    Case: 14-10782   Document: 00513016210       Page: 1   Date Filed: 04/22/2015




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

                                  No. 14-10782                        FILED
                                                                  April 22, 2015
                                                                 Lyle W. Cayce
                                                                      Clerk

STACY BARZELIS, Individually and as Representative of
the Estate of Nicholas Barzelis, Deceased,
            Plaintiff–Appellant
versus
FLAGSTAR BANK, F.S.B.; UNKNOWN PARTIES,
            Defendants–Appellees




                Appeal from the United States District Court
                     for the Northern District of Texas




Before REAVLEY, SMITH, and GRAVES, Circuit Judges.
JERRY E. SMITH, Circuit Judge:

     Stacy Barzelis appeals the dismissal of her various state-law claims
against Flagstar Bank, F.S.B. (“Flagstar”), as preempted under the Home
Owners’ Loan Act of 1933 (“HOLA”), as well as a summary judgment on her
claim under the Real Estate Settlement Procedures Act of 1974 (“RESPA”).
Applying regulatory guidance from the Office of Thrift Supervision (“OTS”) to
divine when HOLA preemption applies, we affirm in part and reverse in part
and remand.
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                                 No. 14-10782
                                       I.
      In 2007, Stacy Barzelis and her husband Nicholas Barzelis refinanced
their home loan with Fairway Independent Mortgage Corporation. For the
refinancing, they executed a Texas Home Equity Security Instrument (“Secur-
ity Instrument”) granting the bank a security interest in the property, but only
Nicholas signed the promissory note (“Note”). The loan was later assigned to
Flagstar.

      In October 2009, Nicholas died, and Stacy submitted the death certificate
to Flagstar in March 2010. She then filed for Chapter 13 bankruptcy relief,
and the trustee continued to send loan payments to Flagstar on her behalf.
But the bank refused them, stating that it would accept payments only from
Nicholas, who had signed the Note. Stacy then sent Flagstar two Qualified
Written Request, Complaint, and Dispute of Debt and Validation of Debt let-
ters (“QWR”), asking Flagstar for information about the status of the loan and
why it was refusing her payments. Flagstar replied to the first letter, but only
to say that it would not supply her with the requested information because she
was not a borrower under the Note, and she needed to provide “letters of
authority from a probate attorney” to show that she was acting as the agent of
the estate.

      Flagstar began foreclosure proceedings, then Barzelis sued in state court
for wrongful foreclosure.   Flagstar removed to federal court, and Barzelis
amended her complaint to include an array of state and federal claims, includ-
ing, in relevant part, breach of contract, negligent misrepresentation, viola-
tions of the Texas Debt Collection Act (“TDCA”), and violation of RESPA. The
district court dismissed all the state-law claims as preempted by HOLA and
granted summary judgment to Flagstar on the RESPA claim.



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                                       No. 14-10782
                                              II.
       We must decide which if any of Barzelis’s state-law claims—breach of
contract, negligent misrepresentation, and TDCA violations—are preempted
by HOLA. 1 We review issues of federal preemption de novo. Kaufman v. Allied
Pilots Ass’n, 274 F.3d 197, 200 (5th Cir. 2001). Enacted during the Great
Depression, HOLA authorized the creation of federal savings associations
(“FSAs”) to ease tight credit conditions for home borrowers. Fidelity Fed. Savs.
& Loan Ass’n v. de la Cuesta, 458 U.S. 141, 159 (1982). The act gives OTS
regulatory authority to promulgate national, uniform regulations, for FSAs,
that occupy the field and preempt state law. 12 U.S.C. § 1464(a); de la Cuesta,
458 U.S. at 159.

       Under that authority, OTS set out the scope of HOLA preemption in a
regulation, 12 C.F.R. § 560.2, that has the same preemptive power as a federal
statute. 2 De la Cuesta, 458 U.S. at 153. Section 560.2 sets up a two-step frame-
work for determining whether a state law is preempted as applied to FSAs. 3

       At the first step, courts must look to Section 560.2(b), which lists thirteen
categories of laws that are explicitly preempted by HOLA. Those categories
concern particular ways in which a state might regulate FSA lending opera-
tions, such as laws requiring certain disclosures or regulating interest rates.
If the state law fits within one of those categories, it is preempted as applied


       It is undisputed that Flagstar is a federal savings association subject to HOLA and
       1

