right when you're ready we've got case number eighteen dash two or three three six dissipative versus federal home loan mortgage corporation and we'll hear first from mr janice the most of that loan was used to pay off a valid preexisting lien on her property the value may be too young to remember the old days of usury in texas but this happened with some frequency if you messed up on subrogation steps and after the invalidation of that lien to preserve what was a valid existing lien on the property in the texas supreme court has said that that lien does not go away simply because it was paid off in fact it gives rise is invalid then we have economic segregation but on either score we have this issue of ability to cure which would affect contractual subrogation because if i care then i got my contract back right that's right and that i don't need all this other stuff i've got my contract so am i correct that i'm neither front has the texas supreme court address the effect of the cure provisions not being followed by the lender on the question of whether then the lend involved a full subrogation because that was all that the lender was requesting in that particular case but i believe that case does where it comes but you'll agree that's significantly different what you mean here you talk about a contract pellate courts is specifically courts of last resort is they take cases to address specific issues they don't sit around and go you know while we're here let's find some issues no one's brief and talk about them too and in fact and get themselves in trouble if they do that because they are briefed and then i realize what other issues might be presented by that so they tend to stick to the issues before them and we in considering those opinions aren't supposed to say maybe you could construe that they thought they had subject matter jurisdiction are i think got to have that but i don't know that i can construe they thought of every possible defense and no one talked about and decided to address them subsequent to you i would agree with ok so we have to deal with this argument straight up why didn't choke your realize the y'all is the the lender and your freddie mac and but still that seems like an easy cure could assign the document if i'm told you have to sign a document for it to be valid and i wanted to be valid i'm done why was that not done think we would need us the original lender why they did not sign it when they responded to your notice they would have been the one notice i don't know why there was no response there there's no indication in the record why there was no response i think that embraces response shows that it may have been confused by exactly what she was alleging  chains we just don't know from the record why it was if it were not the ones creating the record you all are what were you prohibited from doing discovery to flesh out these issues though there there were could have been discovery on ok because you're saying we don't know we don't know i mean i spent a good bit of my life during discovery day answer questions i didn't know the answer to and then people would tell me the answer didn't have to believe them but i would get an answer and if that wasn't done then that falls on whoever's trying to set it set aside with the district court they did is they want to come forward with the evidence that shows they were wrong and i'm not seeing that here if you're saying i don't know well i think there's two things to keep in mind first of all we also don't know why the lender in listowel did not cure it could have easily cured but is claiming it's lean on the agricultural use portion of the homestead that here would have been just as easy we don't know why it didn't do that the texas supreme court was unfazed wonder did not cure the other thing to keep in mind is that  when there is an invalid uncared leave if it's carried you never get to segregation and the texas supreme court has repeatedly said for a very very long time that he knows courts of other states this particular violation take place this is a very unique case or this pretty commonplace it is very often alleged and we see the that the failure to sign the acknowledgment a fair market value alleged very regularly in fact what we get quite often your honor are notices from borrowers that basically list every single requirement under section fifty eight six and saying that all of them were violated even ones even the one that says that the security instrument has to disclose that the loan is an extension of credit and there it is right on the security so we get these all the time and then you're one of the sloppiness or ignorance of the law or i don't believe that that's the essence they send out a notice to the lender that alleges everything under the sun in hopes that something slips through the cracks ok but you know the lender is in a good position to deal with that the  reality is you've got these hyper technical rules ok and the lender is the one charged with knowing them them some ordinary person getting a home equity loan is not going to read all these rules but the lender has every incentive do it and should get it right in the first place but if they don't and they're getting these and they're wise to the fact that there's he's lawyers out there that are sending him these letters then they should be responding and if they aren't responding they should have a reason and so i i guess i'm not really all that sympathetic about how you all fall in some trap when you this is your business you and the lenders this is your business you know there are all these technical rules and i can remember when i things you had to sign and rules and regulations and this and that so i think that's texas has the right to do that it's how they even have a home equity loan industry in texas is because of all these technical rules what we're dealing with there's another propriety of the rules or the need to deal with them but whether subrogation should even apply when you have been