Court Opinion

ID: 2805852
Source: CourtListenerOpinion
Date Created: 2015-06-05 00:01:08.745505+00
Date Added: 2024-06-11T12:05:19.163102
License: Public Domain

Case: 13-50086      Document: 00513067286         Page: 1    Date Filed: 06/04/2015

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT    United States Court of Appeals
                                                      Fifth Circuit

                                                                                  FILED
                                                                               June 4, 2015
                                      No. 13-50086
                                                                              Lyle W. Cayce
                                                                                   Clerk

CHARLES J. HAWKINS, on behalf of himself and all others similarly
situated; WILLIAM J. CUSICK, on behalf of himself and all others similarly
situated; MICHELLE E. CUSICK, on behalf of herself and all others
similarly situated; MARIA C. BROOKS,

               Plaintiffs - Appellants

v.

JP MORGAN CHASE BANK, N.A.,

               Defendant - Appellee

                   Appeal from the United States District Court
                        for the Western District of Texas
                             USDC No. 1:12-CV-892

                         ON PETITION FOR REHEARING
Before STEWART, Chief Judge, and SOUTHWICK and COSTA, Circuit
Judges.
PER CURIAM:*
       IT IS ORDERED that the petition for panel rehearing is GRANTED and
the opinion previously filed in this case, Hawkins v. JP Morgan Chase Bank,

       * 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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH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.
    Case: 13-50086    Document: 00513067286      Page: 2   Date Filed: 06/04/2015

                                 No. 13-50086
N.A., No. 13-50086, 597 F. App’x 287, 2015 WL 1142804, is WITHDRAWN.
The following opinion is substituted therefor:
      This case involves Texas home equity loan restructurings that
capitalized past-due interest, fees, taxes, and escrow into the principal of
Appellants’ home equity loans.     Appellants allege the restructurings were
actually extensions of credit, which would require compliance with Article XVI,
Section 50(a)(6) of the Texas Constitution. The Texas Supreme Court recently
answered this question, holding that transactions of this sort are loan
modifications that do not require compliance with Section 50(a)(6), unless the
restructuring “involve[s] the satisfaction or replacement of the original note,
an advancement of new funds, or an increase in the obligations created by the
original note.” Sims v. Carrington Mortg. Servs., L.L.C., 440 S.W.3d 10, 17
(Tex. 2014). Because it is unclear on our record whether Appellant Maria C.
Brooks’s restructuring involved an increase in the obligations created by the
original note via a balloon payment, we VACATE the judgment of the district
court and REMAND as to her claim. Because the remaining restructurings
did not involve satisfaction and replacement of the original notes, any increase
in obligations under the original notes, or any advancement of new funds, we
AFFIRM the dismissal of those claims.
                                       I
      Maria C. Brooks (Brooks), Charles J. Hawkins (Hawkins), and William
J. Cusick and Michelle E. Cusick (the Cusicks) on behalf of themselves and all
others similarly situated (collectively, Appellants) brought suit in federal
district court against JPMorgan Chase Bank, N.A. (JPMC) alleging various
violations of Article XVI, Section 50(a)(6) of the Texas Constitution (Section
50(a)(6)). JPMC was servicing Appellants’ loans, each of which originated with
third-party lenders. The crux of Appellants’ claims is that their transactions
with JPMC were refinances of their home equity loans that required
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                                 No. 13-50086
compliance with various provisions of Section 50(a)(6), instead of modifications
that would not require Section 50(a)(6) compliance as JPMC contends.
      Hawkins obtained a $320,000 home equity loan from Town & Country
Credit Corporation in 2005. Hawkins defaulted on this loan some time before
February 18, 2009. Hawkins and JPMC entered into an agreement to modify
the loan in a manner that would capitalize past-due interest, property taxes,
and insurance into the principal of the loan in the amount of $15,873.49, and
the term of the loan was extended to April 1, 2035. The modification also
allowed interest-only payments during the first five years following the
modification.   At the conclusion of this five-year period, JPMC would re-
amortize the loan.
      The Cusicks obtained a $268,000 home equity loan from CTX Mortgage
Company, LLC in 2005. The Cusicks defaulted on this loan before April 1,
2009. The Cusicks and JPMC entered into an agreement to modify the loan
that would increase the amount payable under the loan to $291,834.39. The
increase represented a capitalization of past-due interest and escrow on the
loan and did not alter the maturity date of the loan.
      Brooks obtained a $190,000 home equity loan from Long Beach Mortgage
Company in 2004. Brooks defaulted on this loan some time before March 1,
2012. Brooks and JPMC agreed to modify the loan under the Home Affordable
Modification Program. Unpaid interest and escrow were to be capitalized into
the principal of the loan in an amount more than $45,590.91, and the
modification allowed for a balloon payment of $146,102.76 due at the end of
the loan term on June 1, 2034.
      JPMC brought a motion to dismiss for failure to state a claim under
Federal Rule of Civil Procedure 12(b)(6), which the district court granted.
Appellants filed this appeal.

