ACCEPTED

05-11-01425-CV
FIFTH COURT OF APPEALS
DALLAS, TEXAS
1/30/2014 3:20:48 PM
LISA MATZ
CLERK

No. 05-11-01425-CV

FILED IN
5th COURT OF APPEALS
FIFTH DISTRICT COURT OF A PPEALSDALLAS, TEXAS
1/30/2014 3:20:48 PM
LISA MATZ
Clerk
WELLS FARGO BANK, N.A., ET AL.,

Appellants,
v.

LONZIE LEATH,

Appellee.

On Appeal from the 95th Judicial District Court of Dallas County, Texas
Trial Court No. DC-08-07290

BRIEF OF AMICI CURIAE

FEDERAL NATIONAL MORTGAGE ASSOCIATION AND
FEDERAL HOME LOAN MORTGATE CORPORATION
ON MOTION FOR REHEARING AND REHEARING EN BANC

Ken Carroll Robert D. Forster, II

Bri Turner
CARRINGTON, COLEMAN, SLOMAN &
BLUMENTHAL, LLP
901 Main Street, Suite 5500
Dallas, Texas 75202
Counsel for Amicus Curiae
Federal National Mortgage Association
(Fannie Mae)
BARRETT DAFFIN FRAPPIER TURNER &
ENGEL, LLP
15000 Surveyor Boulevard
Addison, Texas 75001
Counsel for Amicus Curiae Federal
Home Loan Mortgage Corporation
(Freddie Mac)
 TABLE OF CONTENTS

Table of Contents .....................................................................................................i

Table of Authorities ............................................................................................... ii

Certification of Amici Curiae .............................................................................. iv

Argument .................................................................................................................1

A. Section 50(h) of Article XVI of the Texas Constitution

Should Conclusively Resolve the Dispute in this Case. ............... 2

B. Notice and Cure: Notice Is Adequate and Reasonable

Only if it Provides a Genuine Opportunity for Cure. ................... 9

Conclusion..............................................................................................................16

Certificate of Service .............................................................................................18

Certificate of Compliance ....................................................................................18

i
 TABLE OF AUTHORITIES

Cases

Curry v. Bank of America, N.A.,

232 S.W.3d 345 (Tex. App.—Dallas 2007,
pet. denied) ...........................................................................................11, 12, 13

Doody v. Ameriquest Mort. Co.,

49 S.W.3d 342 (Tex. 2001) ..................................................................................8

Gonzalez v. U.S. Bank, N.A.,

No. 13-10342, 2013 U.S. App. LEXIS 23918
(5th Cir. Nov. 29, 2013) ................................................................................5, 11

In re Keller,
357 S.W.3d 413 (Tex. 2010) ..............................................................................15

In re M.A.S.,
233 S.W.3d 915 (Tex. App.—Dallas 2007, pet. denied)...............................10

LaSalle Bank Nat’l Ass’n v. White,

246 S.W.3d 616 (Tex. 2007) ..............................................................................14

Madsen v. Bank of America, N.A.,

No. 3:12-cv-0896-G, 2013 U.S. Dist. LEXIS 3037
(N.D.Tex. Mar. 6, 2013)..............................................................................6, 7, 8

Penrod v. Bank of N. Y. Mellon,

824 F. Supp. 2d 754 (S.D.Tex. 2011) .............................................................6, 8

Poswalk v. GMAC Mort., LLC,

519 Fed. App’x 884 (5th Cir. 2013) ................................................................... 6

Poswalk v. GMAC Mort., LLC,

No. 3:11-cv-0465-D, 2012 U.S. Dist. LEXIS 83271 (N.D.Tex.
June 15, 2012), aff’d, 519 Fed. App’x 884 (5th Cir. 2013) ...........................6, 8

Steptoe v. JPMorgan Chase Bank, N.A.,

No. 4:11-cv-3427, 2013 U.S. Dist. LEXIS 19683
(S.D.Tex. Feb. 13, 2013) ..................................................................................6, 7

ii
Stringer v. Cendant Mort. Corp.,
23 S.W.3d 353 (Tex. 2000) ................................................................................14

Thornton v. GMAC Mort., LLC,

No. 13-10362, 2013 U.S. App. LEXIS 20534
(5th Cir. Oct. 9, 2013) (per curiam) ..........................................................6, 8, 9

