                                                                                         ACCEPTED
                                                                                   07-15-00063-CV
                                                                       SEVENTH COURT OF APPEALS
                                                                                AMARILLO, TEXAS
                                                                             4/17/2015 11:32:15 AM
                                                                                  Vivian Long, Clerk


                       CAUSE NO. 07-15-00063-CV
       _______________________________________________________
                                                                   FILED IN
                                                            7th COURT OF APPEALS
                                 IN THE                         AMARILLO, TEXAS
                                                            4/17/2015 11:32:15 AM
                    SEVENTH COURT OF APPEALS                      VIVIAN LONG
                                                                     CLERK
                            AMARILLO, TEXAS
                             ___________

              SIWELL, INC. D/B/A CAPITAL MORTGAGE SERVICES
                                 Appellant

                                    V.

                             JEFF W. WATTS
                                Appellee
                              ___________

 On appeal from the County Court at Law Number 3 of Lubbock County, Texas


                           APPELLANT’S BRIEF


                                               Respectfully Submitted,

                                         LAW OFFICE   OF   KEITH C. THOMPSON,
P.C.
                                                11003 Quaker Avenue
                                                Lubbock, Texas 79424
                                              Telephone: (806) 783-8322
                                              Facsimile: (806) 783-8357
                                                 Email: kct@kctlaw.us

                                             By:  /s/ Keith C. Thompson
                                                 Keith C. Thompson
                                                  SBN: 24013631
                                          ATTORNEY FOR APPELLANT/PLAINTIFF

ORAL ARGUMENT IS REQUESTED
                    IDENTITY OF PARTIES AND COUNSEL


SIWELL, INC. D/B/A CAPITAL MORTGAGE SERVICES
Represented by:
     Keith C. Thompson
     Law Office of Keith C. Thompson, P.C.
     11003 Quaker Avenue
     Lubbock, Texas 79424
     Telephone: (806) 783-8322
     Facsimile: (806) 783-8357
     Email:        kct@kctlaw.us

APPELLANT


JEFF W. WATTS
Represented by:
      Lorna McMillion
      Mullin Hoard & Brown, LLP
      1500 Broadway, Suite 700
      Lubbock, Texas 79401
      Telephone: (806) 765-7491
      Facsimile: (806) 765-0553
      Email:     lmcmillion@mbha.com

APPELLEE
                                            TABLE OF CONTENTS

INDEX OF AUTHORITIES ..........................................................................................iii

STATEMENT OF THE CASE ........................................................................................v

STATEMENT REGARDING ORAL ARGUMENTS ........................................................vi

ISSUES PRESENTED FOR REVIEW ............................................................................vi

STATEMENT OF FACTS .............................................................................................1

SUMMARY OF THE ARGUMENT .................................................................................2

ARGUMENT ...............................................................................................................3

    I. This Court should reverse the decision of the County Court at Law
       Number 3 because it abused its discretion by ruling against Plaintiff,
       CMS, even though the evidence shows CMS satisfied every element of
       common law fraud. .........................................................................................3

         A. Standard of review is abuse of discretion..................................................3

         B. CMS satisfied its burden of proof by meeting each element of
            common law fraud......................................................................................3

                  i. Watts made a representation to CMS by providing CMS the
                     rental agreement. .............................................................................4

                  ii. Watts’s representations in the lease agreement were material
                      aspects of the transaction. ................................................................5

                  iii. Watts made a false representation because Watts had no
                      intention of fulfilling his duties and obligations of the rental
                      agreement.........................................................................................7

                  iv. Watts knew the representation was false when he provided
                      the agreement to CMS. ...................................................................7

                  v. Watts intended for CMS to rely on the false representation. ...........8

                  vi. CMS justifiably relied on the false representation...........................9

                                                           i
                   vii. Watts’s false representation to CMS caused CMS to suffer
                        pecuniary damages of $31,345.37. ...............................................13

PRAYER ...................................................................................................................15

CERTIFICATE OF SERVICE ......................................................................................16

CERTIFICATE OF COMPLIANCE ..............................................................................18

APPENDICES ............................................................................................................19




                                                             ii
                                          INDEX OF AUTHORITIES
CASE LAW
1001 McKinney Ltd. v. Credit Suisse First Boston Mortg. Capital,
    192 S.W.3d 20, 30 (Tex. App.—Houston [14th Dist.] 2005, pet. denied) ......10

American Indem. Co. v. Ernst & Ernst, 106 S.W.2d 763, 765
   (Tex. App—Waco 1937, writ ref’d) ..................................................................4

Baker v. City of Robinson, 305 S.W.3d 783, 797
    (Tex. App—Waco 2009, pet. denied)..............................................................14

Bluebonnet Sav. Bank v. Grayridge Apt. Homes, Inc., 907 S.W.2d 904, 909
    (Tex. App-Houston [1st Dist.] 1995), writ denied Mar. 7, 1996)....................10

Brush v. Reata Oil & Gas Corp., 984 S.W.2d 720, 727
    (Tex. App.—Waco 1998, pet denied)................................................................6

Camden Mach. & Tool, Inc. v. Cascade Co., 870 S.W.2d 304, 311
   (Tex. App.—Fort Worth 1993, no writ) ..........................................................12

Cooper v. Cochran, 288 S.W.3d 522, 532 (Tex. App—Dallas 2009, no pet.)........13

Crim Truck & Tractor Co. v. Navistar Int’l Transp., 823 S.W.2d 591, 597
    (Tex. 1992).........................................................................................................7

Ernst & Young, L.L.P. v. Pacific Mut. Life Ins., 51 S.W.3d 573, 578
    (Tex. 2001).....................................................................................................4, 9

Exxon Corp. v. Emerald Oil & Gas Co., 348 S.W.3d 194, 217 (Tex. 2011) ............6

Field v. Mans, 516 U.S. 59, 71 (1995) ....................................................................10

