The Law Office of J. Patrick Sutton

Site Maintenance

I am in currently repairing links in the blogs. Please check back if you require specific documents.Content may continue . . .

Another mortgage invalidated on limitations grounds

In another case out of the Houston Court of Appeals (1st Dist.), a borrower has invalidated a mortgage lien. See Residential Credit Sols., Inc. v. Burg, No. 01-15-00067-CV, 2016 WL 3162205, at *1 (Tex. App. - Houston [1st Dist.] June 2, 2016). There are now two such cases out of that court that follow the same reasoning (Burg relies on Hardy v. Wells Fargo Bank, N.A., No. 01–12–00945–CV, 2014 WL 7473762 (Tex. App.—Houston [1st Dist.] 2014, no pet.).

The
Burg and Hardy cases are a different fact pattern from the Landers case in which my client recently prevailed.

That said, I do have a virtually identical case pending in the U.S. Court of Appeals for the 5th Circuit,
Justice v. Wells Fargo Bank, N.A., No. 15-20615. Just as in the two Houston cases, the lender reserved all its rights to foreclose while extending some variety of forbearance payment plan to the borrower (in the Justice case, actually, the plan was merely a recapitulation of various terms in the loan, such as the borrower's right to reinstate after acceleration). The lender, however, argues that acceleration was abandoned once it accepted partial payments, even though the lender was simultaneously reserving its right to foreclose at any time if anything less than full reinstatement was paid. In essence, then, the lender is arguing that limitations does continue to run unless allowing that would later turn out to harm the lender, in which case the lender's emphatic insistence that limitations always ran is ignored so that the borrower does not get the benefit of limitations!Content may continue . . .

Mortgage lien invalidated on statute of limitations grounds

Today, the Texas Supreme Court refused to disturb a decision by the Tyler Court of Appeals invalidating a mortgage lien. See Landers v. Nationstar Mortgage, LLC, 461 S.W.3d 923 (Tex. App. - Tyler 2015, pet. denied). This was a case I handled at all levels of trial and appeal. The Texas Supreme Court had requested full briefing on the merits, so all the arguments were before the high court. Ultimately, the rule of law prevailed over strong lender protests that applying the statute of limitations was unfair.

The lender and servicer, Nationstar Mortgage LLC, sued the Landers, a family in Athens, Texas, to foreclose. However, the lender's suit was filed more than four years after the lender accelerated the loan. The lender argued that an injunction in a prior lawsuit that had barred a nonjudicial foreclosure sale for a few weeks had also prevented the lender from filing a lawsuit to foreclose. The 3-judge panel of the Texas Court of Appeals in Tyler unanimously rejected that argument and declared the lien void. Nationstar asked the Texas Supreme Court to reverse the Tyler Court of Appeals, but the Texas Supreme Court declined that invitation.
Landers is now good law and stands as one of the very few modern cases in Texas voiding a mortgage lien on limitations grounds. Content may continue . . .

Foreclosure Statute of Limitations Cases Update

My clients have had recent wins and losses challenging foreclosures on the basis that the statute of limitations expired after the lender accelerated the loan. The Landers v. Nationstar case is being briefed in the Texas Supreme Court following the invalidation of the lender's lien by the Court of Appeals. The Texas Supreme Court has not yet decided whether to actually review the case; it simply asked the parties for briefs. Nationstar filed its brief on November 10, 2015; the Landers' brief goes in on November 13, 2015.

However, in a hotly-contested case,
Justice v. Wells Fargo Bank, a federal district court in Houston held that the lender's strong disclaimer of abandonment of acceleration was of no effect — the borrower's payments made under the penumbra of the bank's disclaimers still resulted in the bank's abandonment of acceleration. The case is now on appeal in the 5th Circuit U.S. Court of Appeals. No briefing schedule has been set as of this writing.
Content may continue . . .

Thoughts on foreclosure statute of limitations

Big win on statute of limitations barring foreclosure

My clients have prevailed in asserting the statute of limitations as a defense to a foreclosure, leaving the lender with only a claim for rescission (unwinding the loan transaction and refunding everything to my client) upon remand to the district court. This is one of the very few recent cases of this type where a Texas borrower has prevailed because a lender let more than 4 years pass after accelerating the loan. The case is Landers v. Nationstar Mortgage, LLC, No. 12-14-00261-CV (Tex. Ct. App.-Austin April 8, 2015). A copy of the decision is HERE. I expect it will get some good press because of the exceedingly clear appellate opinion and the result in favor of the borrowers. Content may continue . . .

