First Gibraltar Bank, FSB v. Morales, 93-8170

• Decision Date: 29 April 1994
• Docket Number: No. 93-8170,93-8170
• Citation: 19 F.3d 1032
• Parties: FIRST GIBRALTAR BANK, FSB, and Beneficial Texas, Inc., Plaintiffs-Appellants, v. Dan MORALES, Atty. General, as Attorney General for the State of Texas, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1032

19 F.3d 1032

62 USLW 2690

FIRST GIBRALTAR BANK, FSB, and Beneficial Texas, Inc., Plaintiffs-Appellants, v. Dan MORALES, Atty. General, as Attorney General for the

State of Texas, et al., Defendants-Appellees.

No. 93-8170.

United States Court of Appeals, Fifth Circuit.

April 29, 1994.

James E. Essig, John L. Hill, Jr., Liddell, SAPP, Zivley, Hill & LaBon, L.L.P., Houston, TX, for appellant.

Dwight C. Smith, III, Office of Thrift Supervision, Washington, DC, for amicus, Office Thrift Supervision.

Frank Oliver, Austin, TX, for amicus, TX Svgs.

Peter A. Winn, Asst. Atty. Gen., Dallas, TX, Peter Brooke Haskel, Asst. Atty. Gen., Dan Morales, Atty. Gen., Austin, TX, for appellee.

R. Allen Ashcraft, Jr., Houston, TX, for amicus TX Asso. of Realtors.

Appeal from the United States District Court for the Western District of Texas.

Before POLITZ, Chief Judge, KING and DAVIS, Circuit Judges.

KING, Circuit Judge:

The district court entered summary judgment in favor of the defendant in this action for declaratory judgment and injunctive relief brought by First Gibraltar Bank, FSB, and Beneficial Texas, Inc. The issue presented for our determination is whether federal statutes and regulations have preempted Texas homestead law to the extent that it prohibits lenders from enforcing liens on home equity created in reverse annuity mortgages or line of credit conversion mortgages.

I. BACKGROUND

First Gibraltar Bank, FSB (First Gibraltar), is a federally chartered savings bank; Beneficial Texas, Inc. (Beneficial), is a non-federally chartered financial services corporation that is licensed to do business in Texas. Together, First Gibraltar and Beneficial (the banks) filed a complaint for declaratory judgment and injunctive relief in federal district court against Dan Morales as attorney general for the state of Texas and Albert Endsley as Texas Consumer Credit Commissioner (referred to herein collectively as "the state of Texas"). The banks requested the district court (1) to declare that federal law preempts Texas homestead law to the extent that Texas law prohibits federal savings associations from enforcing liens taken in alternative mortgage transactions secured by a homeowner's equity such as reverse annuity mortgages and line of credit conversion mortgages, (2) to declare that this federal preemption also extends to state-chartered institutions under the Parity Act, and (3) to order appropriate injunctive relief in conjunction with those declarations.

Both sides moved for summary judgment. After oral argument, the district court denied the plaintiffs' motion and granted summary judgment in favor of the defendants. The court's order is reported as First Gibraltar Bank, FSB, v. Morales, 815 F.Supp. 1008 (W.D.Tex.1993). This appeal followed, and numerous amici curiae have filed briefs in this court. Among the amici is the OTS itself, which has filed a brief in support of the banks' position.

II. STANDARD OF REVIEW

A district court's conclusions of law are reviewable de novo. Prudhomme v. Tenneco Oil Co., 955 F.2d 390, 392 (5th Cir.) cert. denied, --- U.S. ----, 113 S.Ct. 84, 121 L.Ed.2d 48 (1992).

We are required to give deference to an executive agency's interpretation of a statute or regulation that the agency is responsible for administering. Of course, if the intent of Congress is clear, that intent will trump any agency interpretation to the contrary. Chevron, U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837, 842, 104 S.Ct. 2778, 2781, 81 L.Ed.2d 694 (1984); Hawkins v. Agricultural Marketing Serv., Dep't of Agric., 10 F.3d 1125, 1129 (5th Cir.1993). If Congress did not directly address the precise question at issue, however, we must defer to the agency's interpretation of that statute as expressed in its regulations unless those regulations are arbitrary, capricious, or manifestly contrary to the statute. Chevron, 467 U.S. at 843-44, 104 S.Ct. at 2781-82. Deference is even more clearly in order when an agency construction of its own regulations is involved; the agency construction is controlling unless it is plainly erroneous or inconsistent with the regulation. Stinson v. United States, --- U.S. ----, ----, 113 S.Ct. 1913, 1919, 123 L.Ed.2d 598 (1993); Udall v. Tallman, 380 U.S. 1, 16-17, 85 S.Ct. 792, 801, 13 L.Ed.2d 616 (1965).