Flood v. Katz, 294 S.W.3d 756, 763 (Tex. App.—Dallas 2009, pet. denied) ...........8

Grant Thornton LLP v. Prospect High Income Fund, 314 S.W.3d 913, 923
    (Tex. 2010).................................................................................................10, 11

Haase v. Glazner, 62 S.W.3d 795, 798 (Tex. 2001) ...............................................14

Italian Cowboy Partners v. Prudential Ins., 341 S.W.3d 323, 337
      (Tex. 2011).................................................................................................4, 6, 7

Libhart v. Copeland, 949 S.W.2d 783, 799-800
    (Tex. App.—Waco 1997, no writ)...................................................................14
                                                           iii
Mayes v. Stewart, 11 S.W.3d 440, 451
   (Tex. App.—Houston [14th Dist.] 2000, pet. denied) .....................................11

O’Brien v. Daboval, 338 S.W.3d 826, 843
    (Tex. App.—Houston [1st Dist.] 2012, no pet.) ....................................9, 10, 11

Petras v. Criswell, 248 S.W.3d 471, 475 (Tex. App.—Dallas 2008, no pet.)...........9

Reed Tool Co. v. Copelin, 689 S.W.2d 404, 406 (Tex. 1985) ...................................9

Schwartz v. Pinnacle Comms., 944 S.W.2d 427, 435
    (Tex. App.—Houston [14th Dist.] 1997, no writ) ........................................3, 10

Summers v. Welltech, Inc., 935 S.W.2d 228, 234
   (Tex. App.—Houston [1st Dist.] 2008, no pet.) ...............................................11



SECONDARY AUTHORITIES
Black’s Law Dictionary, 950 (9th ed. 2009) .............................................................8




                                                   iv
                             STATEMENT OF THE CASE

      This is a suit for damages arising out of a common law fraud claim. The

issue on appeal is whether the trial court abused its discretion in ruling in favor of

the defendant when the court found the defendant did commit fraud.

      Siwell Inc. d/b/a Capital Mortgage Services brought suit against Jeff Watts

for damages resulting from common law fraud. Findings of Fact Paragraph 3.

Plaintiff brought suit in the County Court at Law Number 3, Lubbock County,

Texas with the Honorable Judy C. Parker presiding. Final Judgment p. 1.

      Judge Parker found the defendant did in fact commit fraud. Findings of Fact

paragraphs 19–23.     Judge Parker, however, ruled that Plaintiff did not have

justifiable reliance to satisfy the reliance element of common law fraud and rule in

favor of defendant.




                                          v
                         STATEMENT OF ORAL ARGUMENTS

        Appellant hereby requests the opportunity to present this matter by oral

argument.



                          ISSUE PRESENTED FOR REVIEW

        Did the trial court abuse its discretion by ruling against Plaintiff when it

found              the           defendant             committed             fraud?




                                          vi
                            STATEMENT OF FACTS

      In August 2007, defendant Jeff Watts (“WATTS”) took his father, Ted Watts

(“TED”) to Capital Mortgage Services (“CMS”) to apply for a mortgage loan.

(Findings of Fact paragraph 10). WATTS and TED represented the mortgage was

for a new home for TED and his wife, and TED would be living in the new home.

However, research reveals TED and his wife never moved into the new home, and

instead WATTS used his father as a straw man to complete the purchase of the

home. (Findings of Fact paragraphs 19–21).

      TED submitted an Application (“1003”) to obtain a mortgage for a new

home; during the approval phase, TED disclosed $810 in monthly debt. (Findings

of Fact paragraph 9). CMS ran a credit report which revealed TED actually had a

monthly debt of $2,216; using the actual debt, TED’S debt/income ratio was

excessive and rendered TED ineligible for a Fannie Mae home loan. (Findings of

Fact paragraph 8).

      In order to overcome the debt/income problem, WATTS and TED entered into

a lease agreement whereby WATTS would lease TED’S current home immediately

following TED purchasing a new home with the applied-for mortgage. (Findings of

Fact paragraph 10). The lease increased TED’S income by $2,185 bringing the

debt/income ratio into an acceptable range to obtain the mortgage. (Findings of

Fact paragraph 10).


                                       1
      CMS approved the loan for TED. (Findings of Fact paragraph 16). WATTS

moved into the home located at XXXX XXXXX Avenue, Lubbock, Texas 794XX,

purchased with the proceeds of the mortgage loan provided by CMS. (Findings of

Fact paragraph 22). WATTS did not ever make lease payments for TED’S house,

and ultimately he did not make mortgage payments for the new house. (Findings of

Fact paragraph 19).     Fannie Mae foreclosed on the home located at XXXX

XXXXX Avenue, and such foreclosure resulted in a deficiency. (Findings of Fact

paragraph 25–26). As a result of the deficiency, Fannie Mae sent demand to CMS

for reimbursement of $31,345.37, which CMS paid. (Findings of Fact paragraph

27–29). Subsequently CMS sued WATTS for fraud based on the deceptive lease.

(Findings of Fact paragraph 3).

                          SUMMARY OF THE ARGUMENT

      The trial court found CMS’s reliance on the rental agreement as a source of

income for TED’S mortgage application was unreasonable given CMS’s knowledge

of WATTS’S inability to qualify for a loan.

      The court’s finding would force the Appellant to be unable to use fully

executed lease agreements and other documents bearing applicant’s or related third

party signatures as reliable instruments in the loan approval process.




                                         2
                                    ARGUMENT

   I. This Court should reverse the decision of the County Court at Law
      Number 3 because it abused its discretion by ruling against Plaintiff,
      CMS, even though the evidence shows CMS satisfied every element of
      common law fraud.

      A. Standard of review is abuse of discretion.

      In entering judgment, a trial-judge acting as fact finder is presumed to have

ruled on the legal sufficiency of evidence and on the weight of the evidence.

