IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 14-51156

TERESA GAROFOLO, 

 Plaintiff - Appellant

v.

OCWEN LOAN SERVICING, L.L.C., 

 Defendant - Appellee

Appeal from the United States District Court

for the Western District of Texas

USDC No. 1:14-CV-745

Before HIGGINBOTHAM, DENNIS, and HAYNES, Circuit Judges.

PER CURIAM:*

Teresa Garofolo (“Garofolo”) appeals the district court’s dismissal of her 

claims against Ocwen Loan Servicing, L.L.C., (“Ocwen”) for violating Article 

XVI, § 50(a)(6)(Q)(vii), of the Texas Constitution and for breach of contract. 

Because the constitutional cause of action raises an important issue of Texas 

constitutional law as to which there is no controlling Texas Supreme Court 

authority, and the authority from the intermediate state appellate courts 

provides insufficient guidance, we certify the relevant question to the Texas 

 

* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not 

be published and is not precedent except under the limited circumstances set forth in 5TH 

CIR. R. 47.5.4.

United States Court of Appeals

Fifth Circuit

FILED

June 9, 2015

Lyle W. Cayce

Clerk

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Supreme Court. See TEX. CONST. art. V, § 3-c(a); TEX. R. APP. P. 58.1. Because 

the only other claim on appeal—the breach of contract claim—is intertwined 

with the constitutional claim, we certify that question as well.

I.

Taking Garofolo’s factual allegations as true, as we must in reviewing a 

granted motion to dismiss under Rule 12(b)(6), we briefly recite the facts. See 

Randall D. Wolcott, M.D., P.A. v. Sebelius, 635 F.3d 757, 763 (5th Cir. 2011). 

In September 2010, Garofolo procured a home equity note in the amount of 

$159,700 from Ally Bank, secured by a lien on her homestead. In accord with 

Article XVI, § 50(a)(6)(Q)(vii) of the Texas Constitution, the Security 

Instrument provided that “[w]ithin a reasonable time after termination and 

full payment of the Extension of Credit, Lender shall cancel and return the 

Note to the owner of the Property and give the owner . . . a release of the lien.” 

Garofolo timely remunerated every monthly payment to the entity identifying

itself as the owner of the note until the note was paid in full on April 1, 2014. 

At the time of full payment, Ocwen was the holder of the note. Mortgage 

Electronic Registration Systems, Inc. (“MERS”),1 acting as the nominee for 

Ally Bank and its successors or assigns, recorded a release of lien on April 28, 

2014, in Travis County, Texas. However, Garofolo did not receive the cancelled 

promissory note or the release of lien, and she informed Ocwen of this 

deficiency. 

 

1 As one Texas court has described:

MERS was created for the purpose of tracking ownership interests in 

residential mortgages. Entities such as mortgage lenders subscribe to MERS 

and pay annual fees for the electronic processing and tracking of ownership 

and transfers of mortgages. These members contractually agree to appoint 

MERS to act as their common agent on all mortgages they register in MERS.

Robeson v. Mortg. Elec. Registration Sys., Inc., No. 02-10-00227-CV, 2012 WL 42965, at *5 

(Tex. App.—Fort Worth Jan. 5, 2012, pet. denied) (memo op.) (citations omitted). 

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When Ocwen did not cure this defect within 60 days of receiving notice

from Garofolo, she filed suit alleging that Ocwen violated Article XVI,

§ 50(a)(6)(Q)(vii), of the Texas Constitution and for breach of contract. On both 

claims, Garofolo sought forfeiture of all principal and interest paid pursuant to 

the note. Ocwen filed a motion to dismiss, arguing that the Texas Constitution 

does not obligate a lender or holder to cancel and return a note upon full 

payment by the owner of the property. Instead, Ocwen contended that the

Texas Constitution is satisfied by merely including such a requirement in the 

terms of the Security Instrument. Because the Security Instrument here 

included that requirement, Ocwen asserted that Garofolo did not suffer a 

constitutional injury. Ocwen’s motion to dismiss also argued that Garofolo did 

not allege actual damages, a predicate to recovering money damages for breach 

of contract. The district court agreed with both arguments and dismissed 

Garofolo’s complaint with leave to amend. Garofolo declined to amend her 

complaint, and appealed the district court’s order.2 The district court then 

dismissed Garofolo’s suit without prejudice.

 

2 Garofolo filed an appeal from the district court’s order dismissing her complaint 

without prejudice and granting her leave to amend, but she did not subsequently file an 

appeal from the district court’s final judgment dismissing her action. While the first order 

did not constitute a final, appealable judgment under 28 U.S.C. § 1291, see, e.g., Russell v. 