III. ANALYSIS

Before proceeding with our analysis of the preemption issues presented by this case, we will first briefly survey the legal backdrop against which this case arises. A review of Texas homestead law and the legal features of reverse annuity mortgages and line of credit conversion mortgages thus follows. Additionally, the state of Texas has raised a ripeness issue that we address before reaching the merits of this controversy.

A. BACKGROUND

1. Texas Homestead Law

The "homestead exemption" is the well-known provision of Texas law that protects certain real property interests from foreclosure and forced sale for the payment of debts, with very few exceptions. The exemption is guaranteed in the Texas Constitution, which provides in pertinent part:

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 the purchase money thereof, or a part of such purchase money, the taxes due thereon, or for work and material used in constructing improvements thereon.... No mortgage, trust deed, or other lien on the homestead shall ever be valid, except for the purchase money therefor, or improvements made thereon, as hereinbefore provided....

TEX. CONST. art. XVI, Sec. 50; see also TEX.PROP.CODE ANN. Sec. 41.001 (West Supp.1994) (mirroring the provisions of TEX. CONST. art. XVI, Sec. 50). The Texas Constitution further establishes that the key defining feature of a homestead is that the property is "used for the purposes of a home, or as a place to exercise the calling or business of the homestead claimant, whether a single adult person, or the head of a family." TEX. CONST. art. XVI, Sec. 51. A person claiming homestead rights in property has the burden of proving both overt acts of homestead usage and intent to claim the land as a homestead. Kennard v. MBank Waco, N.A. (In re Kennard), 970 F.2d 1455, 1458 (5th Cir.1992); see also Gregory v. Sunbelt Sav., F.S.B., 835 S.W.2d 155, 158 (Tex.App.--Dallas 1992, writ denied) ("The homestead character of property can be established prior to actual occupancy when the owner intends to improve and occupy the premises as a homestead."). It should be noted that this protection by no means embraces all of a home owner's property; the exemption may be claimed on a maximum of 200 acres of land and improvements in rural areas or one acre of land and improvements in a city, town, or village. TEX. CONST. art. XVI, Sec. 51.

Strong legal protection of the homestead from foreclosure has long been viewed as an important public policy in Texas. As Chief Justice Hemphill of the Texas Supreme Court once wrote,

The object of such exemption is to confer on the beneficiary a home as an asylum, a refuge which cannot be invaded nor its tranquility or serenity disturbed, and in which may be nurtured and cherished those feelings of individual independence which lie at the foundation and are essential to the permanency of our institutions.

Wood v. Wheeler, 7 Tex. 13, 22 (1851). As the banks correctly point out, however, this protection is not cost-free. The homestead exemption effectively prevents home owners from converting their home equity into liquid assets through secured borrowing. See 2 GEORGE D. BRADEN ET AL., THE CONSTITUTION OF THE STATE OF TEXAS: AN ANNOTATED AND COMPARATIVE ANALYSIS 790 (no date) (noting that the homestead exemption "effectively prevents mortgaging the homestead to meet a financial emergency; the only source of funds thus may be outright sale of the homestead"). The banks are of the view that lending institutions also bear part of the cost of Texas' homestead laws because those laws prevent them from engaging in certain mortgage lending activities.

2. Reverse Annuity Mortgages

In their complaint, the banks sought a declaration that

[federal statutes] preempt those portions of the Texas homestead law that prevent federally-chartered savings and loan associations from creating enforceable liens on Texas homesteads otherwise permitted by federal law and regulations.

The banks also sought a declaration that federal law gives housing creditors in Texas other than federal savings associations the same right "to make, purchase and enforce alternative mortgage transactions" as possessed by federal associations. The banks expressly denied that they were seeking a declaration that Texas homestead law had been preempted in its entirety, and they admitted that Texas homestead law would continue to apply in such contexts as "fixed-rate, fixed-term home loan transactions, federal bankruptcies [in which state exemptions are claimed], and judgment creditor claims against individual debtors."

We note at the outset that the term used by the parties and the court below, "alternative mortgage transaction" (AMT), is a broad catch-all term for all manner of mortgage instruments that do not conform to the traditional fully-amortized, fixed-interest-rate mortgage loan. These AMTs include such instruments as the adjustable interest rate mortgage and the graduated payment mortgage. See generally GRANT S. NELSON & DALE A. WHITMAN, REAL ESTATE TRANSFER, FINANCE, AND DEVELOPMENT 1000-13 (4th ed. 1992). Through their motions for summary judgment and on this appeal, the parties have made clear that their dispute does not concern these now-familiar alternative mortgage instruments but rather focuses on AMTs that are directly foreclosed by the impact of the Texas homestead law, namely the "reverse annuity mortgage" (RAM) and the "line of credit conversion mortgage," which is a variant of the RAM.

We shall therefore limit our preemption...