Posted on May 21, 2014

Several of my clients have home equity loans that they have been denied loan modifications for, because of the many consumer protections that Texas has for such loans. For example, there is a provision in the Texas Constitution that prohibits a home equity loan from allowing a Texan to borrow more than 80% of the value of his or her home.

It's a well-meaning provision, but when someone falls seriously delinquent on their mortgage payments, they often want to seek a loan modification from their mortgage company to, among other things, capitalize the delinquent payments and "roll them into" the mortgage so that they can have another shot at keeping their home. And people have been turned down for loan modifications because, for example, by adding the delinquent payments into the loan, they would exceed the Texas Constitution's 80% cap.

On certified questions from the 5th Circuit Court of Appeals on a pending class action, the Texas Supreme Court delivered an opinion on May 16, 2014 that it is NOT a violation of the Texas Constitution to modify a Texas home equity loan, so long as "the original note is not satisfied and replaced, and there is no additional extension of credit, as we define it, the restructuring is valid and need not meet the constitution requirements for a new loan." Sims v. Carrington Mortgage Services, LLC, Tex. Sup. Ct. 2014.

This is wonderful news for my clients, some of whom will now be able to keep their homes from foreclosure, and in some cases reduce the interest rates from 10% to 2-5%, for example. Many thanks to the Supreme Court of Texas.

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J Thomas Black
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Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization