Court Opinion

ID: 4074758
Source: CourtListenerOpinion
Date Created: 2016-09-30 05:20:28.782897+00
Date Added: 2024-06-11T14:26:53.427301
License: Public Domain

ACCEPTED
                                                                      14-15-00442-CV
                                                      FOURTEENTH COURT OF APPEALS
                                                                   HOUSTON, TEXAS
                                                                10/23/2015 4:36:09 PM
                                                                CHRISTOPHER PRINE
                                                                               CLERK

                No. 14-15-00442-CV
_________________________________________________
                                                      FILED IN
                                               14th COURT OF APPEALS
             In the                               HOUSTON, TEXAS
                                               10/23/2015 4:36:09 PM

   Fourteenth Court of Appeals                 CHRISTOPHER A. PRINE
                                                        Clerk

        Houston, Texas
_________________________________________________

  CARRINGTON MORTGAGE SERVICES, LLC AND
  DEUTSCHE BANK NATIONAL TRUST COMPANY,
AS INDENTURE TRUSTEE FOR NEW CENTURY HOME
          EQUITY LOAN TRUST 2005-2,
                             Appellants,
                    v.

        LARRY HUTTO AND BONNIE HUTTO,
                                Appellees.
_________________________________________________

     On Appeal from the 55th Judicial District Court of
      Harris County, Texas, Cause No. 2013-08693
_________________________________________________

                   APPELLEES’ BRIEF

                               Robert “Chip” Lane
                               State Bar No. 24046263
                               Lane@lanelaw.com
                               Anh Thu N. Dinh
                               State Bar No. 24071480
                               Dinh@lanelaw.com
                               THE LANE LAW FIRM
                               6200 Savoy, Suite 1150
                               Houston, Texas 77036
                               [Tel.] (713) 595-8200
                               [Fax] (713) 595-8201
                               ATTORNEYS FOR APPELLEES

                           1
                          IDENTITIES OF PARTIES AND COUNSEL

Appellants:                            Carrington Mortgage Services, LLC and
                                       Deutsche Bank National Trust Company, as
                                       Indenture Trustee for New Century Home
                                       Equity Loan Trust 2005-2

Counsel for Appellants:                Peter C. Smart
                                       Texas Bar No. 00784989
                                       CRAIN, CATON & JAMES, P.C.
                                       1401 McKinney St., Suite 1700
                                       Houston, Texas 77010
                                       [Tel.] (713) 658-2323
                                       [Fax] (713) 658-1921

Appellees:                             Larry Hutto and Bonnie Hutto

Counsel for Appellee:                  Robert “Chip” Lane
                                       State Bar No. 24046263
                                       Anh Thu N. Dinh
                                       State Bar No. 24071480
                                       THE LANE LAW FIRM
                                       6200 Savoy, Suite 1150
                                       Houston, Texas 77036
                                       [Tel.] (713) 595-8200
                                       [Fax] (713) 595-8201

                                         2
                                              TABLE OF CONTENTS

Identities of Parties and Counsel................................................................................ 2

Statement Regarding Oral Argument ........................................................................ 5

Issues Presented ......................................................................................................... 6

Statement of Facts ...................................................................................................... 7

Summary of Argument ............................................................................................ 12

Standard of Review .................................................................................................. 13

Argument.................................................................................................................. 14

I.       PRELIMINARY STATEMENT ON THE SUPREME COURT’S
         REVIEW ...................................................................................................…14

II.      THE HUTTOS DO NOT HAVE CLAIMS FOR AFFIRMATIVE
         RELIEF. ........................................................................................................14

III.     DEFENSES ARE NOT BARRED BY THE STATUTE OF
         LIMITATIONS.............................................................................................15

IV.      BANK FAILED TO PERFORM ITS OBLIGATIONS IN THE
         SECURITY AGREEMENT BECAUSE IT DID NOT CURE ITS
         VIOLATION OF SECTION 50(a)(6)(Q)(ix) ...............................................17

V.       THE HUTTOS WERE NOT IN DEFAULT................................................20

VI.      BANK WHOLLY FAILED TO RESPOND TO REQUESTS
         FOR DISCLOSURE AND THEREFORE, COULD NOT
         INTRODUCE EVIDENCE OF ITS DAMAGES……………………...….22

VII. BANK IS NOT ENTITLED TO EQUITABLE SUBROGATION……….23

                   i.       The Statute of Limitations Bars Claim for
                            Equitable Subrogation……………………………………….24

                                                             3
                   ii.       Equitable Subrogation is Inapplicable………………………25

                   iii.      Bank’s Actions Do Not Favor Equitable Relief…………….26

Prayer ......................................................................................................................27

Certificate of Compliance with Tex. R. App. P. 9 ..................................................29

Certificate of Service ...............................................................................................29

                                                               4
                     STATEMENT REGARDING ORAL ARGUMENT

       The issues presented may be resolved by reference to the Home Equity Security

Agreement and well-established case law. Appellees Larry and Bonnie Hutto do not

believe that oral argument is necessary for the court to decide this appeal. However, if the

court grants Appellants’ request for oral argument, the Huttos respectfully request the

opportunity to participate.

