Supreme Court of Texas Blog: Legal Issues Before the Texas Supreme Court

No. 15-0437
TAMES

TERESA GAROFOLO v. OCWEN LOAN SERVICING, L.L.C.

Oral argument was held on September 23, 2015. The Court issued an opinion resolving the case on May 20, 2016. It then denied rehearing on September 23, 2016 File Closed

In the news...

Tracking 1 article about this case.

June 10, 2015

Texas home equity issue certified to SCOTX

from 600 Camp

The Court has issued opinions:

Opinions

May 20, 2016

Brown
Hecht
Green
Willett
Guzman
Lehrmann
Devine

Justice Brown delivered the opinion of the Court, in which Chief Justice Hecht, Justice Green, Justice Willett, Justice Guzman, Justice Lehrmann, and Justice Devine joined. PDF

Boyd
Johnson

Justice Boyd delivered a dissenting opinion, in which Justice Johnson joined.View Electronic Briefs | Oral Argument | Video PDF

 

Court of Appeals

None

Trial Court

None

Docket Entries

Date Event Outcome  
2016-09-26 Case Stored  
2016-09-23 Motion for Rehearing - Disposed Denied
  This case was waiting for a decision about a pending motion for rehearing between June 6, 2016 and September 23, 2016.  
2016-06-06 Case forwarded to Court
2016-06-06 Motion for Rehearing  
2016-05-20 Opinion issued   Certified question answered by the Court
2016-05-20 Dissenting opinion issued.   Issued
  This case was awaiting the Court's decision after oral argument between November 2, 2015 and May 20, 2016.  
2015-11-02 Amicus Curiae Brief received (Amicus Curiae)  
2015-09-23 Oral argument  
2015-08-25 Appellant's Brief filed (Appellant in case)  
2015-08-13 Oral Argument Submission Form from Attorney received  
2015-08-13 Oral Argument Submission Form from Attorney received  
2015-08-10 Appellees' Brief filed (Appellee in case)  
2015-07-20 Appellant's Brief filed (Appellant in case)  
2015-07-10 Case set for oral argument   Case set for oral argument
2015-06-19 Brief on the Merits Requested  
2015-06-19 Certified Question accepted
2015-06-19 Certified Question disposed   Certified Question accepted
2015-06-18 Notice of Appearance  
2015-06-11 Document received (See Remarks)  
2015-06-10 Case Record Filed  
2015-06-10 Letter Filed  
2015-06-10 Notice requesting filing fee
2015-06-09 Certified Question filed  

Parties

Party Counsel Role
Ocwen Loan Servicing, L.L.C.
Ms. Kari Lynn Robinson
Sahar Shirazi
Mr. William Scott Hastings
Mr. Robert T. Mowrey
Mr. Daron L. Janis
Mr. Benjamin David Lee Foster
Appellee
Garofolo, Teresa
Mr. Scott R. Kidd
Appellant

Amicus Curiae

Amicus Curiae Counsel
Independent Bankers Association fo Texas
Ms. Karen Sue Neeley
Mr. B. Scott Daugherty
Mr. John C. Fleming
 

When does a home-equity lender forfeit all of the principal and interest under the note?

home equity

The Fifth Circuit has certified another question to the Texas Supreme Court about the meaning of Texas's constitutional provision relating to home-equity lending.

Here, the homeowner made all their payments, completing their obligations under the note. But — perhaps contrary to a contractual provision and this portion of the Texas Constitution — the holder of the note did not send the homeowner the cancelled promissory note or a release of the lien. When this remained uncured, the homeowner filed suit for a violation of Article XVI, § 50(a)(6)(Q)(vii) the Texas Constitution and for breach of contract. The remedy she sought was "forfeiture of all principal and interest paid pursuant to the note."

As the Fifth Circuit explained, the district court had dismissed the constitutional claim on the ground that the Constitution merely required the term be included in the contract, but that violating it was not of constitutional dimension:

[The holder of the note] Ocwen contended that the Texas Constitution is satisfied by merely including such a requirement in the terms of the Security Instrument. Because the Security Instrument here included that requirement, Ocwen asserted that [the homeowner] Garofolo did not suffer a constitutional injury. Ocwen’s motion to dismiss also argued that Garofolo did not allege actual damages, a predicate to recovering money damages for breach of contract. The district court agreed with both arguments.

There appears to be little dispute that the lender's conduct here violated the contractual terms. The question is whether any remedy exists. The lender has argued both that the Constitution merely requires the term by included in a contract and that Texas contract law would require a party to prove up actual damages before obtaining the remedy of forfeiture. The Fifth Circuit recognized that the combination would "render the requirement a virtual nullity except in the (hopefully rare) circumstance where a lender unscrupulously attempts to enforce a paid note resulting in recoverable damages." Nonetheless, it saw the remedy sought by the homeowner as a "drastic remedy."

The Fifth Circuit has certified both claims to the Texas Supreme Court:

  1. Does a lender or holder violate Article XVI, Section 50(a)(6)(Q)(vii) of the Texas Constitution, becoming liable for forfeiture of principal and interest, when the loan agreement incorporates the protections of Section 50(a)(6)(Q)(vii), but the lender or holder fails to return the cancelled note and release of lien upon full payment of the note and within 60 days after the borrower informs the lender or holder of the failure to comply?

  2. If the answer to Question 1 is “no,” then, in the absence of actual damages, does a lender or holder become liable for forfeiture of principal and interest under a breach of contract theory when the loan agreement incorporates the protections of Section 50(a)(6)(Q)(vii), but the lender or holder, although filing a release of lien in the deed records, fails to return the cancelled note and release of lien upon full payment of the note and within 60 days after the borrower informs the lender or holder of the failure to comply?

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