from the United States District Court for the Southern
District of Texas
HAYNES, GRAVES, and HO, Circuit Judges.
C. HO, CIRCUIT JUDGE.
protect homeowners, the Texas Constitution imposes a number
of requirements before a lender may execute a deed of trust
on a homestead to secure a loan. See generally Tex.
Const. art. XVI, § 50. At the same time, Texas courts
have on various occasions allowed lenders to invoke the
doctrine of equitable subrogation to obtain partial repayment
of the loan, in the event that one of the requirements of the
Texas Constitution is not met. See, e.g.,
Benchmark Bank v. Crowder, 919 S.W.2d 657, 662 (Tex.
1996). This case requires us to decide a dispute that falls
at the intersection of these two competing principles of
Texas law, under circumstances not directly addressed by a
previous decision of the Texas Supreme Court, but that may
recur in future cases. We believe this dispute presents a
pure question of law that "should be answered by the
only court that can issue a precedential ruling that will
benefit all future litigants, whether in state or federal
court." JCB, Inc. v. Horsburgh & Scott Co.,
912 F.3d 238, 239 (5th Cir. 2018). Accordingly, we certify
one question to the Supreme Court of Texas.
case also presents a question of contractual subrogation
which we do not certify to the Texas Supreme Court because,
as we shall explain, Texas law already provides a clear
answer. As the district court correctly concluded, a
secondary lender is not entitled to contractual subrogation
without a valid contract.
Texas Constitution states that "[n]o . . . lien on the
homestead shall ever be valid unless it secures a debt
described by this section." Tex. Const. art. XVI, §
50(c). Among other things, the homeowner and the lender must
satisfy various procedural requirements to secure a loan that
uses a homestead as collateral. Tex. Const. art. XVI, §
50(a)(6)(Q). At issue here is the requirement that both
"the owner of the homestead and the lender
[must] sign a written acknowledgment as to the fair market
value of the homestead property on the date the extension of
credit is made." Tex. Const. art. XVI, §
50(a)(6)(Q)(ix) (emphasis added).
event the lender fails to comply, the borrower may notify the
lender of the mistake. Tex. Const. art. XVI, §
50(a)(6)(Q)(x). If the lender does not correct the failure
within sixty days, it may forfeit all principal and interest
of the loan. Id. "[A] lien securing a
constitutionally noncompliant home-equity loan is not valid
before the defect is cured." Wood v. HSBC Bank USA,
N.A., 505 S.W.3d 542, 547 (Tex. 2016).
in the event of noncompliance, however, some lenders under
certain circumstances may be able to recover on the loan
under the doctrine of equitable subrogation. LaSalle Bank
Nat. Ass'n v. White, 246 S.W.3d 616, 620 (Tex.
2007). Subrogation provides that a "subsequent lender
will succeed to the rights of prior lenders and become
entitled to 'all rights of the prior creditors in
relation to the debt.'" Vogel v. Veneman,
276 F.3d 729, 735 (5th Cir. 2002) (quoting Means v.
United Fid. Life Ins. Co., 550 S.W.2d 302, 308 (Tex.
Civ. App.-El Paso 1977, writ ref'd n.r.e.)).
subrogation works as follows: A homeowner takes out a loan
using the homestead as collateral. Later, the homeowner takes
out a second loan, and asks the second lender to pay the
balance on the first loan. The second lender is subrogated to
the first lender's rights under the original lien.
Whatever the terms of the original loan agreement, at a
minimum, the second lender stands in the shoes of the first
lender. See Restatement (Third) of Property:
Mortgages § 7.6 (Am. Law Inst. 1996). Without
subrogation, the risk of forfeiture may discourage some
lenders from refinancing homestead property. LaSalle
Bank, 246 S.W.3d at 620.
2007, Sylvia Zepeda took out a purchase-money loan for $65,
000 from CIT Group/Consumer Finance, Inc., to buy her
homestead. Zepeda secured the loan using her homestead as
collateral. Four years later, Zepeda took out a second loan
from Embrace Home Loans, Inc., for $56, 500 to refinance her
current debt. Embrace and Zepeda executed an agreement for an
extension of credit under § 50 of the Texas
Constitution, secured by a lien on her homestead. The
agreement required Embrace to pay the balance of Zepeda's
first lien with CIT and release the remainder of the funds to
her. The agreement contained an express subrogation
provision, which provided that Embrace would be subrogated to
all rights of any other holder of liens or debts outstanding
before the agreement was executed. Upon Embrace's payment
of the balance of Zepeda's debt to CIT, CIT released its
claim on the homestead.
2015, Zepeda notified Embrace that the loan documents
contained a constitutional deficiency-namely, that
Embrace's signature did not appear on the acknowledgement
of fair market value. In response, Embrace did not sign the
document, but instead sent a new copy ...