Sims et al v. Carrington Mortgage Services, LLC
Filing
29
MEMORANDUM OPINION and ORDER... all claims and causes of action brought by plaintiffs, Frankie Sims and Patsy Sims, against defendant, Carrington Mortgage Services, LLC, be, and are hereby, dismissed with prejudice. See Order for further specifics. (Ordered by Judge John McBryde on 8/23/2012) (krg)
U.S. DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
FILED
IN THE UNITED STATES DISTRICT CO RT
NORTHERN DISTRICT OF TEXAS
FORT WORTH DIVISION
1W 2 3 2012
CLERK, U.S. DISTRICT COURT
FRANKIE SIMS, ET AL.,
BY-----=---------Deputy
§
§
Plaintiffs,
§
§
vs.
§
NO. 4:12-CV-087-A
§
CARRINGTON MORTGAGE SERVICES,
LLC,
§
§
§
Defendant.
§
MEMORANDUM OPINION
and
ORDER
Came on for consideration the motion to dismiss pursuant to
Rule 12(b) (6) of the Federal Rules of Civil Procedure, filed in
the above-captioned action by defendant, Carrington Mortgage
Services, LLC.
Plaintiffs, Frankie Sims and Patsy Sims, filed
their response, and defendant filed a reply.
Plaintiffs also
filed two documents, each titled "Notice of Supplementary
Authority Relative to the 12(b) (6) Record."
Having now
considered all of the parties' filings, as well as the applicable
legal authorities, the court concludes that the motion should be
granted.
I.
Plaintiffs' Allegations
Plaintiffs initiated this action by the filing on February
15, 2012, of their original class action complaint, and on
February 17, 2012, filed their first amended class action
complaint {"First Amended Complaint").
Plaintiffs also filed a
motion for class certification.
The First Amended Complaint makes the following factual
allegations:
Defendant services loans on behalf of various lenders in
Texas and elsewhere.
In August of 2003 plaintiffs obtained a
horne equity loan in the amount of $76,000.
plaintiffs were behind on their payments.
By the middle of 2009
Consequently, on
September 25, 2009, plaintiffs signed a document titled "Loan
Modification Agreement," the terms of which added approximately
$2,200 of past-due interest to the principal, increasing the
principal amount due on the loan to $74,345.50.
At the time
plaintiffs signed the Loan Modification Agreement Tarrant County
had appraised their property at $72,300.
When plaintiffs again fell behind on their horne equity loan
payments in 2011, defendant filed an expedited foreclosure
proceeding in the state district court of Tarrant County, Texas.
On November 3, 2011
1
plaintiffs filed a motion for continuance in
the state court action alleging that the 2009 modification
violated Article XVI,
§
50 {a) {6) {L) of the Texas Constitution.
In response to the motion for continuance defendant
dismissed the foreclosure proceeding and again modified
2
plaintiffs' home equity loan.
The second modification agreement,
dated December 9, 2011, added approximately $7,368.44 of past-due
interest to the principal, resulting in a new principal balance
of $80,023.95.
The 2011 Tarrant County tax appraisal of
plaintiffs' property was $73,000.00, while defendant's valuation
of the property was $76,100.00.
Based on the foregoing, plaintiffs alleged that defendant
violated the following provisions of the Texas Constitution:
•
Art. XVI Sec. SO(a) (6) (B). The home equity loan
refinancings or modifications featured a loan-tovalue ratio[] in excess of 80%, the maximum
allowed by [sic] Texas Constitution.
•
Article XVI Sec. SO(a) (6) (F). The refinancings
or modifications were a form of open-end account
under which credit was extended from time to time
but which was not a valid home equity line of
credit under other provisions of the Texas
Constitution;
•
Art. XVI Sec. 50(£). The home equity loan
"modifications" were really refinancings that did
not comply with the requirements for refinancing a
home equity loan;
•
Article XVI Sec. SO(g). Defendant failed to
provide the mandatory disclosures attendant upon a
refinance of a home equity loan.
First Am. Compl. at 6.
3
II.
