Home Equity Litigation in the Bankruptcy Court

(San Antonio, Texas). This was a fun few days in San Antonio attending the 25th Annual Robert C. Sneed, Texas Land Title Institute from December 3 and 4, 2015, at the Hyatt Regency Hill Country Resort & Spa in San Antonio, Texas. Over 500 attorneys and land title representatives attended the event to hear two days of speakers from across the State of Texas. Thanks goes to Roland Love with the Winstead, PC firm in Dallas who has organized this event for the past 15 years for the TLTA. It is great program to meet new professionals, old friends and to get your annual continuing legal education for the entire year.

I spoke on Developments on Home Equity Litigation in the Bankruptcy Court at the event. My paper brought forward all of the reported bankruptcy decisions involving home equity loans in the bankruptcy courts in Texas. More forfeitures have occurred of home equity liens in the bankruptcy court than in other courts with a reported six forfeiture decisions. That is quite small if you consider the number of home equity loans that are made during the year. I have found six forfeitures in the bankruptcy court. I know of two forfeitures in the probate court and one forfeiture in state court.

There are two reasons for higher number of forfeitures. One is that loans involved in those cases were clearly in violation of the law and could not be cured. For example one of the loans was not signed by the borrower; another involved a lender specifying where the proceeds should go; another loan was by an individual who was not authorized to make home equity loans in Texas; another loan was a second home equity loan (Texas only allows one home equity loan being made against the property at a time); and two loans were made against agricultural property. Texas law prohibits home equity loans on agricultural property except property used for the production of milk. These kinds of violations cannot be cured.

The second reason is that one bankruptcy court allows constitutional violations to be asserted more than four years after the closing based on section 16.069 of the Texas Civil Practices and Remedies Code. Intermediary state appellate courts and the Fifth Circuit Court of Appeals are in agreement that the four year residual statute of limitations applies to prevent constitutional violations from being asserted more than four years after the closing. The Dallas Court of Appeals in Santiago v. Novastar Mortg ., Inc., 443 S.W.3d 462, 470 (Tex.App.-Dallas 2014, pet. denied) ruled that section 16.069 did not apply to the defensive use of constitutional violations.

The Texas Supreme Court will answer whether constitutional violations can be asserted defensively more than four years after the closing when they hear the case of Wood v. HSBC Bank USA, N.A., 439 S.W.3d 585 (Tex.App.—Houston [14th Dist.] 2014, pet. filed). Oral arguments are set in the Wood case on December 8, 2015. I will keep you advised of what happens in that case.

In the meantime, here is my paper on home equity litigation in the Bankruptcy Court.