This memorandum updates the firm’s August 19, 2019 memorandum on the United States Court of Appeals for the Fifth Circuit certified question to the Supreme Court of Texas regarding a lender’s right to equitable subrogation in connection with an invalid Texas home equity loan. The case of Zepeda v. Federal Home Loan Mortgage Corporation, 935 F.3d 296 (5th Cir. Aug. 2019) involved the application of Texas’ long-standing doctrine of equitable subrogation to an invalid home equity loan under Tex. Const. art. XVI, § 50(a)(6). In that case, the 5th Circuit certified the following question to the Texas Supreme Court to answer:

Is a lender entitled to equitable subrogation, where it failed to correct a curable constitutional defect in the loan documents under § 50 of the Texas Constitution?

In Federal Home Loan Mortgage Corporation v. Zepeda, 2020 WL 1975169 (Tex. Apr. 24, 2020), the Texas Supreme Court answered “Yes” to the 5th Circuit’s certified question, stating: “Under Texas law, a lender who discharges a prior, valid lien on the borrower’s homestead property is entitled to subrogation, even if the lender failed to correct a curable defect in the loan documents under § 50 of the Texas Constitution. We answer the certified question “yes”.” Thus, the Court upheld its landmark home equity loan subrogation decision in LaSalle Bank National Association v. White, 246 S.W.3d 616 (Tex. 2007).


Full Memorandum