Grounds of Defendant's Motion
Defendant contends that dismissal is warranted as to
plaintiffs' claims pursuant to sections 50(£) and 50(g) of
article XVI because those sections pertain only to a refinance of
a home equity loan, and plaintiffs' loan was modified, not
refinanced. Defendant further argues that the court should
dismiss plaintiffs' claims under section 50 (A) (6) (B) because the
modifications complied with the requirements therein, and that
dismissal is warranted as to plaintiffs' claims under section
50 (A) (6) (F) because the modifications did not convert plaintiffs'
home equity loan into a form of open-end account as contemplated
by that section.
III.
Standards Applicable to Motion to Dismiss
Rule 8 (a) (2) of the Federal Rules of Civil Procedure
provides, in a general way, the applicable standard of pleading.
It requires that a complaint contain "a short and plain statement
of the claim showing that the pleader is entitled to relief,"
Fed. R. Civ. P. 8(a) (2),
"in order to give the defendant fair
notice of what the claim is and the grounds upon which it rests,
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)
quotation marks and ellipsis omitted) .
4
(internal
Although a complaint need
not contain detailed factual allegations, the "showing"
contemplated by Rule 8 requires the plaintiff to do more than
simply allege legal conclusions or recite the elements of a cause
of action.
Id. at 555 & n.3.
While a court must accept all of
the factual allegations in the complaint as true, it need not
credit bare legal conclusions that are unsupported by any factual
underpinnings.
See Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)
("While legal conclusions can provide the framework of a
complaint, they must be supported by factual allegations.")
Moreover, to survive a motion to dismiss for failure to
state a claim under Rule 12(b) (6), the facts pleaded must allow
the court to infer that the plaintiff's right to relief is
plausible.
Id. at 678.
To allege a plausible right to relief,
the facts pleaded must suggest liability; allegations that are
merely consistent with unlawful conduct are insufficient.
Twombly, 550 U.S. at 566-69.
"Determining whether a complaint
states a plausible claim for relief . .
.
[is] a context-specific
task that requires the reviewing court to draw on its judicial
experience and common sense."
Iqbal, 556 U.S. at 679.
In adjudicating defendant's motion, the court may consider
the complaint and its proper attachments.
Collins v. Morgan
Stanley Dean Witter, 224 F.3d 496, 498 (5th Cir. 2000).
The
court may also consider documents attached to defendant's motion
5
to dismiss, as long as those documents are referred to in the
complaint and are central to plaintiff's claims.
Id. at 499.
IV.
Analysis
A.
Home Equity Lending and the Texas Constitution
Although long proscribed by Texas law, voters in 1997
approved an amendment to the Texas Constitution permitting home
equity lending.
As explained by the Texas Supreme Court:
For over 175 years, Texas has carefully protected
the family homestead from foreclosure by limiting the
types of liens that can be placed upon homestead
property.
Texas became the last state in the nation to
permit home-equity loans when constitutional amendments
voted on by referendum took effect in 1997. Such loans
permit homeowners to use the equity in their home as
collateral to refinance the terms of prior debt and
secure additional loans at rates more favorable than
those for consumer loans. Although home-equity lending
is now constitutionally permissible, article XIV [sic],
section 50(a) (6) of the Texas Constitution still places
a number of limitations on such lending.
LaSalle Bank Nat'l Ass'n v. White, 246 S.W.3d 616, 618
2007).
(Tex.
Section 50 protects a homestead from "forced sale, for
the payment of all debts" except for those specifically
enumerated therein, now including home equity loans.
art. XVI§ 50(a).
Tex. Const.
Specifically, section 50 exempts from
homestead protection an extension of credit that "is secured by a
voluntary lien on the homestead created under a written agreement
6
with the consent of each owner and each owner's spouse," that
meets other enumerated requirements.
B.
Id. at § SO(a) (6) (A).
Interpretative Regulations
The original 1997 constitutional amendment failed to empower
any Texas administrative agency with rule-making authority over
the amendments.
Within a short time following enactment of the
amendment, four Texas financial agencies--the Texas Department of
Banking, the Texas Savings & Loan Department, the Office of
Consumer Credit Commissioner, and the Texas Credit Union
Department (the "Commissions")--jointly promulgated the
"Regulatory Commentary on Equity Lending Procedures"
("Commentary").
The Texas Supreme Court has recognized the
Commentary as persuasive authority.
