Wood v. HSBC Bank USA, N.A.

• Decision Date: 20 May 2016
• Docket Number: NO. 14–0714,14–0714
• Citation: 505 S.W.3d 542
• Parties: Alice M. WOOD and Daniel L. Wood, Petitioners, v. HSBC BANK USA, N.A. and Ocwen Loan Servicing, L.L.C., Respondents
• Court: Texas Supreme Court

505 S.W.3d 542

Alice M. WOOD and Daniel L. Wood, Petitioners,

v.HSBC BANK USA, N.A. and Ocwen Loan Servicing, L.L.C., Respondents

NO. 14–0714

Supreme Court of Texas.

Argued December 8, 2015

OPINION DELIVERED: May 20, 2016

Anh Thu Ngoc Dinh, Robert Chamless Lane, Robert Y. Petersen, The Lane Law Firm, P.L.L.C, Constance H. Pfeiffer, Russell S. Post, Beck Redden LLP, Houston, TX, for Petitioners.

Daron L. Janis, Robert T. Mowrey, William Scott Hastings, Locke Lord LLP, Dallas, TX, Joshua Tropper, Baker Donelson Bearman Caldwell & Berkowitz, P.C., Atlanta, GA, Kari Lynn Robinson, Valerie Anne Henderson, Baker Donelson Bearman Caldwell & Berkowitz, P.C., Houston, TX, for Respondents.

William F. "Bill" Ikard, Ikard Wynne LLP, Austin TX, for amicus curiae Wendy Richardson.

J. Patrick Sutton, The Law Office of J. Patrick Sutton PLLC, Austin TX amicus curiae.

Robert W. Doggett, Texas RioGrande Legal Aid, Inc., Austin TX, for amicus curiae Texas Family Council Project.

JUSTICE LEHRMANN delivered the opinion of the Court, in which JUSTICE JOHNSON, JUSTICE GUZMAN, JUSTICE BOYD, JUSTICE DEVINE, and JUSTICE BROWN joined.

"No ... lien on the homestead shall ever be valid unless it secures a debt described by this section[.]" TEX. CONST. art. XVI, § 50 (c). This language is clear, unequivocal, and binding. The primary issue in this case is whether a statute of limitations applies to an action to quiet title where a lien securing a home-equity loan does not comply with constitutional parameters. The parties also dispute whether petitioners are entitled to a declaration that respondents have forfeited all principal and interest on the underlying loan. We conclude that liens securing constitutionally noncompliant home-equity loans are invalid until cured and thus not subject to any statute of limitations. We further hold that, in light of this Court's decision today in Garofolo v. Ocwen Loan Servicing, 497 S.W.3d 474, 2016 WL 2986237 (Tex.2016), petitioners have not brought a cognizable claim for forfeiture. As such, we reverse the court of appeals' judgment in part and remand to the trial court for further proceedings consistent with this opinion.

I. BACKGROUND

On July 2, 2004, Alice and Daniel Wood obtained a $76,000 home-equity loan secured by their homestead. Nearly eight years later, the Woods notified the current note holder (HSBC Bank USA, N.A.) and loan servicer (Ocwen Loan Servicing, L.L.C.) that the home-equity loan did not comply with the Texas Constitution in several respects, including that the closing fees exceeded 3% of the loan amount. Neither HSBC nor Ocwen (the Lenders) attempted to cure the alleged defects. On July 9, 2012, the Woods sued the Lenders, seeking to quiet title and asserting claims for constitutional violations, breach of contract, fraud, and a declaratory judgment that the lien securing the home-equity loan is void, that all principal and interest paid must be forfeited, and that the Woods have no further obligation to pay.

The Woods moved for summary judgment, arguing that the lien is void because the evidence shows as a matter of law that the closing fees exceeded 3% and the Lenders did not cure after proper notice. The Lenders also moved for summary judgment on traditional and no-evidence grounds, asserting in pertinent part that the lien is voidable, not void, and that the statute of limitations barred all claims. The trial court granted summary judgment for the Lenders on all claims and denied the Woods' motion. The only issue the Woods raised on appeal was whether their claims based on constitutional noncompliance, including their claims to quiet title and for a declaration of forfeiture, are subject to a statute of limitations.¹ The court of appeals affirmed, holding that liens securing constitutionally noncompliant home-equity loans are voidable and that the residual four-year statute of limitations applied to the Woods' claims, accruing from the date of closing. 439 S.W.3d 585, 597 (Tex.App.—Houston [14th Dist.] 2014). We granted the Woods' petition for review.

II. APPLICABLE LAW

A. Interpretation Principles

When interpreting our state Constitution, we rely heavily on its literal text and must give effect to its plain language. Stringer v. Cendant Mortg. Corp. , 23 S.W.3d 353, 355 (Tex.2000). "We strive to give constitutional provisions the effect their makers and adopters intended." Id. We construe constitutional provisions and amendments that relate to the same subject matter together and consider those amendments and provisions in light of each other. Purcell v. Lindsey, 158 Tex. 541, 314 S.W.2d 283, 284 (1958). And we strive to "avoid a construction that renders any provision meaningless or inoperative." Stringer, 23 S.W.3d at 355.