                                             5
                           ISSUES PRESENTED

Appellants’ Issue 1 Restated:   In an action where the homeowners have no
                                affirmative claims for relief but are only
                                defending against a foreclosure action, whether
                                the homeowners’ defense that the lender failed
                                to perform its obligations under the Home
                                Equity Security Agreement is barred by the
                                statute of limitations?

Appellants’ Issue 2 Restated:   A bank seeking to foreclose to under a deed of
                                trust must provide a proper notice of intent to
                                accelerate the mortgage. Notice that the debt
                                has been accelerated is ineffective unless
                                preceded by a proper notice of intent to
                                accelerate. Carrington and Deutsche Bank sent
                                a default letter stating an unsubstantiated default
                                amount that was not owed by the Huttos.
                                Whether Appellants met their burden to show
                                that a default occurred and that their default
                                letter constitutes a proper notice of intent to
                                accelerate that would entitle Appellants to
                                foreclose?

Appellants’ Issue 3 Restated:   Whether Appellants are entitled to equitable
                                subrogation where: (i) they did not make this
                                claim until nine (9) years after the claim
                                accrued; (ii) the home equity lien is not
                                invalidated but remains on the property; and
                                (iii) they failed to show that their actions
                                favored equitable relief?

                                  6
                                             STATEMENT OF FACTS

       A. Execution of the Home Equity Loan and Violation of Article XVI, §
          50(a)(6)(Q)(ix) of the Texas Constitution

           On January 20, 2005, Larry Hutto executed a Texas Home Equity Note in

favor of New Century Mortgage for a refinance transaction of his homestead. (RR

Vol. 3 – Bank Ex. A-1). Larry Hutto, his wife Bonnie Hutto (the “Huttos”) and the

lender simultaneously entered into a security agreement (“Deed of Trust”) where

the lender agreed to comply with certain obligations prior to foreclosure1. (RR Vol.

2 – Hutto Ex. 1). The Deed of Trust states that before the lender can exercise its

power of sale, it must comply with the obligations to the “full extent permitted by

Section 50(a)(6), Article XVI of the Texas Constitution” or “correct any failure to

comply [with the Texas Constitution]”. (RR Vol. 2 – Hutto Ex. 1, p. 12).

           Although the lender is required to acknowledge the fair market value on the

day of closing before it can secure a valid lien on the homestead, the lender in this

case did not “acknowledge” the fair market value until four days later (RR Vol. 2 –

Bank Ex. A-13).

       B. Assignment of the Note and Deed of Trust

           The Note and Deed of Trust were subsequently assigned to Deutsche Bank

National Trust Company, as Indenture Trustee for New Century Home Equity

Loan Trust 2005-2 (“Deutsche”). (RR Vol. 3, Bank Ex. A-3). Carrington Mortgage

1
    Foreclosure would only occur in the event of a loan default.

                                                            7
Services, LLC (“Carrington”) services the loan, the Note and the Deed of Trust.

(RR Vol. 3, Bank Ex. A-34). Deutsche and Carrington are collectively referred to

as “Bank.”

   C. Repayment Plan That Made the Loan Current

      Around April 2008, the Huttos modified their home equity loan to where the

principal balance was increased by $10,000. (RR Vol. 2 – Hutto Ex. 7). After

making payments for about three (3) years, the Huttos faced financial difficulty in

mid- 2011 and sought a repayment plan from Bank to bring their loan current. On

June 24, 2011, Melina Vasquez, Bank’s loan modification officer, notified the

Huttos that “the director” approved them for a 6- months payment plan (the

“Plan”), starting July 15, 2011. (RR Vol. 2 – Hutto Ex. 9). Under the 6- months

plan, monthly payments were approximately more than four times their regular

monthly payment. (RR Vol. 2 – Hutto Ex. 9-10).

      The Huttos submitted nearly $16,000 in accordance with the Plan from

August 2011 through January 2012. (RR Vol. 2 – Hutto Ex. 10). In November

2011 (while the Huttos were continuing to pay under the repayment schedule),

Bank provided the Huttos with a “Repayment Plan Agreement” that specified

“Borrower agrees to the terms of this Agreement in order to bring the account

current…”. (RR Vol. 2 – Hutto Ex. 13). (emphasis).

                                        8
      After the Huttos completed all of their payments under the plan, Bank

notified them on June 26, 2012 that “[y]our loan is current now and not due until

2-1-12. I will be requesting it moved out of foreclosure.” (RR Vol. 2 – Hutto Ex.