Revisions to this Blog

In the interest of accuracy, I have revised and deleted prior blog entries that express a legal opinion that modifications of Texas mortgage loans that increase the principal balance of the loan are illegal. With the Texas Supreme Court's decision in Sims v. Carrington Mortgage Services on May 16, 2014, Texas law is now clear that lenders can capitalize past-due sums under the original loan back into the loan, over and over, without limitation. There is no requirement that an existing lender respect the 80% loan-to-value ratio when capitalizing past-due amounts back into the loan. In fact, a loan that met the 80% requirement at closing can be "restructured" a few months later to add the first several months' past-due interest and property taxes into the note, in effect allowing the borrower to borrow more than 80% of the value of the homestead.Content may continue . . .

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.
Content may continue . . .

Texas Supreme Court enforces Section 50 as written

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.
Content may continue . . .

The statute of limitations is tolled for class members

If you have a Texas home equity loan that JPMorgan Chase, Nationstar, or Bank of America modified to include interest-only payments or a balloon payment, you may already be protected by a pending class action. Your statute of limitations is the one for all class members, which relates back to the date the various class actions were filed. The class actions were filed in 2012 and 2013, protecting class members back to 2008 and 2009.

Don't assume your claim is too late if you fit within one of the class actions I have filed. Call me to discuss, and include your loan modification.Content may continue . . .

Nationstar Texas Class Actions Filed

On behalf of all affected Texans, my clients in Burnet and Dallas Counties have filed class actions against Nationstar Mortgage. The Burnet case is hair-raising: it alleges that Nationstar modified a Texas home mortgage loan (home equity loan, specifically) at least four times, more than doubling the principal amount of the original note and scheduling interest-only payments. The plaintiffs' monthly payment would QUADRUPLE at the end of the modifications, highlighting why the Texas Constitution forbids home equity loans from having interest-only payments.

The cases (click on the case to see the petitions are George et al. v. Nationstar Mortgage, LLC, Cause No. 41914 (Burnet County 424th District) and Graze v. Nationstar Mortgage, LLC, Cause No. DC-13-05406-H (Dallas County 160th Dist). These cases will be combined into the pending Nationstar MDL involving multiple additional cases of the same kind.

If you have a Nationstar loan that was modified, and Nationstar is threatening foreclosure, or badgering you to short-sell or give a deed-in-lieu-of-foreclosure, CONTACT ME IMMEDIATELY to protect your rights.Content may continue . . .

Texas Supreme Court to decide multiple Section 50 Issues

Days after the 5th Circuit U.S. Court of Appeals certified multiple questions to the Texas Supreme Court in my pending cases and class actions against major lenders, the Texas Supreme Court agreed to answer the questions. Just getting these questions resolved is a major victory for Texas borrowers, who have constantly been whip-sawed by the lenders. The lenders repeatedly offer modifications but later deny them when they learn (and admit) them to be illegal in Texas.Content may continue . . .

A blow against Nationstar's Loan Modification Practices in Texas

On August 16, 2013, the Texas Multidistrict Litigation Panel combined all my outstanding cases against Nationstar Mortgage (formerly Centex) in one court. Nationstar not only added very large sums to existing home equity loans with 2-page modifications, but concealed the practice by using interest-only and balloon-note clauses that hid how much was being added to the loans. Combining all the cases is a huge victory for the various plaintiffs around the state, since their payments usually jumped way up and put them in a bind -- making it difficult for them to afford the legal fees to fight Nationstar. Nationstar vigorously opposed consolidating the cases, hoping to keep the plaintiffs spread out and alone in the various counties. Now, as new cases get filed, all the cases will go into one court for uniform handling.

The MDL Order is here.Content may continue . . .

A nice little victory against JP Morgan Chase in the 5th Circuit in a mortgage case

I recently had a nice win in the 5th Circuit U.S. Court of Appeals against JP Morgan Chase Bank in a mortgage modification case. The federal district court's dismissal was reversed, and the case remanded to proceed to discovery. The opinion in Gloria Martin-Janson v. JP Morgan Chase Bank, N.A., is here.

My client was promised a modification for years and was repeatedly told not to make payments because a modification was imminent. At the last minute, Chase pulled the plug and said, basically, catch up all the missed payments or we foreclose. My client merely asked the district court to let her prove that Chase either had written up a modification or that it was possible to prove what the terms of the modification were. The district court dismissed, denying her the ability to prove her case. The 5th Circuit reversed so that my client can at least get discovery.