Schwartz v. Pinnacle Communications, 944 S.W.2d 427, 431 (Tex. App.—

Houston [14th Dist.] 1997, no writ). When a legal sufficiency challenge is raised,

the reviewing court will reverse the trial court’s decision if two elements are met.

Id. First, the reviewing court must examine the trial court record to determine if

evidence exists to support the finding of law. Id. Second, if there is no evidence to

support the finding, the reviewing court must examine the “entire record to

determine if the contrary proposition is established as a matter of law.” Id. Legal

sufficiency standards will be upheld if the record shows conclusive evidence that

supports all elements of the claim. Id. Thus, a trial court abuses its discretion by

ruling against a party when the record shows evidence to support each element of

the party’s claim.

      B. CMS satisfied its burden of proof by meeting each element of
         common law fraud.

      To prove an action for common-law fraud, the plaintiff must establish each

element of common-law fraud, as
                                         3
follows: (1) the defendant made a representation to the plaintiff; (2) the

representation was material; (3) the representation was false; (4) when the

defendant made the representation, the defendant knew the representation was

false; (5) the defendant made the representation with the intent that the plaintiff act

on it; (6) the plaintiff relied on the representation; and (7) the representation

caused the plaintiff injury.    Italian Cowboy Partners v. Prudential Ins., 341

S.W.3d 323, 337 (Tex. 2011).

      i.     Watts made a representation to CMS by providing CMS the
             rental agreement.

      The lease agreement WATTS provided to CMS was a representation because

WATTS signed the rental agreement to pay the rental amount to TED. Based on the

rental agreement TED had sufficient monthly income to qualify and receive the loan

from CMS.

      Plaintiff must establish the defendant was responsible for a false

representation made to the plaintiff either directly or indirectly in a claim for

common-law fraud. American Indem. Co. v. Ernst & Ernst, 106 S.W.2d 763, 765

(Tex. App—Waco 1937, writ ref’d). The defendant commits fraud indirectly when

it makes a false representation to a third party with the intent or expectation that it

be repeated to deceive the plaintiff. Ernst & Young, L.L.P. v. Pacific Mut. Life

Ins., 51 S.W.3d 573, 578 (Tex. 2001).

      Here, WATTS made the representation to CMS that he would rent TED’S

                                          4
house, thus providing TED with an increase in monthly income and allowing TED

to qualify for the mortgage loan from CMS.

             During the loan process, Jeff Watts signed a rental

            agreement on August 24, 2007 providing that defendant

            would rent XXXX XXrd Drive (a home owned and

            occupied by Ted Watts) from his father for $2,185.00 per

            month for twelve months, beginning September 1, 2007

            to September 1, 2008. Findings of Fact and Conclusions

            of Law Paragraph 10.

      Further, both TED and WATTS signed the rental agreement. Findings of

Fact and Conclusions of Law Paragraph 12. WATTS represented to CMS he was

leasing his father’s house, and this representation was significant to CMS’s

approval of TED’S mortgage loan application. WATTS, however, never intended to

reside at the rental property or to make rental payments to TED. Findings of Fact

and Conclusions of Law Paragraphs 19–21.

      Thus, WATTS made the representation to CMS, by signing and providing the

rental agreement to CMS, that WATTS would rent the home from TED. This

agreement allowed TED to have sufficient income to qualify for a loan.

      ii.   Watts’s representations in the lease agreement were material
            aspects of the transaction.

      The lease agreement WATTS provided to CMS was a material element for

                                        5
CMS to grant TED a loan because the agreement ensured TED had sufficient income

to qualify for the loan.

      The plaintiff must establish the misrepresentation was material for a finding

of fraud. Exxon Corp. v. Emerald Oil & Gas Co., 348 S.W.3d 194, 217 (Tex.

2011). A false representation is material if it is important to the plaintiff in making

a decision such that a reasonable person would attach importance to and be

induced to act on the information in determining whether to make a transaction.

Italian, 341 S.W.3d at 337. A misrepresentation can be material even if it is not

the plaintiff’s only reason for following through with a transaction, so long as the

plaintiff relied on the misrepresentation. Brush v. Reata Oil & Gas Corp., 984

S.W.2d 720, 727 (Tex. App.—Waco 1998, pet denied).

      Here, the rental agreement WATTS provided CMS was a material

representation because it provided rental income information and confirmation of

the terms of the lease. Trial Transcript p. 47 line 19–p. 48 line 5. The rental

agreement contained the terms of the lease, specifically the payment terms, which

are a material element in the course of underwriting the mortgage for delivery into

the secondary market. Trial Transcript p. 47 line 19–p. 48 line 5. Further, without

the rental agreement, TED would not have qualified for a loan to purchase the

home. Trial Transcript p. 13 lines 2–10.

      Hence, CMS’s reliance on the rental agreement was a material aspect of the

transaction because it provided for the
                                          6
payment terms that qualified TED to receive the loan.

      iii.   Watts made a false representation because Watts had no intention
             of fulfilling his duties and obligations of the rental agreement.

      WATTS made a false representation to CMS by providing the rental

agreement because he had no intention of making any rental payments to TED, and

did not intend to reside at the rented property.

        The plaintiff must establish the defendant’s representation was false. Italian

341 S.W.3d at 337. A party commits fraud when it enters into a contract that it

does not intend to perform. Crim Truck & Tractor Co. v. Navistar Int’l Transp.,

823 S.W.2d 591, 597 (Tex. 1992).

      Here, WATTS did not intend to reside at XXXX XXrd Drive, nor did WATTS

intend to rent the property. Findings of Fact and Conclusions of Law Paragraph

20–21. Further, WATTS never made any rental payments to his father for the

property. Findings of Fact and Conclusions of Law Paragraph 19. By entering

into the rental agreement without the intent to perform his obligations, WATTS

made misleading and deceptive statements to CMS.