14) (emphasis). That email also stated that their first payment per month would

now be $785.43. (RR Vol. 2 – Hutto Ex. 14). Bank directed the Huttos to believe

that once they submitted nearly $16,000 is payments under the Plan, their loan was

current and they would resume payments of $785.43 per month.

      To the Huttos’ dismay, when they received their February 2012 mortgage

statement, it showed that they owed not only $785 for the mortgage payment, but

there was an inexplicable past due amount of $1,751.06, which consisted of

unsubstantiated items and fees. (RR Vol. 2 – Hutto Ex. 15). The Huttos submitted

their mortgage payment of $785, but not for the unaccountable fees. (RR Vol. 1 –

pgs. 48-51).

      The Huttos attempted to contact Bank to question the unsubstantiated fees

but did not receive an explanation. (RR Vol. 1 – pgs. 48-50). The mortgage

statement that the Huttos received in March grew to $3,000.71, and the April

statement grew to $5,553.89 (RR Vol. 2 – Hutto Ex. 15).

      On May 7, 2012, they received a Notice of Intent to Foreclose from Bank

stating that they were in default on one month’s payment, yet the amount required

to cure the default was $4,277.30. (RR Vol. 2 – Hutto Ex. 16).

                                        9
      The Huttos did not believe they owed this amount, especially where Bank

provided no explanation for the excess fees and why they were tacked on to the

Huttos’ account after they were notified that their loan was current. (RR Vol. 2,

Ex. 14). At trial, Bank failed to substantiate the fees that were being charged on the

Huttos’ “current” loan. (RR Vol. 1, pgs. 50-57).

   D. Bank Proceeds With Foreclosure

      On August 24, 2012, Bank filed an Application for Foreclosure of the

Huttos’ homestead and alleged that they were allegedly in default for five (5)

months in the amount of $14,669.90. (RR Vol. 2 – Hutto Ex. 17, pg. 3). Pursuant

to TEX. R. CIV. P. 736, this Court dismissed the foreclosure application after the

Huttos filed a separate lawsuit challenging Bank’s attempt to foreclose.

   E. Notice to Cure Violations of the Texas Constitution

      On October 31, 2012, the Huttos sent to Bank a “Notice to Cure” letter,

detailing its Section 50(a)(6) violations, and giving it the statutorily-required 60

days to “cure.” (RR Vol. 2 – Hutto Ex. 2). 60 days passed, but Bank never cured

nor responded to these violations.

   F. Bank Files Counterclaim for Foreclosure and the Huttos Non-Suit Their
      Claims

      On February 4, 2014, Bank filed its counterclaims for foreclosure and

equitable subrogation. (CR Vol. pgs. 252-256), despite not having performed its

obligations under the deed of trust. The Huttos non-suited their affirmative claims

                                         10
on September 16, 2014, leaving Bank’s counterclaims as the only claims in the

lawsuit. (CR Vol. 1, p. 718).

   G. Summary Judgment

      Bank filed various motions for summary judgment contending that the

Huttos’ defenses against Bank’s foreclosure were barred by the statute of

limitations. (CR Vol. 1, pgs. 486-664) (CR Vol. 3, 1277-1375) (CR Vol. 3, pgs.

1385-1389). The Huttos responded that they were not seeking affirmative relief

nor forfeiture of the loan. Rather, they were defending against Bank’s action to

force a sale of their homestead. (CR Vol. 2, pgs. 1096-1106). The Huttos argued

that, pursuant to the Deed of Trust, Bank had not met its burden to prove that it

performed its contractual obligations that would entitle it to exercise the power of

sale. (CR Vol. 2, pgs. 1096-1106). Bank failed to perform its obligations stated

within paragraph 19 of the security agreement because it did not “cure” its

violation of TEX. CONST. art. XVI §50(a)(6)(Q)(ix) within 60 days of the

Huttos’ notice to cure. (CR Vol. 2, pgs. 1096-1106). The Huttos argued that

defenses to the enforcement of a contract are not barred by the statute of

limitations, and that they were not in default for the amounts that Bank alleged

they owed. The trial court denied the Bank’s summary judgment motions. (CR

VOL. 3, p. 1384).

                                         11
                             SUMMARY OF ARGUMENT

      This appeal concerns the Bank’s attempt to force sale of a homestead and

enforce a home equity security agreement subject to Article XVI, Section 50 of the

Texas Constitution. The crux of Appellants’ brief is focused on the validity versus

invalidity of the home equity lien. However, Appellants’ analysis is misplaced

because the trial court did not find that the lien was invalid, nor was that argument

made by the Huttos. (RR Vol. 1, pgs. 69-70). The Huttos do not have any claims or

arguments to invalidate the home equity lien. The Huttos do not have claims for

affirmative relief, but are only defending the forced sale of their homestead. This

distinction was emphasized by the trial court because affirmative claims may have

invalidated the Note and lien. (CR Vol. 3, p. 1394). In this case, however, Bank

retains its lien but cannot foreclose. As such, the statute of limitations does not

apply to preclude the Huttos’ defenses in protecting the forced sale of their

homestead where Bank failed to cure its TEX. CONST. Section 50(a)(6)(Q)(ix)

violation.

