home equity loans
Texas Constitutional Home Equity Loan Protections R.I.P.
September 27, 2024 10:29
Today, the Texas Supreme Court denied review of my clients' petition in Earley v. Nationstar, No. 13-22-00246-CV, 2024 WL 1202906 (Tex. App. - Corpus Christi March 21, 2024). The home equity lender in that case refused to correct a serious defect in a Texas home equity loan. The Texas Constitution (Art. XVI, § 50(a)(6)) says that failure to cure following 60 days' notice from the borrower of the defect results in forfeiture of all principal and interest of the loan. However, federal and state courts have held that if a borrower doesn't bring that claim within 4 years after the loan is made, the forfeiture remedy effectively expires — the lender faces no real consequence. My clients, the Earleys, learned of the defect with their loan 10 years after they got it, when other lenders refused to refinance the loan. The trial and appeals courts held that the remedy of forfeiture — the lender loses all principal and interest — had expired years earlier. And the lender was awarded its attorney's fees to boot.
Against this background, note that other cases have held that a borrower cannot even go into court unless they pay off the entirety of a home equity loan. That wasn't asserted in the Earley case, so they proceeded to final judgment where other courts have booted borrowers from court at the outset.
Also, the courts have also held that a home equity lender always has a shadow lien (a so-called "equitable subrogation" lien) if the home equity loan paid off a prior loan, meaning even an invalid home equity loan still leaves a valid lien for a lender to seek to collect or foreclose.
The Earley case represents the first time the Texas Supreme Court has had a clear opportunity to allow the Texas Constitutional remedy of forfeiture to last throughout the life of the loan. But it declined to take up the case.
I suspect this is a harbinger of things to come. I see no real path for borrowers with grievously-defective home equity loans to get meaningful relief in the courts. During the first four years of a loan, few if any borrowers have the means to pay off a home equity loan as the precondition to seeking forfeiture. So they're locked out of the courthouse. But if they manage years later to have the means to pay off the loan and get into court, the forfeiture remedy no longer exists, so a lender has no reason to cure the defective loan.
Section 50, R.I.P. Content may continue . . .
Against this background, note that other cases have held that a borrower cannot even go into court unless they pay off the entirety of a home equity loan. That wasn't asserted in the Earley case, so they proceeded to final judgment where other courts have booted borrowers from court at the outset.
Also, the courts have also held that a home equity lender always has a shadow lien (a so-called "equitable subrogation" lien) if the home equity loan paid off a prior loan, meaning even an invalid home equity loan still leaves a valid lien for a lender to seek to collect or foreclose.
The Earley case represents the first time the Texas Supreme Court has had a clear opportunity to allow the Texas Constitutional remedy of forfeiture to last throughout the life of the loan. But it declined to take up the case.
I suspect this is a harbinger of things to come. I see no real path for borrowers with grievously-defective home equity loans to get meaningful relief in the courts. During the first four years of a loan, few if any borrowers have the means to pay off a home equity loan as the precondition to seeking forfeiture. So they're locked out of the courthouse. But if they manage years later to have the means to pay off the loan and get into court, the forfeiture remedy no longer exists, so a lender has no reason to cure the defective loan.
Section 50, R.I.P. Content may continue . . .
No Recourse? A No-Brainer!
February 18, 2012 14:13
Since Texas home equity loans are "no-recourse," which means that a lender may not pursue a borrower for any deficiency following a foreclosure sale, why doesn't everyone who worries that defaulting on their home loan could threaten them at some point in the future go out and get a home equity loan? Borrowers acting in good faith would never be on the hook for a deficiency judgment if they default!Content may continue . . .