      WATTS’S representations to pay rent to TED were false because WATTS did

not intend to reside at the property or to make the rental payments to TED.

      iv.    Watts knew the representation was false when he provided the
             agreement to CMS.

      At the time WATTS provided the rental agreement to CMS, he knew the

representation was false because he
                                          7
knew he did not intend to comply with his obligations under the agreement.

           The plaintiff must establish the defendant either made the representation

knowing it was false or made the representation recklessly. Flood v. Katz, 294

S.W.3d 756, 763 (Tex. App.—Dallas 2009, pet. denied). A defendant makes a

misrepresentation knowingly when the defendant is aware of the representation

being false or understands it is false. Black’s Law Dictionary 950 (9th ed. 2009).

           Here, WATTS signed the rental agreement and committed to renting TED’S

home for $2,185.00 per month.          Findings of Fact and Conclusions of Law

Paragraph 10.      WATTS provided the signed rental agreement to CMS.          Trial

Transcript p. 13 lines 2–10. WATTS, however, never made payments and did not

intend to make payments or rent the home from TED. Findings of Fact and

Conclusions of Law Paragraphs 19–21. WATTS knew when he signed the rental

agreement that he was making a false representation because he never intended to

make rental payments. Findings of Fact and Conclusions of Law Paragraphs 19–

21.

      Since WATTS did not intend to comply with his obligations of the rental

agreement, he knew his representations to CMS were false representations.

      v.       Watts intended for CMS to rely on the false representation.

      WATTS intended for CMS to rely on the false representation of the rental

agreement because he knew CMS’s reliance on the agreement would secure a loan

for TED.
                                          8
        To prove an action for common-law fraud, the plaintiff must establish the

defendant intended for the plaintiff to rely on the representation.      Petras v.

Criswell, 248 S.W.3d 471, 475 (Tex. App.—Dallas 2008, no pet.). A showing of

intent is satisfied by establishing the defendant desired to cause the consequences

of his act or believed the consequences were substantially certain to occur, and

further, that plaintiff incurred pecuniary loss in the type of transaction in which

defendant intended that plaintiff’s conduct would be influenced. Reed Tool Co. v.

Copelin, 689 S.W.2d 404, 406 (Tex. 1985); Ernst & Young, 51 S.W.3d at 580.

      Here, WATTS knew that by providing the signed rental agreement to CMS,

TED would qualify for the loan since renting the home would generate enough

income for TED to become loan eligible. Trial Transcript p. 15 lines 1–25. WATTS

intended for CMS to rely on the rental agreement so TED could purchase the home.

Trial Transcript p.13 lines 11–19. By relying on WATTS’S representation in the

rental agreement, CMS suffered pecuniary damages of $31,345.37.

      WATTS intended for CMS to rely on the false representation made in the

rental agreement to secure a loan for TED.

      vi. CMS justifiably relied on the false representation.

      CMS justifiably relied on the false representations WATTS made in the rental

agreement because CMS had no way of knowing WATTS did not intend to make

the rental payments to TED.

      To    recover   damages     on   a
                                           9
common law fraud claim, the plaintiff must show actual and justifiable reliance on

the representations of the defendant. O’Brien v. Daboval, 338 S.W.3d 826, 843

(Tex. App.—Houston [1st Dist.] 2012, no pet.) (citing Grant Thornton LLP v.

Prospect High Income Fund, 314 S.W.3d 913, 923 (Tex. 2010). Actual reliance is

satisfied where plaintiff establishes it knew of the representation and acted on it.

Schwartz, 944 S.W.2d 427 at 435 (plaintiff’s testimony that he decided to make

investment based on representations defendant made about creditworthiness of

company showed plaintiff’s actual reliance). In determining justifiable reliance,

courts often consider the following two-pronged analysis: (1) plaintiff’s personal

characteristics and abilities; and (2) plaintiff’s knowledge of facts, which includes

the plaintiff’s knowledge of falsity and the consideration of plaintiff’s duty to

investigate. Grant Thornton LLP, 314 S.W.3d at 923.

      The first prong in analyzing justifiable reliance includes an examination of

the characteristics, abilities, and appreciation of facts demonstrated by the plaintiff

to justify reliance on the defendant’s representations. O’Brien, 338 S.W.3d at 843.

The United States Supreme Court has ruled justification is a matter of the qualities

and character of the particular plaintiff given particular circumstances. Field v.

Mans, 516 U.S. 59, 71 (1995). The determination of justifiable reliance depends

greatly on the parties’ relationship and relative sophistication. 1001 McKinney Ltd.

v. Credit Suisse First Boston Mortg. Capital, 192 S.W.3d 20, 30 (Tex. App.—

Houston [14th Dist.] 2005, pet. denied).
                                           10
For instance, in Bluebonnet Sav. Bank v. Grayridge Apt. Homes, Inc., 907 S.W.2d

904, 909 (Tex. App.—Houston [1st Dist.] 1995), writ denied Mar. 7, 1996), the

plaintiff’s reliance was measured by plaintiff’s status as an experienced business

person and by what a reasonable business person with plaintiff’s experience would

think about the agreement in question. Plaintiffs, however, cannot justifiably rely

on representations if “red flags” exist, indicating the plaintiff should not rely on the

defendant’s representations. Id.

       For example, in O’Brien v. Daboval, the court found the defendant

committed fraud by issuing false financial statements that induced the law firm

into establishing a line of credit for defendant. O’Brien, 338 S.W.3d at 843. The

court held even though the plaintiff law firm reviewed the financial statements, and

had a reasonable level of sophistication in business matters, there was no reason to

suspect the statements were false, and reliance upon such statements was justified.

Id.

      The second prong of justifiable reliance courts examine is the plaintiff’s

knowledge of the facts and the consideration of plaintiff’s duty to investigate.

