FILED

14-0326
8/25/2014 11:29:23 AM
tex-2266738
SUPREME COURT OF TEXAS
BLAKE A. HAWTHORNE, CLERK

NO. 14-0326

In The
Supreme Court of Texas
___________________________________________________

WELLS FARGO BANK, N.A., AS TRUSTEE FOR OPTION ONE MORTGAGE LOAN
TRUST 2006-1 ASSET-BACKED CERTIFICATES, SERIES 2006-1
Petitioner,
V.

LONZIE LEATH,
Respondent.

From the Court of Appeals for the Fifth Judicial District of Texas
No. 05-11-01425-CV

PETITIONER’S REPLY BRIEF IN SUPPORT OF ITS

PETITION FOR REVIEW

Robert T. Mowrey B. David L. Foster

Texas Bar No. 14607500 Texas Bar No. 24031555
rmowrey@lockelord.com dfoster@lockelord.com
W. Scott Hastings LOCKE LORD LLP
Texas Bar No. 24002241 600 Congress Avenue, Suite 2200
shastings@lockelord.com Austin, Texas 78701
Daron L. Janis. (512) 305-4700
Texas Bar No. 24060015 (512) 305-4800 (fax)
djanis@lockelord.com
LOCKE LORD LLP
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201-6776
(214) 740-8000
(214) 740-8800 (fax)
 TABLE OF CONTENTS

TABLE OF CONTENTS .......................................................................................... ii

REPLY BRIEF ...........................................................................................................1

A. Review Should be Granted to Resolve an Important Question

About the Notice Standard Under Section 50(a)(6)(Q)(x) .............................. 1
B. Review Should be Granted to Clarify the Scope of this Court’s
Recent Rulings Regarding Waiver .................................................................. 4

C. Review Should be Granted to Resolve an Important Question

About a Subsequent Holder’s Protection Under Section 50(h)....................... 5

D. Review Should be Granted to Clarify that a Borrower Cannot

Obtain a Free House by Perjuring Himself .....................................................6
CERTIFICATE OF COMPLIANCE ......................................................................... 9

CERTIFICATE OF SERVICE .................................................................................. 9

ii
 INDEX OF AUTHORITIES

Page(s)
CASES
Crump v. Frenk,
404 S.W.3d 146 (Tex. App.—Texarkana 2013, no pet.)..................................4, 5

Fin. Comm’n of Tex. v. Norwood,

418 S.W.3d 566 (Tex. 2013) ................................................................................4
Tex. Comm’n on Human Rights v. Morrison,
381 S.W.3d 533 (Tex. 2012) ............................................................................4, 5

Thota v. Young,
366 S.W.3d 678 (Tex. 2012) ............................................................................4, 5
Wells Fargo Bank, N.A. v. Leath,
425 S.W.3d 525 (Tex. App.—Dallas 2014, pet. filed) ......................................... 3

CONSTITUTION, STATUTES, AND RULES

TEX. CONST. art. XVI, §50(a)(6)(B)...................................................................1, 2, 7
TEX. CONST. art. XVI, §50(a)(6)(Q)(ix)..................................................................... 6
TEX. CONST. art. XVI, §50(a)(6)(Q)(x) ..........................................................1, 2, 3, 4

TEX. CONST. art. XVI, §50(h) ............................................................................1, 5, 6

7 TEX. ADMIN. CODE § 153.91(a) .............................................................................. 2

iii
 REPLY BRIEF

The Response to Petition for Review (the “Response”) illustrates why the

Court should grant the Petition for Review (the “Petition”) by highlighting

important, disputed questions of law regarding (1) the notice standard under article

XVI, section 50(a)(6)(Q)(x) of the Texas Constitution (“Section 50(a)(6)(Q)(x)”);

(2) the waiver standard on appeal; (3) the application of article XVI, section 50(h)

of the Texas Constitution (“Section 50(h)”) when a subsequent loan holder, as

opposed to the original lender or prior holder, is sued for forfeiture under Section

50(a)(6)(Q)(x); and (4) whether the Texas Constitution provides means whereby a

borrower can obtain a free house by perjuring himself.

A. Review Should be Granted to Resolve an Important Question About the

Notice Standard Under Section 50(a)(6)(Q)(x)

The Response shows why clarification is needed from this Court on what

constitutes adequate notice under Section 50(a)(6)(Q)(x). Respondent claims that

“[t]he required notice was satisfied on numerous occasions by undisputed facts”

and that he provided Wells Fargo with “explicit and exact notice” of a violation of

article XVI, section 50(a)(6)(B) of the Texas Constitution (“Section 50(a)(6)(B)”).