This case stands for the proposition that when a federal lawsuit alleges very specifically that a particular modification agreement exists in the lender's file or can be proven by evidence, the case should proceed and not be dismissed immediately after it's filed.Content may continue . . .

Texas Supreme Court enforces Texas Constitution homestead laws as written!

An important Texas Supreme Court decision came down last week that undoes pro-lender regulations that watered down Tex. Const. art. XVI sec. 50(a)(6). Content may continue . . .

Still trying to dislodge the Priester 5th Circuit statute of limitations decision

The Priesters have asked the U.S. Supreme Court to take up the Fifth Circuit decision in Priester v. JP Morgan Chase Bank, N.A., 12-40032, 2013 WL 539048 (5th Cir. Feb. 13, 2013). That decision imposed a 4-year statute of limitations on Texas home equity lawsuits. I have now filed a friend-of-the-court brief with the U.S. Supreme Court explaining all the reasons why Priester got it wrong, and that there cannot be a statute of limitations on claims under Tex. Const. art. XVI sec. 50(a)(6). The brief I submitted is here. In essence, the brief argues that illegalities in home equity loans that are fundamental and existential cannot be made legal by the passage of time. A bad Section 50 loan must either be cured or forfeited at any point during its long life. The Priesters had their closing in their living room, which is flatly illegal as explained last week by the Texas Supreme Court in the Norwood decision.Content may continue . . .

5th Cir. Doubtful Decision on Statute of Limitations in Section 50 Cases

In a highly questionable -- well, wrong IMHO-- decision, the 5th Circuit U.S. Court of Appeals has held that Section 50 has a four-year statute of limitations after closing. Priester v. JP Morgan Chase Bank, N.A., 12-40032, 2013 WL 539048 (5th Cir. Feb. 13, 2013). That means that a lien springs into existence after four years even if the loan is wildly noncompliant. For example, if it's an illegal 2d home equity loan on the same property, it will be valid after four years. If it has a balloon at the end of 30 years, that balloon becomes valid after four years. Etc. etc. I submitted an amicus brief to the 5th Cir. (though somewhat late) that I hope will be accepted. The brief is HERE.

There are already cases involving 2d home equity loans that are invalid and home equity loans that recite all sorts of illegal provisions, like personal recourse against the borrower and non-judicial foreclosure. Under the new 5th Circuit rule, all those clauses can be validated a few years into a 30-year home equity loan. The cure provisions of Section 50 thus become irrelevant four years into a home equity loan. One wonders why the people and the legislature of Texas bothered to put in a cure remedy if it was no good for most of the life of a loan.


Content may continue . . .

Judge in Chase class action dismisses claims

In a setback for the cause, a federal district court judge in Austin has dismissed our claims in the proposed JPMorgan Chase class action. That case has now gone up on appeal alongside the Sims v. Carrington Mortgage Services case from a federal court in Fort Worth. The judge for the Western District of Texas held, among other things, that interest-only schedules of payment are allowable. That runs directly counter to the express wording of the regulation that the judge cited but did not quote. I feel very strongly that the case was wrongly dismissed, and I am hopeful that the appeal will be successful.

At a minimum, Judge Sparks acknowledged that one of the plaintiff's balloon-note modifications was illegal, but the court then appeared to impose a new form of pre-suit notification on the plaintiff such that a Texas home equity borrower cannot bring a lawsuit to enforce Section 50 unless and until the borrower has given the lender advance notice of the suit and a right to cure. Section 50 itself contains no such pre-suit notice requirement, and several cases have held that a Section 50 lawsuit itself constitutes proper notice of the claim. Again, I don't agree with the decision, and I am hopeful the pre-suit notice requirement will also be reversed.

Hang in there, Texas home equity borrowers. It's still early in the game.Content may continue . . .

Nationstar and Centex Texas home equity loan modifications

If Nationstar or Centex modified your Texas home equity (or "cash out") loan to establish an interest-only period or a balloon, call me immediately! I've had a spate of calls involving Nationstar and Centex modifications that presumptively violate the Texas Constitution, and it would be wrongful for Nationstar to foreclose. Do not delay getting in touch with me to discuss your modified loan, but please obtain your loan modification paperwork and be prepared to provide that to me by fax (512) 355-4155 or email (jpatricksutton@jpatricksuttonlaw.com). I require a retainer (a deposit) to take these cases, but if your modification violates the Texas Constitution, Nationstar has no lien to foreclose. It's important that you act quickly to protect your Texas Constitutional rights.Content may continue . . .