Thornton v. GMAC Mort., LLC,

No. 3:12-cv-0880-D, 2013 U.S. Dist. LEXIS 29785
(N.D.Tex. Mar. 1, 2013)..................................................................................6, 7

Constitution, Statutes, Regulations, Rules

TEX. CONST. art. XVI, § 50(a) .........................................................................passim

TEX. CONST. art. XVI, § 50(h) .........................................................................passim

TEX. CONST. art. XVI, § 50(u) ................................................................................11

TEX. FIN. CODE § 11.308 .........................................................................................11

TEX. FIN. CODE § 15.413 .........................................................................................12

7 TEX. ADMIN. CODE § 153.91(a)(3) ......................................................................11

12 U.S.C. § 1454(a)(5) ......................................................................................... v, 2

12 U.S.C. § 1719(a)(2) ......................................................................................... v, 2

5TH CIR. R. 47.5.4......................................................................................................5

iii
 CERTIFICATION OF AMICI CURIAE

Amici Curiae Federal National Mortgage Corporation (“Fannie

Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”) are

government-sponsored entities chartered by Congress to promote liquidity

and stability in the secondary mortgage market and help increase the

nation’s supply of affordable housing. See Fannie Mae Quarterly Report

(Form 10-Q), at 1 (Nov. 7, 2013); Freddie Mac Quarterly Report (Form 10-

Q), at 1 (Nov. 7, 2013); 12 U.S.C. §§ 1451 et seq. & 1716 et seq. On

September 6, 2008, both Fannie Mae and Freddie Mac were placed into

conservatorship by the Federal Housing Finance Agency (“FHFA”),

pursuant to the Housing and Economic Recovery Act of 2008 (“HERA”),

12 U.S.C. § 4501 et seq. See Fannie Mae Form 8-K, at 1 (Dec. 24, 2008);

Freddie Mac 10-Q, supra, at 1. As government-sponsored entities in FHFA

conservatorship, “instead of being run for the benefit of shareholders,

[Fannie Mae and Freddie Mac are] managed in the overall interest of

taxpayers.” See Fannie Mae 10-Q, supra, at 1.

Fannie Mae does not make mortgage loans—in fact, its “charter does

not permit [it] to originate loans or lend money directly to consumers in the

primary mortgage market”; it purchases loans originated by banks and

iv
other lenders. Id., at 1; see 12 U.S.C. § 1719(a)(2). The same is true of Freddie

Mac. See Freddie Mac: Company Profile (2014)1; 12 U.S.C. § 1454(a)(5). The

mortgage loans that Fannie and Freddie acquire include both purchase

money loans and home equity loans, like that at issue in this case. For the

quarter ended September 30, 2013, Fannie Mae held over $3 trillion in

mortgage loans in the United States. Fannie Mae 10-Q, supra, at 19. Since

2009, it has acquired almost 150,000 home equity loans in Texas, with a

cumulative unpaid principal balance of just over $25 billion. Over the ten

years 2002-11, Freddie Mac invested approximately $222 billion in home

loans in Texas, and about $18.65 billion in 2012. Freddie Mac, Our Role

State-By-State: Texas (2014).2

The Panel Opinion in this case has the potential to create significant

uncertainty in the home equity mortgage market in the State of Texas, and

particularly in the secondary market in which Fannie Mae and Freddie Mac

participate. As purchasers of mortgage loans in that market, Fannie and

Freddie and their servicers must be able to rely conclusively on the original

documents in each loan file—including any written appraisal and any

1 Available at http://www.freddiemac.com/corporate/company_profile/.
2Available at http://www.freddiemac.com/corporate/company_profile/our_role_state
/?intcmp=AFCPOR.

v
acknowledgment of the fair market value of the home signed by the

borrower. See TEX. CONST. art. XVI, § 50(h). Further, in the event some

deviation from the requirements of § 50 is alleged by a borrower, Fannie

and Freddie and their servicers must be given a meaningful opportunity to

cure, to avoid the draconian forfeiture penalties of TEX. CONST. art. XVI,

§ 50(a)(6)(Q)(x). The opinion of the Court, as currently constituted, raises

significant concerns on both issues. So, Fannie Mae’s and Freddie Mac’s

interest in the outcome of this case, and of the pending Motion for

Rehearing, is great.

