Wells Fargo Bank, N.A. v. Leath

• Decision Date: 21 March 2014
• Docket Number: No. 05–11–01425–CV.,05–11–01425–CV.
• Citation: 425 S.W.3d 525
• Parties: WELLS FARGO BANK, N.A., as Trustee for Option One Mortgage Loan Trust 2006–1 Asset–Backed Certificates, Series 2006–1, Appellant v. Lonzie LEATH, Appellee.
• Court: Texas Court of Appeals

425 S.W.3d 525

WELLS FARGO BANK, N.A., as Trustee for Option One Mortgage Loan Trust 2006–1 Asset–Backed Certificates, Series 2006–1, Appellant
v.
Lonzie LEATH, Appellee.

No. 05–11–01425–CV.

Court of Appeals of Texas,
Dallas.

Jan. 6, 2014.
Supplemental Opinion on Rehearing March 21, 2014.
Dissenting Opinion on Denial of Rehearing En Banc March 21, 2014.

[425 S.W.3d 528]

Robert L. Negrin, Codilis & Stawiarski, PC, Mary M. Speidel, Houston, for appellant.

Wendel A. Withrow, Law Offices of Wendel A. Withrow, Carrollton, for appellee.

Before Justices MOSELEY, O'NEILL, and BROWN.¹

OPINION
Opinion by Justice BROWN.

Wells Fargo Bank, N.A., as Trustee for Option One Mortgage Loan Trust 2006–1 Asset–Backed Certificates, Series 2006–1, appeals the judgment voiding the deed of trust lien on Lonzie Leath's homestead and ordering forfeiture of the principal and interest on the related home equity adjustable rate note. Wells Fargo contests the sufficiency of the evidence to support the jury's finding of $421,400 as the fair market value of the homestead on the loan date (which established a Texas constitutional violation because the $340,000 loan exceeded eighty percent of the value of the homestead), the trial court's finding that Wells Fargo failed to cure the violation, the evidentiary ruling allowing Leath's expert testimony, and the award of attorney's fees. Alternatively, Wells Fargo seeks equitable subrogation for advances made at Leath's request. We affirm the trial court's judgment.

Background

Leath owns a home in Cedar Hill, Texas that qualifies as his homestead. In 2005, he took out a home equity loan, backed by a lien on the house, for $340,000 from H & R Block Mortgage Corporation. After the loan closed, it was put in a pool and transferred to Wells Fargo, the trustee for the pool of loans. Option One Mortgage Corporation was the servicing agent on Leath's note.

Leath's loan was evidenced by a Texas home equity adjustable rate note executed

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by Leath on October 26, 2005. As part of the closing, Leath also signed a series of documents, one of which was a borrower's and lender's acknowledgment that the fair market value of the home was $425,000. That value was set by an independent appraisal performed by Clyde Crum in August 2005 and sent to the lender less than two weeks before the loan closed. Leath used the loan to retire a pre-existing 2004 debt on the property. The 2004 refinancing was based on appraisals stating a $350,000 fair market value for the property, which was dependent on completion of construction and repairs.

Just over two years after the 2005 home equity loan was signed, Leath sent the lender a letter dated January 15, 2008, asking to modify or restructure the loan to avoid foreclosure and allow him and his family to get things “back on track financially.” In a second letter, he asked the lender to consider the fact that his hardship situation also was caused by the adjustable rate increase in his mortgage payments. Leath's request for a modification was unsuccessful, and Wells Fargo sought an order for foreclosure in March 2008. SeeTex.R. Civ. P. 736.1. Leath filed an answer to Wells Fargo's application for foreclosure and also filed the underlying declaratory-judgment action to abate the foreclosure. SeeTex.R. Civ. P. 736.11(a). Leath alleged in both pleadings that the loan violated section 50(a)(6)(B) of the Texas Constitution because the outstanding debt exceeded eighty percent of the fair market value of the homestead on the date the loan was made. Leath further alleged Wells Fargo had been “notified of this failure to comply more than sixty (60) days ago and ha[d] not corrected the failure to comply in any way.” Leath sought a declaration that Wells Fargo was not entitled to foreclose on the property because the loan violated the Texas Constitution and asked the trial court to order that all principal and interest under the extension of credit to be forfeited. Wells Fargo generally denied the allegations and further denied that the conditions precedent necessary for Leath's recovery had occurred or been satisfied.

The case was submitted to the jury on a single question, asking for the fair market value of the property on the date of the loan, October 26, 2005. The jury returned a verdict of $421,400. The trial court rendered judgment on July 8, 2011 over Wells Fargo's objection. And after finding the home equity loan violated the Texas Constitution and that Wells Fargo did not cure its violation within sixty days of being notified of the violation, the court declared the deed of trust lien void and the principal and interest on the note forfeited. Wells Fargo's motions to modify or reform the judgment and its motion for new trial, in which it challenged the sufficiency of the evidence on valuation, were overruled by operation of law.

