No. 03-15-00329-CV 

In The Court of Appeals For the Third 

District of Texas at Austin

GREGORY G. GRAZE AND CYNTHIA A. CRIDDLE, on behalf of 

themselves and all others similarly situated,

Appellants,

v.

NATIONSTAR MORTGAGE, LLC,

Appellee.

On Appeal from the 261st District, Travis County, Texas

MDL Pretrial Court No. D-1-GN-14-005248

Dallas County Originating Case No. DC-13-05406 

MDL No. 13-0427

REPLY BRIEF OF APPELLANTS

J. Patrick Sutton

Texas Bar No. 24058143

1706 W. 10th Street

Austin Texas 78703

Tel. (512) 417-5903

Fax. (512) 355-4155

jpatricksutton@

jpatricksuttonlaw.com

Jeffrey W. Hurt, Esq.

Texas Bar No. 10317055

10670 N. Central Expy Ste 450

Dallas, Texas 75231

Tel: (214) 382-5656

Fax: (214) 382-5657

jwhurt@hurtberry.com

Counsel for Appellants

 July 13, 2015

ACCEPTED

03-15-00329-CV

6045320

THIRD COURT OF APPEALS

AUSTIN, TEXAS

7/13/2015 4:29:26 PM

JEFFREY D. KYLE

CLERK

 FILED IN 3rd COURT OF APPEALS AUSTIN, TEXAS 7/13/2015 4:29:26 PM JEFFREY D. KYLE Clerk
ii

TABLE OF CONTENTS

INDEX OF AUTHORITIES......................................................................iii

INTRODUCTION....................................................................................... 1

ADDITIONAL FACTS IN REPLY............................................................. 2

ARGUMENT IN REPLY............................................................................ 3

I. Sims briefly recapitulated .................................................................. 4

II. Sims addresses solely capitalization events, not changes to the 

terms of the original loan........................................................................ 5

III. New extensions of credit must satisfy all of Section 50(a)(6), but 

a mere modification may, separately, violate any or all of the

particular requirements of Section 50(a)(6)......................................... 11

IV. Nationstar miscalculates the balloon............................................. 13

V. Nationstar's purported cures are the violations of Section 

50(a)(6)(L) .............................................................................................. 15

VI. The independent requirement that payments pay all interest 

coming due doesn't doesn't provide a safe-harbor for payments 

composed solely of interest.................................................................... 17

VII. “Temporary” = Volatile = Bad ....................................................... 18

CONCLUSION ......................................................................................... 21

CERTIFICATE OF SERVICE ................................................................. 23

CERTIFICATE OF COMPLIANCE ........................................................ 23
iii

INDEX OF AUTHORITIES

Cases

Hawkins v. JP Morgan Chase Bank, N.A., No. 13-50086, 2015 WL 

3505353 (5th Cir. June 4, 2015), reh'g and reh'g en banc denied

(June 30, 2015) .............................................................................. 2, 3, 9

Sims v. Carrington Mortgage Servs., L.L.C., 440 S.W.3d 10 (Tex. 

2014, reh'g denied) ...................................................................... passim

Starkey et al. v. Bank of America, N.A., No. 4:12-cv-02084 (S.D. 

Tex. 2012) ............................................................................................... 3

Statutes and Rules

7 Tex. Admin. Code § 151.1(1).......................................................... 8, 14

7 Tex. Admin. Code § 153.14 ................................................................ 10

7 Tex. Admin. Code § 153.14(2)(B) ...................................................... 10

7 Tex. Admin. Code § 153.14(2)(C) ...................................................... 10

7 Tex. Admin. Code § 153.16 ................................................................ 20

Other Authorities

Ann Graham, Where Agencies, the Courts, and the Legislature 

Collide: Ten Years of Interpreting the Texas Constitutional 

Provisions for Home Equity Lending, 9 Tex. Tech Admin. L.J. 