Response at 2 & 5 (emphasis added). Respondent further asserts that Wells Fargo

received adequate notice “[a]t the latest” when Respondent’s attorney sent a letter

to Wells Fargo’s foreclosure counsel on January 25, 2008 that, according to

1
Respondent, “was specific and cited the constitutional violation.” Response at 3,

15. Nothing could be further from the truth.

The January 25, 2008 letter attached to his Response (which is the

centerpiece of his notice arguments in the Response) was not admitted into

evidence at trial.1 Moreover, the letter was sent to counsel before the mortgage

was assigned to Wells Fargo, 2 and in fact, the letter does not even relate to the

loan at issue in this case. The letter refers to a loan Respondent obtained from

Option One on October 23, 2004. See Response, Ex. 1. The loan in this case was

obtained from H&R Block Mortgage Corporation (“H&R Block”) more than a

year later, on October 26, 2005. See DX1; DX2.3 Accordingly, the January 25,

2008 letter attached to the Response cannot possibly have served as notice to Wells

Fargo of its loan’s alleged noncompliance with Section 50(a)(6)(B).

Respondent is also wrong when he argues that “[t]he adequacy of the notice

was never contested by the lender for the simple reason that the multiple notices

were clear, concise and certainly adequate to trigger the ‘cure’ provision of the

Constitution.” Response at 7. The court of appeals devoted about one-third of its

1
See generally Reporter’s Record, vol. 8.
2
Compare Response, Ex. 1 (letter dated January 25, 2008) with DX50, Ex. D
(showing assignment to Wells Fargo on February 7, 2008).
3
At a minimum, a notice under Section 50(a)(6)(Q)(x) “must include a reasonable …
(2) identification of the loan[.]” 7 TEX. ADMIN. CODE § 153.91(a). The January 25, 2008
letter did not even do that.

2
opinion to a discussion of whether notice was adequate. See Wells Fargo Bank,

N.A. v. Leath, 425 S.W.3d 525, 530-33 (Tex. App.—Dallas 2014, pet. filed).

Although it disagreed with Wells Fargo on the merits of the issue, the court of

appeals did not find a waiver.

The court of appeals’ notice analysis focused on only two documents: (a)

Respondent’s answer to Wells Fargo’s application for an order allowing

foreclosure and (b) Respondent’s petition in this case. Id at 532-33. As Wells

Fargo has explained, when those documents are reviewed, it is readily apparent

that the notice standard adopted by the district court and court of appeals is not

only unworkable in practice, but it is also much too low in light of the severe

consequences at stake. 4 See Petition at 13-18.

Unfortunately, the Texas Constitution does not provide much guidance on

what the notice standard should be; it provides only that the cure period begins

when “the lender or holder is notified by the borrower of the lender’s failure to

comply[.]” TEX. CONST. art. XVI, § 50(a)(6)(Q)(x). And while any guidance

offered in the Texas Administrative Code may provide a safe harbor for lenders or

holders, this Court has made it clear that the correct interpretation of the home

equity provisions in the Texas Constitution are ultimately the province of this
4
Contrary to Respondent’s suggestion on page 15 of the Response, Wells Fargo
raised the issue of its right to cure after the jury returned its valuation verdict. CR39-44.
The district court entered judgment holding the 60-day cure period had already expired
less than 60 days after the jury returned its verdict. See CR31-35, CR62-63.

3
Court. See Fin. Comm’n of Tex. v. Norwood, 418 S.W.3d 566, 579 (Tex. 2013).

Even the court of appeals in this case disagrees internally regarding the proper

notice standard under Section 50(a)(6)(Q)(x). Accordingly, the Court should grant

the Petition in order to clarify what constitutes adequate notice of noncompliance

under Section 50(a)(6)(Q)(x).

B. Review Should be Granted to Clarify the Scope of this Court’s Recent

Rulings Regarding Waiver

The court of appeals’ waiver analysis is also contrary to this Court’s

decisions in Thota v. Young, 366 S.W.3d 678, 689-90 (Tex. 2012), and Tex.

Comm’n on Human Rights v. Morrison, 381 S.W.3d 533, 536 (Tex. 2012). See

Petition at 8-10. Respondent disagrees, arguing that the Court should confine its

Thota and Morrison rulings to disputes regarding broad form submission of jury

questions. See Response at 8-9.

Respondent’s argument is at odds with Crump v. Frenk, 404 S.W.3d 146

(Tex. App.—Texarkana 2013, no pet.), in which the Texarkana Court of Appeals

did not so limit its application of the principles enunciated in Thota and Morrison.

In footnote 8, the court addressed Crump’s contention that Frenk treated their

settlement agreement as still binding and was therefore required to continue to

fulfill her obligations under the agreement. See id. at 152 n.8. The court held that

Crump preserved this contention for its review because, “[e]ven though she failed

4
to cite specific caselaw supporting this claim, she does ‘piece together’ [in her

response to Frenk’s motion for summary judgment] the substance of what she now

maintains on appeal.” Id. at 152 n.8.

The fact that Respondent advocates for a waiver standard that is contrary to

the principles set forth in Thota and Morrison, and contrary to the standard applied

in Crump, 5 illustrates the need for this Court to clarify the scope of waiver analysis

in the courts of appeal.

C. Review Should be Granted to Resolve an Important Question About a

Subsequent Holder’s Protection Under Section 50(h)

Apparently lost on Respondent is the fact that he sought forfeiture of the lien

against Wells Fargo, a subsequent holder of the loan, rather than H&R Block, the

original lender. Respondent repeatedly argues that H&R Block and Option One

were aware of repairs on the Property. 6 However, he cites no evidence or findings

in the trial court that Wells Fargo had similar awareness when it acquired the loan.

