     Case: 17-20682      Document: 00514789274         Page: 1    Date Filed: 01/10/2019




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                          United States Court of Appeals
                                                                                   Fifth Circuit

                                      No. 17-20682                               FILED
                                                                          January 10, 2019
                                                                            Lyle W. Cayce
ABDEL K. FUSTOK; MALAK FUSTOK,                                                   Clerk

              Plaintiffs - Appellants

v.

BANK OF AMERICA, N.A.,

              Defendant - Appellee




                   Appeal from the United States District Court
                        for the Southern District of Texas
                               USDC 4:16-CV-2867


Before STEWART, Chief Judge, and DENNIS and WILLETT, Circuit Judges.
PER CURIAM:*
       Plaintiffs Abdel Fustok and Malak Fustok, a married couple, refinanced
the loan on their home in Texas in 2007 with Bank of America. Malak was not
present for that transaction, but two years earlier had granted her husband
authority to act on her behalf in refinancing their home through a durable
power of attorney. After they fell behind on payments, the Fustoks sued Bank
of America, claiming, among other things, that the 2007 refinancing was


       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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defective because the power of attorney did not meet the requirements of the
Texas Constitution relative to homestead lien contracts and because Bank of
America did not properly bind itself to the remedy of forfeiture for
noncompliance. The district court dismissed the Fustoks’ claims on summary
judgment, holding they were precluded as a matter of law. We agree, and
therefore AFFIRM.
                                            I
       The Fustoks have owned their home in Houston, Texas since 1990 (the
Property). In that time, the Fustoks have refinanced the loan on the Property
multiple times. On May 17, 2005, Malak Fustok executed a Durable Power of
Attorney (the Power of Attorney) at her husband’s medical office, appointing
him as her attorney-in-fact and granting him “full power and authority to do
and perform all and every act and thing whatsoever necessary to be done” with
respect to refinancing the Property.            The following month, the Fustoks
refinanced their home, with Abdel acting as attorney-in-fact for Malak in
executing a lien contract and deed of trust with Bank of America. In 2007, the
Fustoks entered into the refinancing arrangement at issue in this appeal,
whereby Abdel signed, among other closing documents, a promissory note and
a Homestead Lien Contract and Deed of Trust (the Deed of Trust). He signed
these documents both for himself and for Malak as Power of Attorney. After
several years of paying on the loan, the Fustoks fell behind on payments in
2015, and Bank of America sent a notice threatening foreclosure. However,
Bank of America has not sought a court order for foreclosure.
       After receiving the notice from Bank of America, the Fustoks brought
this action, 1 seeking release from their obligations under the 2007 note and



      1  The Fustoks initially filed suit in Texas state court, but Bank of America removed
the case to federal court based on diversity jurisdiction.
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return of the almost $1.3 million Abdel had already paid on the loan. The
Fustoks contend that Malak’s Power of Attorney was invalid because it had
been executed at Abdel’s medical office rather than at one of the locations
specifically prescribed in the Texas Constitution, which requires that
homestead liens such as the refinancing at issue here must be “closed only at
the office of the lender, an attorney at law, or a title company.” TEX. CONST.
art. XVI, § 50(a)(6)(N). 2 According to the Fustoks, the invalidity of the Power
of Attorney meant Malak’s consent to the transaction, also required by the
Texas Constitution, was never validly obtained. 3 The Fustoks and Bank of
America each moved for summary judgment. The district court denied the
Fustoks’ motion for summary judgment, granted summary judgment for Bank
of America, and dismissed the Fustoks’ claims with prejudice. 4
                                               II
       We review the district court’s grant of summary judgment de novo,
applying the same standard as the district court. Howell v. Town of Ball, 827
F.3d 515, 521 (5th Cir. 2016). Summary judgment is proper if “there is no
genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.” FED. R. CIV. P. 56(a). “When considering a motion for
summary judgment, the court views all facts and evidence in the light most
favorable to the non-moving party.” Moss v. BMC Software, Inc., 610 F.3d 917,
922 (5th Cir. 2010). We apply the substantive law of the state of Texas in this