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                                   No. 13-50086
                                       II
      “We review de novo a district court order granting a Rule 12(b)(6) motion
to dismiss for failure to state a claim and may affirm on any basis supported
by the record.” Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620, 622 (5th Cir.
2013) (citing Torch Liquidating Trust ex rel. Bridge Assocs. v. Stockstill, 561
F.3d 377, 384 (5th Cir. 2009)). To survive a Rule 12(b)(6) motion, a complaint
must set out “enough facts to state a claim to relief that is plausible on its face.”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
      After this appeal was filed, the Texas Supreme Court answered
questions certified by this court in a similar case presenting similar claims,
Sims v. Carrington Mortg. Servs., L.L.C., 538 F. App’x 537, 547 (5th Cir. 2013).
The Texas Supreme Court held that:
      the restructuring of a home equity loan that . . . involves
      capitalization of past-due amounts owed under the terms of the
      initial loan and a lowering of the interest rate and the amount of
      installment payments, but does not involve the satisfaction or
      replacement of the original note, an advancement of new funds, or
      an increase in the obligations created by the original note, is not a
      new extension of credit that must meet the requirements of Section
      50.
Sims, 440 S.W.3d at 17. 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).            Id.
Therefore, we affirm the dismissal of Hawkins’s and Cusicks’ claims.
                                        III
      It is unclear from the record, however, whether Brooks’s transaction
involves an “increase in the obligations created by the original note.” Id. at 17.
The total payments due after the restructuring under Brooks’s payment
schedule equal $247,132.60. Following this schedule, the loan restructuring
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                                       No. 13-50086
documents also included a provision stating: “Notwithstanding the foregoing
schedule, I agree that unless sooner paid, I will have a final balloon payment
in the amount of $146,102.76 due and payable on the New Maturity Date.” The
district court found this provision to be a balloon payment—an apparent
violation of Section 50(a)(6)(L)(i), which requires extensions of credit to be
repaid “in substantially equal successive periodic installments.” 1
       In Sims, the Texas Supreme Court held that a restructuring capitalizing
past-due amounts owed under the initial loan is not an extension of credit
requiring Section 50 compliance if the modification does not involve, among
other things, “an increase in the obligations created by the original note.” 440
S.W.3d at 17. On our record, it is uncertain whether Brooks’s modification in
fact represents an increase in the obligation created by her original home
equity loan. On one hand, it is possible that the final payment does not
increase the obligations under the original loan because many of Brooks’s
monthly payments are not much more than the accumulated interest. On the
other hand, it is possible that the modified payment schedule accounts for the
entire loan, recapitalization, and interest for the life of the loan, in which case
the final payment, if owed in addition to the scheduled amounts, may represent
an increase in the original obligation.
       Although the district court stated that Brooks’s restructuring was an
apparent violation of Section 50, it relied on a savings clause in JPMC’s
standard security agreement that allows JPMC to reform loan documents that
violate Section 50 by providing written notice to the borrower after JPMC
receives notice of the violation. Brooks did not allege she had provided any
written notice to JPMC other than via her First Amended Complaint in this
case. The district court found the complaint insufficient to count as notice to

       1 The Texas Administrative Code, interpreting Section 50(a)(6)(L)(i), states that “[t]his
requirement prohibits balloon payments.” 7 Tex. Admin. Code § 153.11(3).
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                                 No. 13-50086
JPMC.
      However, a Texas Court of Appeals recently held, in Wells Fargo Bank,
N.A. v. Leath, 425 S.W.3d 525, 532 (Tex. App.—Dallas 2014, pet. denied), that
a pleading in a lawsuit can constitute notice that triggers a 60-day lender cure
period under Section 50(a)(6)(Q)(x). In Leath, the court held that an answer to
a bank’s application for foreclosure constituted sufficient notice of a
constitutional violation where the answer stated that the loan violated the
Texas Constitution by exceeding 80 percent of the value of the property. Id. at
532−33. The Texas Supreme Court denied the petition in Leath.
      Because it is unclear on our record whether Brooks’s modification
represented an increase in the obligation created by her original loan, we
VACATE and REMAND the dismissal of Brooks’s claim for a determination of
whether her modification violated Section 50. On remand, the district court
should consider whether, in light of Sims, Brooks’s modification violates
Section 50(a)(6)(L)(i) and whether, in light of Leath, Brooks’s First Amended
Complaint constituted sufficient notice to JPMC.          As to the dismissal of
Hawkins’s and the Cusicks’ claims, we AFFIRM.

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