Grant Thornton, 314 S.W.3d at 923. The plaintiff does not normally have a duty

to use due diligence to discover whether the representation is fraudulent in order to

demonstrate justifiable reliance. Summers v. Welltech, Inc., 935 S.W.2d 228, 234

(Tex. App.—Houston [1st Dist.] 2008, no pet.). However, if the plaintiff learned

the defendant’s representation was false
                                           11
before acting on it, the plaintiff cannot claim deception or fraud by the

representation. Mayes v. Stewart, 11 S.W.3d 440, 451 (Tex. App.—Houston [14th

Dist.] 2000, pet. denied). Further, if the plaintiff undertook an investigation and

uncovered the fraud, the plaintiff cannot claim to have justifiably relied on the

misrepresentation. Camden Mach. & Tool, Inc. v. Cascade Co., 870 S.W.2d 304,

311 (Tex. App.—Fort Worth 1993, no writ).

      Here, CMS justifiably relied on WATTS’S misrepresentation that he would

have sufficient income to justify a loan by leasing the home to increase TED’S

income by $2,185. WATTS did not perform the terms of the lease. The trial court

found that CMS did rely on WATTS’s representations of the rental agreement, but

that this reliance was unreasonable given CMS’s knowledge of WATTS’S inability

to qualify for a loan. Findings of Fact and Conclusions of Law Paragraph 23. The

trial court erred, however, by ruling the reliance was unjustifiable given CMS’s

abilities and characteristics, and CMS’s knowledge of the facts of the transaction.

      First, CMS as a mortgage company has the abilities and characteristics to

review applicants’ financial information.       After reviewing TED’S financial

situation, CMS knew TED would not qualify for a loan without a higher monthly

income. The lease agreement provided TED with enough income to qualify for the

loan. After reviewing WATTS’S financial situation, no red flags existed that would

have warned CMS of WATTS intentional misrepresentations.

      Second, CMS’s knowledge of the
                                         12
facts did not negate their reliance on the lease agreement as justification for issuing

the loan. CMS knew TED had difficulty qualifying for the loan, but the lease

served to quell any issues of income. CMS knew WATTS would rent the home and

pay $2,185.00 to TED per month. Based on CMS’s knowledge of the facts, there

was no reason for CMS to suspect WATTS would not follow through with the rental

agreement, or that WATTS had made false misrepresentations. Not being able to

qualify for a home loan is not the same as not being able to pay a certain, fixed

sum of money each month, for rent. Many renters can afford a rental payment but

could not qualify for a loan of the same nature. WATTS had the financial means to

pay the fixed amount of rent, even though he may not have met the strict

qualifications for a home loan.

      CMS justifiably relied on WATTS’S false representations because the rental

agreement provided TED with sufficient income to qualify for the loan. CMS, as a

mortgage lender, reviewed TED’S financial situation and concluded that TED would

qualify for the loan with additional monthly income. Despite its review of the

financial situation, CMS had no way of knowing WATTS did not intend to make the

rental payments to TED.

      vii. Watts’s false representation to CMS caused CMS to suffer
           pecuniary damages of $31,345.37.

      As result of its reliance on Watts’s false representations, CMS suffered

pecuniary damages.

                                          13
      Finally, to recover damages on a common law fraud claim, the plaintiff must

show the representation caused the plaintiff injury. Cooper v. Cochran, 288

S.W.3d 522, 532 (Tex. App—Dallas 2009, no pet.).           Such injury comes as

defendant’s representation occurs “to the plaintiff’s detriment.” Haase v. Glazner,

62 S.W.3d 795, 798 (Tex. 2001). To prove the representation caused the plaintiff

injury, plaintiff must prove the fraud proximately caused the damages where the

plaintiff seeks consequential damages. Libhart v. Copeland, 949 S.W.2d 783, 799-

800 (Tex. App.—Waco 1997, no writ). The plaintiff must prove the fraud was a

substantial factor in bringing about the damages, without which the damages

would not have occurred, and that a person of ordinary intelligence would have

foreseen the damages might result from the fraud. Baker v. City of Robinson, 305

S.W.3d 783, 797 (Tex. App—Waco 2009, pet. denied).

      Here, WATTS made a representation to CMS by signing a rental agreement.

Such representation was material because without the representation of a steady

monthly income stream in the form of the lease payments from WATTS to TED,

TED would not have been approved for the mortgage loan. The representation was

false and WATTS admitted he did not have any intention of following through with

the requirements of the lease agreement. WATTS intended for CMS to act on the

misrepresentation, knowing that the bolster in monthly income would result in the

mortgage loan approval for his ultimate benefit. CMS did in fact rely upon the

representation;   absent    the    lease
                                           14
agreement CMS would not have given TED the mortgage loan. By relying upon

WATTS’S misrepresentation, CMS suffered economic damages in the form of the

reimbursement to Fannie Mae in the amount of $31,345.37.

      The trial court abused its discretion by ruling CMS could not justifiably rely

on WATTS’S false representations. CMS established by evidence each element of

common law fraud including: (1) WATTS made representations to CMS in the

rental agreement; (2) the representations of the rental agreement were material to

the transaction; (3) WATTS’S representations in the rental agreement were false; (4)

WATTS knew the representations were false when he provided the agreement to

CMS; (5) WATTS intended for CMS to rely on the false representations to grant a

loan to TED; (6) CMS did justifiably rely on the representations; and (7) WATTS’S

false representations caused CMS pecuniary damages.               Specifically, CMS

justifiably relied on WATTS’S false representations because CMS performed

financial investigations, but these investigations could not have indicated WATTS

did not intend to fulfill his duties and obligations under the rental agreement.

                                       PRAYER

      WHEREFORE PREMISES CONSIDERED, CMS respectfully requests that this

court reverse the judgment of the trial court, and grant all other relief to which

CMS is justly entitled both at law and in equity.