      Bank’s obligation to “cure” any constitutional defect is a specific

requirement in the Deed of Trust. Although the Huttos notified Bank of its

constitutional violation, Bank ignored its requirement to cure the defect and moved

forward with its attempt to foreclose. Because Bank failed to perform its obligation

in the Deed of Trust, it cannot enforce the power of sale.

                                         12
      A bank seeking to foreclose under a deed of trust must provide a proper

notice of intent to accelerate the mortgage because the notice provides the debtor

with an opportunity to cure his default prior to acceleration and foreclosure. Notice

that the debt has been accelerated is ineffective unless preceded by proper notice

of intent to accelerate.

      The default notice in this case was incorrect and insufficient to satisfy a

proper notice to of intent to accelerate because it suggested that the Huttos must

pay $4,277.30 within 30 days to “cure” the default. However, the Huttos did not

owe this amount. There was no opportunity to “cure” the default when the default

amount is incorrect. Therefore, the trial court correct decided that the Bank failed

to show that the Huttos were in default and failed to establish that a proper notice

of intent to accelerate was provided to the Huttos.

      Bank cannot prevail on its counterclaim for equitable subrogation because

this claim is barred by the applicable limitations period. Moreover, the Huttos are

not seeking a declaration that Bank’s lien is void, so equitable subrogation is

inapplicable to this case.

                              STANDARD OF REVIEW

      Findings of fact are reviewable for legal and factual sufficiency under the

same standards applied when reviewing the evidence supporting a jury answer.

Santa Fe Petroleum, L.L.C. v. Star Canyon Corp., 156 S.W.3d 630, 636 (Tex. App.

                                         13
–Tyler 2004, no pet.). An appellate court reviews de novo a trial court’s

conclusions of law. Id. A conclusion of law is set aside if it is erroneous as a matter

of law. Id.

                                     ARGUMENT

        I. PRELIMARY STATEMENT ON THE SUPREME COURT’S
                             REVIEW

      The crux of Bank’s argument is that its lien was voidable and automatically

became valid after the passage of four (4) years from the time the home equity loan

closed. On October 9, 2015, the Texas Supreme Court granted the homeowners’

petition or review on this issue. Alice M. Wood and Daniel L. Wood v. HSBC Bank

USA, N.A. and Ocwen Loan Servicing, L.L.C.; from Fort Bend county; 14th court of

Appeals District (14-13-00389-CV, 439 S.W.3d 585, 07-13-14).

      In that case, the homeowners are seeking to have the lien declared void and

to recover the principal and interest. The issue is whether a homestead lien that

violates § 50(a)(6) of the Texas Constitution is void ab initio, but subject to a

lender’s right to invalidate the lien by cure, or voidable, and thus valid upon

closing unless set aside in a timely suit. Oral argument is set for December 8, 2015.

          Although the facts of that case and this present case are somewhat

similar, the procedural posture is different for the reasons stated below.

       II. THE HUTTOS DO NOT HAVE CLAIMS FOR AFFIRMATIVE
                               RELIEF

                                          14
          In this case, the Huttos are not seeking affirmative relief. They are not

seeking to have the lien declared void, they are not seeking for reimbursement of

payments that were made in the past, and they are not seeking to have principal

and interest forfeited. (RR Vol. 1, pgs. 29-30). They do not have any claims to

invalidate Bank’s homestead lien. The only claim that remained at trial was Bank’s

claim to foreclose. The issue was whether Bank met its burden to prove that it

performed its contractual obligations that would entitle it to foreclose on the

Huttos’ homestead. The Huttos are simply defending against Bank’s action to force

a sale of their homestead because §50(a) states that “[t]he homestead of a

family…shall be, and is hereby protected from forced sale, for the payment of all

debts except for…an extension of credit that [complies with every provision of

TEX. CONST. art. XVI, §50(a)(6)].” The trial court did not grant any affirmative

relief to the Huttos. (RR Vol. 1, p. 69).

            III.   DEFENSES ARE NOT BARRED BY STATUTE OF
                                LIMITATIONS

      Courts throughout Texas, including the First Court of Appeals, have found

that defenses to the enforcement of a contract are not barred by the statute of

limitations. See Hennigan v. Heights Sav. Ass’n, 576 S.W.2d 126, 130 (Tex. Civ.