69, 84 (2007)......................................................................................... 18

Constitutional Provisions

Section 50(a)(6)(L).......................................................................... passim

Section 50(a)(6)(Q)(x)(c) ........................................................................ 15

Section 50(a)(6)(Q)(x)(f)......................................................................... 16
1

INTRODUCTION

Is Section 50's requirement of "substantially equal" payments

a one-time requirement applicable only at closing, and thus 

waivable at any time thereafter? Section 50(a)(6)(L). Nationstar

and now the Fifth Circuit U.S. Court of Appeals say it is. That 

conclusion requires indiscriminately lumping together 

capitalization events that do not alter the loan terms (a Sims

"restructuring" of the loan principal) with true modification 

agreements that do change the original loan's terms. But by that

logic -- in which all post-closing agreements that do not extend 

new credit are permissible -- other flatly-prohibited terms will also 

become legal at any time after closing, such as personal recourse 

and nonjudicial foreclosure. Section 50(a)(6) loans will effectively 

cease to be Section 50(a)(6) loans after closing, since any 

substantive term will become subject to amendment. The profound 

issue for this Court -- an issue of first impression in the Texas 

appellate courts -- is whether the cornerstone perpetual

requirements of home equity loans, such as substantial payment 

equality, will survive. 
2

ADDITIONAL FACTS IN REPLY

The Fifth Circuit U.S. Court of Appeals recently held, in an 

unpublished per curiam decision, that a Texas $190,000 home 

equity loan that began life with a schedule of substantially-equal 

payments can be modified to schedule a $146,000 balloon due at 

maturity. Hawkins v. JP Morgan Chase Bank, N.A., No. 13-

50086, 2015 WL 3505353, at *2 (5th Cir. June 4, 2015), reh'g and 

reh'g en banc denied (June 30, 2015) (remanded for 

determination whether new money was in fact added to Ms. 

Brooks's loan to potentially explain such a large balloon). The

Fifth Circuit also held that Texas home equity loans can be 

modified to schedule five years of interest-only payments followed 

by a large payment spike. Id. (dismissing Mr. Hawkins’ claim

with prejudice). The Fifth Circuit based its decision on an 

erroneous interpretation of Sims v. Carrington Mortgage Servs., 

L.L.C., 440 S.W.3d 10 (Tex. 2014, reh'g denied), which legalized

"restructurings" that capitalize past-due sums into the note. 

According to the Fifth Circuit, a modification of a home equity 

loan can include terms that otherwise violate Section 50(a)(6) so 

long as the modification agreement does not extend new credit to 

the borrower.
3

Also pending in federal court, an identical case against 

Bank of America alleges a $414,500 home equity loan that was 

modified to include a $280,000 balloon, and another loan that 

was modified to schedule interest-only for five years. See Starkey 

et al. v. Bank of America, N.A., No. 4:12-cv-02084, Doc. 58 (S.D. 

Tex. Nov. 3, 2014) (3d A. Complaint) (stayed pending finality in

Hawkins, cited above).

ARGUMENT IN REPLY

The trial court's decision in this case and the Fifth Circuit's 

decision in Hawkins would legalize both balloons and other terms 

that are anathema to Section 50(a)(6) loans, like personal recourse 

and nonjudicial foreclosure. Appellants argued in their opening 

brief that some of the requirements of Section 50(a)(6) are facially 

perpetual for the life of a home equity loan and cannot be 

bargained away after closing. Brief of Appellants at 18. This reply 

brief offers additional points in response to Nationstar's brief and 

the recent Fifth Circuit decision in Hawkins, which Appellants 

believe was wrongly decided.1

 1 Hawkins is not controlling on this Court, and, as an unpublished per curiam 

opinion, is not even controlling in other federal cases. See Hayes v. Bank of 

Am., N.A., No. 4:13-CV-760-A, 2014 WL 308129, at *6 n. 2 (N.D. Tex. 2014)
4

I. Sims briefly recapitulated

Appellants' opening brief discusses Sims at length. Brief of 

Appellants at 14-16. Summarized to frame the arguments in this 

Reply, Sims legalizes the capitalization of past-due sums into a 

home equity note without the parties having to go through all the 

hoops of originating a new home equity loan. Sims holds that 

adding principal already due under the loan documents does not, 

in and of itself, represent new money or a change in loan terms,

but is instead a mere "restructuring" of existing obligations. 440 

S.W.3d. at 16. 

However, the Texas Supreme Court stressed that the loan at 

issue in Sims continued, upon modification, to have substantially 

equal, regular payments as originally agreed when the loan was 

made: "Section 50(a)(6) does not forbid a revision of the initial 

repayment schedule that merely adjusts the regular installment 

amount." Id. No issue was presented in Sims of balloons, payment 

spikes, or other volatile payment schedules, which would 

constitute modifications of substantive loan repayment terms. 