All costs and fees associated with the preparation of this brief are

being paid by Fannie Mae and Freddie Mac.

Ken Carroll Robert D. Forster, II

Bri Turner
CARRINGTON, COLEMAN, SLOMAN &
BLUMENTHAL, LLP
901 Main Street, Suite 5500
Dallas, Texas 75202
Counsel for Amicus Curiae
Federal National Mortgage Association
(Fannie Mae)
BARRETT DAFFIN FRAPPIER TURNER &
ENGEL, LLP
15000 Surveyor Boulevard
Addison, Texas 75001
Counsel for Amicus Curiae Federal
Home Loan Mortgage Corporation
(Freddie Mac)

vi
 ARGUMENT

Amici Fannie Mae and Freddie Mac support Wells Fargo’s Motion for

Rehearing and Rehearing En Banc. This is a case that should be resolved by

the conclusive presumption of TEX. CONST. art. XVI, § 50(h), based on the

borrower’s written acknowledgment at closing of the value of the

mortgaged property. Failing that, the lender or assignee should have been

able to “cure” the purported violation of TEX. CONST. art. XVI,

§ 50(a)(6)(B)—the requirement that the home equity loan not exceed 80% of

the fair market value of the homestead on the date the extension of credit is

made—by simply transmitting the acknowledgment prescribed by TEX.

CONST. art. XVI, § 50(a)(6)(Q)(x)(b)—i.e., acknowledging that the lender or

assignee would enforce its lien only up to an amount equaling 80% of the

value of the homestead on the date the home equity loan was made. The

panel Opinion in this case (“Opinion”) addresses neither of these issues.

Absent rehearing to deal with them—altering the result on appeal, or at

least providing clarification regarding sections 50(h) and

50(a)(6)(Q)(x)(b)—the Opinion has the potential to create substantial

confusion in Texas’s home equity mortgage markets.

1
A. Section 50(h) of Article XVI of the Texas Constitution Should
Conclusively Resolve the Dispute in this Case.

As explained in the Certification of Amici Curiae, Fannie Mae and

Freddie Mac participate actively in the Texas home equity mortgage

market, and together currently hold billions of dollars worth of Texas home

equity loans. But, as we have also explained, neither Fannie Mae nor

Freddie Mac originates those loans; they are both prohibited by their

charters from doing so. See 12 U.S.C. §§ 1454(a)(5) & 1719(a)(2). Instead,

Fannie Mae and Freddie Mac participate in the Texas home equity

mortgage industry via the secondary market, purchasing or otherwise

acquiring loans originated by banks and other lenders—and in so doing,

fulfilling their statutory purpose to provide the liquidity that is vital to the

Texas mortgage market. But because they do not participate in the

origination of mortgage loans, neither they nor their representatives are

present at closing. As a practical matter, therefore, they must be able to rely

upon the documentation in the loan closing files of the mortgages that they

acquire.

Fortunately, the Texas Constitution supplies the assurance that they

can do just that. TEX. CONST. art. XVI, § 50(a)(6)(Q)(ix) provides that the

2
owner of a homestead is to “sign a written acknowledgment as to the fair

market value of the homestead property on the date the extension of credit

[that is, the home equity loan] is made.” Section 50(h) of that same part of

the Texas Constitution then goes on to provide that

A lender or assignee for value may conclusively rely on the

written acknowledgment as to the fair market value of the
homestead property made in accordance with Subsection
(a)(6)(Q)(ix) of this section if:

(1) the value acknowledged to is the value estimate

in an appraisal or evaluation prepared in
accordance with a state or federal requirement
applicable to an extension of credit under
Subsection (a)(6); and

(2) the lender or assignee does not have actual

knowledge at the time of the payment of value or
advance of funds by the lender or assignee that the
fair market value stated in the written
acknowledgment was incorrect.

TEX. CONST. art. XVI, § 50(h) (emphasis added). Armed with this assurance

from the Texas Constitution, participants in the secondary mortgage

market, such as Fannie Mae and Freddie Mac, may acquire mortgages from

loan originators based upon the documentation in the loan files, confident

that they may “conclusively rely” on that documentation as long as it

meets the requirements of § 50(h).

