Texas Supreme Court enforces Section 50 as written
Jan 31 2014 07:24 Filed in: texas constitution | Home equity loan modification | mortgage modification
Today, the Texas Supreme Court returned to its Norwood decision of 2013 and reiterated that even if the requirements of Tex. Const. art. XVI, § 50 are inconvenient, they must be enforced as written unless and until the people of Texas amend them:
"Whether the constitutional provision’s intended protection is worth the hardship or could be more fairly or effectively provided by some other method is a matter that must be left to the framers and ratifiers of the Constitution,"
said the Court in denying a request for rehearing.
"Whether the constitutional provision’s intended protection is worth the hardship or could be more fairly or effectively provided by some other method is a matter that must be left to the framers and ratifiers of the Constitution,"
said the Court in denying a request for rehearing.
At issue is how people who wish to have their attorney-in-fact (i.e., a friend or relative acting for them under a power of attorney) close a home equity loan. The banking industry argues that the attorney-in-fact can show up to a closing with the power of attorney in hand and close the transaction. In essence, then, someone sitting in their living room can review the loan documents but sign a power of attorney. Their attorney-in-fact then drives over to the title company to close the loan.
No, said the Texas high court. The power of attorney has to be executed as part of the closing at the title company, attorney's office, or lender's office. What's so important is that the Court stressed that this is how Section 50 protects the borrower from oppression:
"We think that the provision requires a formality to the closing that prevents coercive practices. The concern is that a borrower may be persuaded to sign papers around his kitchen table collateralizing his homestead when he would have second thoughts in a lender’s, lawyer’s, or title company’s office. To allow the borrower to sign a power of attorney at the kitchen table raises the same concern. Requiring an attorney-in-fact to sign all loan documents in an office does nothing to sober the borrower’s decision, which is the purpose of the constitutional provision."
Notice the focus on "collateralizing the homestead." The Court is saying that engaging in a transaction that may ultimately lead to your home being taken away from you in foreclosure is so important under the Texas Constitution that the Court cannot write exceptions into the plain language of the Constitution.
We have argued the same point strenuously in the Sims case: modifications that increase the principal balance of the loan have the effect of "collateralizing the homestead" further. Accordingly, even if having to originate a new home equity loan is inconvenient or a hardship, it is precisely that process that "sobers" the borrower's decision and gives them all the disclosures they need in order to understand what's happening.
The case is No. 10-0121, THE FINANCE COMMISSION OF TEXAS, THE CREDIT UNION COMMISSION OF TEXAS, AND TEXAS BANKERS ASSOCIATION v. VALERIE NORWOOD, ELISE SHOWS,MARYANN ROBLES-VALDEZ, BOBBY
MARTIN, PAMELA COOPER, AND CARLOS RIVAS, RESPONDENTS.
Today's opinion, which supplements the 2013 opinion and denies rehearing, can be downloaded here.
No, said the Texas high court. The power of attorney has to be executed as part of the closing at the title company, attorney's office, or lender's office. What's so important is that the Court stressed that this is how Section 50 protects the borrower from oppression:
"We think that the provision requires a formality to the closing that prevents coercive practices. The concern is that a borrower may be persuaded to sign papers around his kitchen table collateralizing his homestead when he would have second thoughts in a lender’s, lawyer’s, or title company’s office. To allow the borrower to sign a power of attorney at the kitchen table raises the same concern. Requiring an attorney-in-fact to sign all loan documents in an office does nothing to sober the borrower’s decision, which is the purpose of the constitutional provision."
Notice the focus on "collateralizing the homestead." The Court is saying that engaging in a transaction that may ultimately lead to your home being taken away from you in foreclosure is so important under the Texas Constitution that the Court cannot write exceptions into the plain language of the Constitution.
We have argued the same point strenuously in the Sims case: modifications that increase the principal balance of the loan have the effect of "collateralizing the homestead" further. Accordingly, even if having to originate a new home equity loan is inconvenient or a hardship, it is precisely that process that "sobers" the borrower's decision and gives them all the disclosures they need in order to understand what's happening.
The case is No. 10-0121, THE FINANCE COMMISSION OF TEXAS, THE CREDIT UNION COMMISSION OF TEXAS, AND TEXAS BANKERS ASSOCIATION v. VALERIE NORWOOD, ELISE SHOWS,MARYANN ROBLES-VALDEZ, BOBBY
MARTIN, PAMELA COOPER, AND CARLOS RIVAS, RESPONDENTS.
Today's opinion, which supplements the 2013 opinion and denies rehearing, can be downloaded here.