Indeed, the Simses' restructuring actually lowered their regular 

monthly payment, and did so for the entire remainder of their

 

(acknowledging non-controlling nature of unpublished per curiam decisions of 

the 5th Circuit).
5

loan's term. Id. at *13 (table of figures shows that original

payment was permanently lowered from $611 to $492 in successive 

rate-step increments over 2 years). The lesson: any amount of 

past-due sums authorized by the loan documents can be added 

back into the note without having to originate a new loan, but 

there must still be a "regular installment amount" as contemplated 

by the original note. Nothing in Sims impliedly or expressly allows 

the parties to substitute a new, volatile payment schedule for the 

substantially-equal payment schedule in the original note.

II. Sims addresses solely capitalization events, not 

changes to the terms of the original loan.

Sims is a narrow holding on specific facts concerning the 

amount of money included in a loan's principal, and the 

terminology it employs to limit its holding to such situations is 

critical to understanding why it has nothing to do with this case.

The facts in Sims deal solely with a "restructuring" event 

that capitalizes past-due sums into the note and adjusts the 

"regular installment amount" accordingly. 440 S.W.3d at 16. The 

Simses had past-due sums capitalized into their existing note, 

their interest rate lowered by several percent in stages, and their 

monthly installment of principal and interest permanently lowered 
6

by $120 until maturity. 440 S.W.3d at 12. Their original loan's 

substantially-equal payment scheme was not altered; nor were any 

other substantive changes made to the loan terms. The sole issue 

for decision was whether the capitalization event constituted a 

new extension of credit (that is, a new home equity loan). The 

Texas Supreme Court said No, the existing loan merely continues

rolling on with the increased, reamortized principal allocated to 

slightly lower regular payments.

The Sims decision takes pains to refer to the narrow type of 

agreement at issue there as either a "restructuring" or else a 

"capitalization," avoiding use of the term "modification" since no 

changes were made to the terms of the loan:

The applicability . . . of Section 50(a)(6), which governs 

home equity loans, depends not on whether the 

transaction is a modification or a refinance but on 

whether it is an “extension of credit”. If the 

restructuring of a home equity loan does not involve a 

new extension of credit, the requirements of Section 

50(a)(6) do not apply. Thus, we restate the first certified 

question as follows:

1. After an initial extension of credit, if a 

home equity lender enters into a new 

agreement with the borrower that capitalizes 

past-due interest, fees, property taxes, or 

insurance premiums into the principal of the 

loan but neither satisfies nor replaces the 

original note, is the transaction a new 

extension of credit for purposes of section 50 of 

Article XVI of the Texas Constitution?
7

440 S.W.3d at 15; see id. at 17 (using "restructuring"). The Sims

Court in fact expressly rejected use of the term "modification" to 

describe capitalization-type agreements because, in the Supreme 

Court's view, the capitalization event does not modify the terms of 

the loan. 440 S.W.3d at 15-16. 

At the risk of repetition but to bring the point home, the 

narrow holding of Sims is that if an agreement (by whatever 

name) does no more than add ("capitalize") sums already due 

under the existing terms of the loan back into to the principal of 

the note, then that specific agreement or event is not a "new

extension of credit." Accordingly, the post-closing restructuring 

agreement does not have to comply anew with all the myriad 

requirements of Section 50(a)(6), as a new extension of credit

would.

By contrast with the Sims facts, it is emphatically true that

the post-closing agreements at issue in this case contain two 

distinct components, a Sims-type capitalization/restructuring that 

is not a modification at all, and also a modification of the original 

notes' substantially-equal payment schedules. Despite this 

seemingly irrefutable fact, Nationstar consistently conflates the

restructuring aspect (authorized by Sims) with the separate and 
8

distinct change to the payment scheme (not authorized by Sims).

Brief of Appellees at 21. Nationstar further confuses matters with

a digression into a three-part test whether a "modification" is an 

"extension of credit." But the issue whether the restructuring 

aspect of Appellants' modification agreements constitute an

extension of credit is irrelevant --Appellants acknowledge that the 

capitalization portion of their loan modification agreements is 

permissible. It is the separate and distinct implementation of new, 

volatile payment schedules that is at issue here.

