The Law Office of J. Patrick Sutton

Texas Supreme Court decides that Modifications of Texas mortgage loans can roll past-due amounts back into the loans

The Texas Supreme Court, in a case I brought and argued called Sims v. Carrington Mortgage Services, has decided that mortgage lenders can roll past-due interest, property taxes, and insurance into existing mortgage loans, including home equity loans. The Court created a new term under Texas law for such transactions under the Texas Constitution's homestead laws, calling them "restructurings."

This was a loss for my clients in many ways, since they and I believed that continuing to give credit under an existing loan -- which lets the lender take ever more collateral of the homestead -- is dangerous and unfair. However, the case clarified that such "restructurings" are legal. That is very important, because lenders had begun halting all modifications of Texas home equity loans before I ever got involved in these cases. Now, it is established that lenders can restructure these loans.

The Texas Supreme Court was not asked to address, and did not address, whether a "modification" or "restructuring" can impose interest-only payments or include a balloon, neither of which appears to be consistent with the express terms of the Texas Constitution.

The Texas Supreme Court also did not decide whether a "restructuring" can include property tax and insurance due in future periods, and we are seeking a rehearing to decide that narrow issue.
The Law Office of J. Patrick Sutton