Stringer v. Cendant Mortg.
Corp., 23 S.W.3d 353, 357 (Tex. 2000).
The Texas Constitution was amended again in 2003, delegating
to the Commissions "interpretive authority over the home equity
provisions."
Cir. 2010)
Cerda v. 2004-EOR1 L.L.C., 612 F.3d 781, 787 (5th
(citing Tex. Bankers Ass'n v. Ass'n of Cmty. Orgs. for
Reform Now (ACORN), 303 S.W.3d 404, 407-08 (Tex. App.--Austin
2010, pet. granted)); Tex. Fin. Code§§ 11.308, 15.413.
The
Commissions then adopted a number of regulations interpreting the
home equity provisions, now codified in the Texas Administrative
Code.
ACORN, 303 S.W.3d at 408.
7
c.
The Transactions Were Loan Modifications
In their response plaintiffs summarize what they consider
the "one narrow" issue in this case:
[M]ay the principal amount of a Texas home equity loan
be increased through the transformation of past-due
interest into principal without complying with all the
requirements for making or refinancing a home equity
loan under the Texas Constitution Art. XVI Section 50?
Pls.' Resp. to Def. 's Mot. to Dismiss ("Pls.' Resp.") at 1.
Plaintiffs would have the court answer this question in the
negative.
Defendant disagrees.
In the motion, defendant argues at length about how the
Texas Constitution and the regulations distinguish between a
modification of a home equity loan and a refinance, emphasizing
that both are permitted but have different requirements and
limitations.
Plaintiffs do not appear to dispute this general
proposition.
Plaintiffs instead take issue with defendant's
application of those terms to their home equity loan
transactions, alleging that defendant labeled the 2009 and 2011
transactions "modifications" when they were in fact refinancings.
Defendant first argues that the 2009 and 2011 transactions
involving plaintiffs' home equity loan clearly lie within the
following definition of a modification:
A modification of a home equity loan occurs when one or
more terms of an existing equity loan is modified, but
the note is not satisfied and replaced. A home equity
8
loan and a subsequent modification will be considered a
single transaction. The home equity requirements of
Section 50 (a) ( 6) will be applied to the original loan
and the subsequent modification as a single
transaction.
7 Tex. Admin. Code
§
153.14(2).
According to defendant,
plaintiffs' 2009 and 2011 modifications were not refinances
because they did not "satisfy and replace" the original home
equity note.
The plain language of the loan modification
documents support this contention.
As stated in the 2009
modification papers:
2.
All covenants, agreements, stipulations, and
conditions in your Note and Mortgage will remain
in full force and effect, except as modified
herein, and none of your obligations or
liabilities under your Note and Mortgage will be
diminished or released by any provisions hereof,
nor will this Agreement in any way impair,
diminish, or affect and [sic] of [defendant's]
rights under or remedies on your Note and
Mortgage, whether such rights or remedies arise
thereunder or by operation of law.
App. in Supp. of Def. 's Mot. to Dismiss Pls.' First Am. Compl.
("Def. 's App.") at 24.
G.
And in the 2011 modification papers:
[A]ll terms and provisions of the Loan Documents,
except as expressly modified by this Agreement,
remain in full force and effect; nothing in this
Agreement shall be understood or construed to be a
satisfaction or release in whole or in part of the
obligations contained in the Loan Documents; and
[] except as otherwise specifically provided in,
and expressly modified by, this Agreement, the
Lender and you will be bound by, and will comply
with, all of the terms and conditions of the Loan
Documents.
9
Id. at 28.
In defendant's view, because the modification
agreements by their terms did not satisfy or replace the note,
they cannot, by definition, be a refinance of the loan.
In response, plaintiffs agree that the 2009 and 2011
transactions did not satisfy and replace the note.
The problem,
in plaintiffs' view, is that at the time of those transactions
defendant should have satisfied and replaced the note because
those transactions were refinances, not modifications.
As one of
the grounds in support of their claim plaintiffs contend that
defendant used the wrong form because the modification papers do
not use the term "home equity" but only refer to the "mortgage"
and the "note."
Although plaintiffs question why defendant did
not use a standardized home equity form, they have directed the
court to no authority requiring such use.