   [SIGNATURE ON FOLLOWING PAGE]
                                          15
                          Respectfully submitted,

                  THE   LAW   OFFICE    OF   KEITH    C.
THOMPSON, P.C.
                           11003 Quaker Avenue
                           Lubbock, Texas 79424
                        (806) 783-8322 (Telephone)
                        (806) 783-8357 (Telecopier)
                           Email: kct@kctlaw.us
                              SBN 24013631

                          /s/ Keith C. Thompson
                           KEITH C. THOMPSON
                         ATTORNEY FOR APPELLANT




                 16
                             CERTIFICATE OF SERVICE

      I, Keith C. Thompson, Attorney for Appellant herein, do certify that on the

13th day of April 2015, I mailed by Electronic Mail, a true and correct copy of

Appellant’s Brief to:

Lorna McMillion
Mullin Hoard & Brown, LLP
1500 Broadway, Suite 700
Lubbock, Texas 79401
Telephone: (806) 765-7941
Facsimile: (806) 765-0553
Email: lmcmillion@mhba.com


      I further certify that on the 13th day of April 2015 I mailed by Electronic

Mail, an original and five true and correct copies of Appellant’s Brief for filing to:

Court of Appeals
Seventh District of Texas
Potter County Courts Building
501 S. Fillmore, Suite 2-A
Amarillo, Texas 79101-2449

                                                       /s/ Keith C. Thompson
                                                        KEITH C. THOMPSON




                                          17
                        CERTIFICATE OF COMPLIANCE

      This document complies with the word-count limitations of TEX. R. APP. P.

9.4(i) because it contains 3,538 words, excluding the parts exempted by TEX. R.

APP. P. 9.4(i)(1).


                                                  /s/ Keith C. Thompson
                                                   KEITH C. THOMPSON




                                      18
                                                    APPENDICES


Final Judgment from Trial Court ..............................................................................1

Trial Transcript ..........................................................................................................2

Findings of Fact and Conclusions of Law .................................................................3

Mortgage Application ...............................................................................................4

Rental Agreement ......................................................................................................5




                                                            19
Jo



                                                                                                         Flied 12/8/2014 2:51:10 P
                                                                                                                    Kelly Pinion
                                                                                                                   County Clerk
                                                                                                        Lubbock County, Texas
                                             2013-568,987                                                        Nadia Morgan

                                          CAUSE NO.      2013~568,987


     SIWELL, INC. d/b/a                                  §       IN THE COUNTY COURT
     CAPITAL MORTGAGE SERVICES
                                                                 AT LAW #3
     V.

     JEFF W. WATTS                                       §       OF

                                                         §       LUBBOCK COUNTY, TEXAS

                                             FINAL JUDGMENT

            On December 2, 2014 this matter came on for trial. Plaintiff, SJWELL, INC., d/b/a

     CAPITAL MORTGAGE SERVICES, appeared in person and through auorney Keith

     Thompson. Defendant. JEFF W. WATrS. appl.!ar~d in person. The parties waived trial by jury

     and announced ready.

            The Cout1, ulh.:r considering the pleadings on tile, as well as the testimony and evidence.

     concludes that PlaimiiThas tailed to pro\'c each clement of its case against Defendant.

            It is thcrcforl: ORDERED, ADJUDGED, AND DECREED that Plaintiff, SIWELL, INC ..

     d/b/a CAPITAL MORTGAGE SERVICES. shall take nothing from Defendant, JEFF W

     WATTS.

            This is u linal jm.lgmcnl that disposes or all parties and claims. As such. it is appealable.

            Plaintiff shall pay all taxable costs of court if' it has not already done so.

            All relief not granted herein is denied.



     SIGNED ON the       8     Day of DECEMBER, 2014.
                                                                           f                     ,·'\

                                                                    ( / · _,/
                                                                     j{(CCJ
                                                                                        {_~
                                                                                        ~
                                                                 JUDGE PRESIDING
                                                                                               Filed 1/22/2015 2:46:38 PM
                                                                                                               Kelly Pinion
                                         2013-568,987                                                        County Clerk
                                                                                                    Lubbock County, Texas
                                                                                                          Baxter Vaughan
                                             2013~568,987



SIWELL. INC., D/8/A                                                       IN THE COUNTY COURT AT
CAPITAL MORTGAGE SERVICES                                                 LAW N0.3
PLAINTIFF

v.                                                                        OF

JEFF W. WATTS                                                             LUBBOCKCOUNTY,T~


                           FINDINGS OF FACT AND CONCLUSIONS OF LAW

        A trial on this cause was held on December 2, 2014. All parties appeared and announced to the
Court that they were ready for trial. A jury was not requested, and the_Court decided aU fact questions.


        In response to the request of the Plaintiff, Siwell, Inc., d/b/a capital Mortgage services, the
Court makes and files the following as original findings of fact and conclusions of law in accordance with
rules 296 and 297 of the Texas rules of Civil Procedure.

       Plaintiff Is Siwell, Inc., D/8/A capital Mortgage Services. Plaintiff is a mortgage lender, and
appeared through its representative, Royce Lewis Ill. The plaintiff was represented by Keith Thompson.
The defendant, Jeff W. Watts, appeared prose.