given the chance to cure when something's curable and you've been expressly given the chance to cure it whether it's by a trapping lawyer or same as the original lender and there are some challenges to implementing some of the curers when you are not the original lender for example signing the acknowledgment of fair market value as we have in this case be less of a misreading is some constitutional requirement of these contracts are signed is that right there is there is a requirement that their knowledge been a fair market value to be signed by the lender to me you ought to have a chance to fix it that's seen khana equitable and good not having failed to do so why should you get the benefit of the equities let me answer both of those questions and i'll start with contractual subrogation and the reason why there is contractual subrogation despite any opportunity to cure or anything like that it is because in benchmark versus kroger the texas supreme court said that if the security instrument provides for subrogation your subrogated period and that cannot be reconciled in any way shape or form with the position that in validation of the lien under the constitution invalidates every provision in the instrument creating nightly in fact in benchmark the court went on to say that other provisions in that same that find the same thing with regard to other provisions and one very important one from the texas supreme court recently is the garage full of vs auckland opinion where it talked about the forfeiture remedy that's perscribe by section fifty eight six ten of the constitution the court said that that remedy can only be accessed through the forfeiture provision that has to be put in the security instrument you've said that this issue arises with some frequency if not a half not a motivated scenario by by certain moyers and it sounds to me like this is essentially an open question of texas law which side's got there are analogous cases and the reason why we from your perspective any reason why we shouldn't this issue to the text supreme court we've got a definitive answer for everybody we would welcome certification to the texas supreme court however i don't think that it's warranted here because as the court recently reiterated in choice versus greenberg the main factor is whether there is sufficient state law particularly from the supreme court to allow this court to make a reasonable reasoned rather than a conjecture conclusion and i'm sure we have the please the court the reason the texas constitution has detailed requirements for home equity loans is because these loans are notoriously risky now lenders do not have to comply with the texas constitution constitutional compliance is only required for those lenders who would like to have their loan secured by a lien on the homestead and because the consequences of noncompliance are so severe the texas constitution affords these lenders grace for lenders who fail to comply at the outset they are entitled to notice of the defect in a sixty day deadline to go cure the defect and create a valid link what is at stake in this case is the careful balance of constitutional protections in incentives to incentivize constitutional compliance and we would i mean we have some progression at all that we've got this set up then why would we not just say if you don't cure your a think you are absolutely correct that the court has not addressed subrogation in this particular context of curable home equity lames but if so and so will a sow's addressing a context where it was a a lien on a property doesn't need it for agricultural use and it is not accurate to say that that was a curable defect it is true that there was one acre of the property in that case that was not designated for agricultural with use and so the lenders are correct to say the bank would have cured its lien with respect to one acre but that's not what they were doing they were seeking equitable subrogation of the entire property and that's why the parties in the san antonio court of appeals and in the texas supreme court were not briefing cure rights and how cure rights would affect the analysis because they were looking to cure they were looking for equitable subrogation on the portion of the property that could not be cured and so i think this court is exactly right that question has not been addressed by the texas supreme court and the shall this offer we're certainly not opposed to certification but i don't think the court needs to and i recognize this court has to be very judicious about you've written in section fifty cases it's oftentimes appropriate but i don't think it's required or necessary in this case because i do believe this court has clear guidance from the texas supreme court and i would point particularly to listen now but also to the most recent decisions from the texas supreme court in the wood and the awful decisions would made very clear that an unsecured lien on the homestead is void it's an enforceable and that by the way answers the question in this case about contractual subrogation because it is undisputed that the lien or excuse me that the contractual subrogation provision in this case is in the void lien you cannot enforce a void instrument well they're arguing if i understand it that it really just avoids that paragraph if you will of a lean paragraph and it doesn't void the rest of it they've made that argument with respect to a severability to make the argument i mean what if there was no severability clause and you had an invalid lean in an otherwise valid document i e people were mentally capable when they signed it and saw so forth would you not be able to say just the lien is invalid you would have to i mean is there no argument that could be made that you can sever without a severability corrupt the instrument is void and say you can't say well it's a void instrument but we'll still in force like a contract it is it is a security instrument that all the texas supreme court cases discussing weight liens