A restructuring and an actual modification of a loan term can

exist either side-by-side in one agreement, or else separately in 

unrelated agreements. In this case, Nationstar both restructured 

the loan to capitalize past-due payments and also rescheduled that

restructured principal to include a teaser-period of interest-only 

payments followed by a payment spike meeting the definition of a 

balloon. See 7 Tex. Admin. Code § 151.1(1) (2015). However, a

given post-closing agreement could do nothing more than amend 

the payment schedule to lower the monthly payments and schedule 

a large balloon to recapture the deferred amounts, or else create a 

multi-year period of interest-only payments followed by a payment 

spike. Neither is permissible at closing; the issue here is whether 
9

such practices are permissible afterward, whether combined with a 

restructuring or not. 

What Nationstar does, by misconstruing Sims to cover all

post-closing transactions and not only capitalizations, is construct

an argument that any post-closing agreement short of a new 

extension of credit is permissible no matter what it provides -- in 

other words, that any event that does not include new money is 

allowed to violate any provision in Section 50(a)(6): "Because the 

modifications were not new extensions of credit, none of the

requirements in Section 50(a)(6)—including those in Section 

50(a)(6)(L)—apply to them." Brief of Appellees at 21. The Fifth 

Circuit similarly conflates restructurings and substantive changes 

to the loan terms and makes the same mistake:

The Hawkins and Cusick transactions each involved 

capitalization of past-due amounts under the loan 

without satisfying or replacing the original note, 

advancing new funds, or increasing the obligations 

created by the original note. Thus, the restructurings of 

these loans were modifications, which do not require 

compliance with Section 50(a)(6).

Hawkins, 2015 WL 3505353, at *2 (emphasis added). The upshot of 

misapplying Sims to cover all post-closing agreements is that all 

modifications become exempt from Section 50, since by definition a 

mere modification does not extend new credit. See Sims; see also 7 
10

Tex. Admin. Code § 153.14(2)(B) (2008) (the advance of additional 

funds is not permitted by a modification).

This confused commingling of capitalizations that don't alter 

the loan and modifications that do is disastrous. No authority

(except the new Hawkins decision in the Fifth Circuit) supports a

broad rule allowing literally anything except new money to be 

included in a modification. The narrow holding in Sims, validating 

capitalizations, does not reject or even conflict with how the 

official regulations treat "modifications" that actually alter the 

terms of the loan. See 7 Tex. Admin. Code § 153.14. The 

regulations say, among other things, that a modification cannot 

implement "new terms" that would have been prohibited "at the 

date of closing." 7 Tex. Admin. Code § 153.14(2)(C) (emphasis 

added). Would a balloon note have been prohibited at closing?

Plainly Yes, which is why it isn't allowed at any point later and is 

an impermissible "modification" of loan terms. The same holds 

true for modifications that permit personal recourse and 

nonjudicial foreclosure. Since such "new terms" were not at issue 

in Sims, Sims had no need to fashion a general rule concerning

true modifications.

In summary, Sims does legalize capitalization agreements, 
11

which do not modify the terms of the loan; but it does not legalize

(or even address) agreements that do modify the terms of the loan. 

No conclusion can be drawn from Sims concerning post-closing 

events other than the capitalization of past-due sums, and that is 

true whether such events accompany a capitalization (as occurred 

in this case) or are the subject of a separate agreement. That said, 

it is supremely troublesome when a borrower facing foreclosure

gives up important borrower protections of Section 50(a)(6), such 

as substantially-equal payments, as the price for having the lender 

capitalize past-due payments to bring the loan current and prevent 

foreclosure. There is no reason why Nationstar could not have 

stopped at mere capitalization, adjusting the interest rate and 

potentially the maturity date to achieve low payments 

permanently, rather than resorting to a new schedule of payments 

with profound payment volatility.

III. New extensions of credit must satisfy all of 

Section 50(a)(6), but a mere modification may, 

separately, violate any or all of the particular

requirements of Section 50(a)(6)

Another way Nationstar incorrectly characterizes Sims stems 

from how Sims permits capitalization restructurings to avoid "all" 

of Section 50(a)(6):

The applicability . . . of Section 50(a)(6), which governs 
12

home equity loans, depends not on whether the 

transaction is a modification or a refinance but on 

whether it is an “extension of credit”. If the 

restructuring of a home equity loan does not involve a 

new extension of credit, the requirements of Section 

50(a)(6) do not apply. 

440 S.W.3d at 15 (emphasis added). Sims only addresses whether 

an all-new loan must be originated -- from scratch, at a stroke, 

with a new closing and all the bells and whistles -- in order for 

past-due sums to be added to loan principal. Id. at 11-12 ("the 

restructuring . . . need not meet the constitutional requirements 

for a new loan").