       2 The parties do not dispute that the closing itself occurred at an improper location or
that Abdel’s signature was invalid.
       3 Malak, in an affidavit in support of the Fustoks’ motion for summary judgment,

averred: “I do not now give any consent to . . . the . . . 2007 transaction[],” and that “[t]o the
extent my consent was required . . . I have not, and do not, give that consent.”
       4 The district court also dismissed as moot Bank of America’s conditional counterclaim

without prejudice.
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diversity action. See Gebreyesus v. F.C. Schaffer & Assocs., Inc., 204 F.3d 639,
642 (5th Cir. 2000).
                                       III
      The Fustoks make two basic contentions regarding the constitutional
validity of the 2007 refinancing: (1) Malak never validly consented as required
by the Texas Constitution, because her Power of Attorney was invalid; and (2)
Bank of America failed to provide notice, in a constitutionally compliant form,
of the Fustoks’ right to the remedy of forfeiture—i.e., return—of all payments
made to the bank in the event of the bank’s non-compliance with its
obligations. We analyze these contentions in turn, concluding that both fail.
                                        A
       “In the State of Texas, the homestead has always been protected from
forced sale, not merely by statute as in most states, but by the Constitution.”
Fin. Comm’n of Texas v. Norwood, 418 S.W.3d 566, 570 (Tex. 2013). These
protections are enshrined in Article XVI, Section 50’s “lengthy, elaborate,
detailed provisions.” Id. at 571. Thus, “[n]o mortgage, trust deed, or other lien
on the homestead shall ever be valid unless it secures a debt described by this
section, whether such mortgage, trust deed, or other lien, shall have been
created by the owner alone, or together with his or her spouse, in case the
owner is married.” TEX. CONST. art. XVI, § 50(c).
      Section 50(a)(6) states one of the Section’s exceptions to the prohibition
on forced sale for homesteads, for “an extension of credit that . . . is secured by
a voluntary lien on the homestead created under a written agreement with the
consent of each owner and each owner’s spouse.” TEX. CONST. art. XVI, §
50(a)(6)(A). Thus, every homestead lien contract of this type must include
consent of the spouses of each owner. Further, in order for such a homestead
lien to be valid, the extension of credit must be “closed only at the office of the
lender, an attorney at law, or a title company.” Id. § 50(a)(6)(N). As the Texas
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Supreme Court held in 2013, this provision requires that “[e]xecuting the
required consent or a power of attorney . . . must occur only at one of the
locations allowed by the constitutional provision.” Norwood, 418 S.W.3d at
588.
        Section 50 of the Texas Constitution also contains a “safe harbor”
provision that contemplates the situation where, as here, parties enter into a
transaction that is valid under then-existing regulations, but those regulations
are later invalidated on judicial review.         The “safe harbor” provision was
adopted to protect lenders from the harsh consequences of a later judicial
finding of noncompliance with Section 50, which included “not merely the loss
of the right of forced sale of the homestead, but forfeiture of all principal and
interest.” Norwood, 418 S.W.3d at 572. This provision, Section 50(u), states:
                    (u) The legislature may by statute delegate one
              or more state agencies the power to interpret
              Subsections (a)(5)-(a)(7), (e)-(p), and (t), of this section.
              An act or omission does not violate a provision
              included in those subsections if the act or omission
              conforms to an interpretation of the provision that is:
                    (1) in effect at the time of the act or omission;
              and
                    (2) made by a state agency to which the power of
              interpretation is delegated as provided by this
              subsection or by an appellate court of this state or the
              United States.
TEX. CONST. art. XVI, § 50(u). As the Texas Supreme Court has noted, the
second sentence of this provision “creates a safe harbor for lenders, relieving
them of liability for any constitutional violations as long as agency
interpretations are followed.” Norwood, 418 S.W.3d at 573 (footnote omitted).
This safe harbor is powerful, because it does “not merely . . . excus[e] a
violation; it states that no violation even occurs. A lender’s compliance with


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an agency interpretation of Section 50, even a wrong interpretation, is
compliance with Section 50 itself.” Id.
      The transaction here was valid under then-existing interpretive
regulations. Acting under its validly delegated authority, see Acts 2003, 78th
Leg., ch. 1207, § 1, eff. Sept. 13, 2003, the Finance Commission and the Credit
Union Commission (the Commission) issued, among others, the following
regulation: 5 “A lender may accept a properly executed power of attorney
allowing the attorney-in-fact to execute closing documents on behalf of the
owner.” 7 TEX. ADMIN. CODE § 153.15 (2004). As the Texas Supreme Court
recognized in Norwood, this provision allowed a power of attorney to be
executed at locations other than those specified in Section 50. See Norwood,
418 S.W.3d at 588 (“[T]he Commissions’ interpretations allow a borrower . . .
to close through an attorney-in-fact” and permit “obtaining . . . a power of
attorney at the borrower’s home, allowing the final closing to occur later at one
of the prescribed locations . . . .”).
      The Fustoks’ contrary arguments are unavailing. First, their argument
that Norwood “did not create new law” ignores the express recognition of the
court in that case that “[u]nder Section 50(u), compliance with any
interpretation or judicial decision, even one later overturned, is compliance with
the Constitution itself.”      Norwood, 418 S.W.3d at 585 (emphasis added).
Second, the Fustoks’ related contention that the earlier-signed Power of
Attorney “was not part of the 2007 closing process” is also foreclosed by the
Texas Supreme Court’s Norwood decision, which, in a supplemental opinion,
recognized that, “Section 50(a)(6)(N) does not suggest that the timing of the