App.—Houston [1st Dist.] 1978, writ ref’d n.r.e.); Villages of Greenbriar v. Torres,

874 S.W.2d 259 (Tex. App.—Houston [1st Dist.] 1994, writ denied); see also

Morris-Buick Co. v. Davis, 91 S.W.2d 313, 314 (Tex. 1936) (“if the subject matter

                                            15
of the defense be of an intrinsical nature which might operate merely in rebuttal of

[the claimant’s] right to recover, or in abatement of the amount claimed, the statute

of limitation does not apply”) (emphasis) (cited by Southern Pacific Co. v. Porter,

331 S.W.2d 42 (Tex. 1960)); see First Bank of Roxton v. Shankles, 2013 Bankr.

LEXIS 3992 (Bankr. E.D. Tex. Sept. 23, 2013) (“The Court concludes that the

statute of limitations upon which the bank relies does not bar the debtor or

trustee from challenging the bank’s claim or lien. [A] statute of limitations

generally does not bar a defendant from asserting an intrinsically defensive

claim which, if successful, will operate as an abatement...the debtor and the

trustee are not seeking an affirmative recovery from the bank. Their counterclaims

are defensive in nature. They are seeking to prevent the bank from foreclosing

on the debtor’s home.”) (emphasis added).

      A claimant cannot file a lawsuit and then claim that the defendant is barred

by limitations from asserting its affirmative defenses such as fraud, mistake, or

waiver. See, e.g. Cooper v. Republic Bank Garland, 696 S.W.2d 629, 634 (Tex.

App.—Dallas 1985, no writ) (preventing plaintiffs from using limitations

offensively to negate defendants’ defense arising out of a contract claim; “[debtors]

sued because the bank had demanded that they fulfill the terms of the contract or

face foreclosure… limitation does not bar the Coopers from asserting defenses

                                         16
arising out of the sale that may entitle them to an offset against, or cancellation of,

the remaining balance.”).

      Here, Bank cannot sue to foreclose on the Huttos’ homestead, yet use the

statute of limitations offensively to prevent the Huttos from asserting their defenses

related to Bank’s violations of the Texas Constitution.

      The following discussion from American Jurisprudence, Second Edition, is

instructive as to the inapplicability of the statute of limitations to defenses:

             Statutes of limitation should be used only as a shield and
             not as a sword, and courts ordinarily allow defendants to
             raise defenses which, if raised as claims, would be time-
             barred. Thus, as a general rule, statutes of limitation are
             not applicable to, or do not run against, defenses.

             A statute of limitations does not bar a pure defense, or a
             defense involving no claim for affirmative relief, or a
             defense which, if given effect . . . would negate the
             plaintiff's right to recover… Statutes of limitation also do
             not run against defenses arising out of the transaction
             sued upon, and so long as the courts will hear a plaintiff's
             case, time will not bar a defense if the cause of action and
             the asserted defense are closely and logically related in a
             sort of legal affinity.

             51 m. Jur. 2d Limitation of Actions § 98 (2011).

       IV.    BANK FAILED TO PERFORM ITS OBLIGATIONS IN THE
             SECURITY AGREEMENT BECAUSE IT DID NOT CURE ITS
                    VIOLATION OF SECTION 50(a)(6)(Q)(ix)

      The trial court properly found that Bank failed to perform its contractual

obligations because Bank failed to cure Section 50(a)(6)(Q)(ix), which is a

                                           17
condition precedent to enforcement of the contract.

      Bank seeks to declare that the Huttos were in default pursuant to paragraph

21 of the deed of trust. (CR Vol. 1, pgs. 669-670). As such, it seeks to enforce the

“power of sale” clause in paragraph 22 of the deed of trust. (RR Vol. 2, Ex. 1).

However, for Bank to prevail, it had to show that it performed its own obligations

under the contract. Williams v. Coulam, 2010 Tex. App. LEXIS 4813 (TEX. App.

Houston [1st Dist.] June. 24, 2010) (“to prevail on his breach of contract claim,

therefore, Williams must establish that (1) a valid agreement exists; (2) he

performed under the Agreement…”); see Astrodome United States v. Dur

United Entm’t, 1999 U.S. App. LEXIS 41027 (5th Cir. 1999) (specific element at

issue was whether the plaintiff proved that it performed/tendered performance).

However, Bank failed to comply with paragraph 19 of the deed of trust because it

failed to cure its violation of TEX. CONST. art. XVI, §50(a)(6)(Q)(ix).

      Paragraph 19 states:

      It is Lender’s and Borrower’s intention to conform strictly to
      provisions of the Texas Constitution applicable to Extensions of
      Credit as defined by 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 [notice to cure violations], and
      will give Lender 60 days after such notice has been received by
      Lender to comply. Except as otherwise required…only after Lender
      has received said notice, has had 60 days to comply, and Lender
      has failed to comply, shall all principal and interest be forfeited by

                                        18
      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 this Extension of Credit.