Sims had no occasion to address whether a separate, 

substantive modification of a loan term violated one (and only one)

specific provision of Section 50(a)(6). The Supreme Court did

discuss specific subsections of Section 50, but solely in the context 

of the core issue whether all of Section 50(a)(6)(A)-(Q) is triggered.

The Supreme Court discussed Section 50(a)(6)(B), the 80% loan-tovalue ratio requirement, but merely to point out that it only 

applies "on the date the extension of credit is made." 440 S.W.3d at 

17 (emphasis in original). Since the Simses' later capitalization 

restructuring was not an extension of new credit, it did not trigger 

the one-time 80% test again. That leaves open the obvious question 

whether requirements that apply for the life of the loan, like 
13

Section 50(a)(6)(L), can be waived after closing. All the Supreme 

Court said about that subsection was that the Simses' 

capitalization didn't implicate it since payments remained 

substantially equal after the capitalization. In summary, the 

whole basis for the Sims suit was the Simses' claim that they 

received new loans that should have triggered all the required 

formalities; they made no claim that, apart from the capitalization

restructuring, the agreements at issue changed substantive terms 

of the original loan. Id. at 11-12. 

Here, by contrast, Appellants acknowledge that, since no new 

extension of credit occurred, no new loan was required to be 

originated triggering all of Section 50(a)(6) again. They challenge 

solely the modification of the original loan's repayment scheme, a 

modification that abandoned substantial payment equality in 

order to implement a new, volatile payment scheme. That is 

analytically distinct and separate from the Sims issue and does 

not invoke all of Section 50(a)(6), but only the clause the 

modification runs afoul of, Section 50(a)(6)(L).

IV. Nationstar miscalculates the balloon

Nationstar argues there were no payment shocks or balloons, 

avoiding any mention of the 400%-500% payment spikes and the 
14

necessity creating a new schedule of payments once principal was 

increased. Brief of Appellee at 29-30. 

Section 50(a)(6)(L)'s regulations define a balloon as any 

payment more than twice the average of all prior "scheduled" 

payments. 7 Tex. Admin. Code § 151.1(1). Nationstar averages all 

payments back to loan origination, but that cannot be correct. As 

Nationstar's own evidence shows, the loans were restructured to 

capitalize past-due sums into the notes and re-amortize the 

payments according the new principal sums and interest rates.

CR206-207 (¶¶ 10-11, 17-18). It makes no sense to refer to the 

payments scheduled under the original amortization schedule

because those payments were based on superseded loan figures. 

The relevant "scheduled" payments for Graze and Criddle can only 

be those set out in the post-origination modifications since those 

schedules contain the new, increased principal sums upon which 

the new payment schedules are based. Nationstar is comparing 

apples to oranges in order to minimize the harm it did to 

Appellants and avoid the regulations' technical definition of a 

"balloon." 

In any event, whether or not the post-modification payment 

spikes constitute "balloons" according to the regulations, the fact 
15

that the borrowers' payments went up by factors of over 400% in 

each case defeats any contention that the borrowers' payments 

were "substantially equal" within the meaning of Section 

50(a)(6)(L). 

V. Nationstar's purported cures are the

violations of Section 50(a)(6)(L)

Nationstar argues that certain letters it sent to the borrowers

in 2012, a year before the borrowers notified Nationstar of 

violations, were in fact cures. Brief of Appellee at 31 (citing 

CR266, 321). But those weren't cures -- they are the violations 

complained of. 

Section 50's cure process requires a borrower to notify the 

lender, at which time the lender has 60 days to cure the illegality. 

Section 50(a)(6)(Q)(x). A Section 50 cure requires that the lender 

[send] the owner a written notice modifying any other 

amount, percentage, term, or other provision prohibited 

by this section to a permitted amount, percentage, term, 

or other provision and adjusting the account of the 

borrower to ensure that the borrower is not required to 

pay more than an amount permitted by this section and 

is not subject to any other term or provision prohibited 

by this section.

Section 50(a)(6)(Q)(x)(c). In the alternative, if a cure isn't possible 

under subsection (c) above, the lender must credit the borrower 

$1,000 and 
16

[offer] the owner the right to refinance the extension of 

credit with the lender or holder for the remaining term 

of the loan at no cost to the owner on the same terms, 

including interest, as the original extension of credit 

with any modifications necessary to comply with this 

section or on terms on which the owner and the lender 

or holder otherwise agree that comply with this section.