are holding the whole thing as they address this kind of issue where it's really an i would say unrelated paragraph but it's not part of the lien because they're not trying to enforce the lien in that document they're trying to enforce the lien in the two thousand and seven document well that's true with that what they're really trying to force  contractual provision in the void lien that says that they're entitled to contractual subrogation but if there was an arbitration clause in their with that people waited i think the whole thing is weighted and part of the reason i say that is because of wood and if there are loan from the lien and it said when there is a void lien the parties rights are all have to be litigated in the context of the loan the love is still a valid contract but i she can walk away right that's correct so this is reminiscent of usury days of or more to you memory to me i think that's a good analogy i hadn't thought about usury but it is it is true that the way th constitution is structured for these home equity lending provisions that if lenders refused to comply and refused to hear the consequences that belief is void and in fact homeowners under the constitution start of your vacation question though is it appears to me that this case is a classic clash of two different doctrines and we haven't got the resolution from the relevant body that extreme court how we resolve this particular clash right i wonder if i will tell you if i were in the think you're making that argument for sure because we can or the texas right i mean this court can't overrule us all and so our position in this case is actually pretty modest i mean we're not saying you can't have a subrogation at all we're saying it only well first of all we'd say in the curable leave in context which has not been addressed i think this court could say the lenders have an adequate remedy at law and where there is an adequate remedy at law you don't get equitable remedies period that's a stupid rock principle of texas kamel it's stated in the song but if the score wanted to a softer position it could say in the curable in context at a minimum have to exercise diligence in attempting to cure their lien under the constitution let's talk about the exercise of diligence here is this a fact finding whether somebody was diligent i mean let's say for example that the evidence was which i realize it's not that embrase had a very strict policy about handling cures it was very laid out you had weeks of training and all of that but some hapless person got this letter and inadvertently threw it away  know those aren't the facts here but let's say that they did it would that be the sort of thing that would allow for kind of equity to step in because they did everything you know they were diligent as a company they trained everybody but then they had someone who just had an emergency in their family and accidentally threw it away and therefore didn't cure and i guess i'm coming up with something that isn't the facts here well yes i think that's a perfect example and and it is a fact and question it has to be a fact question its t circumstances you're looking at reasonable lives diligence fold negligence good faith all the things that go into equity and what is missing in this case is any explanation for why the lenders didn't cure so you're saying it's fac the right i mean our prophetical sort of like whether it was appropriate to decide in summary judgment but there are facts that went into the to the district court's analysis was there a dispute in other words was there the only thing they say is well we were confused or something like that in their response so they wrote this response back but is there a dispute about actually wrote some other response which got lost in the mail or you know whatever no for all there is no dispute and second i appreciate councils concession that the record does not speak to why the lenders didn't care and what is missing in this case is some explanation i could imagine a scenario where a lender with an affidavit in support of their summary judgment motion gives a good reason for why they didn't comply with the constitution and a district court could say they're entitled to equitable subrogate if they know there's the strapping lawyers out there i don't know why they aren't prepared for the trapping lawyers i mean that's what you do you know if you've got a company that's fallen in traps and you stop runnin into the trap is i don't eat the baby let me let me let me take issue with that for just a minute because i would totally dispute that banks are getting trapped by enterprising lawyers lenders know exactly how to dot the i's and cross the t s they have check i'm using their i know i know i'm not doing their argument but a lot of challenging you i'm not a surly agreeing that you all are trapping lawyers but i don't think that's a negative i mean you know if you make a living i mean yeah i do and it legitimately under the law you know that's that's how it goes right yes and i want the courts remember these are not hyper technical requirements it's all they are actually but if that's the apartment that's a requirement and if a lawyer helps clients take advantage of that i again in the in the world of usury in my my day back was a very young lawyer that was you know fairly calm and i know a lawyer who got out of his whole student loan and they had to pay him right well  texas supreme court had similar questions as you have had about you know is this is this burdensome for lenders and the texas supreme court said in the wood opinion that they don't consider these cure requirements burdensome and so there is no reason lenders can't if they're given notice that there's some defect in their in their loans that they can't go back to fix that they can't they can some acknowledgement of fair market value in value would have cured the lien in this case and so you know i know the court remembers in two thousand and eight when this country faced the largest