The court finds that
the plain language of the 2009 and 2011 documents shows no
intention by the parties to satisfy and replace the original
note, causing the 2009 and 2011 transactions to fall within the
definition or description of a "modification" in 7 Tex. Admin.
Code§ 153.14(2).
Defendant also argues that plaintiffs have failed to state a
claim for relief on their claim that capitalizing past-due
interest and adding to the principal constitutes an advancement
of funds, which is prohibited in the modification of a home
10
equity loan.
7 Tex. Admin. Code
§
153.14 (2) (B).
Defendant
relies on Meador v. EMC Mortgage Corp., 236 S.W.3d 451 (Tex.
App.--Amarillo 2007, pet. denied), as support for its definition
of the term "advance of additional funds."
The plaintiffs in
Meador obtained an unsecured loan but were also required by the
lender to refinance their home mortgage.
452.
Id.
Meador, 236 S.W.3d at
The unsecured loan was later acquired by the defendant.
The plaintiffs claimed that the defendant should be required
to forfeit the principal and interest on the unsecured loan
because it failed to comply with the requirements of article XVI
§
50(e).
Id.
In that context, the court was asked to construe
the term "advance of additional funds" as used in section 50(e),
pertaining to the refinance of a home equity loan.
The court
concluded that "'additional funds' are monies obtained in excess
of the pre-existing debt being refinanced."
Id. at 453.
As plaintiffs point out, Meador is factually distinguishable
from the instant action and is of limited usefulness in this
action.
However, the court finds it unnecessary to rely on the
definition in Meador, because a common-sense reading of the term
"additional funds" would appear to contemplate money provided by
the lender to the borrower over and above the amount already
loaned, that the borrower could use for other purposes at his or
her discretion.
There is no allegation in the First Amended
11
Complaint that plaintiffs received any monies from defendant over
and above that originally provided to them by the home equity
loan.
Rolling their past-due interest into the principal in 2009
and 2011 gave plaintiffs no extra cash to do with as they wished.
The court concludes that the prohibition against advancing
additional funds in 7 Tex. Admin. Code§ 153.14(2) (B) does not
apply to the circumstances forming the basis of plaintiffs'
claims.
The court finds nothing persuasive in the authorities cited
by plaintiffs in support of their various arguments.
Plaintiffs
refer the court to Ray v. Wells Fargo Bank, N.A., No. 4:11cv91,
2012 WL 602212 (E.D. Tex. Jan. 27, 2012), report and
recommendation adopted, Ray v. Wells Fargo Bank, N.A., No.
4:11-CV-91, 2012 WL 602208 (E.D. Tex. Feb. 23, 2012), as an
example of "other decided Section 50 cases."
Pls.' Resp. at 12.
However, the only issue in Ray was the defendant's motion for
judgment on the pleadings as to plaintiff's claims under the Fair
Credit Reporting Act.
Ray, No. 4:11cv91, 2012 WL 602212 at *2.
The only mention of section 50 in Ray was a reference to a state
court case involving the same parties where the state court
declared void plaintiff's home equity lien for failure of
defendant to comply with section 50(a) (6) (I), pertaining to the
agricultural exclusion.
Id. at *1.
12
Plaintiffs also rely on provisions of a Home Equity
Modification Advisory Bulletin ("Advisory Bulletin") disseminated
by the Commissions in April 2009, which plaintiffs claim
"endorsed" certain methods for modifying home equity loans.
The
Advisory Bulletin provides an express disclaimer as to the weight
of its own authority:
This statement on Article XVI Section SO(a) (6) (L) is
not meant to negate the applicability or legality of
any other method of modifying a home equity loan.
This statement is solely meant to endorse the
permissibility of the following method. Any
modification must also comply with any applicable
federal and state laws. This statement is not an
interpretation of the Texas Constitution and is not
being issued under Texas Finance Code, § 11.308 and §
15.413.
Def. 's App. at 46 (emphasis in original).
While the Advisory
Bulletin's purpose was to propose a method of modifying home
equity loans for use by lenders, by its terms it did not prohibit
the use of any other lawful modification method.
Although the
court may consider the Advisory Bulletin for whatever
informational or persuasive value it may possess, it does not
bear the weight of the administrative regulations, and does not
prohibit the manner in which defendant modified plaintiffs' loan.