      5  See 29 TEX. REG. 84, 84 (Jan. 2, 2004) (“The Finance Commission of Texas and Texas
Credit Union Commission (the ‘Commissions’) adopt new 7 TAC, Chapter 153, . . . applying
the administrative interpretation of subsection (a), Section 50, Article XVI, Texas
Constitution, (the ‘Home Equity Lending Law’) allowed by Senate Joint Resolution 42 (‘SJR
42’).”).
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power of attorney is important, or that it cannot be used to close a home equity
loan if executed before the borrower applied for the loan.” Id. at 596 (Suppl.
Op. on Mot. For Reh’g).
                                       B
      The Fustoks next argue that Bank of America failed to provide the
constitutionally required notice of their right to the remedy of forfeiture—a
remedy that requires Bank of America to “forfeit all principal and interest”
under certain circumstances—in a form to which the bank was contractually
bound to comply. See TEX. CONST. art. XVI, § 50(a)(6)(Q)(x). In support of this
argument, the Fustoks parse the language of one Texas Supreme Court case,
which states that the remedy of forfeiture “is just one of the terms and
conditions a home-equity loan must include to be foreclosure-eligible.”
Garofolo v. Ocwen Loan Servicing, L.L.C., 497 S.W.3d 474, 479 (Tex. 2016).
From this passage, the Fustoks glean a broad-based rule that, in order to be
valid, the Deed of Trust itself must reference their right to seek forfeiture for
Bank of America’s non-compliance. However, as the Texas Supreme Court
explained, the reference to the Fustoks’ forfeiture right need only be included
in the “loan documents” rather than only in the Deed of Trust. Wood v. HSBC
Bank USA, N.A., 505 S.W.3d 542, 546 (Tex. 2016) (explaining that, in its
Garofolo decision, it “explain[ed] that borrowers may access the forfeiture
remedy through a breach-of-contract action based on the inclusion of those
terms in their loan documents, as the Constitution requires to make the home-
equity lien foreclosure-eligible”); see also Alexander v. Wells Fargo Bank, N.A.,
867 F.3d 593, 599 (5th Cir. 2017) (noting that the Garofolo case “describes what
a home-equity loan must look like if a lender wants the option to foreclose on
a homestead upon borrower default”).         Despite the Fustoks’ argument,
however, the definition of “Loan Agreement” for purposes of the transaction
expressly included the document in which the remedy of forfeiture was
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discussed. Thus, as the district court correctly concluded, the 2007 refinancing
transaction suffered no constitutional defect.
                                      IV
      In addition to their arguments of invalidity under the Texas
Constitution, the Fustoks also contend the terms of the Power of Attorney itself
precluded its use as part of the 2007 transaction. Not so. The language of the
Power of Attorney determines its scope, and Texas law requires that “we
construe the document as a whole in order to ascertain the parties’ intentions
and rights.” In re Estate of Miller, 446 S.W.3d 445, 455 (Tex. App.–Tyler 2014,
reh’g overruled) (citing First Nat. Bank in Dall. v. Kinabrew, 589 S.W.2d 137,
145 (Tex. Civ. App. 1979–Tyler, writ ref’d n.r.e.)).       Here, the Power of
Attorney’s scope clearly includes the 2007 refinancing.          The “Property
Refinance” paragraph in the Power of Attorney states that the authority Malak
granted her husband was “[t]o refinance [the Property] on my behalf in the
event of my absence.” Further, the Power of Attorney specifically referenced
many of the instruments used in the 2007 transaction, including “deeds of
trust,” “promissory notes,” and “mortgage, judgment, and other debts
necessary to refinance such Property.” The district court was therefore correct
to conclude that the Power of Attorney’s terms allowed for its use in the 2007
refinancing.
                                      ***
      For these reasons, we AFFIRM the district court’s grant of summary
judgment in favor of Bank of America, and its dismissal of the Fustoks’ action.




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