Texas Home Equity Loans are replete with potential pitfalls for a residential mortgage servicer. If demand letters from borrowers or their counsel are not handled properly it could potentially result in the invalidity of the lien as well as forfeiture of all principal and interest paid by the borrower. Although there are many issues to be aware of, the following are key factors for a lender or servicer to consider when presented with a borrower demand letter on a Texas Home Equity Loan.
1) 60 days to Cure: From the earlier of when the borrower sends a demand letter or files suit, the lender or servicer has 60 days to provide a cure of most claimed violations of the Texas Constitutional requirements relating to Home Equity Loans. Williams v. Wachovia Mortg. Corp., 407 S.W.3d 391, 394 (Tex.App.—Dallas 2013, writ denied) (discussing the history and status of cure provisions in the Texas Constitution).
2) Cure to Match Violation: If there is an alleged violation, lender must choose the correct cure to fit the alleged violation. See Texas Constitution, Article 16, Section 50(a)(6)(Q)(x) (listing various cures for certain violations not specified).
3) Catchall Cure: If the cure cannot be made under the specific violation cures enumerated in the Section 50(a)(6)(Q)(x) provision, there is still the possibility of a cure via payment of $1,000 by lender to borrower and making an offer of refinancing at no cost to borrower. See Texas Constitution, Article 16, Section 50(a)(6)(Q)(x)(f) and Tex. Admin. Code §153.96.
Note: Certain violations may not be curable, i.e. if a loan was made by a lender not authorized to make Home Equity Loans or a spouse did not provide written consent for the Loan. Loans secured by property designated for agricultural use at loan origination can also provide a specific challenge.
4) Statute of Limitations for Borrower? Until recently, the assertion of Texas Home Equity violations relating to origination by the borrower was arguably precluded by a four year statute of limitations accruing at loan origination such that no cure was required. See Priester v. JP Morgan Chase Bank, N.A., 708 F.3d 667, 674 (5th Cir. 2013). However, the Texas Supreme Court has issued a very recent opinion that may have eliminated the availability of that statute of limitations defense for the lender. See, Wood v. HSBC Bank USA, N.A., –S.W.3d–, 2016 WL 2993923 (Tex. May 20, 2016). This makes the cure evaluation process significantly more important if Wood holds up following rehearing and subsequent opinions.
5) Equitable Subrogation: If the time to cure has passed and the lender has no statute of limitations defense under Priester, the lender may still have a claim for equitable subrogation to enforce the lien that was satisfied by the proceeds of the home equity loan by stepping into the shoes of the prior lienholder. See LaSalle Bank Nat’l Ass’n v. White, 246 S.W.3d 616, 618 (Tex. 2007) (per curiam).
No information in this article is intended to constitute legal advice. For specific legal advice, please contact an attorney.
Michael F. Hord Jr. is a shareholder with the firm of Hirsch & Westheimer, P.C. and specializes in complex commercial litigation and loan workouts, including the representation of financial institutions and loan servicers. If you have questions about Texas Home Equity Loans or a lender or servicer’s ability to cure alleged violations of the Texas Home Equity Loan regulations, please contact Michael at 713.220.9182 or firstname.lastname@example.org.