Rare Plaintiff Victory in Wrongful Foreclosure Case

The lawyers of Cain & Skarnulis, an Austin business litigation boutique, recently won two judgments totaling just over $1.0 million in a rare wrongful foreclosure victory, for a small Austin business. Steve Skarnulis and Pat Fitzgerald represented Larry Mathis, owner of SmartMail of Austin, who lost his commercial building at 2200 Tillery Street in Austin, near the Mueller development.

Mathis purchased the property in 2000 with a mortgage, as well as a Small Business Administration loan. In 2008, Mathis’ business suffered losses, and he was unable to make anything but sporadic payments on the building. His mortgage company, DCR Mortgage III Sub I, LLC of St. Petersburg, Florida, threatened foreclosure in early 2009. Mathis tendered all amounts owing under his note, but the payment was refused. Mathis filed a lawsuit in Travis County District Court in April 2009, to try to stop the foreclosure.

While that lawsuit held off foreclosure for a year, ultimately the state court ruled against Mathis, and allowed DCR to foreclose. The court found that DCR had properly accelerated all amounts owing on the note. Mathis appealed the state court’s judgment, but during the appeal, DCR foreclosed and took the building.

Mathis estimated the building to be worth approximately $1.5 million at the time of foreclosure. He owed just a little over $250,000 on the note to DCR.

Following the foreclosure, Mathis won the appeal. But it was too late to get the property back. A second lawsuit was filed and was referred to the United States District Court for the Western District of Texas, Judge Sam Sparks, presiding.

Cain & Skarnulis then tried two cases on behalf of Mathis. First, in a September 2014 trial on remand from the appeal of the state court ruling, the firm won a judgment for approximately $220,000, after a bench trial in front of Travis County District Judge Amy Clark Meachum. A second trial was held April 27, 2015, in Judge Sparks’ federal district court in Austin.

Judge Sparks presided over a 3-day jury trial. After deliberating for more than a day, the jury returned a verdict in favor of Mathis on April 30, 2015. They found that DCR had wrongfully foreclosed, taking a 20,000 square foot property worth in excess of $1.0 million. The notice of acceleration that DCR’s representative testified had been hand-delivered to be sent by certified mail, was actually dated on President’s Day, a federal holiday on which the post office is closed.

Recently, on June 25, 2015, and after extensive post-trial briefing, Judge Sparks entered final judgment for more than $800,000. The two judgments now held by Mathis total $1,018,000.

“This was a very unusual case,” said Skarnulis. “It is exceedingly rare for a plaintiff to win on a claim of wrongful foreclosure. But to do so after three trials and one appeal is even more surprising. We are grateful that the jury recognized the unfairness of the foreclosure, and we are glad to recover some of Mr. Mathis’ equity in his property.”