3
 In this case, there appears to be no question that those requirements

were met. The panel Opinion recounts that:

As part of the closing, Leath [the borrower] also signed a series

of documents, one of which was a borrower’s and lender’s
acknowledgment that the fair market value of the home was
$425,000. The value was set by an independent appraisal
performed by Clyde Crum in August 2005 and sent to the
lender less than two weeks before the loan closed.

Opinion at 2; see also RR Vol. 8, Def. Ex. 15 (sworn Acknowledgment); id.,

Def. Ex. 4 (“as is” appraisal by Clyde Crum). Based upon that

Acknowledgment and appraisal, the home equity loan here in the amount

of $340,000 met the 80% requirement of TEX. CONST. art. XVI, § 50(a)(6)(B). 3

Pursuant to § 50(h), this should have conclusively resolved the issue

of the value of the borrower’s homestead on the date the home equity loan

was closed, and disposed as a matter of law of the question whether that

loan violated the requirement that it (and other liens) not exceed 80% of

that homestead’s fair market value. 4 Instead, the issue of value was

3The borrower in this case confirmed in another sworn statement at closing that “the
principal loan amount for this Texas Equity Loan mortgage, when added to the
principal balance of all other liens against the Affiants[’] homestead, does not exceed
80% of the fair market value on the date that this extension of credit is made.” RR Vol. 8,
Def. Ex. 24 ¶ 15.
4The Opinion makes reference to no other liens on the homestead at issue as of the date
the home equity loan closed, with a portion of the loan’s proceeds being used to retire a
pre-existing mortgage. Opinion at 2, 21-22.

4
submitted for determination by a jury. This was contrary to the Texas

Constitution.

Counsel for Fannie Mae and Freddie Mac have been unable to locate

written opinions from Texas state courts applying or explaining the

conclusive presumption of § 50(h). The federal courts in Texas, however,

along with the United States Fifth Circuit Court of Appeals, have issued

several such opinions within the last three years—all of them evincing a

clear, consistent understanding of the conclusive presumption of § 50(h).

Less than two months ago, the Fifth Circuit explained that under

§ 50(h) lenders and assignees “may conclusively rely on a written

acknowledgment by the property owner as to the fair market value of the

homestead when it matches the value estimate in an appraisal prepared in

accordance with state requirements for an extension of credit.” Gonzalez v.

U.S. Bank, N.A., No. 13-10342, 2013 U.S. App. LEXIS 23918, at *3-4 (5th Cir.

Nov. 29, 2013) (affirming summary judgment for lender based on

conclusive presumption of § 50(h)). 5 In fact, no fewer than eight times in

just the past three years, the Fifth Circuit or a federal district court in the

5 Gonzalez and certain other opinions cited here are “unpublished,” but the Federal
Rules of Appellate Procedure provide that “[a] court may not prohibit or restrict the
citation of” such opinions. See also 5TH CIR. R. 47.5.4.

5
State of Texas has granted or affirmed summary judgment, relying on the

conclusive presumption of § 50(h) to defeat a borrower’s claim that his or

her home equity loan violated the 80% requirement of § 50(a)(6)(B).

Thornton v. GMAC Mort., LLC, No. 13-10362, 2013 U.S. App. LEXIS 20534

(5th Cir. Oct. 9, 2013) (per curiam); Poswalk v. GMAC Mort., LLC, 519 Fed.

App’x 884, 886 (5th Cir. 2013) (“Under Texas law, however, GMAC was

able to rely on the . . . appraisal and the Acknowledgment to establish the

FMV.”); Madsen v. Bank of Am., N.A., No. 3:12-cv-0896-G, 2013 U.S. Dist.

LEXIS 3037, at *6-13 (N.D.Tex. Mar. 6, 2013) (Fish, J.); Thornton v. GMAC

Mort., LLC, No. 3:12-cv-0880-D, 2013 U.S. Dist. LEXIS 29785, at *4-12

(N.D.Tex. Mar. 1, 2013) (Fitzwater, J.), aff’d, 2013 U.S. App. LEXIS 20534

(5th Cir. Oct. 9, 2013); Steptoe v. JPMorgan Chase Bank, N.A., No. 4:11-cv-

3427, 2013 U.S. Dist. LEXIS 19683, at *5-8 (S.D.Tex. Feb. 13, 2013); Poswalk v.

