In the Court of Appeals for the Fifth Judicial District of Texas Dallas, Texas

Transcription

1 No CV ACCEPTED 225EFJ FIFTH COURT OF APPEALS DALLAS, TEXAS 12 February 27 P4:36 Lisa Matz CLERK In the Court of Appeals for the Fifth Judicial District of Texas Dallas, Texas LISLE D. PATTON and BARRETT DAFFIN FRAPPIER TURNER & ENGEL, LLP, f/k/a BARRETT BURKE WILSON CASTLE DAFFIN & FRAPPIER, LLP, Appellants, v. COLLIN D. PORTERFIELD, Appellee. AMICUS BRIEF OF INDEPENDENT BANKERS ASSOCIATION OF TEXAS, TEXAS BANKERS ASSOCIATION AND TEXAS MORTGAGE BANKERS ASSOCIATION ON APPEAL FROM CAUSE NO. CC A IN THE COUNTY COURT AT LAW NO. 1 OF DALLAS COUNTY, TEXAS COX SMITH MATTHEWS INCORPORATED Karen M. Neeley State Bar No Congress Avenue, Suite 2800 Austin, Texas Telephone: (512) Facsimile: (512)

2 CERTIFICATE OF INTERESTED PARTIES Defendants in the trial court and Appellants herein: Lisle D. Patton Barrett Daffin Frappier Turner & Engel, LLP Attorneys for Defendants (Appellants) in the trial court: Robert F. Maris State Bar No Robert S. Alcorn State Bar No Matthew W. Lindsey State Bar No MARIS & LANIER, P.C Rawlins Street, Suite 1550 Dallas, Texas telephone facsimile Attorneys for Defendants (Appellants) on appeal: Robert F. Maris State Bar No Matthew W. Lindsey State Bar No MARIS & LANIER, P.C Rawlins Street, Suite 1550 Dallas, Texas telephone facsimile Plaintiff in the trial court and Appellee herein: Collin D. Porterfield ii

3 Attorney for Plaintiff (Appellee) in the trial court: Collin D. Porterfield, pro se State Bar No McKinnon Street, Suite 2110 Dallas, Texas telephone facsimile Attorney for Plaintiff (Appellee) on appeal: Collin D. Porterfield, pro se State Bar No McKinnon Street, Suite 2110 Dallas, Texas telephone facsimile iii

4 TABLE OF CONTENTS Page(s) CERTIFICATE OF INTERESTED PARTIES... ii TABLE OF CONTENTS... iv INDEX OF AUTHORITIES... v IDENTITY OF INTEREST AND PAYMENT... vi BACKGROUND... 1 STATEMENT OF FACTS... 3 ARGUMENT AND AUTHORITIES... 4 I. Home Equity Lending Practices in Texas... 4 II. Application of Excess Proceeds to Junior Home-Equity Lien... 5 III. Proceeds of Sale Are Homestead... 6 CONCLUSION AND PRAYER... 6 CERTIFICATE OF SERVICE... 8 iv

5 INDEX OF AUTHORITIES Cases Page(s) Mays v. Bank One, N.A., 150 S.W.3d 897 (Tex. App. Dallas 2004, no pet.)... 5, 6 Nat l W. Life Ins. Co. v. Acreman, 425 S.W.2d 815 (Tex. 1968)... 5 Statutes TEX. FIN. CODE ANN (Vernon Supp. 2011)... 2 TEX. FIN. CODE ANN (Vernon Supp. 2011)... 2 TEX. PROP. CODE ANN (c) (Vernon 2000)... 6 TEX. PROP. CODE ANN (Vernon 2007)... 5 Rules TEX. R. APP. P vi TEX. R. CIV. P TEX. R. CIV. P Constitutional Provisions TEX. CONST., Article XVI, 50(a)(6)... 2 TEX. CONST., Article XVI, 50(a)(6)(D)... 5 TEX. CONST., Article XVI, 50(u)... 2 TEX. CONST., Article XVI, 50(a)(6)(H)... 6 Other John C. Dugan, Comptroller of the Currency, Before the Housing Policy Council of the Financial Services Roundtable (May 22, 2008)... 4 v

6 IDENTITY OF INTEREST AND PAYMENT Pursuant to TEX. R. APP. P. 11, the following brief is presented on behalf of the Independent Bankers Association of Texas ( IBAT ), the Texas Bankers Association ( TBA ) and the Texas Mortgage Bankers Association ( TMBA ). IBAT, TBA, and TMBA are each trade associations representing, collectively, virtually all of the commercial and savings banks in the state of Texas making home equity loans as well as the mortgage bankers engaging in such activity. It is vital to the members of each association that there be reasonable and fair rules relating to the collection of home equity loans. Accordingly, the members of the associations are significantly interested in the outcome of this case. The source of any fee paid for the preparation of this brief is IBAT, TBA, and TMBA, collectively. Copies of this brief have been served on all attorneys of record as reflected in the Certificate of Service. vi