Section 50(a)(6)(Q)(x)(f). Failure to cure according to this process 

results in forfeiture. Id. 

Graze's evidence shows that he notified Nationstar of 

illegality on February 19, 2013. CR347. Any cure was due April 19, 

2013. Nationstar took no action to cure thereafter. CR340. 

Criddle's evidence establishes that she sent notices of illegality on 

January 28, 2013, and April 23, 2013. CR356, 358. Nationstar 

never responded. CR354, 360. Nationstar in fact believed that the

modifications violated Section 50 in the ways the borrowers 

identified, and told Graze and other borrowers as much; yet

Nationstar still refused to cure and began foreclosure proceedings. 

CR349, 351, 363-366 (admissions); CR 343, 349, 372 (foreclosure 

notices).

Inspection of the letters to Graze and Criddle reveals that 

they are not cures contemplated by the process set out in Section 

50, but instead ordinary lender notifications to Graze and Criddle 

that the borrowers are about to get hit with balloon payments 
17

owing to the conclusion of the interest-only payment periods. As a 

matter of law, these do not constitute cures. They do not comply

the cure process contemplated by Section 50 and evidence no 

agreement or implementation of any cures. And they do not, in 

fact, cure the illegality of the modifications -- they affirmatively

implement it. These letters, far from showing any cure, constitute

the proof that Plaintiffs' loans violate the "substantially equal" 

requirement. 

VI. The independent requirement that payments pay all 

interest coming due doesn't doesn't provide a safeharbor for payments composed solely of interest

Nationstar argues that since Appellants' interest-only 

payments paid all interest coming due every period, the altered 

payment schedules fully comply with Section 50(a)(6)(L). Brief of 

Appellee at 25-26. But paying all interest due each period is not 

the sole criterion for legality under Section 50(a)(6)(L). If that 

were the case, then balloons composed of principal deferred for 30 

years would be legal. Meeting the independent requirement that 

payments pay all current interest cannot exempt an otherwise 

volatile payment schedule from the other requirements. 

As argued in Appellants' opening brief, interest-only 

payments do not meet the first discrete requirement of Section 
18

50(a)(6)(L), that the loan be "repaid." Brief of Appellants at 23. 

Payments without a principal component do not, by definition, 

"repay" the original loan amount. In addition, interest-only 

schedules generate substantial inequality and balloons, as 

demonstrated with the Graze and Criddle modifications, where 

payments went up by four-fold and five-fold at the end of the 

interest-only periods. 

What the requirement that all interest coming due must be 

paid with each installment addresses is a specific problem not 

implicated in this case: negative amortization. That occurs when 

accrued but unpaid interest builds up. As explained in the Graham

article: 

Interest that has accrued but has not been paid is added 

to the original amount owed, with the result being the 

borrower owes more principal each month, despite 

making payments. Negative amortization is expressly 

prohibited for Texas home equity loans.

Ann Graham, Where Agencies, the Courts, and the Legislature 

Collide: Ten Years of Interpreting the Texas Constitutional 

Provisions for Home Equity Lending, 9 Tex. Tech Admin. L.J. 69, 

84-85 (2007).

VII. “Temporary” = Volatile = Bad

Nationstar repeatedly characterizes the interest-only period

of Appellants’ loan modifications as “temporary,” as though that 
19

were a good thing. By that test, “temporary” interest-only periods 

at the outset of a loan would be good too, since a 2% teaser rate 

would permit borrowers who could not otherwise afford a home 

equity loan to get one – at least initially. But teaser periods are 

Constitutionally bad. They create surprise payment obligations 

later. And they are as bad at the middle of the loan as they are at 

the beginning or the end. What the requirement of “substantially 

equal” prohibits is, precisely, payment volatility. “Temporary” 2-

year periods where the bottom drops out entirely, as illustrated in 

Nationstar’s graphs (Brief of Appellee at 12-13) do not help the 

borrower because they exemplify the volatility that Section 

50(a)(6)(L) seeks to prevent. 

While payments that pay no interest are an independent 

violation of Section 50(a)(6)(L) as argued in Appellants’ opening 

brief, the volatility metric looks only at dollar amount variability. 

That metric is not dependent on whether principal is included with

every payment, but instead on the delta in the payment amount

from month to month, or year to year. That is why, in the case of 

variable-rate home equity loans, the regulations permit only 

gradual interest-rate steps so that payments will remain 

“substantially equal between each interest rate adjustment.” 7 
20

Tex. Admin. Code § 153.16. Preventing huge interest-rate swings 

is one important reason Section 50(a)(6)(L) exists.