GMAC Mort., LLC, No. 3:11-cv-0465-D, 2012 U.S. Dist. LEXIS 83271, at *5-9

(N.D.Tex. June 15, 2012) (Fitzwater, J.), aff’d, 519 Fed. App’x 884 (5th Cir.

2013); Penrod v. Bank of N. Y. Mellon, 824 F. Supp. 2d 754, 758-60 (S.D.Tex.

2011). 6 These courts have explained that after-the-fact explanations, such

6In at least two of these cases, the federal courts rejected the argument that the lender
or assignee had waived reliance on the presumption of § 50(h) because it had not pled

6
as those offered by the borrower at trial in this case—whether with respect

to the borrower’s own understanding of value or that of the author of the

appraisal whose report is in the loan file—are not sufficient even to create a

genuine issue of material fact to defeat summary judgment, much less

support judgment in the borrower’s favor. See Steptoe, 2013 U.S. Dist. LEXIS

19683, at *7-8 (“Retrospection, however, cannot prove that the Defendant

knew [the value] to be wrong at the time, let alone that the appraised value

was in fact wrong on that specific day.”).

Instead, the only way for a borrower to defeat the conclusive

presumption of § 50(h) is to show

(1) either there is no § 50(h) acknowledgment or that the

acknowledgment was defective, or

(2) that the defendant [lender or assignee] had knowledge that

the acknowledgment’s stated fair market value was incorrect
[at the time of the loan].

that provision as an affirmative defense. Madsen, 2013 U.S. Dist. LEXIS 30307, at *6-8;
Thornton, 2013 U.S. Dist. LEXIS 29785, at *11-12. Instead, these courts have indicated
that negating “the conclusive reliance presumption from § 50(h)” is a part of the
plaintiff-borrower’s case. Madsen, 2013 U.S. Dist. LEXIS 30307, at *7; Thornton, 2013 U.S.
Dist. LEXIS 29785, at *12.

7
Madsen, 2013 U.S. Dist. LEXIS at *7-8. 7 Accord, e.g., Thornton, 2013 U.S. App.

LEXIS at *2-3; Poswalk, 2012 U.S. Dist. LEXIS 83271, at *7-8; Penrod, 824 F.

Supp. 2d at 760.

The Opinion in this case affirmatively recites the borrower’s written

“acknowledgment that the fair market value of the home was $425,000,”

and that this “value was set by an independent appraisal . . . sent to the

lender less than two weeks before the loan closed”—both of which, the

acknowledgment and the appraisal, were among the loan documents at the

time of closing. Opinion at 2. The Opinion recounts no evidence that the

lender or Wells Fargo knew, at the time of the loan, that the $425,000 value

established in the appraisal and acknowledged by the borrower was

incorrect. Consequently, Wells Fargo was entitled to “conclusively rely” on

that acknowledgment and appraisal, and valuation was established as a

7 The Texas Constitution makes the signed acknowledgment an express requirement for
extending a home equity loan. See TEX. CONST. art. XVI, § 50(a)(6)(Q)(ix). The
Constitution also subjects that requirement to the notice and cure rights under
§ 50(a)(6)(Q)(x). See Doody v. Ameriquest Mort. Co., 49 S.W.3d 342, 345 (Tex. 2001)
(concluding that “the cure provision in section 50(a)(6)(Q)(x) applies to all the lender’s
obligations under the ‘extension of credit’”). If an acknowledgment is not signed, the
borrower must give notice of the violation, which then triggers the right to cure by
obtaining the appropriate signature. See TEX. CONST. art. XVI, § 50(a)(6)(Q)(x)(d). Thus, a
borrower cannot use the absence of a signature on the acknowledgment to collaterally
attack the conclusive presumption under § 50(h) unless there has already been notice
and a failure to cure the non-compliance with § 50(a)(6)(Q)(ix).

8
matter of law. See Thornton, 2013 U.S. App. LEXIS 20534, at *2 (“Because the

[borrowers] produced no competent evidence showing that [lender] had

actual knowledge that the . . . value reflected in the written

acknowledgement was incorrect, [the lender] may conclusively rely on this

value to show that it did not violate section 50(a)(6)”). Accordingly, the

decision of the district court in this case should be reversed, and judgment

rendered for Wells Fargo.

