Garofolo v. Ocwen Loan Servicing, L.L.C.
Decision Date | 20 May 2016 |
Docket Number | NO. 15–0437,15–0437 |
Citation | 497 S.W.3d 474 |
Parties | Teresa Garofolo, Appellant, v. Ocwen Loan Servicing, L.L.C., Appellee |
Court | Texas Supreme Court |
Scott R. Kidd, Kidd Law Firm, Austin TX, for Appellant.
Benjamin David Lee Foster, Locke Lord LLP, Austin TX, Daron L. Janis, Robert T. Mowrey, William Scott Hastings, Locke Lord LLP, Dallas TX, Sahar Shirazi, Kari Lynn Robinson, Baker Donelson Bearman Caldwell & Berkowitz, P.C., Houston TX, for Appellee
B. Scott Daugherty, Texas Bankers Association, Austin TX, John C. Fleming, Law Office of John C. Fleming, Austin TX, Karen Sue Neeley, Kennedy Sutherland LLP, Austin TX, for Amicus Curiae parties.
The Texas Constitution allows a home-equity lender to foreclose on a homestead only if the underlying loan includes specific terms and conditions. Among them is a requirement that a lender deliver a release of lien to the borrower after a loan is paid off. Another is that lenders that fail to meet their loan obligations may forfeit all principal and interest payments received from the borrower. In this case, a borrower sued her home-equity lender in federal court seeking forfeiture after her lender failed to deliver a release of lien. The borrower appealed the district court's dismissal of her claims, and we accepted two certified questions from the United States Court of Appeals for the Fifth Circuit asking if we find a constitutional right to forfeiture or, alternatively, if forfeiture is available through a breach-of-contract action under these facts.
We answer “no” to both questions. Our constitution lays out the terms and conditions a home-equity loan must include if the lender wishes to foreclose on a homestead following borrower default. It does not, however, create a constitutional cause of action or remedy for a lender's subsequent breach of those terms or conditions. A post-origination breach of those terms and conditions may give rise to a breach-of-contract claim for which forfeiture can sometimes be an appropriate remedy. But when forfeiture is unavailable, as in this case, the borrower must show actual damages or seek some other remedy such as specific performance to maintain her suit.
In 2010, Teresa Garofolo took out a $159,700 home-equity loan with Ally Bank.
She made timely monthly payments and paid off the loan on April 1, 2014, at which time Ocwen had become the note's holder. A release of lien was recorded in Travis County on April 28, but Garofolo did not receive a release of lien in recordable form as required by her loan's terms. Garofolo notified Ocwen she had not received the document. Upon passage of 60 days following that notification, and still without the release, Garofolo sued Ocwen in federal district court for violating home-equity lending provisions of the Texas Constitution and breach of contract. For both claims, Garofolo sought Ocwen's forfeiture of all principal and interest she paid on the loan.
Both the release-of-lien1 and forfeiture2 provisions of Garofolo's loan are among the terms and conditions the Texas Constitution requires of foreclosure-eligible home-equity loans. Garofolo therefore argues that Ocwen's failure to deliver the release of lien amounted to a constitutional violation for which a constitutional forfeiture remedy is appropriate. And because the release-of-lien and forfeiture provisions were incorporated into Garofolo's loan, she alternatively argues forfeiture is a remedy available through her breach-of-contract action. Because her constitutional claim “raises an important issue of Texas constitutional law as to which there is no controlling Texas Supreme Court authority, and the authority from the intermediate state appellate courts provides insufficient guidance,”3 we accepted the following two certified questions from the Fifth Circuit4 :
(1) Does a lender or holder violate Article XVI, Section 50(a)(6)(Q)(vii) of the Texas Constitution
, becoming liable for forfeiture of principal and interest, when the loan agreement incorporates the protections of Section 50(a)(6)(Q)(vii), but the lender or holder fails to return the cancelled note and release of lien upon full payment of the note and within 60 days after the borrower informs the lender or holder of the failure to comply?
(2) If the answer to Question 1 is “no,” then, in the absence of actual damages, does a lender or holder become liable for forfeiture of principal and interest under a breach of contract theory when the loan agreement incorporates the protections of Section 50(a)(6)(Q)(vii), but the lender or holder, although filing a release of lien in the deed records, fails to return the cancelled note and release of lien upon full payment of the note and within 60 days after the borrower informs the lender or holder of the failure to comply?