Mortgage principal forgiveness law extended by Congress

As part of the recent fiscal cliff deal, the federal Mortgage Forgiveness Debt Relief Act has been extended another year, to Jan. 1, 2014. For purposes of the class actions my colleagues and I have filed relating to Texas home equity loans, that means that the big lenders still have a chance to help borrowers take advantage of principal forgiveness to the extent the law applies. In fact, it's an open question whether past-due interest and escrows that are illegally turned into loan principal even trigger a tax obligation, but if they do, the extension of the debt relief act is a boon to borrowers who get their loans cured. Content may continue . . .

U.S. Supreme Court Review of Pennington v. Wells Fargo sought

On December 20, 2012, the plaintiffs in Pennington v. Wells Fargo Bank timely filed a request that the U.S. Supreme Court hear their appeal. The petition is here. The issue is whether a lender can induce a Texas home equity borrower into a HAMP trial period plan of payments that don't pay all interest coming due, which certainly looks like a violation of Tex. Const. art. XVI sec. 50(a)(6)(L). The petitioners argue that the HAMP schedule creates a balloon if the lender denies the permanent modification and demands payment of the interest that builds up during the trial period even though the borrower is making the monthly coupon payment (typically, HAMP trial plans have coupons that the borrower gets).

It's always difficult to be granted U.S. Supreme Court review, but this is a special case that involves a federal program (HAMP) that, by definition, cannot work in Texas. Under Tex. Const. art. XVI sec. 50, esp. 50(e), lenders cannot (in my opinion) add arrears into the principal amount of any Texas home loan. Lenders can either add reasonable closing costs, in the case of purchase-money mortgages; or else make a home equity loan, with all the bells and whistles. However, brief, 2-page forms that add tens of thousands of dollars in past-due interest or property taxes to the home loan note are not allowed. That being the case, HAMP undermines the Texas Constitution. What was the point of HAMP if the state with about 10% of all the mortgages in the country can't take advantage of it?Content may continue . . .

Another tack by lenders to avoid Section 50 liability: pretend the modification never happened!

I've gotten a spate of phone calls from borrowers who entered into agreements to modify their Texas home equity loans but have recently been told by their lenders that either (1) the modification was never completed, or (2) the lender is simply canceling the modification. In every case, the borrower made payments under the modification agreement, and the lender accepted the payments. In some cases, the modification agreements were without doubt formally executed by both parties. I take this as a sign that the lenders are now trying to cut down the sizes of the classes in the cases we've brought by declaring that many modifications never happened. Good luck with that.Content may continue . . .

You call this principal forgiveness?

Under the 2012 settlement between the federal government and 49 states, on the one hand, and the major home loan servicers, on the other, the big servicers agreed to give principal reductions to borrowers. How do they do it? Well, in the case of one of the biggest servicers, I reviewed a loan file where the servicer took past-due interest and other charges totaling tens of thousands of dollars, added it back into the loan as NEW principal, then "forgave" that "principal." The servicer then stated it was reporting the principal forgiveness to the IRS on behalf of the borrower since the principal forgiveness amounts to income for the borrower! A redacted copy of that document is HERE. An important point to note in this example is that the lender had previously added past-due interest and other charges into the loan, so this new modification was piling additional increments onto principal on top of what had already been added previously.Content may continue . . .

A Sigh -- Hang in there, borrowers.

I am a solo practitioner who decided, when no other options presented themselves for my clients in foreclosure, to take on big banks on behalf of borrowers. Two recent losses in federal court -- Pennington v. Wells Fargo and Sims v. Carrington Mortgage Services -- are a reminder that seeking to un-do events from the 2007 mortgage meltdown faces enormous hurdles. Unprecedented events in the world at large combine with a lack of precedent in the legal arena to make it hard to fight lending practices that seem outrageous and unfair but find no clear prohibition in the law. Courts are being asked to hold banks accountable for actions done on a system-wide basis, the financial consequences of which could be colossal. The banks bring great resources to bear in fighting borrowers and solo lawyers. While I am hopeful that the Carrington federal district court dismissal will be reversed, the reality is that modifications like the ones in that case (where loan principal was increased without formalities) are everywhere, systemic, and simply assumed by many to be valid if for no other reason than the fact that they were done. The banks argue, in essence, that their lending practices have to be allowed even if they violate the Texas Constitution since forbidding them would benefit undeserving borrowers who defaulted -- never mind that these practices benefitted the banks by keeping loans on devalued assets performing and generating cash at some baseline level that they otherwise would not have. At the same time, the banks argue that they must be free to offer the same sorts of deals to other borrowers in financial distress. Borrowers are either ungrateful freeloaders or the lucky future beneficiaries of bank beneficence, depending on what level of the inferno they occupy. From recordings, we now know that the banks have announced policies of not modifying any Texas home equity loans, in any way. That, too, is wrong on the law, and directly in conflict with the banks' position that the Texas Constitution Section 50 was written to give banks the freedom to do more or less as they wish. It puts me in mind of Lance Armstrong and the overwhelming evidence that has come out against him. At what point do the wealthy and powerful finally give in and admit they were wrong? Content may continue . . .

