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Austin business owner wins $1 million+ in wrongful foreclosure case

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An Austin small business owner who claimed his commercial property was wrongfully foreclosed on has won judgments totaling more than $1 million from a mortgage lender.

A state court and a federal court both ordered DCR Mortgage III Sub 1 LLC to pay the judgments to Larry Mathis, owner of SmartMail of Austin Inc. — a direct mail and printing company.

Both cases were initiated by Mathis — one in 2009 to try and stop a foreclosure sale after he fell behind in payments and a second case alleging wrongful foreclosure actions after the property was taken back by the lender.

The case is complicated, but Mathis’ attorney Steve Skarnulis of Cain Skarnulis PLLC, an Austin boutique litigation firm, said he hopes lenders take notice of the judgments and carefully consider the merits of aggressive foreclosure actions. He called the case “a rare plaintiff victory” in a wrongful foreclosure case.

Thomas Hanson of Dykema law firm in Dallas, who represented DCR, would only say that “litigation remains pending” and that he’d have no more comment at this time.

Whether DCR intends to pay those judgments remains to be be seen. Skarnulis said he’s hopeful.

“We think it’s very likely that Mathis with recover on both judgments,” he said.

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For now, Mathis remains in business and owns another property a few blocks away.

Here’s a deeper dive into the case.

Mathis signed a promissory note in 2000 with Norwest Bank NA in the amount of $440,000 to cover about 50 percent of the purchase price for a 20,000-square-foot commercial building at 220 Tillery St. He also obtained a significant loan from the Small Business Administration, as well, to purchase the building. He’s still making payments on that loan, but he no longer owns the property.

For the first few years after buying the property, Mathis made monthly payments on both loans.

All was fine until Mathis “hit a rocky patch in the mid-2000s,” court records show. He fell behind in his payments to Norwest, though that company continued to take the payments and credit them to his loan account. Problems began around 2007 after Norwest sold the its loan to DCR Mortgage III Sub 1 LLC, an affiliated company of Direct Capital in St. Petersburg, Florida.

In early 2007 Lance Amano, an officer of DCR met with Mathis to discuss the shortfall. Mathis said he had offers on the building and was looking to sell at a hefty profit. Though communication between Mathis and Amano continued, the situation largely remained status quo.

Mathis did not sell the building and remained in arrears on the DCR loan. In January 2009 he learned from the holder of the SBA loan that DCR was exercising an acceleration clause and planning to sell the property in a foreclosure action.

Mathis took quick action at the point and made three payments in February and obtained a cashier’s check for the balance of the past due amount — roughly $52,000 — in early April 2009.

By then, however, DCR had appointed a trustee, who scheduled a foreclosure sale on May 5, 2009.

Mathis filed suit on April 29 to prevent the sale — a measure that staved off foreclosure for nearly two year until February 2011.

But by then the court had ruled in favor of DCR, determining that the lender had every right to foreclose. The temporary injunction was lifted and DCR foreclosed, selling it for a $500,000 credit bid. Mathis claimed he never received any formal notice of the acceleration clause and the foreclosure action.

He also accused claimed that the amount was far below market value.

Mathis appealed that court’s ruling in favor of DCR and eventually won. He was awarded about $230,000 in 2014 in association with that appeal.

In the meantime, Mathis filed a wrongful foreclosure action, which was heard before a jury this April. The jury found in favor of Mathis’ claim of wrongful foreclosure in that case, as well.

U.S. District Court Judge Sam Sparks distilled the complexities down to one basic issue — the lender failed to provide formal notice that it was accelerating the term of the note.

In order signed June 25, Sparks wrote, “All of this evidence, taken together, raises the plausible inference that DCR failed to give Mathis the required notice and opportunity to cure before foreclosing in order to turn a healthy profit on the Tillery Property.”

Sparks order DCR to pay Mathis more than $803,000.

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