Although plaintiffs advance a number of interesting theories
to support their claims, they have provided the court no legal
authority that would persuade the court that plaintiffs have
13
stated a plausible claim that capitalizing past-due interest and
adding that amount to the principal of a home equity loan
violates the Texas Constitution.
The court concludes as a matter
of law that the 2009 and 2011 transactions were modifications,
not refinances, of plaintiffs' home equity loan.
D.
Section SO(a) (6) (B) Does Not Apply to
Home Equity Loan Modifications
The court finds similarly lacking plaintiffs' contention
that the modifications violated the constitution because they
featured a loan-to-value ratio in excess of eighty percent.
Plaintiffs do not dispute that the loan-to-value ratio at the
time of the original home equity loan complied with the eightypercent limitation.
However, plaintiffs contend that at the time
they signed the September 25, 2009 modification their loan-tovalue ratio was greater than 100 percent, while at the time of
the December 2011 modification it was 110 or 103.8 percent,
depending on which property appraisal was used in the
calculation.
1
Section SO(a) (6) (B) requires that a home equity loan be:
of a principal amount that when added to the aggregate
total of the outstanding principal balances of all
other indebtedness secured by valid encumbrances of
1
Plaintiffs claim that at the time of the 2009 modification their property was appraised at
$72,300, and the modification increased the principal of the loan to $74,345.50. In November 2011
Tarrant County appraised their property at $73,000, while defendant appraised their property at $76,100,
and the principal ofthe loan increased to $80,023.95.
14
record against the homestead does not exceed 80 percent
of the fair market value of the homestead on the date
the extension of credit is made[.)
Tex. Const. art. XVI
§
SO(a) (6) (B).
The applicable
administrative regulation is similar:
equity loan must be of a principal amount that when
added to the aggregate total of the outstanding
principal balances of all other indebtedness secured by
valid encumbrances of record against the homestead does
not exceed 80 percent of the fair market value of the
homestead on the date the extension of credit is made.
An
7 Tex. Admin. Code
§
153.3.
Resolution of the dispute concerning
the loan-to-value ratio thus requires the court to determine what
section SO(a) (6) (B) means when it refers to "the date the
extension of credit is made."
Defendant argues that the phrase
refers to the date of the original home equity loan, whereas
plaintiffs contend it applies to each new "credit event."
Plaintiffs maintain that defendant was required to consider the
loan-to-value ratio each time defendant offered plaintiffs a loan
modification; however, its failure to do so resulted in a loanto-value ratio at the time of each modification that exceeded the
eighty-percent limit.
The court is persuaded that defendant has
advanced the correct interpretation.
Defendant argues that the phrase "on the date the extension
of credit is made" applies to three variables identified in
section so (a) (6) (B):
(1) the principal amount of the home equity
15
loan;
(2) the aggregate total of the outstanding principal
balances of all other indebtedness secured by valid encumbrances
against the homestead; and (3) the fair market value of the
homestead.
While defendant's argument is persuasive, the court
concludes that a straightforward consideration of the text of
section SO and the administrative regulations all lead to but one
reasonable conclusion:
the phrase "on the date the extension of
credit is made" refers to the date of the original home equity
loan and not to each subsequent modification.
The text of article XVI and of the regulations support
defendant's argument that the constitutional amendment and
regulations, in other sections, consistently look to the amount
of principal at the time of the original home equity loan, and
that therefore the drafters intended such would be the case under
section SO(a) (6) (B).
For example, the Texas Constitution
requires the lender to provide certain written disclosures to the
borrower no less than twelve days before closing.
The disclosure
pertaining to the loan-to-value ratio states:
"(B) THE PRINCIPAL LOAN AMOUNT AT THE TIME THE LOAN
IS MADE MUST NOT EXCEED AN AMOUNT THAT, WHEN ADDED TO
THE PRINCIPAL BALANCES OF ALL OTHER LIENS AGAINST YOUR
HOME, IS MORE THAN 80 PERCENT OF THE FAIR MARKET VALUE
OF YOUR HOME[.]
Tex. Const. art. XVI
§
SO(g)
(emphasis added).
