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Kyle v. Strasburger

Supreme Court of Texas

June 16, 2017

Wendy Kyle, Petitioner,
v.
H.T. Strasburger, Shirley Strasburger, Terry Whitley, Fidelity Bank of Texas, and Tuition LLC, Respondents

         On Petition for Review from the Court of Appeals for the Thirteenth District of Texas

          PER CURIAM

         The causes of action in this case stem from an allegedly forged home-equity loan. The trial court granted summary judgment on all claims asserted against the lenders, and the court of appeals affirmed. In light of our recently issued opinions in Garofolo v. Ocwen Loan Servicing, 497 S.W.3d 474 (Tex. 2016), and Wood v. HSBC Bank USA, N.A., 505 S.W.3d 542 (Tex. 2016), we reverse the court of appeals' judgment in part and remand the case to that court.

         The disputed loan closed in 2004. Wendy Kyle alleges that her then-husband, Mark, forged her signature on the closing documents without her consent to obtain a $1.1 million home-equity loan from Fidelity Bank of Texas, secured by a deed of trust on the couple's homestead. She also alleges that she was induced by various misrepresentations regarding the loan's purported validity, and the commencement of foreclosure proceedings, into agreeing to convey her interest in the property to Mark in their divorce.[1]

         Kyle sued Fidelity, its officers, and a related entity (collectively, Fidelity), [2] as well as Mark, [3] seeking forfeiture of principal and interest paid on the loan under Texas Constitution Article XVI, section 50(a)(6)(Q)(xi), a declaratory judgment that the deed of trust is void under Texas Constitution Article XVI, section 50(c), and a declaratory judgment that the special warranty deed conveying Kyle's interest in the property to Mark is invalid. Kyle also asserted claims for statutory fraud and for violations of the Texas Finance Code and Texas Deceptive Trade Practices Act, stemming from Fidelity's alleged misrepresentations in a foreclosure application about the loan's validity.[4] Fidelity moved for summary judgment on several grounds, including that the statute of limitations barred Kyle's forfeiture claim and both declaratory-judgment claims. The trial court granted the motion without stating its reasons.[5]

         The court of appeals affirmed. __S.W.3d __(Tex. App.-Corpus Christi-Edinburg 2015). Addressing Kyle's claims for forfeiture and to declare the deed of trust void, the court of appeals held that the alleged defect in the underlying loan-lack of spousal consent-was curable under section 50(a)(6)(Q)(xi), [6] and that the deed of trust was therefore "voidable and not void." Id. at (citations omitted). Accordingly, the court held that those claims were subject to the residual four-year statute of limitations and were thus untimely filed more than eight years after the loan closed. Id. at __. The court further held that Kyle's statutory fraud, Finance Code, and DTPA claims were barred because they were premised on her untimely claim for a declaration that the deed of trust was void. Id. at __. Finally, with respect to the claim seeking to declare invalid the special warranty deed conveying the property to Mark, the court held that Kyle failed to challenge on appeal Fidelity's assertion in its summary-judgment motion that the claim was barred by limitations. Id. at __. Accordingly, the court summarily upheld summary judgment on that unchallenged ground. Id. at __.

         After the court of appeals issued its opinion and judgment, we issued our opinions in Garofolo and Wood. In Garofolo, we held that section 50(a), which limits the types of loans that may be secured by a homestead and places particularly strict parameters on foreclosure-eligible home-equity loans, does not create substantive rights beyond a defense to foreclosure of a lien securing a constitutionally noncompliant loan. 497 S.W.3d at 478. We further addressed section 50(a)(6)'s requirement that home-equity loans contain certain enumerated terms and conditions, including a provision mandating that the lender forfeit all principal and interest for uncured failures to comply with its loan obligations. We explained that those "terms and conditions . . . are not constitutional rights unto themselves, nor is the forfeiture remedy a constitutional remedy unto itself. Rather, it is just one of the terms and conditions a home-equity loan must include to be foreclosure-eligible." Id. at 478-79. In other words, the absence of constitutionally mandated terms and conditions in a home-equity loan can act as a shield to foreclosure, but a lender's uncured failure to comply with its loan obligations does not give rise to a constitutional cause of action. Id. at 479. It can, however, give rise to a breach-of-contract claim. Id. (noting that breach of contract is "an appropriate cause of action for relief from a lender's post-origination failure to honor [a home-equity loan's] terms and conditions").

