean Walcott appeared pro se, and Angela Tyson-Floyd, Esq., AUSA, appeared on behalf of Defendant Secretary of HUD. The parties made additional arguments regarding the injunctive relief factors. Specifically, Denise Walcott argued that she was likely to be successful in her attempt to have the Judgment and Order vacated because she had been misled by Flagstar and Flagstar had not met the statutory mediation requirement in 28 V.I.C. § 531. She argued that she showed irreparable harm because she had nowhere to go with her minor son and would experience mental and emotional damage. She reiterated that argument in

support of the third factor—whether preliminary relief will result in even greater harm to the nonmoving parties. Finally, she did not make argument as to the public interest. 1:18-cv-00037-WAL-EAH R eport & Recommendation Page 6 Attorney Stone responded that there was no likelihood of success on the merit where a valid Judgment and Order had been in place for almost two years and the record reflected valid notifications and entry of default. Regarding the mediation requirement, Walcott’s claims were unlikely to succeed as well. Attorney Stone argued that it was inapplicable in the instance where a defendant had not appeared, and that it may not even be applicable to federal proceedings as a mere procedural requirement. Attorney Stone argued that the likelihood of irreparable harm was mitigated by the six-month statutory redemption period which could be longer than six months as it did not start at the date of sale but at the date the Court entered an order confirming the sale. Further, there was great harm to Flagstar where no payments had been made on the property in approximately six years. As to the public interest, precluding or delaying a creditor’s recovery would dissuade

lenders from operating in the Virgin Islands and harm the entire mortgage lending system in the Virgin Islands. APPLICABLE LEGAL STANDARD

Pursuant to Rule 65 of the Federal Rules of Civil Procedure, the Court maAym g.r Taenlt. i&n jTuenl.c tCiov.e v r. eWlieinf bwaictkh &a tCeomnpseorrvaer yP rroegs.t rInaicn.,ing order or a preliminary injunction. 42 F.3d 1421, 1427 (3d Cir. 1994). Injunctive relief is “‘an extIrda.ordinary Frreamnekd'sy G M. C. .T rwuhckic Cht rs.,h Ionucl.d v . bGeM gCroarnpt.ed only in limited circumstances.’” (quoting , 847 F.2d 100, 102

(3d Cir. 1988)). The same legal standBaerbde arpmpalnie sv t. oU r.eSq. uDeesptst. foorf aS tteamteporary restraining order and 1:18-cv-00037-WAL-EAH R eport & Recommendation Page 7 preliminary injunctive relief, the moving party must show each of the following four elements: (1) a reasonable probability of success on the merits; (2) that she will suffer irreparable harm if the injunction is denied; (3) that granting preliminary relief will not result in evenId greater hNar.Jm. R teot tahile Mnoenrcmhso.v Ainssg' np avr. tSyi;d aanmdo (n4-)E trhisatto tfhfe public interest favors such relief.” . K(coist iPnhga rms., Inc. v. Andrx Corp. , 669 F.3d 374, 385-86 (3d Cir. 2012); , 369 F.3d 700, 708 (3d Cir. 2004)). It is well-established that the movant “must meet the threshold for the first two ‘most critical’ factors: it must demonstrate that it can win on the merits (which requires a showing significantly better than negligible but not necessarily more likely than not) and thaRt eiti lilsy mv. oCriety l iokfe Hlya trhriasnb unrogt to suffer irreparable harm in the absence of preliminary relief.” , 858 F.3d 173, 179 (3d Cir. 2017). “If these two ‘gateway

factors’ are met, a court should then consider the other two factors and determine ‘in its sound discretion if all four faDctooer vs., Dtaeklaewna troeg Veathlleery, Sbcahloaonlc Dei sitn favor of granting the requested preliminary relRieefi.l’l”y ., 572 F. Supp. 3d 38, 63 (M.D. Pa. 2021) (quoting , 858 F.3d. at 179). “The burden lies with the [movant] to establish everyP .eCl.e Ymoennkte rsin, I nicts. v.f aCveolerb, raotri otnhse t hger Paanrtt yo &f Sae apsroenlaiml Sinuapreyr stionrjue,n LcLtiCon is inappropriate.” , 428 F.3d 504, 508 (3d Cir. 2005). DISCUSSION