B. Section 50

Article XVI, section 50 of the Texas Constitution has long protected the homestead, strictly limiting the types of loans that may be secured by a homestead lien. Historically, constitutionally noncompliant homestead liens were absolutely void. See, e.g., Tex. Land & Loan Co. v. Blalock, 76 Tex. 85, 13 S.W. 12, 13 (1890) (holding that borrowers' misrepresentation of homestead status of land securing debt did not "enable parties to evade the law, and incumber [sic] homesteads with liens forbidden by the constitution"); Inge v. Cain, 65 Tex. 75, 79 (1885) ; see also LaSalle Bank Nat'l Ass'n v. White, 246 S.W.3d 616, 620 (Tex.2007) (acknowledging invalidation of noncompliant lien, but recognizing right to equitable subrogation). What the Constitution forbids cannot be evaded even by agreement of the parties, Tex. Land & Loan Co. , 13 S.W. at 13, and what is "never valid is always void," Inge, 65 Tex. at 80 ; see also Laster v. First Huntsville Props. Co. , 826 S.W.2d 125, 130 (Tex.1991) ("A mortgage or lien that is void because it was illegally levied against homestead property can never have any effect, even after the property is no longer impressed with the homestead character.").

In 1997, the Constitution was amended to permit homestead liens to secure home-equity loans, but, consistent with Texas's long tradition of protecting the homestead, the amendments clearly prescribed very specific and extensive limitations on those encumbrances. TEX. CONST. art. XVI, § 50 (a)(6)(A)–(Q). Section 50 allows such loans to be secured by the homestead only if, among other things, they are made on the condition that forfeiture of all principal and interest is available if the loan is constitutionally noncompliant and the lender fails to cure within 60 days of being given notice by the borrower. Id. § 50 (a)(6)(Q)(x). The Constitution provides simple methods for curing specific defects, including refunding any overcharges, and a catch-all cure for defects that are irremediable by the other methods. Id. § 50 (a)(6)(Q)(x)(a)-(f).

Section 50 states in pertinent part:

(a) The homestead of a family, or of a single adult person, shall be, and is hereby protected from forced sale, for the payment of all debts except for:

....

(6) an extension of credit that:

....

(E) does not require the owner or the owner's spouse to pay, in addition to any interest, fees to any person that are necessary to originate, evaluate, maintain, record, insure, or service the extension of credit that exceed, in the aggregate, three percent of the original principal amount of the extension of credit; [and]

....

(Q) is made on the condition that:

....

(x) except as provided by Subparagraph (xi) of this paragraph, the lender or any holder of the note for the extension of credit shall forfeit all principal and interest of the extension of credit if the lender or holder fails to comply with the lender's or holder's obligations under the extension of credit and fails to correct the failure to comply not later than the 60th day after the date the lender or holder is notified by the borrower of the lender's failure to comply by:

(a) paying to the owner an amount equal to any overcharge paid by the owner under or related to the extension of credit if the owner has paid an amount that exceeds an amount stated in the applicable Paragraph (E), (G), or (O) of this subdivision[.]

(c) No mortgage, trust deed, or other lien on the homestead shall ever be valid unless it secures a debt described by this section....

TEX. CONST. art. XVI, § 50 (a)(6)(E), (Q)(x)(a), (c).

Our opinion today in Garofolo clarifies the extent of the protections outlined in section 50(a), including a borrower's access to the forfeiture remedy. Specifically, we hold in Garofolo that section 50 (a) does not create substantive rights beyond a defense to foreclosure of a home-equity lien securing a constitutionally noncompliant loan, observing that the terms and conditions in section 50 (a)(6) "are not constitutional rights and obligations unto themselves." 497 S.W.3d at 478. We also clarify that "the forfeiture remedy [is not] a constitutional remedy unto itself. Rather, it is just one of the terms and conditions a home-equity loan must include to be foreclosure-eligible." Id. at 479. We explain that borrowers may access the forfeiture remedy through a breach-of-contract action based on the inclusion of those terms in their loan documents, as the Constitution requires to make the home-equity lien foreclosure-eligible. Id. at 476. In Garofolo we interpret only section 50 (a), which sets the terms home-equity loans must include in order to be foreclosure-eligible. Id. at 478. Section 50 (c), on the other hand, expressly addresses the validity of any homestead lien, broadly declaring the lien invalid if the underlying loan does not comply with section 50. TEX. CONST. art. XVI, § 50 (c).

We have also previously analyzed the interaction between section 50 (a)(6)(Q)(x)'s cure provisions for constitutionally noncompliant home-equity loans and section 50 (c)'s proclamation that no lien "shall ever be valid unless it secures a debt described by [section 50 ]." In Doody v. Ameriquest Mortgage Co ., we answered certified questions from the United States Court of Appeals...