         In Wood, we held that a lien securing a constitutionally noncompliant home-equity loan is not merely voidable; under section 50(c), such a lien is not valid unless and until the defect in the loan is cured. 505 S.W.3d at 548; see also Tex. Const. art. XVI, § 50(c) ("No mortgage, trust deed, or other lien on the homestead shall ever be valid unless it secures a debt described by this section . . . ."). We further held that no statute of limitations applies to a borrower's claim to quiet title on such a constitutionally invalid lien. Wood, 505 S.W.3d at 550.

         In light of Wood, the court of appeals erred in holding that the statute of limitations barred Kyle's request for a declaration that the disputed deed of trust is invalid. Kyle submitted some evidence that she did not consent to the lien on her homestead, either at the time of its creation or after the fact, and that the underlying home-equity loan therefore does not comply with Article XVI, section 50(a)(6) of the Texas Constitution. See Tex. Const. art. XVI, § 50(a)(6)(A) (requiring a foreclosure-eligible home-equity loan to be "secured by a voluntary lien on the homestead created under a written agreement with the consent of each owner and each owner's spouse"). Because section 50(c) renders liens securing constitutionally noncompliant home-equity loans invalid until cured, no statute of limitations applies to Kyle's claim to declare the lien invalid.[7]

         Fidelity argues that Wood is distinguishable because, in that case, the lender had notice and an opportunity to cure the alleged defects but failed to do so. 505 S.W.3d at 544. By contrast, a lender cannot cure a lack of spousal consent; only the spouse can by subsequently consenting to the lien. Fidelity argues that this encourages concealment of forgery allegations like the one at issue. Policy concerns notwithstanding, section 50(c) is clear: "No mortgage, trust deed, or other lien on the homestead shall ever be valid unless it secures a debt described by this section . . . ." Tex. Const. art. XVI, § 50(c). A home-equity loan secured by a lien that was not created with the consent of each owner and each owner's spouse is not "a debt described by this section" and is therefore invalid unless and until such consent is obtained. See Wood, 505 S.W.3d at 548-49. The statute of limitations does not bar Kyle's claim to declare the lien invalid. See id. at 550.

         The court of appeals also erred in affirming summary judgment on Kyle's claim to declare invalid the special warranty deed conveying her interest to Mark on the ground that Kyle waived the claim on appeal. Although the deed was executed less than two years before Kyle filed suit, Fidelity urged in its summary-judgment motion that this claim, like the claim to declare the lien invalid, was based on the lien's purported invalidity under section 50 and was thus also barred by the four-year statute of limitations. In the court of appeals, Kyle broadly argued that the statute of limitations did not apply to her section 50 claims because they stemmed from a void home-equity lien. Although Kyle could have more clearly referenced the deed claim in the portion of her brief devoted to the statute of limitations, she fully responded to the substance of Fidelity's limitations argument. This was sufficient to avoid summary affirmance.[8] Accordingly, the court of appeals erred in affirming summary judgment on the deed claim on waiver grounds.

         However, our holding in Garofolo forecloses Kyle's constitutional claim for forfeiture of principal and interest paid on the loan at issue. As we explained in that case, while forfeiture may be an appropriate contractual remedy for a lender's failure to comply with its home-equity loan obligations, forfeiture is not an independent cause of action under the Texas Constitution. Garofolo, 497 S.W.3d at 478-79. Again, the Constitution itself simply serves as a defense to foreclosure when its mandates are not followed.

         Kyle argues that, as we recognized in Garofolo, an independent contractual right to compel forfeiture exists because the constitutional forfeiture provision was incorporated into the terms of the loan. Tex. Const. art. XVI, § 50(a)(6)(Q)(xi) (requiring a foreclosure-eligible home-equity loan to be made on the condition that "the lender . . . shall forfeit all principal and interest of the [loan] if . . . the lien was not created under a written agreement with the consent of each owner and each owner's spouse, unless each owner and each owner's spouse who did not initially consent subsequently consents"). She requests that the case be remanded in the interest of justice in the event she has not adequately pled a forfeiture claim based on the terms of the loan. She further argues that she may pursue such a claim even though she is not a formal party to the loan agreement. As these issues have not been considered by the lower courts, and we are remanding to the court of appeals to consider other as-yet unaddressed arguments, we leave it to that court to consider this request in the first instance.

         Turning to Kyle's claims for statutory fraud and for violations of the Finance Code and DTPA, we note that those claims arise out of Fidelity's allegedly misrepresenting the deed of trust's validity in a foreclosure application and are thus dependent on Kyle's entitlement to a declaration that the deed of trust is void. The court of appeals affirmed summary judgment on these additional claims based on its erroneous conclusion that the statute of ...


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