Summary
The Supreme Court of Texas answered a certified question concerning whether a lender's homestead lien becomes invalid when closing costs initially exceed the Texas Constitution's three-percent limit but are later refunded. The court held that the constitutional cure provision applies to the lender's obligations under the home-equity loan provisions and can validate the lien after a timely cure. The court declined to reach the second certified question regarding waiver and did not consider a separate question concerning hazard-insurance premiums.
Topics
Practice areas
Questions Presented
- Whether a lender's lien is invalid under article XVI, section 50(c) of the Texas Constitution when the lender initially charges closing costs exceeding the three-percent limit in section 50(a)(6)(E) but later refunds the excess within a reasonable time.
- Whether the protections of article XVI, section 50 may be waived by a borrower who accepts a refund when the loan contract provides that acceptance waives section 50 claims.
- Whether premiums for casualty insurance on the homestead constitute fees subject to the three-percent limitation in section 50(a)(6)(E).
Holdings
- Under the Texas Constitution, a lender's refund of closing costs exceeding three percent, when made within a reasonable time and bringing the costs within section 50(a)(6)(E)'s limit, cures the violation and validates the lien under section 50(c).
- The court did not reach the question whether section 50 protections may be waived by accepting a refund because the answer to the first certified question resolved the case.
- The court declined to answer the additional question whether casualty-insurance premiums are fees subject to the three-percent limitation because the Fifth Circuit had not certified that question.
Key quotations
“We hold that section 50(a)(6)(Q)(x) operates as authority to cure not only the particular lender obligation at issue under section 50(a)(6), but also to validate the lien.” (347)
“We conclude that under the Texas Constitution, if a lender charges closing costs in excess of three percent, but refunds the overcharge within a reasonable time, bringing the costs within the range allowed by section 50(a)(6)(E), that cure also validates the lien under section 50(c).” (347)
Factual background
Ameriquest made a $45,500 home-equity loan to James S. Doody and Paul V. Carrington in January 1998. It charged $2,006.88 in closing costs, exceeding three percent of the loan's principal amount. Approximately three months later, Ameriquest refunded the amount necessary to bring the closing costs within the constitutional limit, and Doody endorsed and cashed the check. Doody then sued, asserting that the original overcharge rendered the homestead lien invalid and required forfeiture of principal and interest.
Procedural history
Doody obtained a $45,500 home-equity loan from Ameriquest, and Ameriquest charged closing costs exceeding the constitutional three-percent cap. Ameriquest later refunded the excess, and Doody cashed the refund check before suing to invalidate the lien and obtain forfeiture of principal and interest. The federal district court dismissed the action as unripe; on appeal, the Fifth Circuit held that hazard-insurance premiums were not fees under the constitutional provision and certified two questions to the Supreme Court of Texas.