Pennington: onward and upward

The 5th Circuit U.S. Court of Appeals has upheld the Austin federal district court's dismissal of Pennington v. HSBC Bank and Wells Fargo Bank. Any further appeal must now go to the U.S. Supreme Court. Pennington involves HAMP-program participants who never got finalized loan modifications from Wells Fargo Bank. The 5th Circuit did not examine the Tex. Const. Section 50 claim apart from a footnote. I continue to believe that HAMP form trial plans and permanent modifications are incompatible with Section 50. Any time a borrower gets a schedule of payments that do not pay all accrued interest each month, that seems to run afoul of Section 50, which requires that home equity loans be paid down every month. It will be interesting to see if Plaintiffs seek Supreme Court review.Content may continue . . .

Home Equity Modifications that are interest-only

I've recently been seeing modifications of Texas home equity loans that recite an interest-only schedule of payments, usually for 1-5 years. The Texas Constitution, at Article 16 Section 50(a)(6)(L), in my view, makes such modifications illegal. That law provides that a Texas home equity loan must be paid in substantially equal installments that pay all accrued interest as of each payment date. The accompanying interpretive regulations make clear that some principal must also be paid, or else the loan isn't amortizing -- i.e., principal isn't getting paid down. If a modification of a Texas home equity loan recites a schedule of payments without principal -- even for a month -- it isn't amortizing, and the borrower has a strong legal case that the lien is invalid. Content may continue . . .

Pennington v. Wells Fargo goes to the U.S. Court of Appeals

The Pennington v. Wells Fargo proposed class action claims that a lender can't lower a Texas home equity borrower's monthly payments without forgiving the arrears that build up, since doing so creates a pool of unpaid interest that can't be added back into the loan (which is what happened in the other class actions I have filed, where the borrowers indisputably got "modifications" that increased the Texas home equity loan principal). In Pennington, the plaintiffs got temporary payment plans (HAMP program agreements), but the Plaintiffs assert that when Wells Fargo finally figured out that the interest arrears caused by the HAMP payment plans couldn't legally be added back into the loan without a Texas Const. Art. XVI Section 50(a)(6) refinance, Wells Fargo didn't forgive the arrears it had created with the reduced payments, as it should have done: it just cut the plaintiffs off from a permanent modification and demanded they catch up immediately. Thus, having drawn the plaintiffs into arrears that could never have been added back into the loan because of the way Section 50 works, Wells Fargo set the plaintiffs up for foreclosure, Plaintiffs allege.

Oral argument is scheduled in New Orleans with the Fifth Circuit U.S. Court of Appeals on September 5, 2012.

Content may continue . . .

JPMorgan Chase (Chase Home Finance) and Bank of America Proposed Class Actions

I have filed class actions on behalf of Texas home equity borrowers against both JPMorgan Chase Bank, N.A., successor to Chase Home Finance, and also Bank of America, N.A..

These class actions are identical to the Nationstar class action. They involve the claim that JPMC changed Texas home equity loans into interest-only and balloon-note loans, which the Texas Constitution forbids.

The Chase complaint as filed in the U.S. District Court for the Western District of Texas is here.

The Bank of America complaint as filed in the U.S. District Court for the Southern District of Texas is here.Content may continue . . .

Judicial Foreclosure of Illegally-Modified Home Equity Loans

If you have a Texas home equity loan that was illegally modified to include interest-only payments or a balloon, CONTACT ME IMMEDIATELY TO DISCUSS IT.Content may continue . . .

About the Pennington v. Wells Fargo Class Action

My Pennington v. Wells Fargo class action in federal court in Austin, Texas, concerns MODIFICATIONS TO TEXAS HOME EQUITY LOANS that MAY VIOLATE THE TEXAS CONSTITUTION in the following ways:
  • past due interest was included in a new principal amount
  • the modified loan exceeded 80% of the fair market value of the home.
Contact me IMMEDIATELY if you have such a situation, even if it's not with Wells Fargo.
Content may continue . . .
The Law Office of J. Patrick Sutton