The only common-
sense reading of the phrase "at the time the loan is made" is
16
that it means the date of the original home equity loan.
The
regulations interpreting the eighty-percent loan-to-value ratio
further explain that
(1) The principal amount of an equity loan is the sum
of:
(A) the amount of the cash advanced; and
(B) the charges at the inception of an eguity loan
to the extent these charges are financed in the
principal amount of the loan.
7 Tex. Admin. Code§ 153.3(1).
"Inception" means the
"beginning," Black's Law Dictionary (6th ed. 1990), logically
referring to the date of the original loan.
And, in discussing
the date on which a payment is due following a home equity loan
modification, the Advisory Bulletin notes that "[t]he date of the
modification is not the date that the original extension of
credit is made."
Def. 's App. at 47.
Defendant also points to the regulation's explanation of
what is not included in the principal amount of the home equity
loan:
(3) The principal amount of an equity loan does not
include interest accrued after the date the extension
of credit is made (other than any interest capitalized
and added to the principal balance on the date the
extension of credit is made) , or other amounts advanced
by the lender after closing as a result of default,
including for example, ad valorem taxes, hazard
insurance premiums, and authorized collection costs,
including reasonable attorney's fees.
17
Id. at (3).
Although the parties posit differing interpretations
of the parenthetical language included in section 153.3(3) above,
the court concludes that defendant's interpretation is correct:
the exception applies only when interest that will accrue after
the date of closing is capitalized and added to the principal on
the date of closing.
Plaintiffs rely on a different section of the regulations to
support their interpretation of the eighty-percent rule.
Section
153 .14 (2) (C) states:
(C) A modification of an equity loan may not provide
for new terms that would not have been permitted by
applicable law at the date of closing of the extension
of credit.
7 Tex. Admin. Code§ 153.14(2) (C).
When compared to the
aforementioned authorities, the court finds this nonspecific
provision of the regulations insufficient to overcome what seems
to be a clear intent in the constitution and regulations to limit
application of the eighty-percent loan-to-value ratio to the date
of the original home equity loan.
The court notes that section
153.14(2) (D) specifies that the "3% fee cap required by Section
SO(a) (6) (E) applies to the original home equity loan and any
subsequent modification as a single transaction."
The drafters
of the regulations apparently knew how to specify that certain
provisions of section SO applied to modifications as well as to
18
the original loan.
They could have imposed the same express
restriction regarding the eighty-percent loan-to-value ratio had
they intended it to apply at the time of a home equity loan
modification.
Considering all of the foregoing, the court concludes that
the "date the extension of credit is made," as contemplated by
section SO(a) (6) (B), refers only to the date of the original home
equity loan, rather than the date of each subsequent
modification, and that defendant was required to consider the
eighty-percent loan-to-value ratio only on the date plaintiffs
obtained the original home equity loan. 2
Because it is
undisputed that the loan-to-value ratio on the date plaintiffs
originally obtained their home equity loan complied with the
eighty-percent limit, plaintiffs have failed to state a claim for
relief under section SO(a) (6) (B).
E.
No Violation of Article XVI Sec. SO(a) (6) (F)
One constitutional limitation on a home equity loan is that
it cannot be
a form of open-end account that may be debited from
time to time or under which credit may be extended from
time to time unless the open-end account is a home
equity line of credit[.]
2
Because the court has determined that the transactions at issue were modifications, rather than
refinances, the court is expressing no opinion on whether the Joan-to-value ratio must be considered at
the time of a refinance of a home equity Joan.
19
Tex. Const. art. XVI § SO(a) (6) (F).
Plaintiffs allege that the
2009 and 2011 loan modifications were "a form of open-end account
under which credit was extended from time to time but which was
not a valid home equity line of credit under other provisions of
the Texas Constitution."
First Am. Compl. at 6.
The factual
allegations in the First Amended Complaint fail to support this
claim.
No definition of "open-end account" is found in the Texas
Constitution.
However, the Texas Finance Code defines an open-
end account as
an account under a written contract between a creditor
and an obligor in connection with which:
(i) the creditor reasonably contemplates repeated
transactions and the obligor is authorized to make
purchases or borrow money;
(ii) interest . . . may be charged from time to time on
an outstanding unpaid balance; and
(iii) the amount of credit that may be extended
during the term of the account is generally made
available to the extent that any outstanding
balance is repaid. . .