(RR Vol. 2, Ex. 1). (emphasis added).

      TEX. CONST. art. XVI, §50(a)(6)(Q)(ix) states that before a lender can

have a valid lien against a borrower’s homestead, the owner and the lender must

sign a written acknowledgement of fair market value on the date the extension of

credit is made. The acknowledgement of fair market value which the Huttos

received at closing was not acknowledged by the lender. (RR Vol. 2, Ex. 5). Three

months prior to the commencement of this lawsuit, the Huttos notified Bank of the

aforementioned violation, but Bank never cured. (RR Vol. 2, Ex. 2). At trial, Bank

produced an “Affidavit of Fair Market Value” that actually proved its non-

compliance with §50(a)(6)(Q)(ix) because it shows that Bank did not execute the

acknowledgement of fair market value until 4 days after closing . (RR Vol. 3, Ex.

A-13); (RR Vol. 1, pgs. 39-40).

      Bank does not suggest that it cured §50(a)(6)(Q)(ix) nor took any corrective

action pursuant to the terms of paragraph 19 of the agreement. It did not even

attempt to show that no such violation occurred. Without complying with its

obligations in the deed of trust, Bank cannot enforce the power of sale in the deed

of trust. (RR Vol. 2, Ex. 1, pgs. 11-14). The trial court correctly ruled that Bank

failed to establish that it performed all of its obligations under the security

                                        19
agreement. (CR Vol. 3, pgs. 1408-1409). As such, it is not entitled to foreclosure.

                   V. THE HUTTOS WERE NOT IN DEFAULT

      The trial court also correctly ruled that Bank is not entitled to foreclose

because it failed to provide the Huttos with an accurate amount needed to cure

their alleged default and failed to prove that they were in actually in default as of

May 7, 2012. (CR Vol. 3, pgs. 1393-1394).

      A bank seeking to foreclose under a deed of trust must provide a proper

notice of intent to accelerate the mortgage. Ogden v. Gibrartar Savings Ass’n., 640
S.W.2d 232 (Tex. 1982). Notice of intent to accelerate is necessary in order to

provide the debtor an opportunity to cure his default prior to harsh consequences of

acceleration and foreclosure. Id. at 234. Notice that the debt has been accelerated is

ineffective unless preceded by proper notice of intent to accelerate. Id. (citing

Allen Sales & Servicenter, Inc. v. Ryan, 525 S.W.2d 863 (Tex. 1975)) (emphasis).

      The default notice in this case was incorrect and insufficient to satisfy a

proper notice to of intent to accelerate because it suggested that the Huttos must

pay $4,277.30 within 30 days to “cure” the default. (RR Vol. 3, Ex. A-5). If this

amount was not cured timely, then their loan would be accelerated. (RR Vol. 3, Ex.

A-5). Acceleration of the loan cuts off the debtor’s right to cure his default and the

entire debt is then due and payable. Gibrartar, at 234. As such, the correct default

amount must be identified to constitute a proper notice of intent to accelerate.

                                         20
      From August 2011 to January 2012, the Huttos were submitting full

payments under a Repayment Plan that Carrington led them to believe would bring

their loan current. (RR Vol. 2, Exs. 10-11). Although their regular monthly

payments were only $538.85 under the existing loan agreement, they were making

monthly payments of almost $2,700 under the Repayment Plan to bring their loan

current. (RR Vol. 2, Exs. 9-13). Bank represented to the Huttos that once they

completed their payments under the Plan, their loan would be current and monthly

payments thereafter would be $785 per month. (RR Vol. 2, Exs. 9-13). After the

Huttos submitted all of their payments under the Plan, they received confirmation

from Carrington that their “loan is current” and that their account would be

removed from foreclosure. (RR Vol. 2, Ex. 14). As of February 2012, their

monthly payments were only supposed to be $785.

      Bank offered no evidence at trial to explain why or how the Huttos were in

default for $4,277.30 when their monthly payments were only $785. (RR Vol. 1, p.

56). It gave no explanation for the miscellaneous fees that were being charged to

the Huttos’ account. (RR Vol. 1, p. 57). There was never an agreement for the

Huttos to be responsible for miscellaneous fees after the Repayment Plan was

complete. Bank’s foreclosure attempt after representing to the homeowners that

their loan was “current” and having received $16,000 over 6 months is nothing

short of deception. Ms. Hutto testified at trial that she contacted Bank numerous

                                       21
times but did not receive an explanation for why her account was being charged for

unsubstantiated amounts. (RR Vol. 1, pgs. 50-57). More importantly, the default

letter dated May 2012 was not a sufficient notice of intent to accelerate because it

did not properly how much needed to be cured. (RR Vol. 2, Ex. 16). The trial court

agreed that the Bank’s deceptive conduct constitutes poor business practice and

that the Huttos did not owe any past due amounts nor unpaid late charges. (RR

Vol. 1, pgs. 77-78).

