Fifth Circuit Holds No Limitations on Texas Home Equity Constitutional Claims

Author: Michael R. Steinmark and John M. Lynch

Last week, the U.S. Court of Appeals for the Fifth Circuit issued what many in the Texas mortgage industry have regarded as an inevitable decision—an express adoption of the Texas Supreme Court’s decision in Wood v. HSBC Bank USA, N.A., 505 S.W.3d 542 (Tex. 2016).

Our firm has previously published a detailed discussion of the landmark Wood decision (see here), in which the Texas Supreme Court held that there is no statute of limitations for alleged violations of the home equity lending requirements set forth in Texas Constitution Article 16, Section 50(a)(6). That decision was directly contrary to the Fifth Circuit’s prior decision in Priester v. JP Morgan Chase Bank, N.A., 708 F.3d 667, 674 (5^th Cir. 2013), in which it made an “Erie guess” as to what Texas law would provide in the absence, at the time, of any on-point Texas Supreme Court decision.

In last week’s decision in Ocwen Loan Servicing, LLC v. Berry, 2017 WL 1173690 (5^th Cir. Mar. 29, 2017), the Fifth Circuit confirmed that it is now bound to follow the Texas Supreme Court’s Wood decision rather than its own prior Priester decision. A limitations defense is thus now unavailable in both state and federal courts for Texas home equity constitutional claims.

The full consequences of Wood and Berry remain to be seen, but these decisions potentially open the door for a new wave of home equity lending litigation in Texas. And they also pose interesting and challenging questions regarding the ability to re-litigate prior Texas home equity claims that were dismissed, whether on dispositive motions or otherwise, before the Wood decision.

For more information on these or related issues, please contact Michael R. Steinmark or John M. Lynch at msteinmark@settlepou.com, jlynch@settlepou.com, or 214.520.3300.