OTS regulation.
       2 Unlike in other contexts, here we make no presumption against preemption because
there is a history of federal presence in banking regulation. See United States v. Locke, 529
U.S. 89, 108 (2000); Wells Fargo Bank N.A. v. Boutris, 419 F.3d 949, 956 (9th Cir. 2005).
       3  See Lending and Investment, 61 Fed. Reg. 50951-01, 50966–67 (Sept. 30, 1996)
(explaining the framework). To the extent that the agency’s statements accompanying the
final rule are interpretations of its own ambiguous regulation, they are entitled to Auer defer-
ence. See Auer v. Robbins, 519 U.S. 452, 461 (1997); O’Hara v. Gen. Motors Corp., 508 F.3d
753, 760–61 (5th Cir. 2007).
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                                        No. 14-10782
to FSAs, ending the inquiry. If it is not covered by Section 560.2(b) but none-
theless affects lending, there remains a presumption that it is preempted, and
courts then look to the second step in Section 560.2(c). 4 It specifies that state
laws falling into certain categories 5 are not presumed preempted if they “only
incidentally affect the lending operations of Federal savings associations or are
otherwise consistent with the purposes” of Section 560.2(a). 6 So, laws that
have more than an incidental effect on lending and that are inconsistent with
the regulation are also preempted, but the remaining state laws are not and
may be applied to FSAs. Finally, where there is doubt, a law is deemed pre-
empted. Lending and Investment, 61 Fed. Reg. at 50966–67.

                                              A.
       Barzelis’s first claim is called breach of contract, but closer examination
reveals that it is actually two claims: one based on provisions of the Security
Instrument and another based on the Texas Property Code. First, Barzelis
alleges that Flagstar violated particular paragraphs of the Security Instru-
ment that provide substantive protections under the contract, such as the right
to discontinue acceleration. But Barzelis also avers, in her beach-of-contract
claim, that, independently of the Security Instrument, Flagstar violated Texas
Property Code Section 51.002(d), which mandates that mortgage servicers give
debtors notice of default and provide the opportunity to cure within twenty
days before initiating foreclosure.

       It is important to distinguish between breach-of-contract claims based
on provisions of the agreement and those based on independent statutory



       4   Section 560.2(a); Lending and Investment, 61 Fed. Reg. at 50966–67.
       5 The categories of state laws include contract and commercial law, real property law,
certain homestead laws, tort law, and criminal law. Section 560.2(c).
       6   Section 560.2(c); Lending and Investment, 61 Fed. Reg. at 50966–67.
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                                  No. 14-10782
obligations. It may be the case, for example, that a state law regulating
interest-rate adjustments to protect borrowers is preempted by HOLA. But
that does not prevent a bank and a borrower from voluntarily agreeing to sub-
stantially the same protections in their contract, and in that case, the bank
may not later invoke HOLA preemption to stop the borrower from enforcing
those terms. See In re Ocwen Loan Serv., LLC Mortg. Serv. Litig., 491 F.3d
638, 643–44 (7th Cir. 2007). By the same token, however, borrowers may not
disguise state statutory violations as breach-of-contract claims to avoid pre-
emption by relying on clauses stating that the agreement is subject to applica-
ble law. In both situations, courts must look not to the label placed on the
claim but to the substance of the allegation to determine whether HOLA
preemption applies. See Appling v. Wachovia Mortg., FSB, 745 F. Supp. 2d
961, 972 (N.D. Cal. 2010).

        We first must examine whether Section 51.002(d) is preempted under
the two-step framework. As noted earlier, the statute requires lenders to issue
a specific notice to borrowers in default, giving the opportunity to cure before
the bank can issue a notice of sale. Flagstar contends that such a requirement
fits within multiple subsections of Section 560.2(b), and several appear to cover
this sort of notice-of-default requirement. Section 560.2(b)(4), for instance, pre-
empts state laws imposing requirements on “[t]he terms of credit, . . . including
the circumstances under which a loan may be called due and payable upon the
passage of time or a specified event external to the loan.” The law here does
just that: It specifies that a lender may foreclose only under a particular cir-
cumstance, namely, after issuing a default notice and giving an opportunity to
cure.

        Likewise, Section 51.002(d) sets requirements related to “[d]isclosure
and advertising, including laws requiring specific statements, information, or

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                                      No. 14-10782
other content to be included” in credit documents. Section 560.2(b)(9). The law
explicitly requires a specific notice to the borrower that he is in default, which
qualifies as a credit-related document. Crespo v. WFS Fin. Inc., 580 F. Supp.
2d 614, 623 (N.D. Ohio 2008). Each of these subsections is sufficient to con-
clude that Section 51.002(d) is preempted under HOLA. 7

       This analysis, however, does not implicate the breach-of-contract claims
based on the parties’ voluntary agreement, and the entire claim should not
have been dismissed when preemption affected only one of its underlying theo-
ries. So, though we conclude that Section 51.002(d) is preempted at the first
step, we reverse the dismissal of the breach-of-contract claim insofar as it did
not address the alleged breaches of the Security Instrument.