                                             Flndinp of Fact

        1. Plaintiff sued defendant for quantum meruit, promissory estoppel, common Jaw fraud and
           statutory fraud arising out of a mortgage loan that plaintiff made to defendant's father, Ted
           Watts. Ted Watts is not a party to this suit. Ted Watts is deceased.
        2. The Joan Plaintiff made to Ted Watts was for the purchase of a house at 8607XXXXX Utica Avenue
           in Lubbock.
        3. Prior to resting his case, Plaintiff abandoned all causes of action pled except for common
           law fraud.
        4. Initially, defendant met with Royce lewis individually, to discuss the purchase of 8607   Utica.
                                                                                                 XXXXX
        s. Defendant could not qualify for a home loan on hiS own because he had an activation of a
           foreclosure on another residence and/or a recent foreclosure on his record.
        6. Plaintiff knew that Defendant could not qualify for a mortgage loan under any circumstance.
        7. Defendant and his father met with plaintiff/Royce lewis and discussed various scenarios
           whereby the house on Utica could be purchased. These discussions included Ted Watts CO·
           signing the loan with defendant, Ted Watts purchasing the home for defendant as an
           investment property for defendant to live in, Ted purchasing the home as an owner-
           occupied transaction, and defendant renting the home from Ted.
        8. During the loan process it was discovered that Ted Watts could not qualify for the mortgage
           on the Utica house because his income from his insurance business was insufficient and he
           had too much debt.



                                                                                   ..
9. During the application process for the loan on 8607  XXXXX Utica, Ted Watts disclosed $810.00 in
    monthly debt on Form 1003.
10. During the loan process, Jeff Watts signed a rental agreement on August 24, 2007 providing
    that defendant would rent 4111XXXX  63rd drive (a home owned and occupied by Ted Watts) from
    his father for $2,185.00 per month for twelve months, beginning September 1, 2007 to
    September 1, 2008.
11. The rental payment for 4111
                              XXXX 63~'~~ drive was the same amount as the house payment for
     XXXXX
    8607   Utica.
12. The rental agreement was signed by Ted Watts and d~fendant.
13. Plaintiff was not a party to the rental agreement between Ted Watts and defendant.
14. Defendant testified that Mr. Lewis gave him the rental agreement to sign so that Ted Watts
    would show more income and Ted could obtain the loan.
15. Mr. Lewis denied that he handed the rental agreement to defendant to sign, but could not
    deny that it was provided by Capital Mortgage Services in some shape or form.
16. In September 2007, Plaintiff, Capital Mortgage Servi~s loaned Ted Watts the money to
    purchase 8607
                XXXX Utica and the loan was delivered to Fannie Mae.
17. Defendant, Jeff Watts was not a co-signer on the loan.           ·
18. Defendant, Jeff Watts made some payments to plaintiff ~or 8607      XXXXUtica.
19. Defendant, Jeff Watts did not make any rental payments to Ted Watts for the home at 4111         XX
    63~'~~
     x drive.
20. Defendant did not intend to reside at 4111 xxxxx 63nl drive.
21. Defendant never intended to rent 4111   xxxxx drive.
                                                 63rd
22. Defendant moved into the home at 8607          Utica after th~ loan was made to Ted Watts and
                                              xxxxxx
    lived there for a couple of years.
23. Plaintiff relied on the representations in the rental agreement as a source of income for the
    Ted Watts mortgage application but that reliance was unreasonable given plaintiffs
    knowledge of defendant's inability to qualify for a loan.
24. The loan made to Ted Watts was current for a number of years after the loan was made.
25. Almost six years after plaintiff made the mortgage loan to Ted Watts, the house purchased
     by Ted Watts was foreclosed.
26. The loan made to Ted Watts for 8607        Utica went into default and was foreclosed on by
                                          xxxxxx
     Plaintiff.
27. Fannie Mae conducted the liquidation on the property at 8607       xxxxxx
                                                                           Utica and It was sold at a
     price less than the amount of the mortgage, leaving a deficiency of $62,690.73.
28. Fannie Mae sought recourse against plaintiff as the loan 5ervicer for the deficiency.
29. Plaintiff, capital Mortgage Services, negotiated a lesser amount with Fannie Mae and paid
     $31,345.37 in settlement.
30. Fannie Mae sought recourse from the loan servicer (Cap~l Mortgage Services/Plaintiff)
     because Fannie Mae determined that the loan made to Ted Watts did not meet desk top
     underwriting standards when the loan was made.
 31. Fannie Mae's evaluation of the loan to determine whether or not the servicer has liability is
     based on the transaction when the mortgaged originated and then delivered to Fannie Mae.
 32. Fannie Mae found additional debt that was not identified on Ted Watt's application form
     1003 to support the loan.
 33. Even if defendant, Jeff Watts, had actually been paying Ted Watts $2,185.00 per month as
     set out in the rental agreement, Ted Watts would not have had sufficient income to support
     the loan.
34. It was unreasonable for Plaintiff to rely on the twelve month rental agreement between
    defendant and his father given the plaintiffs actual k~owledge that defendant could not
    qualify to purchase the home with a payment of $2,185.00 per month.
35. The basis of plaintiffs liability to Fannie Mae was the debt/income ratio of Ted Watts.
36. Plaintiff's reliance, if any, on defendant as a significant contributor of significant funds was
    unreasonable given plaintiff's knowledge of defendant's financial/credit history.
37. Plaintiffs liability to Fannie Mae was a result of risky .underwriting practices of plaintiff at
    the origination of the loan to Ted Watts.                       .
38. Insufficient income/omitted liabilities at the origination of the loan to Ted Watts was cited
    by Fannie Mae as the reason for pursuing plaintiff's payment on the deficiency.
39. Even if plaintiff relied on the lease, plaintiff discovered or should have discovered that Ted
    Watts had co-signed a loan for defendant prior to the loan for the Utica house which
    resulted in Ted Watts not meeting desktop underwriting standards to support the loan.
40. In addition to a significant finding of insufficient income/o.mitted liabilities at the time of
    origination, Fannie Mae evaluated the overall loan profile and number of payments made
    on the loan in considering the amount of liability of plaintiff.
41. Any finding of fact that is a conclusion of law should be treated as a conclusion of law and
    not a finding of fact.
                                           Conclusions of Law

1. Plaintiff failed to prove reliance on the rental agreement was reasonable.
2. Plaintiff failed to establish that defendant was liable to plaintiff for fraud.
3. Plaintiff's damages were caused by plaintiff's underwriting practices.
4. Plaintiff should take nothing by his suit and pay all costs of court.
5. A conclusion of law that is a finding of fact should be treated as a finding of fact and not a
   conclusion of law.