      The Court correctly concluded that the Huttos were not in default, and did

not receive a sufficient notice of default. (CR Vol. 3, pgs. 1393-1394). Without a

proper notice of default, Bank is not entitled to foreclose.

      Bank’s suggestion that the “amount due is even less important” because

Bank is seeking to foreclose on a home equity loan is flawed. If Bank forecloses, it

can only recover the correct amount that is owed on the property. If there is a

surplus, then that amount must be reimbursed to the homeowner. TEX. PROP.

CODE §51.003(c). If there is a deficiency, then the bank cannot recover anything

more from the owner because of this loan’s non-recourse status. Therefore, the

correct amount owed determines how much a bank can recover in the event of a

foreclosure.

     VI.   BANK WHOLLY FAILED TO RESPOND TO REQUESTS FOR
           DISCLOSURE AND, THEREFORE, COULD NOT INTRODUCE
                       EVIDENCE OF ITS DAMAGES

                                          22
      The Huttos sent Requests for Disclosures to Bank on February 13, 2013

asking for the amount and any method of calculating economic damages pursuant

to Tex. R. Civ. 194.2(d). (RR Vol. 2, Ex. 4). At the time of trial on January 27,

2015, Bank had not responded to the Huttos’ requests and had not provided the

method of calculation for the alleged default amount. (RR Vol. 1, pgs. 8-10).

Therefore, Bank should have been barred from introducing any evidence of

damages on its foreclosure and equitable subrogation.

      A party who fails to respond to or supplement his response to a request for

discovery shall not be entitled to present evidence which the party was under a

duty to provide in a response or to offer the testimony of an expert witness or of

any other person having knowledge of discoverable matter. Alvarado v. Farah

Mfg. Co., 830 S.W.2d 911 (Tex. 1992); Mears v. Harris Park, Inc., 2001 Tex.

App. LEXIS 2427 (Tex. App. – Houston [14th Dist.]).

      Bank did not produce any method of calculating damages nor testimony that

formed the basis of its foreclosure claim or its claim that it is entitled to equitable

subrogation for $68,174.94 (CR Vol. 1, pgs. 670). As such, it should have been

precluded from introducing any evidence of damages on these issues.

     VII. BANK IS NOT ENTITLED TO EQUITABLE SUBROGATION

      The trial court properly denied Bank’s equitable subrogation claim because

(i) this claim is barred by the residual statute of limitations and (ii) the Huttos are

                                          23
not asking that the lien be voided in this case; therefore, equitable subrogation is

inapplicable.

      i.        The Statute of Limitations Bars Claim for Equitable Subrogation

      “Every action for which there is no express limitations period…must be

brought not later than four years after the day the cause of action accrues.” TEX.

CIV. PRAC. & REM. CODE §16.051. To the extent it is a suit for the recovery of

real property under the real property lien, it is governed by the four-year statute of

limitations. TEX. CIV. PRAC. & REM. CODE §16.035(a). A cause of action

accrues at the time facts come into existence that authorize a claimant to seek a

judicial remedy. Murray v. San Jacinto Agency, Inc., 800 S.W.2d 826, 828 (Tex.

1990) (stating that the statute of limitations applies to equitable subrogation)(citing

Guillot v. Hix, 838 S.W.2d 230, 232 (Tex. 1992)). Regardless of whether §16.035

or §16.051 applies, the four-year limitations period governs Bank’s claim for

equitable subrogation. See Brown v. Zimmerman, 160 S.W.3d 695, 701 (Tex. App.

2005) (applying the four-year limitations period to the noteholder’s claim for

equitable subrogation).

      There is no dispute that Bank’s basis for their equitable subrogation claim is

based on the lender’s alleged payment to a prior lienholder in 2005, at the time this

home equity loan closed. (CR Vol. 1, p. 670). Thus, the cause of action accrued in

2005, but Bank did not file its claim for equitable subrogation until July 29, 2014,

                                           24
nearly nine (9) years later. As such, its claim for equitable subrogation is time-

barred. (RR Vol. 1, p. 35).

        ii.   Equitable Subrogation is Inapplicable

        Equitable subrogation is additionally inapplicable in this case because the

Huttos are not seeking a declaration that the lien is invalid nor forfeiture of the

loan.

        Equitable subrogation is “legal fiction” that allows a party who would

otherwise lack standing to step into the shoes of and pursue the claims belonging to

a party with standing. Mid-Continent Ins. Co. v. Liberty Mut. Ins. Co., 236 S.W.3d
765, 774 (Tex. 2007); see also Murray v. Cadle Co., 257 S.W.3d 291, 299 (Tex.