7 No CV In the Court of Appeals for the Fifth Judicial District of Texas Dallas, Texas LISLE D. PATTON and BARRETT DAFFIN FRAPPIER TURNER & ENGEL, LLP, f/k/a BARRETT BURKE WILSON CASTLE DAFFIN & FRAPPIER, LLP, Appellants, v. COLLIN D. PORTERFIELD, Appellee. AMICUS BRIEF OF INDEPENDENT BANKERS ASSOCIATION OF TEXAS, TEXAS BANKERS ASSOCIATION AND TEXAS MORTGAGE BANKERS ASSOCIATION TO THE HONORABLE COURT OF APPEALS: Now come Independent Bankers Association of Texas, Texas Bankers Association, and Texas Mortgage Bankers Association, and present this brief of amici curiae in support of the position of the above-named appellants. BACKGROUND Until January 1998, Texas consumers were not permitted to access the equity in their homesteads by obtaining a home-equity loan from a lender. At that time, home- AMICUS BRIEF PAGE 1

8 equity lending was authorized by an amendment that added Article XVI, section 50(a)(6) to the Texas Constitution. This provision sets out over twenty criteria for a home-equity loan, including the requirement that such loans be without personal liability or recourse to the makers, the home owners. Further, the liens securing such loans may only be foreclosed upon by first filing a motion with the appropriate court and obtaining an order permitting the non-judicial foreclosure to proceed. This procedure is described in Texas Rules of Civil Procedure, as recently amended. See TEX. R. CIV. P. 735, 736. The complexity of the requirements for home-equity lending was tacitly acknowledged by amendments to the constitution in 2003, which added Article XVI, section 50(u), authorizing the Legislature to identify appropriate agencies to promulgate interpretations to clarify the provisions relating to home-equity loans. The Legislature delegated that authority to the Finance Commission and the Credit Union Commission (the Commissions ). TEX. FIN. CODE ANN , (Vernon Supp. 2011). The Commissions issued interpretations, which were promulgated in accordance with the Texas Administrative Procedures Act. The interpretations guiding the members of Amici are found at 7 TAC part 153. Furthermore, home-equity loans are subject to the myriad requirements already existing in state and federal law relating to residential mortgage lending. In addition, the existing framework of requirements relating to homestead, as laid out in the Texas Property Code and interpreted by decades of Texas courts, is layered over not fully replaced by the constitutional requirements. AMICUS BRIEF PAGE 2

9 STATEMENT OF FACTS Based on a review of the filings, Amici believe the facts of this case to be as follows. Porterfield acquired title to a home located at 3336 Hanover Street, University Park (the Property ) on March 13, This acquisition was financed through a purchase money loan from GreenPoint Mortgage Funding, Inc., secured by a first lien on the Property. Two years later, Porterfield borrowed $261,655 from Centex Home Equity Company, LLC and secured that loan with a second lien security interest in the Property. Less than three years after that, the first lien holder foreclosed its lien and sold the Property for a sum significantly greater than the payoff of the first lien. The trustee distributed the proceeds of the sale allegedly in accordance with the provisions of the first lien deed of trust by first paying all expenses of the sale, then the sums secured by the first lien, and then the excess proceeds to the junior home-equity lienholder. Porterfield sued Appellants, claiming that the excess proceeds should not have been paid over to the home-equity lienholder but rather should have been remitted to him. Since the home-equity loan was without personal liability to Porterfield, this would mean that the foreclosure sale would discharge the junior lien, leaving the home-equity lender with no collateral and no one responsible for the debt. Porterfield apparently persuaded the trial court that over a century of Texas law was extinguished as to home-equity liens by the provision in the constitution that requires a court order before the non-judicial foreclosure of a home-equity lien. Thus, a junior home-equity lien could never be satisfied by the excess proceeds of a foreclosure sale of a first lien, under this theory. AMICUS BRIEF PAGE 3

10 ARGUMENT AND AUTHORITIES I. Home Equity Lending Practices in Texas. Home-equity loans very often are second liens against the homestead, junior to the purchase money lien or improvements represented by a mechanics lien. To avoid this junior position, the lender would have to refinance the prior loan and advance the requested cash as part of the home-equity transaction. However, the numerous requirements for a valid home-equity loan create a significantly riskier transaction for a lender. To the bank, the desire for a first lien position is balanced against the higher risk of the larger balance. As noted earlier, this loan is without personal liability. Therefore, the lender may look only to the collateral for collection. But an uncured violation of any one of the numerous criteria for such a home-equity lien voids that lien and eliminates the collateral, leaving the lender with a significant exposure and no way to recover. Thus, a smaller second loan may present less of an underwriting risk to the creditor. From the perspective of the borrower, a traditional purchase money, first-lien transaction typically has the lowest interest cost of any transaction. Thus, a home equity cash-out refinance, while reducing exposure for the creditor, also typically increases the cost of borrowing to the homeowner. In short, both the lender and the borrower may find a second lien home-equity loan to be more attractive than a first lien cash-out. Even with the greater risk in a second lien transaction, the interest rate on such loans is still typically more attractive than other forms of consumer lending. See John C. Dugan, Comptroller of the Currency, Before the Housing Policy Council of the Financial Services Roundtable (May 22, 2008). AMICUS BRIEF PAGE 4