Watkins Ludlam Winter & Stennis, P.A., 181 F. App’x 441, 444 (5th Cir. 2006) (unpublished), 

we conclude that her appeal is nonetheless timely. Federal Rule of Appellate Procedure 

4(a)(2) provides that “[a] notice of appeal filed after the court announces a decision or order—

but before the entry of the judgment or order—is treated as filed on the date of and after the 

entry.” In FirsTier Mortgage Co. v. Investors Mortgage Insurance Co., the Supreme Court 

held that “Rule 4(a)(2) permits a notice of appeal from certain nonfinal decisions to serve as 

an effective notice from a subsequently entered final judgment.” 498 U.S. 269, 274 (1991). 

As an example, it noted that an appeal is timely under this rule if an appellant files a notice 

of appeal from a district court’s order dismissing his complaint with leave to amend but not 

from the court’s subsequent final dismissal of the action. Id. at 275; see also Covey v. Ocwen 

Loan Servicing, Inc., 574 F. App’x 421, 422 n.1 (5th Cir. 2014) (unpublished).

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II.

A. Constitutional Claim

Prior to 1997, Texas prohibited home equity loans. Stringer v. Cendant 

Mortg. Corp., 23 S.W.3d 353, 354 (Tex. 2000). Voters amended the Texas 

Constitution in 1997 to “expand the types of liens for loans that a lender . . . 

could place against a homestead. The amendment allows homeowners who 

have either entirely repaid their home loans or who have accumulated equity 

in their homestead over and above existing liens to apply for a loan . . . .” Id. 

In passing the amendment, Texas became the last state in the country to allow 

home equity loans and, unlike most other states, such loans are regulated not 

by statute, “but by the elaborate, detailed provisions” of the Texas 

Constitution. Sims v. Carrington Mortg. Servs., L.L.C., 440 S.W.3d 10, 13 (Tex. 

2014) (citation and internal quotation marks omitted). This “elaborate” 

framework reflects Texas’s “strong, historic protection of the homestead.” Id.

The constitutional provision at issue in this action reads:

(a) The homestead of a family, or of a single adult person, shall be, 

and is hereby protected from forced sale, for the payment of all 

debts except for: . . .

(6) an extension of credit that: . . .

(Q) is made on the condition that: . . .

(vii) within a reasonable time after termination 

and full payment of the extension of credit, the 

lender cancel and return the promissory note to 

the owner of the homestead and give the owner, 

in recordable form, a release of the lien securing 

the extension of credit or a copy of an 

endorsement and assignment of the lien to a 

lender that is refinancing the extension of 

credit; . . .

(x) except as provided by Subparagraph (xi) of 

this paragraph, the lender or any holder of the 

note for the extension of credit shall forfeit all 

principal and interest of the extension of credit 

if the lender or holder fails to comply with the 

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lender’s or holder’s obligations under the 

extension of credit and fails to correct the failure 

to comply not later than the 60th day after the 

date the lender or holder is notified by the 

borrower of the lender’s failure to comply 

by: . . . .

TEX. CONST. art. XVI, § 50(a)(6)(Q)(vii), (x).

Although the Texas Supreme Court has interpreted Section 50(a)(6)(Q) 

on several occasions—frequently on certification from this court—it has yet to 

address the provisions at issue in this case. See, e.g., Stringer, 23 S.W.3d at 

354 (construing TEX. CONST. art. XVI, § 50(a)(6)(Q)(i) on certification from this 

court). 

Garofolo contends that the import of the provisions above is that if a 

lender fails to return the original note as “paid” and provide a release of lien 

form within sixty days of demand, it must forfeit all principal and interest. 

Ocwen, on the other hand, argues that the language “made on the condition 

that” means simply that the security instrument itself must contain that 

language (failing which forfeiture is a remedy), but that the Texas Constitution 

otherwise offers no remedy if the lender includes the language in the security 

instrument but fails to return the note and release of lien. Garofolo’s 

construction appears to give rise to a drastic remedy, but Ocwen’s construction 

appears to render the requirement a virtual nullity except in the (hopefully 

rare) circumstance where a lender unscrupulously attempts to enforce a paid 

note resulting in recoverable damages.

No Texas Supreme Court case directly addresses this question. Garofolo 

points to language from the Texas Supreme Court, construing a different part 

of the home equity provisions, that Section 50(a)(6)(Q) articulates the 

“substantive rights and obligations of the lenders and borrowers.” Stringer, 23 

S.W.3d at 357. To enforce these terms and conditions, Stringer noted that 

Section 50(a)(6)(Q)(x) “provides that the lender forfeits all principal and 

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interest of the loan if it fails to comply with the obligations set out in [S]ection 

50(a)(6).” Id. at 356–57. However, Stringer did not confront the precise

question presented here: whether inclusion of the return obligations in the note 

is all that is required or whether compliance with the return obligations is 

mandated. 