    Signed this   ;aM. day of January, 2015.


     J~f!~
    Judy C. Parker, Judge
    County Court at Law #3
                                       CRT DOA Approval Fonn
(                                        (Revised 419/2013)




                                                  as oftflls date: 5114113




    Net Amount due
(
                                   I
    SIGNIFICANT ANDING:       Fin~ings:
                                   I


    lnsufflclem incomeiothtuad liabilities: According to Desktop Underwrite~ (Due}, the
    borrower's monthly debts ware $810 at time of origination. However, our review of the
    origination credit report rev~aled the actual monthly payments were $2,216. Using the
    actual monthly payments, the new debt ratio was 33fl1 percent This debt ratio was
    excessive and renders th~ DU recommendation invalid and the subject mortgage
    ineligible for delivery to Fanrrie Mae.



    LENDER RESPONSE tr ;.s.t~f'UCABtE (Brief summarv onlv): There was a debt the lender
    excluded fi1lm the ratios but did not have evidence supportilg the exclusion. The lender provided
    a letter from the Executive VP cf the Bank who made the loan (debt in question) stating the
    borrower was a co-signer anr-1 the borrower's son had made all of the payments on time ror the
    prior 12 months.


    Requirements when completing anatvsts

    Evaluate signbnce ot lituiing )a~d on overdllloan pioftle and# of payments made.



                                                                                     ~   PmnONER'S
                                                                                     ~      ~IBIT

                                                                                         ri=$r4_
     Do the overall strengths of th file warrant the Business Decision or Negotiated Settlement?
(~
     Why?

     REVIEWER'S ANALYSIS/ TIONALE FOR ACTION TAKEN (Indicate any and all reasons
     that apply and provide deta ad explanation). The lender should have obtained 12 months of
     cancelled checks to support e son had been making the payments. The bank letter is an
     alternative document that su orts the exclusion of the debt. The borrower was becoming a
     landlord for the first time and id not have any history of managing rental properties Increasing
     the risk of this transaction an accepting alternative documentation. We still have a case for
     repurchase but I beUeve the I nder has proVided documentation that reduces some of our risk
     therefore I have offered a neg tiated seWement.

     MANAGER APPROVAL VIA MAIL IS REQUIRED AND MUST BE COPIED INTO QAS
     (Signature is NOT requJred)

     DIRECTOR APPROVAL VIA         AIL IS REQUIRED AND MUST BE COPIED INTO QAS-
     (Only IF net loss exceeds $ ,000.00- Signature is NOT required)

     NOTE: This form MUST be ompleted In Its entlretv and uploaded into QAS e-docs
     (uploading the fonn in QAS omments Is no longer allowed). Please enter "N/A" in any
     areas that are not appllcabr to the roan.
     See ,.CLOSING LOANS IN Q S" in CRT Sharepofnt training material site for specifics on
     loss amount levels and requ red approvals.




(
                              1       Rcotal AgRemeillt


                           fi.
1.   In consideration for the psc of the premises at: 41 ll 63"' Drive, Lubbock, TX 79413, I
                                                       xxxxx
     agree that 1will rent the:same for the same for 12 consecutive months for ~185.00pcr
     month payable by the        day of each month and also agree Co pay a late fee of$250.00
     per week. (LuutermS.pl,mbtrOJ. 2007 to&ptambuDJ, 2008) !
2.   1~to place a sec~ deposit of$1000.00, to be forfeited; as liquidated damages in
     the event of default or breach of any part ofthis agreement. '
3.   I agree to give written n~ce of vacating of30 days, ret.um al~ keys and leave the
     premises in reasonable qlcan coodition. Then the sewrity deposit will be refunded, unless
     rent is due or cleaning is ncccssary.                           !
4.   I will maintain the pmnises in reasonnbJc and habitable condition, (no smoking allowed)
     and m:ccpt the as being the same. I also accept any attached inveatory and agree that tbc
     rente) mte may be reaso'ably changed due to•expenses. rental!conditions, or sale of the
     premises.                 I                                     :
S.   I am responsible Cor ~cs, maiotanancc of yard and llllldsetiping.
6.   1 ap:c to assume alllepl responsibility for tbe acts and condbct of ony visitors and keep
     all bouse rules and will ~t violate any laws on the premises. :
7.   I agree net to tmnsfer or pssign this agreement not let or sub-lt:l the premises or ant part
     of1he s&mD without wri~ CODSentto1he·owner.                      '        ·· ·
8.   I am authorized and ~le to sign Ibis agreement and I mn not rclyiug on prior ol1ll or
     written repzesentn:tions ofthe owner agent.
9.   Tho owner agent may    enter the premises at any time to inspect. repair. maintain, or show
    the ptopcrty.             i                                     ·.
10. 1 will not remove any nupjture, fixtures, or personal property until all rent cluJrges are
    fully paid and 1'8Dt the oWner lieD on the ~
11. My rental application folio is complete and accurate.
12. In the event ofdefault orjbreach ofthis agreement, I aarce ro   anyappropriation action
    taJa:n by the owner or ~t to legal action, 8lld agree to pay all costs including
    re850118ble attomcy's tack.
13. Landlotd is not liable forlloss or damage of tenant•a personal belongings. We urge you to
    get yoU!' own ;:eo1a1 ~ for losses due to theft. fire. smoke, water clamage. and the
     like.
14. All teoams must show    *f i     .
                                                                    or
                              of insunuu:e for their waterbeds be bdd Uable for tbc
    damages to the buDding •d its ecmtents resuUJng fiom damDBc: from the waklrbeds.
                                                                                             u

                               I
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                               I




Writtcm signBtUlc ofn:oter


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