The bottom fell out of Appellants’ monthly payments for two 

years in this case, which was good only while it lasted. The 

interest rate was slashed to 2%, a fraction of the notes’ respective 

rates, but after two years it would abruptly jump back up to the 

original rate, multiples higher. That is textbook substantial 

inequality, since there are no tiers or baby-steps as a variable-rate 

loan -- which in essence is what these loans became -- would 

require. These huge swings would be as bad month to month as 

they would be year to year because they whipsaw the borrower in 

either case, belying Nationstar’s assertion that Section 50(a)(6)(L) 

favors “temporary” volatility as a foreclosure prevention tool.

Finally, nothing in Section 50(a)(6) defines “temporary” for 

purposes of allowing a holiday from substantially-equal payment 

schedules. This Court would have to legislate that. While 

Appellants’ fractional-payment periods were two years, other cases 

in the MDL were both shorter and longer. In the recent Hawkins

case in the Fifth Circuit, the period was five years. 2013 WL 

3505353, at *1. It is difficult to see how to settle on any given 

allowable period, since short periods done sporadically can 
21

generate volatility just as one long period followed by a balloon 

can. The test for volatility is not the duration of the payment 

steps, but their magnitude. Had Nationstar scheduled Appellants’ 

payments to rise in 1% increments annually following the rate 

plummet to 2%, that would have avoided creating the brick wall 

following the “temporary” period of reduced payments.

CONCLUSION

The most important thing for the Court to take from Sims is 

that it does not address modifications of the original loan's terms.

In fact, Sims took pains to distinguish capitalizations 

(restructurings) from all other kinds of post-closing agreements.

And the facts of Sims gave the Supreme Court no occasion to 

address changes to the original loan's terms. The Simses, unlike 

Appellants here, continued to have substantially equal payments 

after their modifications because their agreements did not change 

the repayment terms of their original loan but merely adjusted it 

slightly downward permanently. Nationstar and the Fifth Circuit 

U.S. Court of Appeals both miss that point. While the 

capitalization events within Appellants' "loan modification 

agreements" were valid and did not trigger anew a Section 50(a)(6) 

lending moment (with all the bells and whistles), the separate and 
22

distinct change to the repayment scheme implicated Section 

50(a)(6)(L) because it affirmatively abandoned "substantially 

equal" payments. Section 50(a)(6)(L) abhors volatile repayment 

schemes throughout the life of the loan. Otherwise, it would be an 

all-but meaningless one-time requirement at closing, easily 

abandoned by modification the day after.

Respectfully submitted,

/s/ JPS

J. Patrick Sutton

Texas Bar No. 24058143

1706 W. 10th Street

Austin Texas 78703

Tel. (512) 417-5903/Fax. (512) 355-4155

jpatricksutton@ jpatricksuttonlaw.com

Jeffrey W. Hurt, Esq.

Texas Bar No. 10317055

10670 N. Central Expy Ste 450

Dallas, Texas 75231

Tel: (214) 382-5656/Fax: (214) 382-5657

jwhurt@hurtberry.com

Attorneys for Appellants
23

CERTIFICATE OF SERVICE

I certify that on July 13, 2015, per T.R.A.P. 6.3(b), a true and 

correct copy of this brief was served by efiling and email on:

Thomas G. Yoxall

Daron Janis

Locke Lord LLP

2200 Ross Avenue Suite 2200

Dallas TX 75201

tyoxall@lockelord.com

djanis@lockelord.com

B. David L. Foster

Locke Lord LLP

600 Congress Avenue, Suite 

2200

Austin, Texas 78701

dfoster@lockelord.com

/s/ J. Patrick Sutton 

Attorney for Plaintiffs-Appellants 

CERTIFICATE OF COMPLIANCE

This document complies with the typeface requirements of Tex. R. 

App. P. 9.4(e) because it has been prepared in Century Schoolbook 

14-point for text and 12-point for footnotes. Spacing is expanded 

by .6 point for clarity. This document also complies with the wordcount limitations of Tex. R. App. P. 9.4(i)(2) because it contains 

4317 words, excluding any parts exempted by Tex. R. App. P. 

9.4(i)(1), and Appellants' briefs do not in the aggregate exceed 

27,000 words.

/s/ J. Patrick Sutton 

Attorney for Appellants