The parties cite to various intermediate state appellate court decisions 

to support their conflicting interpretations. In Vincent v. Bank of America, 

N.A., 109 S.W.3d 856, 861 (Tex. App.—Dallas 2003, pet. denied), the borrower 

alleged that the lender violated the loan agreement, which required payments 

to be allocated to principal and interest according to a specific formula. The 

borrower sought to recover under Section 50(a)(6)(Q)(x), which entitles a 

borrower to forfeiture of principal and interest for uncured violations of Section 

50(a)(6). See Vincent, 109 S.W.3d at 861–62. First, the court held that the 

borrower failed to state a constitutional claim because Section 50 does not 

govern the allocation of payments between principal and interest. Id. at 862. 

It reasoned that “forfeiture is only available for violations of constitutionally 

mandated provisions of the loan documents.” Id. Second, the borrower argued 

that the lender’s impermissible allocation of payments violated Section 

50(a)(6)(L), which requires a loan be “scheduled to be repaid in equal successive 

monthly installments.” TEX. CONST. art. XVI, § 50(a)(6)(L). The court also 

rejected this argument, stating that “[a]s long as the Loan Agreement, as 

originally entered into by the parties, complies with the provisions of the 

constitution, forfeiture is not an appropriate remedy.” Vincent, 109 S.W.3d at 

862.

Garofolo argues that Vincent’s instruction that “forfeiture is only 

available for violations of constitutionally mandated provisions of the loan 

documents” supports her claim because she alleges a violation of a 

constitutionally mandated provision. See TEX. CONST. art. XVI, 

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§ 50(a)(6)(Q)(vii). On the other hand, Vincent also undermines Garofolo’s 

argument by noting that a constitutional violation only occurs if the loan 

agreement, “as originally entered into by the parties,” does not comply with the 

Constitution. As Ocwen points out, the Security Instrument in this case 

incorporated Section 50(a)(6)(Q)(vii)’s requirements. 

Ocwen’s argument is bolstered by Wells Fargo Bank, N.A. v. Robinson, 

391 S.W.3d 590 (Tex. App.—Dallas 2012, no pet.). In Robinson, the borrower 

alleged that Wells Fargo violated Section 50(a)(6)(D), which mandates that a 

lien may only be foreclosed by court order. Id. at 593. The loan agreement, or 

deed of trust, incorporated this requirement, and Wells Fargo ultimately 

sought to foreclose on the property. Id. Although the court authorized Wells 

Fargo to foreclose on May 6, 2008, the foreclosure sale was conducted on a 

different date—meaning it was not authorized by court order. Id. Because the 

sale was not authorized by court order, the borrower argued that it violated 

the Texas Constitution and entitled the borrower to principal and interest 

under Section 50(a)(6)(Q)(x). Id. at 595. The court disagreed. Relying on 

Vincent, it held that as long as the deed of trust complied with the Texas 

Constitution, any subsequent breach by Wells Fargo should be pursued in 

traditional tort and breach of contract causes of action. Id. Thus, the borrower 

was not entitled to forfeiture because the deed of trust incorporated Section 

50(a)(6)(D)’s requirement.3 Id.

In contrast, Garofolo cites to Box v. First State Bank, which considered 

an alleged violation of Section 50(a)(6)(Q)(i). 340 B.R. 782, 784 (S.D. Tex. 

2006). That provision “prohibits a lender from requiring the homestead owner 

to apply loan proceeds to pay another debt owed to the same lender.” See id.

 

3 Galvan v. Centex Home Equity Co., L.L.C., 2008 WL 441773 at *4–5 (Tex. App.—San 

Antonio 2008, no pet.), is not helpful here because it involved review of an arbitration decision 

and, therefore, applied a highly deferential standard of review. 

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(describing TEX. CONST. art. XVI, § 50(a)(6)(Q)(i)). In Box, the loan agreement 

stated, in accordance with Section 50(a)(6)(Q)(i), that the lender did not require 

the borrower to apply the loan proceeds to pay another debt. 340 B.R. at 784–

85. However, evidence suggested that the lender did in fact require the 

borrower to use the proceeds for this purpose as a prerequisite for making the 

loan. Id. at 785. Because the lender never intended to abide by the loan 

agreement, the extension of credit was not “made on the condition” that the 

lender would comply with Section 50(a)(6)(Q)(i). Accordingly, the court held 

that the loan was invalid as it violated the Texas Constitution. Id. at 789. This 

case is distinguishable, however, as it does not involve a contention that the 

original lender never intended to satisfy the conditions in the loan origination 

agreement. 