The first factor, success on the merits, warrants denying this temporary and preliminary injunction because no viable claims exist. In her Injunctive Motion, Walcott 1:18-cv-00037-WAL-EAH R eport & Recommendation Page 8 written notification of the foreclosure sale.” Dkt. No. 55 ¶¶ 12-13. However, the record reflects that default was properly entered against Defendant. She was duly served by publication on December 19, 2018. Dkt. No. 23-2. Flagstar moved for entry of default on April 10, 2019, and provided evidence of the service by publication. Dkt. No. 22. The Clerk entered default on July 19, 2019. Dkt. No. 27. Flagstar sought default and summary judgment against the Defendants on December 19, 2019. Dkt. No. 29. The Court granted the motions on March 3, 2021, and awarded final judgment against the Walcotts, foreclosed the mortgage, barred the Walcotts from all rights of redemption except their statutory rights, and ordered that the property be sold. Dkt. No. 35. Nothing in the record supports her claims of insufficient or improper service. Moreover, the docket also reflects that Denise Walcott received service of the writ of execution in April 2023. Dkt. No. 53.

At the hearing, Walcott stated that she was seeking to have the Judgment and Order vacated because Flagstar failed to comply with the statutory mediation 4 requirement in violation of 28 V.I.C. § 531. But, before the Judgment and Order was entered, Walcott had failed to respond for nearly three years and default judgment had

4 28 V.I.C. § 531 provides that: (a) A lien upon real property, other than that of a judgment, whether created by mortgage or otherwise, shall be foreclosed, and the property adjudged to be sold to satisfy the debt secured thereby, by an action of an equitable nature. In such action, in addition to the judgment of foreclosure and sale, if it appears that a promissory note or other personal obligation for the payment of the debt has been given by the mortgagor or other lien debtor, or by any other person as principal or otherwise, the court shall also adjudge a recovery of the amount of such debt 1:18-cv-00037-WAL-EAH R eport & Recommendation Page 9 been entered against her. Dkt. No. 27. Flagstar had no way to mediate with Walcott, and it would be nonsensical to conclude that the statutory provision requires that of FlagsSteaer 5 oWri ltmhiantg tthoen Scaavsien gssh oFuulndd bSoec .s, tFaSyBe dv . fEosrt ayteea orfs Mtoo owleaniat afro trh rao udgehfe Mndoaonletn taor appear. , No. 3-19-cv- 0105, 2021 WL 4895201 at *4 (“[W]aiver of the statutory mediation requirement is appropriate as no Defendant has filed a response to the Complaint or otherwise appeared to defend this matter.”). Finally, a motion for relief from a judgment or order must be made within “no more than a year after the entry of the judgment or order . . . .” Fed. R. Civ. P. 60(c)(1). The injunctive motion was filed 29 months after the Judgment and Order. Presuming then, that the claim Walcott believes she will be successful on is vacating the Judgment and Order, for the foregoing reasons, the Court finds that she will not. As to the second factor, irreparable harm, Walcott argues that she will have no place for her and her minor son to live. The Court recognizes the significance of this hardship. However, the Court agrees with Flagstar that the harm is mitigated by the fact that she has a statutorily-mandated opportunity to redeem the property that continues for six months from the date of the order of confirmation of sale, which may be some time later than the date of sale itself. 28 V.I.C. § 535. As discussed above, where the first two “gateway factors” do not warSreaentD gerlaanwtainrge injunctive relief, the Court need not address the remaining two factors.

5 1:18-cv-00037-WAL-EAH R eport & Recommendation PVaaglele 1y0 School Dist ., 572 F. Supp. 3d at 63. However, the Court finds that, even if it were 6 required to assess the final two factorCsO, tNhCeyL,U toSIoO, wN eigh in favor of denial of the motion. RECOMMENDED Accordingly, it is hereby that WalcDoEttN’sI EIDnjunctive Motion seeking a temporary and preliminary injunction, Dkt. No. 55 be . Any objections to this Report and Recommendation must be filed in writing within fourteen (14) days of receipt of this notice, 28 U.S.C. § 636(b)(1), and must “specifically identify the portions of the proposed findings, recommendations or report to which objection is made and the basis of such objection.” LRCi 72.3. Failure to file objections within the specified time shall bar the aggrieved party fromS eaet,t aec.gk.i, nTgh osumcahs Rve. pAornrt and Recommendation before the assigned District Court Judge. , 474 U.S. 140 (1985). The Clerk of Court shall provide at citoapwy aolfc othttis@ Rh&oRtm toa iWl.caolcmott by certified mail, return receipt requested and via email at . ENTER:

Dated: August 15, 2023 /s/ Emile A. Henderson III EMILE A. HENDERSON III MAGISTRATE JUDGE

6 As to the third factor, whether granting preliminary relief will not result in even greater harm to the nonmoving party, the Court finds that Flagstar would suffer significant harm