Billings v. Propel Financial Services, L.L.C.
821 F.3d 608
| 5th Cir. | 2016Background
- Plaintiffs are Texas homeowners who authorized private entities to pay delinquent property taxes under Tex. Tax Code § 32.06; lenders received the tax lien and plaintiffs executed promissory notes payable to the lenders.
- Texas law preserves the tax lien’s priority after transfer, subrogates the transferee to the taxing unit’s rights, requires disclosures, and limits fees/interest for transferees.
- Plaintiffs sued lenders alleging violations of the Truth in Lending Act (TILA) and HOEPA, arguing the transactions were consumer credit subject to statutory disclosure and protections.
- Defendants moved to dismiss under Fed. R. Civ. P. 12(b)(6), contending tax-lien transfers are not extensions of “credit” because tax obligations are not “debt” under TILA’s definition.
- District courts split: one dismissed (holding TILA inapplicable); three denied dismissal and certified interlocutory appeals. The Fifth Circuit consolidated appeals.
- The Fifth Circuit concluded the transfers did not create new debts but merely shifted preexisting tax claims to transferees; thus TILA/HOEPA do not apply and dismissal is affirmed/reversed as appropriate.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a § 32.06 tax-lien transfer + promissory note is “consumer credit” under TILA | Transfers are third-party financing of tax obligations; the resulting promissory notes create consumer credit subject to TILA/HOEPA | Transfers merely move an existing tax obligation to a new holder; tax obligations aren’t “debt” under TILA so no credit was extended | Transfer of a tax lien is not an extension of “credit” under TILA; TILA/HOEPA do not apply |
| Whether the lender’s payment extinguishes the tax claim and creates a new debt | The promissory note replaces the tax claim with a new debt owed to the lender | The transferee is subrogated to the tax claim; payment does not extinguish the underlying tax claim | Payment and lien transfer preserve the tax claim; the nature of the obligation remains a tax claim, not new debt |
| Applicability of Regulation Z staff commentary (third-party financing) | Commentary supports treating these transactions as credit when a third party finances tax obligations | Commentary distinguishes an independent loan to pay taxes from a direct transfer of the tax lien to the lender | Commentary does not control here; factual structure is a lien transfer, not an independent third‑party loan |
| Precedential effect of In re Kizzee-Jordan on TILA question | Plaintiffs: Kizzee-Jordan was bankruptcy-focused and unlike TILA analysis | Defendants: Kizzee-Jordan held transferee holds the tax claim after payment, so no new debt arises | Kizzee-Jordan governs: transferee holds the preexisting tax claim, foreclosing TILA coverage |
Key Cases Cited
- In re Kizzee-Jordan, 626 F.3d 239 (5th Cir. 2010) (held transferee of Texas tax lien is subrogated to and holds the preexisting tax claim; payment does not extinguish the tax claim)
- Pollice v. Nat’l Tax Funding, L.P., 225 F.3d 379 (3d Cir. 2000) (held transferred tax liens are not consumer credit under TILA; distinguished independent loans used to pay taxes)
- Tower v. Moss, 625 F.2d 1161 (5th Cir. 1980) (discusses TILA’s scope and definitions relevant to consumer-credit analysis)
- True v. Robles, 571 F.3d 412 (5th Cir. 2009) (standard of review for Rule 12(b)(6) motions used on appeal)