Sims v. Carrington Mortgage Services, L.L.C.
440 S.W.3d 10
| Tex. | 2014Background
- Sims obtained a 30-year home equity loan in 2003, secured by homestead.
- In 2009, Sims and lender CMS executed a modification capitalizing past-due amounts and lowering payments and interest, without satisfying or replacing the original note.
- In 2011, a second modification further reduced interest and payments, with all loan documents remaining in force.
- CMS sought foreclosure after Sims fell behind again; Sims sued alleging the restructurings violated Texas Constitution Article XVI, §50.
- The district court dismissed; the Fifth Circuit certified four questions to the Texas Supreme Court about modification vs. refinance and §50 requirements.
- Texas Supreme Court held that a restructuring that capitalizes past-due amounts and lowers payments, without satisfying/replacing the original note or advancing new funds, is not a new extension of credit and need not comply with §50.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is capitalization of past-due amounts a new extension of credit? | Sims: capitalization creates new funds and a new extension of credit. | CMS: no new extension if note isn’t satisfied/replaced and no new funds. | Not a new extension of credit; modification not subject to §50. |
| Does capitalization constitute an advance of additional funds under §50? | Sims: capitalization amounts are advances of funds to the borrower. | CMS: capitalization of existing obligations under original loan terms is not an advance. | No; not an advance of funds under §50. |
| Must restructuring comply with §50(a)(6) due to 80% LTV cap? | Sims: restructuring requires §50(a)(6) protections like 80% LTV. | CMS: since not a new extension of credit, §50(a)(6) does not apply. | No; §50(a)(6) does not apply when there is no new extension of credit. |
| Do repeated restructurings convert the loan into an open-end account (§50(t))? | Sims: repeated modifications resemble an open-end line of credit. | CMS: the loan remains a single transaction with modification, not an open-end account. | No; repeated modifications do not convert to an open-end account under §50(t). |
Key Cases Cited
- Fin. Comm’n of Tex. v. Norwood, 418 S.W.3d 566 (Tex. 2013) (texas homestead protections; agency interpretations aid constitutional compliance)
- LaSalle Bank Nat’l Ass’n v. White, 246 S.W.3d 616 (Tex. 2007) (per curiam on home equity loan regulation)
- Norwood, 418 S.W.3d 566 (Tex. 2013) (supremacy of constitutional text; agency interpretations under §50)
- 538 F. App’x 537, 538 F. App’x 537 (5th Cir. 2013) (circuit discussion of modification vs refinance under §50)