Bulletin: TX2013004

Dear Associates:

Effective immediately, POWERS OF ATTORNEY NOT EXECUTED IN THE OFFICES OF THE LENDER OR TITLE COMPANY MAY NOT BE USED TO CLOSE HOME EQUITY LOANS. Loans executed under Texas Constitution Art. 15 Section 50a6.

If you are presented with an already executed power of attorney with an execution date of prior to June 21, 2013, no home equity loan may be insured in reliance on it. If you are presented with an executed power of attorney dated after June 23, 2013, you must obtain a certification from both the lender and the parties to the Power of Attorney that it was executed at the Lenders office before it can be used to insure a home equity loan. If the POA is executed in your office after June 23, 2013, it may be used.

Although this case did not reach the issue of reverse mortgages, the same rule applies until further notice.

The Texas Supreme Court handed down a decision on June 21, 2013, with far reaching implications. The case concerned 3 main issues but only powers of attorney rise to immediate concern for the title industry.

The court’s opinion was issued in in cause NO. 10-0121 THE FINANCE COMMISSION OF TEXAS, THE CREDIT UNION COMMISSION OF TEXAS, AND TEXAS BANKERS ASSOCIATION, PETITIONERS, v VALERIE NORWOOD, ELISE SHOWS, MARYANN ROBLES-VALDEZ, BOBBY MARTIN, PAMELA COOPER, AND CARLOS RIVAS, RESPONDENTS.

In pertinent part the decision reads as follows:

Section 50(a)(6)(N) provides that a loan may be “closed only at the office of the lender, an attorney at law, or a title company”. The Commissions acknowledge, and the Homeowners agree, that “[t]his provision was intended to prohibit the coercive closing of an equity loan at the home of the owner. Nevertheless, the Commissions’ interpretations allow a borrower to mail the required signed consent to the lender and to close through an attorney-in-fact. Both these interpretations permit coercion in obtaining the required consent and a power of attorney at the borrower’s home, allowing the final closing to occur later at one of the prescribed locations, thereby defeating the purpose of the provision.

Closing a loan is a process. It would clearly be unreasonable to interpret Section 50(a)(6)(N) to allow all the loan papers to be signed at the borrower’s house and then taken to the lender’s office, where funding was finally authorized. Closing is not merely the final action, and in this context, to afford the intended protection, it must include the initial action. Executing the required consent or a power of attorney are part of the closing process and must occur only at one of the locations allowed by the constitutional provision. (emphasis added)

Whether so stringent a restriction is good policy is not an issue for the Commissions or this Court to consider. That the issue should arise counsels against constitutionalizing minutiae, placing them beyond regulatory or legislative adjustment. But the purpose of the provision is indisputable, and the Commissions’ interpretations in derogation of that purpose can be justified only by reading “closing” to mean some aspect of the closing process. The court of appeals concluded that the use of the mail to transmit documents and of a power of attorney to facilitate execution are so commonplace that had the framers and ratifiers of Section 50 intended to preclude these practices, they would have said so with more specificity.

The court pointed to Section 50(a)(6)(Q)(iv), which prohibits using a borrower’s power of attorney to facilitate obtaining a judgment against a debtor, should he default. But it is precisely the common use of the mail and powers of attorney in closing transactions that gives rise to the danger of coercion Section 50(a)(6)(N) was intended to prevent. 303 S.W .3d at 417 (citations omitted).

We conclude that the Commissions’ interpretations of Section 50(a)(6)(N) contradict the purpose and text of the provision and are therefore invalid.

Please note that the case has not been given a Southwest Reporting system identifying citation as of the writing of this bulletin.

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