11 II. Application of Excess Proceeds to Junior Home-Equity Lien. Apparently, Porterfield has argued that the well-established Texas law regarding application of excess proceeds to junior liens is not applicable to junior liens if they are the result of a home equity loan. Although this novel contortion of Texas law has not been reached by any other appellate courts, this very Court faced a comparable dilemma in Mays v. Bank One, N.A., 150 S.W.3d 897 (Tex. App. Dallas 2004, no pet.). In that case, property was foreclosed by a first lien holder with excess proceeds paid over to Bank One as junior lienholder. The property owner argued that he was entitled to a determination by the trial court of the fair market value of the property pursuant to Texas Property Code section However, that provision of state law grants such a right only as to liens or encumbrances that are not extinguished by the foreclosure. TEX. PROP. CODE ANN (Vernon 2007). Since the Bank One lien, a junior lien, was extinguished, this Court concluded that the right to a determination of value was not applicable. This Court stated: We recognize the well-established rule that following the valid foreclosure of a senior lien, junior liens, if not satisfied from the proceeds of sale, are extinguished. Mays, 150 S.W.3d at 900 (citing Nat l W. Life Ins. Co. v. Acreman, 425 S.W.2d 815, 817 (Tex. 1968)). In the current scenario, the applicable law simply provides that, to be valid, a home-equity lien must be secured by a lien that may be foreclosed upon only by a court order. TEX. CONST. art. XVI, 50(a)(6)(D). The junior lienholders were not attempting to foreclose the lien, which indeed would require a court order. Rather, they were paid out of excess proceeds resulting from foreclosure of an entirely different lien. Like Bank AMICUS BRIEF PAGE 5

12 One in the Mays case, the home equity lender had no control over the foreclosure. Indeed, a junior lienholder has no rights under its deed of trust to prevent a senior lienholder from foreclosing and extinguishing the inferior lien. III. Proceeds of Sale Are Homestead. Porterfield also appears to argue that the proceeds from a sale of homestead lose their homestead nature. However, that is clearly contradicted by section (c) of the Texas Property Code: The homestead claimant s proceeds of a sale of a homestead are not subject to seizure for a creditor s claim for six months after the date of sale. TEX. PROP. CODE ANN (c) (Vernon 2000). In addition, the Texas Finance Commission has issued an official interpretation as to what constitutes security for the home equity loan which, under article XVI, section 50(a)(6)(H), may only be secured by the homestead itself and no other property. The rule, 7 TAC section 153.8, states that condemnation proceeds are homestead for purposes of that limitation. In short, the home equity lien transfers to the proceeds upon sale. Any other analysis would create a windfall for the debtor, who is not personally liable for the obligation. CONCLUSION AND PRAYER The Texas Constitution provides significant protections for a family s homestead. However, it also permits homeowners to use the equity in their homes for whatever purposes they may wish, provided that the loan contains numerous restrictions and protections designed to prevent careless or predatory transactions. Such protections do not, however, override over a century of law relating to foreclosure processes nor do they allow a borrower to both avoid personal liability and debar a legitimate creditor from AMICUS BRIEF PAGE 6

13 reaching the substitute for the collateral the proceeds. Such a result would be unjust and would create a severe impediment to future responsible home-equity lending in Texas. WHEREFORE, PREMISES CONSIDERED, Amici respectfully request that the trial court s judgment be reversed and rendered in favor of Appellants. Respectfully submitted, COX SMITH MATTHEWS INCORPORATED /s/karen M. Neeley Karen M. Neeley State Bar No Congress Avenue, Suite 2800 Austin, Texas Facsimile: (512) ATTORNEY FOR INDEPENDENT BANKERS ASSOCIATION OF TEXAS AMICUS BRIEF PAGE 7

14 CERTIFICATE OF SERVICE I hereby certify that a true, correct and complete copy of the foregoing document was served in accordance with Rule 9.5 of the Texas Rules of Appellate Procedure on the 27 th day of February, 2012 to: Robert F. Maris Matthew W. Lindsey MARIS & LANIER, P.C Rawlins Street, Suite 1550 Dallas, Texas Collin D. Porterfield, pro se State Bar No McKinnon Street, Suite 2110 Dallas, Texas Mike W. Baggett Michael K. O Neal WINSTEAD, P.C Renaissance Tower 1201 Elm Street Dallas, Texas Linda J. Burgess Alex S. Valdes WINSTEAD, P.C. 401 Congress Avenue, Suite 2100 Austin, Texas /s/karen M. Neeley Karen M. Neeley AMICUS BRIEF PAGE 8