Garofolo v. Ocwen Loan Servicing, L.L.C.
497 S.W.3d 474
| Tex. | 2016Background
- In 2010 Teresa Garofolo obtained a home-equity loan; she paid it off in full in April 2014 but did not receive a recordable release of lien as her loan required.
- Ocwen (holder) recorded a release in county records but did not deliver the recordable release of lien to Garofolo; she notified Ocwen and waited 60 days without receiving it.
- Garofolo sued in federal court alleging (1) a Texas constitutional violation under Tex. Const. art. XVI, § 50(a)(6)(Q)(vii) and (2) breach of contract; she sought forfeiture of all principal and interest paid.
- The Fifth Circuit certified two questions to the Texas Supreme Court: (1) whether failing to deliver the release of lien after notice triggers constitutional forfeiture; (2) if not, whether contractual forfeiture is available under breach-of-contract without actual damages.
- The Texas Supreme Court held (1) no constitutional cause of action or remedy arises from a lender’s post-origination breach of loan terms; section 50’s terms determine foreclosure eligibility at origination only; and (2) contractual forfeiture is available only if one of the six constitutionally enumerated corrective measures would actually correct the borrower’s complaint and the lender fails to perform it after notice — here, forfeiture was unavailable because none of the corrective measures (including the catch-all refinance/$1,000 in §50(x)(f)) would actually correct the failure to deliver a release of lien.
Issues
| Issue | Plaintiff's Argument (Garofolo) | Defendant's Argument (Ocwen) | Held |
|---|---|---|---|
| 1. Does failure to deliver a release of lien after payoff and notice violate §50(a)(6)(Q)(vii) and trigger constitutional forfeiture under §50(x)? | Failure to deliver the release (a constitutionally required term) is a constitutional violation entitling forfeiture. | §50 protects only the homestead from foreclosure; the constitutional terms define foreclosure eligibility at origination, not post‑origination breaches. | No. Section 50 governs whether a loan may be foreclosed (measured at origination); it does not create a standalone constitutional cause of action or remedy for post‑origination breaches. |
| 2. If no constitutional remedy, does contractual forfeiture (incorporating §50(x)) apply without actual damages when none of the corrective measures would directly fix the deficiency? | The loan’s incorporated forfeiture clause (and §50(x)(f) catch‑all) allows contractual forfeiture upon notice and 60‑day failure to "correct," even if the corrective measures don’t literally produce the release. | Forfeiture is available only if a listed corrective measure would actually correct the borrower’s specific failure to comply; here none would, so forfeiture is unavailable and plaintiff must show actual damages or pursue other remedies. | No. Contractual forfeiture (as incorporated) applies only where a listed corrective measure could actually correct the lender’s failure and the lender fails to timely perform it; because none of §50(x)(a)-(f) would actually remedy the missing recordable release after payoff, forfeiture is unavailable and plaintiff must show actual damages or seek specific performance. |
Key Cases Cited
- Stringer v. Cendant Mortg. Corp., 23 S.W.3d 353 (Tex. 2000) (interpretation of §50 provisions and distinction between substantive loan terms and mandatory notice provisions)
- Fin. Comm’n of Tex. v. Norwood, 418 S.W.3d 566 (Tex. 2013) (history of homestead protection and characterization of forfeiture remedy)
- Sims v. Carrington Mortg. Servs., L.L.C., 440 S.W.3d 10 (Tex. 2014) (compliance with §50 measured at origination)
- Doody v. Ameriquest Mortg. Co., 49 S.W.3d 342 (Tex. 2001) (construing related constitutional provisions together)