5
Respondent claims that the holding in Crump is the opposite of what Wells Fargo
cited it for. See Response at 9. However, Respondent points to footnote 12, where the
court held that Crump failed to preserve one of her other arguments by not raising it in
the trial court. See Response at 9 (referring to the holding and citations found in footnote
12 of Crump). Thus, Respondent’s assertion is inaccurate.
6
Respondent cites pre-closing communications between him and H&R Block as
evidence that H&R Block was aware of incomplete repairs when the loan was closed.
See Response at 11, 13. He also cites communications between him and Option One,
prior to Wells Fargo acquiring the loan, as evidence that Option One was aware of a
dispute regarding the property’s value. See id. at 11-12, 14. Respondent also argues that
H&R Block had a lower appraisal prior to the Crum Appraisal, but he fails to disclose

5
 Even assuming arguendo that H&R Block and/or Option One knew the

appraised valuation was incorrect, that raises another important issue regarding

Section 50(h)—whether a subsequent holder (such as Wells Fargo) without

knowledge of the incorrect appraisal is entitled to protection under Section 50(h)

when the original lender and/or prior holders had knowledge that the value

acknowledged pursuant to Section 50(a)(6)(Q)(ix) was incorrect.

This Court has never addressed the scope of 50(h) or the protections it

provides to an assignee/subsequent holder of a home equity loan. The Court

should grant review to clarify that the subsequent holder’s protection under Section

50(h) is predicated on its own knowledge at the time it acquires the loan, not on the

alleged knowledge of the original lender or any prior holder.

D. Review Should be Granted to Clarify that a Borrower Cannot Obtain a

Free House by Perjuring Himself

Perhaps the most troubling aspect of Respondent’s position is the notion that

the Texas Constitution provides means whereby a borrower, such as Respondent,

can obtain a free house by acknowledging in a sworn statement that the value of

his property is $425,000.00, see DX15, executing a sworn affidavit stating that

loan does not exceed eighty percent of the acknowledged value, see DX24 at ¶ 15,

that the prior appraisal was a drive-by appraisal for which no inspection of the property
was done. See id. at 11, 13. He also fails to disclose that neither he nor H&R Block
relied on the drive-by appraisal in the fair market value acknowledgment. See id.

6
and then years later perjuring himself by directly contradicting and denying

everything that he swore to at the closing of the loan. Fortunately, the Texas

Constitution does not promote or permit such conduct, at least with regard to

alleged noncompliance with Section 50(a)(6)(B). Unless a borrower can show the

lender or holder he is suing had actual knowledge that the value the borrower

acknowledged at closing was incorrect, or that the value was not supported by an

appraisal prepared in accordance with a state or federal requirement applicable to

home equity loans,7 Section 50(h) creates a conclusive presumption on the fact

issue of value that the borrower cannot later contradict or even dispute.

The Court should grant review to clarify that borrowers cannot perjure

themselves in order to overcome the conclusive presumption under Section 50(h)

and thereby be rewarded with a free house.

7
Respondent argues that the accuracy of an appraisal is a requirement of state or
federal law, but he cites no authority. See Response at 10. In any event, an appraisal is
an imprecise estimate, not a precise calculation, of value. See Petition at 15-16 (citing
authority). Can a difference of one percent between two estimated values of a property
that is worth over $400,000.00 rationally make one estimate accurate and the other
inaccurate? Respondent seems to think so.

7
Respectfully submitted,

/s/ W. Scott Hastings

Robert T. Mowrey
Texas Bar No. 14607500
rmowrey@lockelord.com
W. Scott Hastings
Texas Bar No. 24002241
shasting@lockelord.com
Daron L. Janis
Texas Bar No. 24060015
djanis@lockelord.com
LOCKE LORD LLP
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201-6776
Telephone: (214) 740-8000
Facsimile: (214) 740-8800

B. David L. Foster
Texas Bar No. 24031555
dfoster@lockelord.com
LOCKE LORD LLP
600 Congress Avenue, Suite 2200
Austin, Texas 78701
(512) 305-4700
(512) 305-4800 (fax)

COUNSEL FOR PETITIONER

8
 CERTIFICATE OF COMPLIANCE

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

certifies that this Reply Brief complies with the length limitations of Rule 9.4(i)
and the typeface requirements of Rule 9.4(e).

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

contains 1,779 words as counted by the Word Count function (including textboxes,
footnotes, and endnotes) of Microsoft Office Word 2010.
2. This Reply Brief has been prepared in proportionally spaced typeface
using:
Software Name and Version: Microsoft Office Word 2010
Typeface Name: Times New Roman
Font Size: 14 point (13 point for footnotes)

/s/ W. Scott Hastings

W. Scott Hastings

CERTIFICATE OF SERVICE

I certify that on August 25, 2014, this Reply Brief is being served on
Respondent by E-File Texas or first-class U.S. mail, certified, return receipt
requested, to Respondents’ counsel of record listed below:

Wendel A. Withrow
1120 Metrocrest, Suite 200
Carrollton, Texas 75006

/s/W. Scott Hastings

W. Scott Hastings