Texas Home Equity Loans – Per Diem Interest, Discount Points and Powers of Attorney under the Texas Supreme Court Supplemental Opinion in Finance Commission of Texas v. Norwood, 2013 WL 3119481 (Tex. June 21, 2013) On January 31, 2014, The Texas Supreme Court published a Supplemental Opinion in the Norwood home equity case cited above. The original opinion adversely affected the use of powers of attorney, declared bona fide discount point to be subject to the three percent fee cap, and placed per diem interest in a doubtful position relative to the three percent fee cap. The Court’s Supplemental Opinion clarifies its original opinion regarding the above. For a copy of the four page supplemental opinion, click here. Per Diem Interest: The Supplemental Opinion clarifies that per diem interest is interest not subject to the three percent fee cap. It states “per diem interest is still interest, though prepaid; it is calculated by applying a rate to principal over a period of time.” Thus, it applies the definition of interest stated in the Court’s original opinion for the purposes of the three percent fee cap exclusion of interest and validates this firm’s opinion on the exclusion of per diem interest from the three percent fee cap expressed in our July 1, 2013 memorandum. Bona Fide Discount Points: The Supplemental Opinion also clarifies that bona fide discount points are not subject to the three percent fee cap. It states “[l]egitimate discount points to lower the loan interest rate, in effect, substitute for interest … that true discount points are not fees ‘necessary to originate, evaluate, maintain, record, insure, or service’ but are an option available to the borrower and thus not subject to the 3% cap.” The Court did not clarify or explain what it meant in using the words “legitimate” and “true” as descriptive qualifiers for the discount point exclusion. Powers of Attorney: The Supplemental Opinion reasserts the Court’s original opinion “that Section 50(a)(6)(N), which provides that a loan may be ‘closed only at the office of the lender, an attorney at law, or a title company’, precludes a borrower from closing the loan through an attorney-in-fact under a power of attorney not itself executed at one of the three prescribed locations.” While the opinion backed away from the original opinion that closing was a “process,” it stated that a power of attorney “must be part of the closing” and concluded that the power of attorney deserved the protection of Section 50(a)(6)(N) to prevent coercive practices. In light of the Texas Supreme Court’s Supplemental Opinion, we believe lenders may again exclude properly computed and documented per diem interest and bona fide discount points from the three percent fee cap, subject, as always, to investor requirements. This memorandum amends this firm’s previous memorandum dated July 1, 2013, and email alert dated June 24, 2013, regarding these important issues. This Memorandum is provided as general information in regard to the subject matter covered, but no representations or warranty of the accuracy or reliability of the content of this information are made or implied. Opinions expressed in this memorandum are those of the author alone. In publishing this information, neither the author nor the law firm of Black, Mann & Graham L.L.P. is engaged in rendering legal services. While this information concerns legal and regulatory matters, it is not legal advice and its use creates no attorney-client relationship or any other basis for reliance on the information. Readers should not place reliance on this information alone, but should seek independent legal advice regarding the law applicable to matters of interest or concern to them. The law firm of Black, Mann & Graham L.L.P. expressly disclaims any obligation to keep the content of this information current or free of errors. Download complete memorandum below