We find these cases inconclusive. We note that Texas has ardently 

protected the homestead. This is manifest by the Texas Supreme Court’s 

statements about Section 50, which imposes “[d]raconian consequence[s for] 

noncompliance, whether intentional or inadvertent: not merely the loss of the 

right of forced sale of the homestead, but forfeiture of all principal and 

interest.” Fin. Comm’n of Tex. v. Norwood, 418 S.W.3d 566, 571 (Tex. 2013). 

While the courts are to interpret the Texas Constitution by “rely[ing] heavily 

on its literal text,” id. at 586 (citation and internal quotation marks omitted), 

Ocwen’s reading of the statute may significantly diminish the “[d]raconian 

consequence of noncompliance” by allowing lenders to simply ignore the actual 

import of these constitutional provisions. Id. at 571. This problem is 

highlighted by Ocwen’s argument that the breach of contract claim was 

properly dismissed for want of damages. As such, we cannot conclude that 

Ocwen’s interpretation is correct. On the other hand, given the fact that a 

release of lien was promptly filed, it seems somewhat extreme to order a 

forfeiture of all principal and interest here.

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We turn, then, to the question of whether we should certify this issue to 

the Texas Supreme Court. Under the Texas Constitution, “[t]he supreme court 

and the court of criminal appeals have jurisdiction to answer questions of state 

law certified from a federal appellate court.” TEX. CONST. art. V, § 3-c(a). It 

“may answer questions of law certified to it . . . if the certifying court is 

presented with determinative questions of Texas law having no controlling 

Supreme Court precedent. The Supreme Court may decline to answer the 

questions certified to it.” TEX. R. APP. P. 58.1. 

“The decision of whether to certify a question lies within our sound 

discretion.” Patterson v. Mobil Oil Corp., 335 F.3d 476, 487 (5th Cir. 2003) 

(citation omitted).4 We do not “lightly abdicate our mandate to decide issues 

of state law when sitting in diversity.” Jefferson v. Lead Indus. Ass’n, Inc., 106 

F.3d 1245, 1248 (5th Cir. 1997). While “certification is not a panacea for 

resolution of those complex or difficult state law questions which have not been 

answered by the highest court of the state, . . . [it] may be advisable where 

important state interests are at stake and the state courts have not provided 

clear guidance on how to proceed.” In re Katrina Canal Breaches Litig., 613 

F.3d 504, 509 (5th Cir. 2010) (citation and internal quotation marks omitted). 

Thus, while we recognize that certification is to be used sparingly, it is 

warranted here because: (1) this case involves the construction of the Texas 

Constitution, (2) it is a matter of particular importance to the State of Texas, 

and (3) there are no Texas Supreme Court cases dealing with the issue at hand. 

See Sims v. Carrington Mortg. Servs., L.L.C., 538 F. App’x 537, 543 (5th Cir. 

2013) (unpublished) (listing these factors as a basis for certifying a case 

involving Section 50 to the Texas Supreme Court). We note that we have 

 

4 Of course, the decision whether to accept the certified question is solely within the 

province of the Texas Supreme Court. See TEX. R. APP. P. 58.1. 

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previously certified thorny questions under Section 50. See, e.g., id. at 543; 

Doody v. Ameriquest Mortg. Co., 242 F.3d 286 (5th Cir. 2001); Stringer v. 

Cendant Mortg. Corp., 199 F.3d 190 (5th Cir. 1999). Both our court and the 

Texas Supreme Court have acknowledged that Section 50 implicates important 

Texas interests. See Doody, 242 F.3d at 290 (“For that reason and for the 

reason that these questions affect important interests of Texas, we are 

reluctant to undertake in the first instance to decide whether an exception is 

appropriate here.”); Sims, 440 S.W.3d at 13 (opining on Texas’s “historic 

protection of the homestead”).5

B. Breach of Contract

Garofolo also alleged that Ocwen breached the Security Instrument by 

failing to return the cancelled note and provide a release of lien.6 Pursuant to 

 

5 We note, too, that this may become a recurring issue. This identical issue was 

presented in Estes v. JP Morgan Chase Bank, N.A., No. 14-51103, ___ F. App’x ___, 2015 WL 

2386053 (5th Cir. May 20, 2015). Although that case was decided on other grounds, it 

demonstrates that the issue is not limited to this one case, a fact that supports certifying the 

question. See Barnes v. Atl. & Pac. Life Ins. Co. of Am., 514 F.2d 704, 706 (5th Cir. 1975). 