B. Notice and Cure: Notice Is Adequate and Reasonable Only if it

Provides a Genuine Opportunity for Cure.

As this Court has acknowledged, the penalty for a lender’s

noncompliance with the various requirements of TEX. CONST. art. XVI,

§ 50(a)(6) is extreme: “When the requirements are not met, the [mortgage]

lien is invalid, and all principal and interest are forfeited.” Opinion at 4. A

lender or assignee may avert such draconian results only if, no later than 60

days after having been notified by the borrower of the particular violation,

the lender or assignee effects a “cure” as prescribed by TEX. CONST. art.

XVI, § 50(a)(6)(Q)(x)(a)-(f). Opinion at 4.

The second issue addressed by the Court in its Opinion was whether

adequate notice was given of the purported violation of § 50(a)(6)(B) here

9
and, if so, whether that violation was “cured” by the lender. Fannie Mae

and Freddie Mac respectfully submit that application of the conclusive

presumption of § 50(h), as explained above, renders this second issue moot.

That is, given that conclusive presumption, there is no violation of the 80%

rule of § 50(a)(6)(B), and therefore no need to address the issues of notice

and cure. That portion of the Court’s original Opinion, therefore, should

simply be vacated or withdrawn as moot.

If the Court proceeds to this second issue, however, it must deal with

two sub-issues: (1) did the borrower deliver adequate notice under

§ 50(a)(6)(Q)(x) and, if so, (2) did Wells Fargo “cure” the noticed violation

in accordance with that section. In its Opinion, the Court undertook no

substantive analysis of the second, “cure” sub-issue. Instead, it held the

issue to have been waived, (a) because “at oral argument, Wells Fargo

stated there was no attempt to cure because no notice of a violation was

given,” and (b) because “Wells Fargo’s briefing . . . is inadequate” with

respect to the question whether it effected a cure within the 60-day period

prescribed by the Constitution. Opinion at 10-11 (emphasis added; citing In

re M.A.S., 233 S.W.3d 915, 924 (Tex. App.—Dallas 2007, pet. denied)).

10
Likely for those same reasons, Wells Fargo focuses its Motion for Rehearing

on the adequacy of the disputed notice.

But Fannie Mae and Freddie Mac respectfully contend that, to decide

whether the notice was adequate, the Court must also consider what would

constitute an adequate cure under the Constitution to avoid the severe

forfeiture remedies prescribed by § 50(a)(6)(Q)(x). That is, the adequacy of

the notice is largely dictated by the cure it is designed to elicit. The

Constitution, itself, provides virtually no guidance generally on what

constitutes “adequate” notice by a borrower, sufficient to start the 60-day

clock ticking on the lender’s cure period. But in a prior examination of

what constitutes adequate notice under § 50(a)(6)(Q)(x), this Court

essentially employed the practical approach outlined above.

In Curry v. Bank of America, N.A., this Court held inadequate a

borrower’s purported notice of violation under § 50(a)(6)(Q)(x). 232 S.W.3d

345, 352-55 (Tex. App.—Dallas 2007, pet. denied). Noting that 7 TEX.

ADMIN. CODE § 153.91(a)(3) specifies that such a “notification must include

a reasonable . . . description of the alleged failure to comply,” 8 the Court

8 See TEX. CONST. art. XVI, § 50(u) (authorizing legislature to designate state agencies to
interpret constitutional provisions concerning homestead and home equity loans); TEX.

11
held that a notice that “did not contain any factual basis or details” was not

sufficient to start the 60-day clock. 232 S.W.3d at 353-55. The Court

explained,

Although the home equity loan provisions [of the Constitution]

are silent as to the extent of notice the borrower must give, we
conclude the [borrower] needed to do more than make a
general allegation and had to describe how the loan is non-
compliant. . . . To determine how to cure its non-compliance,
the lender must be aware of what that non-compliance is.

Curry, 232 S.W.3d at 353. To evaluate the efficacy of a borrower’s purported

notice, therefore, one must know the potential cure that it should evoke.