                                             B.
       Barzelis’s second claim is for common-law negligent misrepresentation,
but again, we examine its substance, not its title, to determine whether it is
preempted. Claims for negligent misrepresentation deserve careful analysis
because the preemption framework will sometimes depend on the particulari-
ties of the alleged misstatements. Barzelis asserts that in its mailed notices,
Flagstar negligently misrepresented the status of her loan and the foreclosure
sale, and the district court concluded that, because the claim is based on
alleged misstatements in disclosures contained in credit-related documents, it
is preempted under Section 520.6(b)(9). For this particular claim, we agree.


       7 Although no court of appeals has considered whether a similar state law is pre-
empted by HOLA, our reading is in line with that of a number of district courts that have
found preemption for similar state laws under these subsections and under Sec-
tion 560.2(b)(5) and (10). See Ngoc Nguyen v. Wells Fargo Bank, N.A., 749 F. Supp. 2d 1022,
1033 (N.D. Cal. 2010) (holding California’s similar default-notice statute preempted under
Section 560.2(b)(4), (5), (9), and (10)); Plastino v. Wells Fargo Bank, 873 F. Supp. 2d 1179,
1185 (N.D. Cal. 2012); Crespo, 580 F. Supp. 2d at 623; Parcray v. Shea Mortg. Inc., No. CV-
09-1942, 2010 WL 1659369, *7–8 (E.D. Cal. Apr. 23, 2010); Copeland-Turner v. Wells Fargo
Bank, N.A., 800 F. Supp. 2d 1132, 1140–41 (D. Or. 2011).
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                                     No. 14-10782
      Negligent misrepresentation—like fraud, intentional misrepresentation,
and similar tort claims—relies on a generally applicable duty not to misrepre-
sent material facts, and to that extent, the claim would typically not be pre-
empted by HOLA. 8            Yet courts have recognized that where a negligent-
misrepresentation claim is predicated not on affirmative misstatements but
instead on the inadequacy of disclosures or credit notices, it has a specific regu-
latory effect on lending operations and is preempted. 9 Barzelis’s negligent-
misrepresentation theory is akin to this second kind of claim: It regards the
disclosures and information in credit documents and is also preempted under
HOLA. Section § 560.2(b)(9).

                                            C.
       Third, Barzelis alleges that Flagstar violated four different provisions of
the TDCA that prohibit various deceptive practices in the course of collecting
a debt, including: threatening to take illegal action, 10 attempting to collect
unauthorized fees, 11 mischaracterizing a debt, 12 and using other deceptive
means. 13 Relying on three subsections of Section 560.2(b), the district court
ruled that all four statutes are preempted under HOLA. But applying the two-
step framework, we agree instead with the other courts of appeals that have
considered similar consumer-protection statutes under HOLA preemption.

      First, in regard to Section 560.2(b), none of the TDCA provisions at issue



      8 See Ocwen, 491 F.3d at 647; Biggins v. Wells Fargo & Co., 266 F.R.D. 399, 417 (N.D.
Cal. 2009).
      9See Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001, 1006 (9th Cir. 2008); Appling v.
Wachovia Mortg., FSB, 745 F. Supp. 2d 961, 972 (N.D. Cal. 2010).
      10   Id. § 392.301(a)(8).
      11   Id. § 392.303(a)(2).
      12   Id. § 392.304(a)(8).
      13   Id. § 392.304(a)(19).
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                                     No. 14-10782
falls under the enumerated categories. The TDCA prohibits various types of
deceptive and abusive practices in the course of debt collection, but it is not
specifically targeted at federal savings associations or even banks, and many
who are not lenders qualify as debt collectors under the statute. The laws do
not regulate specific terms of lending, the extension of credit, types of fees
allowed, or disbursements, which are included under Section 560.2(b). More-
over, OTS reached a similar conclusion in an opinion letter interpreting
HOLA’s preemptive effect on a different consumer-protection statute. 14

      Nevertheless, these TDCA claims do affect lending insofar as they limit
the ways in which Flagstar can collect its loans. So there is a presumption of
preemption, and we must move to the second step to determine whether the
statutes have more than an incidental effect or are otherwise consistent with
the purposes set out in Section 560.2(a). Although it is uncertain how to
measure the impact of a state law on lending, we are informed by the reasoning
in the OTS opinion letter and by other courts of appeals.