and most spectacular mortgage security crisis in this country's history was unprecedented because of the aggressive practices of lenders and that led to the credit crisis and it led to a worldwide financial crisis and a two hundred billion dollar bailout of freddie macin fannie mae these constitutional provisions are against a backdrop of protecting homeowners from the as a model for how the consumer protections in our constitution actually saved texans from the foreclosure rates that many other states experienced in the subprime lending crisis when many homeowners got underwater on their homes it was partly  types of loans had all sorts of exotic provisions in other states that made it far more likely that homeowners with face foreclosure and so that's why in our constitution we have this very detailed scheme is where the texans were learning the lessons from the forty nine other states and going ahead and putting these protections in let's talk about freddie mac because they're saying we were at their original lender we couldn't just pick this up and signed it so what are we supposed to do would it be fair to say but they don't have to take the assignment if they're not to by this loan they can review the documents and if the documents are lacking a signature could they have at that point asked for the signature yes when they were doing the transfer could they have said hey wait a minute this one doc standards or well known standards and said this is missing and either not done the transaction or required them to fix it that's a good price lenders do not have to wait to notice a defect or up to have received notice of a defect they can proactively go insure a constitutional compliance and so on the secondary mortgage market when these lenders are buying up other loans they can review the file they can do their own checklist and say we want to make sure these liens are valid before we buy the loan and so there is nothing stopping them from curing it any point in time but after the sixty days the constitution does set a deadline and at that point the remedy is to declare the lien void ok i think the court has my arguments if i could just briefly be cleared i think what's going on here is that freddie mac wants the court to give it foreclosure rights even though it hasn't complied with the constitution and hasn't cured and it is not the responsibility of the courts to subsidize predatory lending practices or substandard business practices under texas law lenders are masters of their own fate they can choose to comply they can choo they don't get to sit back and do nothing and just rely on equity this court's opinion will shape behavior and we would ask the court to affirm the judgment because affirming will incentivize lenders to comply with the constitution or at least diligently try to do so thank you you know why they missed  law when the loan is made and you do not look at subsequent actions to determine whether a lender is subrogated or not and that has been but it's up to sever the contractual side that we can't get to your contractual segregation provision because you didn't write severability in a timely fashion as your honor pointed out to jane's we don't need the severability clause in order to i didn't say we did and i said do we you do not need the state what kay says that crowder the court says that although the lien is invalid provisions of that instrument are valid no counsel is conflating the lien with the instrument in which it's created and the plain language of section fifty  applies to liens it says no mortgage trust deed or other lien so it's describing different types of liens that are not valid the constitution only invalidate does not invalidate agreements if there had been an arbitration agreement or provision in there that would have been forcible the foreclosure provisions were enforceable as we saw and in benchmark interoffice low we see that the forfeit constitution because that is a contractual provision in the security instrument that would be invalidated with the rest of it under their theory that cannot be what the drafters intended so and would does not it is has nothing to do a separate ok it was about the statue of limitations on bringing these claims the last thing that i want to address here is what coun described is there a delicate balance between the homestead protections in the constitution and subrogation and these really if you read that as you read the texas supreme court's opinions do not conflict with each other they harmonize with each other the purpose of the constitution is to ensure that only valid claims are on the homestead that's the whole point here they're under fifty  did exist on the property is preserved and that the borrower is not unjustly enriched by having not paid off for her benefit and not having to repay the money that she bore so those two really worked hard then are we our lenders ever going to follow the law if they're kind of given things huge safety nets because there are still consequences to not curing when you're subrogated your only subrogated to the amount of the preexisting l so whatever you advanced as part of the new loan is gone you don't recover that so there is anything that's a home equity that pays off the prior mortgage and also allows them to do renovations then the renovation piece goes away and avoid losing that portion of their lean but also simply to avoid litigation which is very costly lenders don't like to be in court i don't think anybody likes to be in and lenders are no different we do believe the supreme court has provided sufficient guidance and we also scored thank you ok thank you and i do want to say i'm not suggesting that texas usury laws have gone away they're just the kind of litigation we saw in the eight is been altered over time by changes in laws and so on so again i didn't want any by quoting me is there is no usury law texas or it is but it's changed thank you in some respects ok so with that we will take a ten minute break thank you