As this Court acknowledged in its Opinion, the purported

notification here—statements in the borrower’s pleadings in two cases—

did no more than assert that “’the home equity loan and resultant

mortgage in question violates Article 16, Section 50 of the Texas Constitution’

because the loan ‘exceeded eighty [percent] of the actual fair market value

of the property at the time the loan was closed.’” Opinion at 8 (quoting

borrower’s pleadings; emphasis original). This purported notice “did not

contain any factual basis or details” explaining how or to what extent the

loan supposedly exceeded the 80% barrier. See Curry, 232 S.W.3d at 353. It

FIN. CODE §§ 11.308, 15.413 (designating Credit Union Commission and Finance
Commission of Texas to interpret home equity loan provisions pursuant to § 50(u)).

12
did not even apprise the lender of borrower’s position as to the fair market

value of the homestead on the date of the loan.

If the lender in this case was required to reconfigure the loan in order

to effect a “cure” and avert the draconian penalties for non-compliance

with § 50(a)(6)(B), then the notification is clearly inadequate to enable the

lender to do so. See id. (“Although a lender could certainly comb through

the loan documents and the home equity loan provisions to determine the

defect, it would defeat and render meaningless the requirement that the

borrower notify the lender of defects if the borrower needed to merely

state, without detail, that the loan was infirm.”). So, if the notification in

this case is to be held adequate under the Constitution and the Texas

Administrative Code, then either (a) the ticking of the 60-day cure clock

must be tolled until the “factual basis or details” underlying the purported

non-compliance have been resolved either by agreement or by final non-

appealable judgment, or (b) the cure sufficient to avert the severe sanctions

of § 50(a)(6)(Q)(x) must be allowed to be equally non-specific, with the

parties then left to work out the practicalities of that “cure” thereafter,

either by agreement or litigation.

13
 At pages 10-14 of its Motion for Rehearing, Wells Fargo has

persuasively presented the case that no adequate notice was provided here.

Those same arguments also demonstrate why tolling of the 60-day cure

clock would be required if there is a dispute over the “factual basis or

details” underlying the purported non-compliance. Regardless, Fannie Mae

and Freddie Mac respectfully suggest that the Texas Constitution also

supports the second alternative described above, and does so expressly.

See LaSalle Bank Nat’l Ass’n v. White, 246 S.W.3d 616, 619 (Tex. 2007) (“When

interpreting the Texas Constitution [this Court] ‘rel[ies] heavily on its

literal text and must give effect to its plain language.’” (quoting Stringer v.

Cendant Mort. Corp., 23 S.W.3d 353, 355 (Tex. 2000)).

Section 50(a)(6)(Q)(x)(b) provides that a lender may avert the

forfeiture sanctions for non-compliance with the 80% rule simply “by . . .

sending the owner [or borrower] a written acknowledgment that the lien is

valid only in the amount that the extension of credit does not exceed the

percentage described by Paragraph B of this sub-division [§ 50(a)(6)(B)]

. . . .” That is, when faced with an assertion that a mortgage loan violates

the 80% rule of § 50(a)(6)(B), a lender or assignee (such as Wells Fargo in

this case) need only respond with the “written acknowledgment”

14
prescribed by the section quoted above in order to avert the forfeiture

penalties of that section. In the wake of that “written acknowledgment,”

the borrower is secure in the knowledge that the lien will not be enforced

in an amount greater than allowed by the Constitution, and the parties

then have the opportunity to work through the practicalities of the dispute

either by agreement or through litigation without the lender facing the

potentially drastic forfeiture sanction otherwise prescribed by that section.9

In addition, this interpretation averts a potentially absurd result. A

lender who in good faith disputes the validity of an allegation that its loan

violates the 80% rule—as was the case here, with the question of value

having gone to a jury—surely cannot be relegated to the Hobson’s choice of

either acceding to a borrower’s naked allegation, with which he disagrees

in good faith, or risking the forfeiture of all principal and interest if he

takes the dispute to court and his position is rejected. See In re Keller, 357

S.W.3d 413, 421 (Tex. 2010) (“It is well established that a reasonable

construction should be given to constitutional provisions and that a

provision will not be construed so as to lead to absurd results [or] great

9As discussed above, any dispute about the value of the property should be resolved by
the conclusive presumption of § 50(h).