      We agree with the consensus, 15 concluding that similar state consumer-
protection laws—those “that establish the basic norms that undergird comer-
cial transactions” 16—do not have more than an incidental effect on lending and
thus escape preemption. The essential purpose of the TDCA is to limit coercive
and abusive behavior by all those seeking to collect debts, something that does
not burden lending in the same way as would a specific mandate on interest
rates. Instead, it more closely resembles a generally applicable law against


      14 Preemption of State Laws Applicable to Credit Card Transactions, OTS Op. Letter,
No. P-96-14, 1996 WL 767462, *5–6 (Dec. 24, 1996).
      15  Ocwen, 491 F.3d at 644–47; McCauley v. Home Loan Inv. Bank, F.S.B., 710 F.3d
551, 557–58 (4th Cir. 2013); Molosky v. Washington Mut., Inc., 664 F.3d 109, 116 (6th Cir.
2011).
       16 Preemption of State Laws Applicable to Credit Card Transactions, OTS Op. Letter,

No. P-96-14, 1996 WL 767462, at *5.
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                                     No. 14-10782
deceptive trade practices, governing behavior at the margins of banking and
lending. Additionally, the law is consistent with “the safe and sound operation
of federal savings associations.” Section 560.2(a). As a result, the statute
overcomes the presumption, and the claims are not preempted under HOLA.

                                           III.
      Finally, and separately from the preemption issues, we consider the
summary judgment on Barzelis’s RESPA claim under 12 U.S.C. § 2605(e).
Under the statute, lenders are required to respond timely to a borrower’s QWR
within a certain number of days, and failure to do so subjects the lender to
liability. § 2605(e), (f). The district court granted summary judgment because
Barzelis did not qualify as the “borrower” under the statute and had not shown
she was acting as the borrower’s agent. Because the only signatory to the Note
was Nicholas Barzelis, and because Stacy had produced no evidence that she
was the administrator of his estate, the court concluded that Flagstar was not
required to respond to the QWRs from Stacy. But that analysis fails to account
for the legal effect of Nicholas’s death under Texas law, which has an impact
on Stacy’s legal status under the Note.

      Nicholas died intestate well before the QWRs were sent. And though he
was the only signatory on the Note when he was alive, it was signed during his
marriage to Stacy and was secured by their homestead. Accordingly, the debt
was presumptively a community debt. 17 Similarly, the house was community
property at the time of death. 18 Therefore, upon Nicholas’s death, the com-
munity estate, including the property, passed to Stacy subject to the



      17 Gleich v. Bongio, 128 Tex. 606, 611 (1937); Wierzchula v. Wierzchula, 623 S.W.2d
730, 732 (Tex. App.—Houston [1st Dist.] 1981, no writ).
      18 TEX. FAM. CODE § 3.003; Richardson v. Richardson, 424 S.W.3d 691, 697 (Tex. App.–
El Paso 2014, no pet.).
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                                       No. 14-10782
community debt of the Note, 19 and no administration was necessary for the
community property under Texas law. 20               Consequently, under Texas law,
Stacy, as the survivor to her husband’s interest in the property subject to their
community debt, was the successor-debtor on the Note and was the legal
borrower. 21

       Because the district court did not consider the legal implications of
Texas’s community-property system and estate laws as they relate to Barzelis’s
borrower status, we reverse the summary judgment on the RESPA claim. In
doing so, we make no comment on other aspects of that claim, such as whether
Barzelis met any requirement of establishing her status as borrower to Flag-
star; those are best considered in the first instance in the district court.

       The judgment is AFFIRMED in part and REVERSED in part and
REMANDED for further proceedings as needed. We place no limit on the
matters that the court may address, nor do we suggest what rulings the court
should make on remand.




       19 TEX. ESTATES CODE § 201.003; Dakan v. Dakan, 125 Tex. 305, 317 (1935) (“It is,
however, the rule in this state ‘that the community estate passes charged with the debts
against it.’”).
        TEX. ESTATES CODE § 453.002; Shepherd v. Ledford, 926 S.W.2d 405, 412–15 (Tex.
       20

App.–Fort Worth 1996), aff’d, 962 S.W.2d 28 (Tex. 1998).
       21 Cf. Wilson v. Bank of Am., N.A., 48 F. Supp. 3d 787, 796–97 (E.D. Pa. 2014) (holding
that the surviving spouse of the borrower could not maintain a RESPA claim in her individual
capacity because she never assumed the deceased’s loan).
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