Tex. Fin. Code§ 301.002(a) (14).
The same definition is found in
the Commentary.
Absent from the First Amended Complaint are any facts that
could possibly be construed as alleging that the modifications of
plaintiffs' home equity loan created any form of open-end
20
account.
The court has reviewed in detail the loan modification
documents and has found nothing therein that would entitle
plaintiffs to debit the account from time to time, or that
provides for an extension of credit from time to time, as
contemplated by section SO(a) (6) (F) . 3
Nor does the court find
any provision in the loan modification documents that in any way
contemplates repeated transactions, authorizes plaintiffs to make
purchases or borrow money thereunder, or that makes available to
plaintiffs additional credit to the extent they have repaid any
outstanding balance.
Instead, the loan modification documents
clearly contemplate a fixed schedule of payments, for a defined
period of time, with a decreasing principal balance following
each month's payment.
In response plaintiffs essentially argue that because the
loan modification documents do not expressly limit or rule out
repeated transactions, defendant could continue to issue endless
loan modifications.
In such a scenario, plaintiffs contend,
"[t]he increases to principal, plus the lack of any limitation on
future increases to principal, renders [defendant's] practice 'B
3
Although not dispositive, the court notes that the original Texas Home Equity Note by which
plaintiffs obtained their home equity loan expressly states that it "is not an open-end account that may be
debited from time to time or under which credit may be extended from time to time." Def.'s App. at 1.
Nothing in either the 2009 or 2011 loan modification documents purports to modify that limitation.
21
form of open-end account.'"
Pls.' Resp. at 22 (emphasis in
original).
The court finds this argument unavailing.
In constructing
this argument plaintiffs have focused on three words in section
SO(a) (6) (F)--"a form of"--and ignored the remainder of the
constitutional description of an open-end account.
A common-
sense interpretation of the entire phrase "form of open-end
account" still requires that the account in question be an openend account.
See Commentary, Def. 's App. at 53 ("If an account
is not an open-end account by definition, then it must be a
closed account.").
Plaintiffs in their response failed to direct
the court to any language in the 2009 or 2011 loan modification
documents that they contend transforms the modifications into an
open-end account as contemplated by section SO(a) (6) (F).
No
reasonable reading of the constitutional language or regulations
can transform plaintiffs' home equity loan modifications into any
"form of open-end account."
F.
No Violation of Art. XVI Sections SO(f) or (g)
Section SO(f) requires that any refinancing of a home equity
loan "may not be secured by a valid lien against the homestead
unless the refinance of the debt is an extension of credit
described by Subsection (a) (6) or (a) (7) of this section."
Const. art. XVI
§
SO(f).
Tex.
Section SO(g) further requires that at
22
least twelve days before closing the lender must provide the home
equity borrower with a separate written notice describing the
requirements and restrictions imposed by section SO(a) (6).
Plaintiffs' claims under these sections of the Texas
Constitution arise from their contention that the 2009 and 2011
modifications were really refinancing events subject to the
requirements of section SO(f) and requiring defendant to provide
the disclosures contemplated by section SO(g).
The court has
concluded, as discussed supra, that the transactions at issue
were modifications of plaintiffs' home equity loan, not
refinances.
Accordingly, sections SO(f) and (g) are
inapplicable, and plaintiff has failed to state a claim on which
relief could be granted as to those sections.
* * * *
Bearing in mind the standards for a motion to dismiss
pursuant to Rule 12(b) (6), the court finds that the First Amended
Complaint is comprised primarily of the kinds of conclusory
assertions, labels, and conclusions which the court need not
accept as true, and that plaintiffs have failed to allege
sufficient facts as would state any claim for relief that is
plausible on its face.
23
V.
Order.
Therefore,
The court ORDERS that defendant's motion to dismiss be, and
is hereby, granted.
The court further ORDERS that all claims and causes of
action brought by plaintiffs, Frankie Sims and Patsy Sims,
against defendant, Carrington Mortgage Services, LLC, be, and are
hereby, dismissed with prejudice.
SIGNED August 23,
24
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