Gregory G. Graze and Cynthia A. Criddle v. Nationstar Mortgage, LLC
03-15-00329-CV
| Tex. App. | Jul 13, 2015Background
- Appellants challenge post-closing loan "modifications" by Nationstar that (1) capitalized past-due amounts into the note and (2) changed the repayment schedule to include multi-year interest-only periods followed by large payment spikes (balloons).
- Appellants concede the capitalization component is permitted under Sims when it does not constitute a new extension of credit, but they argue the accompanying change to the payment schedule violates the constitutional requirement that home-equity loans have "substantially equal" payments (Tex. Const. art. XVI, § 50(a)(6)(L)).
- Nationstar and the Fifth Circuit (in Hawkins) read Sims broadly to treat any post-closing transaction that does not advance new funds as exempt from Section 50(a)(6) requirements, effectively allowing volatile payments post-closing.
- Appellants contend Sims is narrow: it permits capitalization/restructuring of sums already due without requiring a new loan, but it did not approve modifications that alter substantive loan terms such as repayment structure or allow balloons/teaser periods.
- Appellants say lender notices about upcoming payment increases were not "cures" under Section 50(a)(6)(Q)(x) because borrowers had provided the statutorily required notice and Nationstar failed to perform the cure steps within 60 days.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held/Status |
|---|---|---|---|
| Does Sims permit post-closing changes to repayment terms (teaser interest-only periods and large balloons)? | Sims was limited to capitalization/restructuring of past-due sums; it does not authorize modifications that create volatile payment schedules. | Sims allows post-closing restructurings that do not advance new funds; therefore Section 50(a)(6) does not apply to such modifications. | Appellants: Sims is narrow; court should rule modifications that alter repayment terms remain subject to §50(a)(6)(L). (Appeal/decision pending) |
| Whether a modification that does not advance new money must comply with lifetime requirements of §50(a)(6) (e.g., "substantially equal" payments). | Lifetime substantive requirements (like substantially equal payments) cannot be waived after closing even if no new funds are advanced. | If a post-closing agreement is not a new extension of credit, §50(a)(6) requirements do not apply. | Appellants: court should treat §50(a)(6)(L) as enduring; not all post-closing non-advance agreements are exempt. (Appeal/decision pending) |
| Whether interest-only payments that cover current interest satisfy §50(a)(6)(L) and avoid being a balloon/repayment violation. | Paying current interest avoids negative amortization but does not "repay" principal and can still produce impermissible payment volatility and balloons. | Payment of all interest due each period complies with the independent requirement and thus is lawful. | Appellants: interest-only periods do not satisfy the repayment/substantially-equal requirements; they produce unacceptable volatility. (Appeal/decision pending) |
| Whether lender notices sent pre-notification by borrowers were adequate "cures" under §50(a)(6)(Q)(x) such that borrower claims are barred. | Letters announcing upcoming payment spikes were not statutory cures; borrowers provided proper notice and Nationstar failed to cure within 60 days. | Nationstar contends its prior communications constituted cures or otherwise addressed the issues. | Appellants: evidence shows no statutory cure occurred; foreclosure proceeded despite admissions that modifications violated §50(a)(6). (Appeal/decision pending) |
Key Cases Cited
- Sims v. Carrington Mortgage Servs., 440 S.W.3d 10 (Tex. 2014) (Texas Supreme Court: capitalization of past-due amounts into a home-equity loan is not necessarily a new extension of credit; the decision distinguished "restructuring/capitalization" from modifications that change loan terms.)