Teresa Garofolo v. Ocwen Loan Servicing, L.L.C.
15-0437
| Tex. App. | Aug 25, 2015Background
- Garofo lo appeals certified questions from the Fifth Circuit regarding Section 50(a)(6)(Q)(vii) of the Texas Constitution governing home equity loans.
- Ocwen Loan Servicing, LLC is alleged to have failed to cancel and return the fully paid promissory note and to release the lien as required by the constitutional provisions.
- Texas Finance Commission interprets Section 50(a)(6)(Q)(vii) as an ongoing obligation to cancel and return the note and provide a release on full payment.
- Plaintiff argues that failure to perform triggers forfeiture of all principal and interest under both the Constitution and the contract.
- Ocwen contends the obligation is only a contractual promise, not a constitutional requirement enforceable as forfeiture.
- The case analyzes the distinction between lien creation, lender obligations, and post-origination duties, including notice and cure provisions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does 50(a)(6)(Q)(vii) create a constitutional obligation to return the note on full payment? | Garofo lo asserts an ongoing constitutional duty to return the note and release the lien. | Ocwen argues the clause merely imposes a contractual promise, not a constitutional duty to return the note. | Yes; it creates an ongoing constitutional obligation to return the note and release the lien. |
| Are holders subject to lender obligations under 50(a)(6)? | Holders inherit the lender's duties to return the note and release the lien upon payment. | Ocwen contends only the original lender has obligations; a subsequent holder cannot be liable. | Holders are subject to the constitutional obligations via 50(a)(6)(x). |
| Do notice and cure provisions apply to cure noncompliance with return of the note? | Cure could include returning the note and providing a lien release; thirty days is reasonable per 7 TAC §153.24. | Ocwen argues cure does not apply or is ineffective here. | Yes; thirty days for cure and a $1,000 cure payment under §50(a)(6)(Q)(x)(f) are applicable. |
| Is there a breach of contract claim and entitlement to forfeiture without actual damages? | Garofolo seeks forfeiture as a contractual remedy for constitutional breach. | Ocwen argues damages are required or that forfeiture is inappropriate. | Forfeiture is available as a remedy for breach of the post-origination obligations. |
Key Cases Cited
- Stringer v. Cendant Mortgage Corp., 23 S.W.3d 353 (Tex. 2000) (recognizes substantive rights and obligations under 50(a)(6))
- Finance Comm’n of Texas v. Norwood, 418 S.W.3d 566 (Tex. 2011) (agency interpretations have equal footing with courts under 50(u))
- Vincent v. Bank of America, N.A., 109 S.W.3d 856 (Tex. App.—Dallas 2003, pet. denied) (forfeiture for failure to comply with constitutional loan provisions)
- C&K Investments v. Fiesta Group, 248 S.W.3d 234 (Tex. App.—Houston [1st Dist.] 2007, no pet.) (forfeiture remedy in home equity lending context)
- Intercontinental Group Partnership v. KB Home Lone Star L.P., 295 S.W.3d 650 (Tex. 2009) (Texas Supreme Court on broad contract/constitutional implications)
- Houston Sash & Door, Inc. v. Heaner, 577 S.W.2d 217 (Tex. 1998) (public policy and statutory interpretation in Texas usury/forfeiture context)