Home Equity Liens Under the Texas Constitution

By a 1997 amendment to the Texas Constitution, homeowners who have paid their home loans or accumulated equity in their homestead can voluntarily encumber their homestead with a lien in return for an extension of credit, i.e., a home equity loan. See Doody v. Ameriquest Mortg. Co., 49 S.W.3d 342, 343 (Tex.2001); Rivera v. Countrywide Home Loans, Inc., 262 S.W.3d 834, 837 (Tex.App.-Dallas 2008, no pet.). To be valid, a home equity loan must comply with numerous requirements set forth in the constitution. SeeTex. Const. art. XVI, § 50(a)(6)(A)–(Q); see also Rooms With A View, Inc. v. Private Nat'l Mortg. Ass'n, 7 S.W.3d 840, 847–48 (Tex.App.-Austin 1999, pet. denied) (noting requirements were designed to protect homeowners from predatory lenders). Of

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particular relevance here is the requirement that the amount of the home equity loan may not exceed eighty percent of the fair market value of the homestead on the date the extension of credit is made. Tex. Const. art. XVI, § 50(a)(6)(B). When the requirements are not met, the lien is invalid, and all principal and interest are forfeited. Id. § 50(a)(6)(Q)(x); Doody, 49 S.W.3d at 345–46.

The failure to comply with the requirements, however, is not necessarily fatal to a home equity lender because the section gives a lender an opportunity to cure any failure on its part to comply with its constitutional obligations after receiving notification from the borrower of a violation. SeeTex. Const. art. XVI, § 50(a)(6)(Q)(x). Specifically, the “cure provision” provides that the lender must correct mistakes within sixty days of being notified by the borrower of the lender's failure to comply to validate a lien securing a home equity loan to avoid forfeiture of the principal and interest of the loan. Id.; Doody, 49 S.W.3d at 346. The cure provision of section 50(a)(6)(Q)(x) is triggered upon notice of the non-compliance to the lender by the borrower. Curry v. Bank of Am., N.A., 232 S.W.3d 345, 353 n. 6 (Tex.App.-Dallas 2007, pet. denied).

Discussion

Wells Fargo raises four issues on appeal. It first contends the trial court erred when it signed a judgment that “went beyond finding and declaring the value of the property.” Wells Fargo also challenges the legal and factual sufficiency of the evidence supporting the jury's determination of fair market value (Issue Two), argues the trial court erred in allowing Leath's expert, Ann Piper, to testify and by admitting her report (Issue Three), and complains the trial court's award of attorney's fees only to Leath was not equitable and just (Issue Four). In a fifth alternative issue, Wells Fargo contends it was entitled to equitable subrogation for the credit extended to Leath to pay his prior lien.

Notice and Cure of the Alleged Constitutional Violation

Wells Fargo argues in its first issue the trial court erred by signing a judgment declaring that the lien was invalid and the loan forfeited without submitting the question of Leath's notification and Wells Fargo's failure to cure within the sixty-day cure period. It asserts that after the jury resolved the factual dispute as to the home's value, the “parties should have been free, following an appropriate judgment, to continue their [debtor/creditor] relationship” because the violation was curable. Wells Fargo claims that instead and contrary to Texas Rule of Procedure 279, the trial court made findings in its judgment despite its objection and despite there being factually insufficient evidence to support the findings.

At the charge conference, Wells Fargo objected to the “submission of the charge to the jury, and to the question as worded.” It asserted that if the case “goes in terms of value,” the “disputes under the dec action” will not be fully resolved, adding, “[t]he Court, of course, has the discretion.” The trial court overruled Wells Fargo's objection and submitted the question for the jury to determine the fair market value of Leath's home on the date of the loan, which it did. Based on that finding, the trial court found that the home equity loan was greater than eighty percent of the fair market value of the home on the date of the loan and declared that the loan violated the Texas Constitution. The trial court also found that Wells Fargo “did not cure its failure to comply within 60 days of being notified of this violation.”

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Wells Fargo's primary contention is that Leath did not satisfy the notice predicate to the forfeiture; it contends that because it denied performance of conditions precedent, Leath had to prove notice and he failed to do so. Wells Fargo essentially argues the issue of notice—that is, did Leath notify the lender of the valuation issue—was a fact question that should have been submitted to the jury. It claims its objection to the omission of the issue in the court's charge precludes “any finding by the trial court on the element not submitted to the jury” and as a consequence, Leath “waived one of the controlling issues upon which he relied for recovery.”

Leath responds that Wells Fargo did not complain to...