Locke Lord QuickStudy: Texas Supreme Court Authorizes Attorney Fees’ Awards in Home Equity Cases

February 12, 2015

On Friday, February 6, 2015, the Texas Supreme Court issued its decision in Case No. 13-0236, Wells Fargo Bank, N.A. v. Murphy, and held that the Texas Constitution’s prohibition against non-recourse home equity loans, see TEX. CONST. art. XVI, §50(a)(6)(C), does not prohibit a district court from exercising its discretion to impose an attorneys’ fees award against a home equity borrower who files a lawsuit under the Texas Declaratory Judgment Act.  In this case, Wells Fargo initiated a proceeding under TEX. R. CIV. P. 736 seeking an order allowing Wells Fargo to foreclose on the Murphys’ home equity loan.  The Murphys responded by filing a separate declaratory judgment action against Wells Fargo challenging the validity of Wells Fargo’s lien.  That separate lawsuit automatically stayed Wells Fargo’s Rule 736 proceeding.  See TEX. R. CIV. P. 11.  

Wells Fargo prevailed on summary judgment and then requested that it be awarded recovery of its attorneys’ fees under TEX. CIV. PRAC. & REM. CODE §37.009.  The district court agreed and ordered the Murphys to pay Wells Fargo’s fees.  The court of appeals reversed in a 2-1 decision.  The Texas Supreme Court granted review, reversed the court of appeals, and reinstated the trial court’s judgment.  The Texas Supreme Court held:  ”Having initiated a separate and original proceeding, and having provided a mechanism for Wells Fargo to both incur and recover its attorney’s fees, there is no basis for the Murphys to hide behind the nonrecourse status of their home-equity loan.”  

This decision is significant because it shows that a home equity borrower who initiates litigation against his lender is not immune from the ordinary rules and costs associated with litigation.

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