App.-Dallas 2008, pet. denied). Equitable subrogation has only been applied to

home equity loans where the Court invalidated the lien and ordered forfeiture of

the loan. See LaSalle Bank Nat’l Ass’n v. White, 246 S.W.3d 616 (Tex. 2007). In

those cases, the Court found that the “forfeiture” of principal and interest did not

preclude the lender’s recovery of the refinance portion of the loan after it was

ordered that the loan was invalid.

        Here, the Huttos are not asking that lien be declared void, or that Bank

forfeit principal and interest under the lien. Simply put, the Huttos are only

defending against Bank’s claim to force sale of their home. If the Huttos prevail,

Bank retains its lien, but it is merely barred from foreclosure because it has not

                                         25
satisfied its burden under §50(a) of the Texas Constitution. (RR Vol. 1, p. 27).

Equitable subrogation does not apply where the lender retains its lien.

    iii.   Bank’s Actions Do Not Favor Equitable Relief

       Moreover, the trial court correctly denied Bank’s equitable subrogation

claim because Bank failed to show that its actions favor equitable relief.

       A party seeking equitable subrogation must show it involuntarily paid a debt

primarily owed by another in a situation that favors equitable relief. Frymire Eng’g

Co., Inc. ex rel. Liberty Mut. Ins. Co. v. Jomar Int’l, Ltd., 259 S.W.3d 140, 142

(Tex. 2008). The court must balance the equities in view of the totality of

circumstances to determine whether a party is entitled to equitable subrogation.

Murray v. Cadle Co., 257 S.W.3d 291, 300 (Tex. App.—Dallas 2008, pet. denied).

One of the factors that a court may consider in this balancing test include the

negligence of the party claiming subrogation. Id. the purpose of equitable

subrogation is “to prevent the unjust enrichment of the debtor who the debt that is

paid.” First Nat’l Bank of Kerrville v. O’Dell, 856 S.W.2d 410, 415 (Tex. 1993).

(emphasis).

       Here, Bank failed to show that the circumstances in its case favor equitable

relief. (CR Vol. 3, p. 1395). It failed to prove that it was a “good player” that

deserves the equitable right to repayment. (RR Vol. 1, pgs. 34-35). It failed to

establish that the Huttos would be unjustly enriched if equitable subrogation is not

                                         26
allowed. As stated above, the lien on the Huttos’ homestead is not extinguished.

The trial court did not rule that Bank’s lien goes away. Therefore, Bank’s lien

remains the only debt and there is nothing it is “equitably subrogated” to.

      Because the Huttos are not asking for the lien to be invalidated, nor are they

seeking forfeiture of the loan, Bank’s claim for equitable subrogation fails.

                                       PRAYER

      For these reasons stated above, the trial court correctly denied Bank’s

request to foreclose because (a) the Huttos’ defenses against foreclosure are not

barred by the statute of limitations; and (b) Bank failed to establish that the Huttos

were in default and failed to provide a proper notice of intent to accelerate. Bank’s

equitable subrogation claim was also correctly denied because (a) it is barred by

the statute of limitations; (b) Bank’s lien is not extinguished; and (c) Bank failed to

show that its actions favor equitable relief. For these reasons, this Court should

overrule Bank’s issues on appeal and affirm the judgment of the trial court.

                                               Respectfully submitted,

                                               /s/ Anh Thu N. Dinh
                                               Robert “Chip” Lane
                                               State Bar No. 24046263
                                               Lane@lanelaw.com
                                               Anh Thu N. Dinh
                                               State Bar No. 24071480
                                               Dinh@lanelaw.com
                                               THE LANE LAW FIRM
                                               6200 Savoy, Suite 1150
                                               Houston, Texas 77036

                                          27
     [Tel.] (713) 595-8200
     [Fax] (713) 595-8201
     ATTORNEYS          FOR APPELLEES
     LARRY AND BONNIE HUTTO

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                          CERTIFICATE OF COMPLIANCE

       As required by Rule 9 of the Texas Rules of Appellate Procedure, I certify
that this brief contains 5,062 words.

                                             /s/ Anh Thu N. Dinh
                                             Anh Thu N. Dinh

                            CERTIFICATE OF SERVICE

      I hereby certify that I have served this document on all parties listed below
on this 23rd day of October 2015 by United States First mail, or by electronic
service where allowed:

Peter C. Smart
psmart@craincaton.com
Crain, Caton & James, P.C.
1401 McKinney St., Suite 1700
Houston, Texas 77010
(713) 658-2323 (Telephone)
(713) 658-1921 (Facsimile)

Attorney for Appellants

                                             /s/ Anh Thu N. Dinh
                                             Anh Thu N. Dinh

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