6 Section 19 of the Security Instrument states: 

All agreements between Lender and Borrower are hereby expressly 

limited so that in no event shall any agreement between Lender and Borrower 

or between either of them and any third party, be construed not to allow Lender 

60 days after receipt of notice to comply as provided in this Section 19, with 

Lender’s obligations under the Extension of Credit to the full extent permitted 

by Section 50(a)(6), Article XVI of the Texas Constitution. Borrower 

understands that the Extension of Credit is being made on the condition that 

Lender shall have 60 days after receipt of notice to comply with the provisions 

of Section 50(a)(6), Article XVI of the Texas Constitution. As a precondition to 

taking any action premised on failure of lender to comply, Borrower will advise 

Lender of the noncompliance by a notice given as required by Section 14, and 

will give Lender 60 days after such notice has been received by Lender to 

comply. Except as otherwise required by Applicable law, only after lender has 

failed to comply, shall all principal and interest be forfeited by Lender, as 

required by Section 50(a)(6)(Q)(x), Article XVI of the Texas Constitution in 

connection with failure by Lender to comply with its obligations under the 

Extension of Credit . . . .” 

The Security Instrument defines “Lender” to include “any holder of the Note who is 

entitled to receive payments under the Note.” Section 23 of the Security Instrument 

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Section 19 of the Security Instrument, Garofolo sought forfeiture of all interest 

and principal for this breach of contract.

Ocwen argues, and the district court held, that Garofolo cannot recover 

principal and interest because forfeiture is solely a constitutional remedy. See 

Vincent, 109 S.W.3d at 862 (“As long as the Loan Agreement, as originally 

entered into by the parties, complies with the provisions of the constitution, 

forfeiture is not an appropriate remedy.”). Instead, Garofolo’s “recourse for 

[Ocwen’s] failure to abide by the terms of [her] loan agreement is to assert 

traditional tort and breach of contract causes of action, not constitutionally 

mandated forfeiture.” Wells Fargo, 391 S.W.3d at 595.

“In Texas, the elements of a claim for breach of contract are: (1) a valid 

contract between the plaintiff and the defendant, (2) performance or tender of 

performance by the plaintiff, (3) breach by the defendant, and (4) damage to 

the plaintiff as a result of the breach.” Lawyers Title Ins. Corp. v. Doubletree 

Partners, L.P., 739 F.3d 848, 858 (5th Cir. 2014) (citation and internal 

quotation marks omitted). The district court observed, and Garofolo concedes, 

that she does not allege any actual damages such that she cannot satisfy one 

of the elements of the breach of contract claim. See Intercontinental Grp. P’ship

v. KB Home Lone Star L.P., 295 S.W.3d 650, 655 n.26 (Tex. 2009) (“[M]oney 

damages are essential in contract claims seeking money damages (though not 

for contract claims seeking something else).”). 

On its face, this question does not seem to present the complexities and 

policy considerations inherent in the constitutional claim. However, in light of 

the potential intertwining of the two issues and the possibility that the Texas 

Supreme Court could conclude that the breach of contract claim presents the 

 

expressly incorporates the requirement that the Lender shall return the cancelled Note and 

release of lien to the homestead owner upon full payment.

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right approach to accessing a forfeiture remedy, we determine that it is 

prudent to certify both questions for consideration by that court.

C. Certified Questions

Accordingly, we certify the following questions to the Texas Supreme 

Court: 

1. Does a lender or holder violate Article XVI, Section 50(a)(6)(Q)(vii) of 

the Texas Constitution, becoming liable for forfeiture of principal and 

interest, when the loan agreement incorporates the protections of 

Section 50(a)(6)(Q)(vii), but the lender or holder fails to return the 

cancelled note and release of lien upon full payment of the note and 

within 60 days after the borrower informs the lender or holder of the 

failure to comply?

2. If the answer to Question 1 is “no,” then, in the absence of actual 

damages, does a lender or holder become liable for forfeiture of 

principal and interest under a breach of contract theory when the loan 

agreement incorporates the protections of Section 50(a)(6)(Q)(vii), but 

the lender or holder, although filing a release of lien in the deed 

records, fails to return the cancelled note and release of lien upon full 

payment of the note and within 60 days after the borrower informs 

the lender or holder of the failure to comply?

We disclaim any intention or desire that the Supreme Court of Texas 

confine its reply to the precise form or scope of the questions certified.

QUESTIONS CERTIFIED. 

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