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public inconvenience . . . .”). 10 Interpreting § 50(a)(6)(Q)(x) to allow a lender

to avert the forfeiture sanctions of that section by delivering the

acknowledgment specified in sub-section (b) eliminates that Hobson’s

choice. And, arguably, it would render adequate a notice such as that in

issue here, because even such a general notice would elicit and could be

met by that simple acknowledgment.

CONCLUSION

Fannie Mae and Freddie Mac respectfully urge this Court to grant

Wells Fargo’s Motion for Rehearing, to withdraw its original Opinion, and

to reverse the judgment of the trial court and render judgment for Wells

Fargo on the basis of the “conclusive presumption” in TEX. CONST. art. XVI,

10 Although Wells Fargo in its Motion for Rehearing rightly focuses on the non-specific
nature of the purported notice in this case, the Hobson’s choice described in text would
arise even if the borrower’s notice had been detailed and specific. If the borrower in this
case, for example, had included in his notice the conclusions ultimately articulated by
his expert witness regarding the fair market value of the homestead, the notice would
have been sufficiently specific, but would still have presented the lender with a
potentially untenable choice—either to forego a substantial amount of principal and
interest to which it genuinely believed it was entitled, or to seek judicial determination
of the fair market value issue, thereby risking forfeiture of the entire principal and
interest if the lender’s position were rejected in litigation. See also Wells Fargo Motion at
12-14. This absurd result can be averted only if, in the face of a notice of a purported
80% violation, either (a) the lender can “cure” and avoid the forfeiture penalties simply
by sending the acknowledgment prescribed by § 50(a)(6)(Q)(x)(b), and working out the
practical details with the borrower thereafter, or (b) the 60-day cure clock is tolled until
the parties reach a final determination of any dispute with respect to the 80% issue,
either by agreement or through a final, non-appealable judgment in litigation.

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§ 50(h). In the alternative, should the Court reach the issue of notice and

cure under TEX. CONST. art. XVI, § 50(a)(6)(Q)(x), Fannie Mae and Freddie

Mac urge the Court to withdraw its prior Opinion and either find the

notice in this case insufficient or make clear that it is sufficient only because

it triggers the opportunity for the lender to cure by simply sending the

written acknowledgment prescribed in § 50(a)(6)(Q)(x)(b) and thereby

avert the imposition of the forfeiture sanctions otherwise prescribed by that

section.

Respectfully submitted,

s/ Ken Carroll s/ Robert D. Forster, II

Ken Carroll Robert D. Forster, II
State Bar No. 03888500 State Bar No. 24048470
kcarroll@ccsb.com robertfo@bdfgroup.com
Bri Turner BARRETT DAFFIN FRAPPIER TURNER &
State Bar No. 24088557 ENGEL, LLP
bturner@ccsb.com 15000 Surveyor Boulevard
CARRINGTON, COLEMAN, SLOMAN Addison, Texas 75001
& BLUMENTHAL, L.L.P. Phone: (972) 340-7948
901 Main Street, Suite 5500 Fax: (972) 341-0734
Dallas, Texas 75202
Phone: (214) 855-3000 Counsel for Amicus Curiae Federal
Fax: (214) 855-1333 Home Loan Mortgage Corporation
(Freddie Mac)
Attorneys for Amicus Curiae
Federal National Mortgage Association
(Fannie Mae)

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 CERTIFICATE OF SERVICE

The undersigned hereby certifies that a true and correct copy of the
foregoing document was served in compliance with the Texas Rules of
Appellate Procedure on January 30, 2014, to all counsel of record.

/s/ Ken Carroll

Ken Carroll

CERTIFICATE OF COMPLIANCE

Pursuant to Texas Rule of Appellate Procedure 9.4(i)(3), the

undersigned certifies that this Appellee’s Brief complies with the length
limitations of Rule 9.4(i) and the typeface requirements of Rule 9.4(c).

1. Exclusive of the contents excluded by Rule 9.4(i)(1), this Brief

contains 3,839 words as counted by the Word Count function (including
textboxes, footnotes, and endnotes) of Microsoft Office Word 2010.

2. This Brief has been prepared in proportionally-spaced

typeface using Microsoft Word 2010, and was prepared in Book Antiqua
14-point font for the text and 12-point for the footnotes.

/s/ Ken Carroll

Ken Carroll

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