In the first certified question, we are asked if Ocwen's failure to deliver a release of lien amounts to a constitutional violation for which a constitutional forfeiture remedy applies. If we answer “yes,” the myriad terms and conditions required for a home-equity loan to be foreclosure-eligible would amount to substantive constitutional rights and obligations. As such, a lender's failure to honor them would give rise to not just a breach-of-contract claim, but a violation of the constitution itself. Our constitution's plain language, however, compels us to answer “no.”
We strive to give constitutional provisions the effect their makers and adopters intended. See Stringer v. Cendant Mortg. Corp., 23 S.W.3d 353, 355 (Tex.2000)
. Accordingly, when interpreting our state constitution, we rely heavily on its literal text and give effect to its plain language. See
Republican Party of Tex. v. Dietz, 940 S.W.3d 86, 89 (Tex.1997). We presume the constitution's language was carefully selected, and we interpret words as they are generally understood. See
Harris Cty. Hosp. Dist. v. Tomball Reg'l Hosp., 283 S.W.3d 838, 842 (Tex.2009). And 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. See
Doody v. Ameriquest Mortg. Co., 49 S.W.3d 342, 344 (Tex.2001).
In Texas, “the homestead has always been protected from forced sale, not merely by statute as in most states, but by the Constitution.” Fin. Comm'n of Tex. v. Norwood, 418 S.W.3d 566, 570 (Tex.2013)
(citing TEX. CONST. art. VII, § 22 (1845); TEX. CONST. art. VII, § 22 (1861); TEX. CONST. art. VII, § 22 (1866); TEX. CONST. art. XII, § 15 (1869); TEX. CONST. art. XVI, § 50 (1876) ). Even during Texas' days as a republic, statutory provisions conferred protected status on the homestead. Id. at 570 n. 8. (citing Act approved Jan. 26, 1839, 3d Cong., R.S., 1839 Repub. Tex. Laws 125, 125–26, reprinted in 2 H.P.N. Gammel, The Laws of Texas 1822–1897 at 125, 125–26 (Austin, Gammel Book Co. 1898)). The 1869 and 1876 constitutions allowed just three exceptions to Texas' policy of freedom from forced sale of a homestead, but more have been added by constitutional amendments. See
id. at 570–71. It was only in 1997 that Texas created exceptions for reverse mortgages and home-equity loans. Id. at 571 ( ).
Today, section 50 of the constitution protects the homestead from foreclosure for the payment of debts subject to eight exceptions, one of which covers only those home-equity loans that contain a litany of exacting terms and conditions set forth in the constitution. See TEX. CONST. art. XVI, § 50
(a)(6)(A)–(Q). When reduced to the language relevant to this case, section 50(a) reads:
Our initial inquiry is whether these terms and conditions amount to substantive constitutional rights and obligations. In concluding they do not, we first observe that section 50(a) does not directly create, allow, or regulate home-equity lending. Nowhere does it say all home-equity loans must include the constitutional terms and conditions, nor does it prohibit loans made on other terms. It simply describes what a home-equity loan must look like if a lender wants the option to foreclose on a homestead upon borrower default.
As to constitutional rights, section 50
(a) creates but one: freedom from forced sale to satisfy debts other than those described in its exceptions. The delineation of home-equity lending terms and conditions serves only to set the boundaries of that constitutional right. The relevance of those terms and conditions is therefore contingent on the fundamental guarantee of section 50 (a)—that the homestead is protected from...
To continue reading
Request your trial-
Johnson v. Citigroup Mortg. Loan Trust Inc.
...unconstitutional liens under Article XVI, § 50 must rely on traditional tort or breach of contract actions. Garofolo v. Ocwen Loan Servicing, L.L.C., 497 S.W.3d 474, 484 (Tex. 2016) ("The terms and conditions required to be included in a foreclosure-eligible home-equity loan are not substan......
-
Wood v. HSBC Bank USA, N.A.
...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' jud......
-
City of Fort Worth v. Rylie
...constitution's language was carefully selected, and we interpret words as they are generally understood." Garofolo v. Ocwen Loan Servicing, L.L.C. , 497 S.W.3d 474, 477 (Tex. 2016) ; see also Armbrister v. Morales , 943 S.W.2d 202, 205 (Tex. App.—Austin 1997) ("In interpreting the constitut......
-
Bynane v. Bank of N.Y. Mellon
...state an affirmative claim asserting substantive rights under section 50(a)(6). See Wood , 505 S.W.3d at 546 ("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 noncomplia......