In a case that might not otherwise be of general interest to most TCJL members, the Fourteenth Court of Appeals majority and dissenting opinions in Nationstar Mortgage LLC; HSBC Bank USA, N.A.; Bank of America, N.A.; and Fidelity National Title Insurance Company v. Barefoot (No. 14-19-00750-CV) conduct an interesting discussion of mental anguish damages in the context of an action for fraudulent lien under §12.002, CPRC, and illegal debt collection practices under Chapter 392, Finance Code. The case also has significance in the Fourteenth Court of Appeals district for its unanimous holding that suits under Chapter 392 are governed by the residual four-year statute of limitations rather than the two-year statute in §16.003, CPRC, which has been applied by the Corpus Christi and Texarkana courts of appeals and some federal district courts.
Briefly stated, the case arose from two home equity loans in 2005 and 2007. Barefoot had years previously acquired an undivided one-third share of the property (the other shares were held by her stepfather and mother), which she occupied as her homestead. When her stepfather died, his one-third share passed to his children. Barefoot acquired the remaining one-third interest from her mother by quitclaim deed. At that time, her mother also executed, as trustee of a family trust established in 1986, a deed transferring the stepfather’s interest to Barefoot as well. That interest, however, had never been conveyed to the trust. Barefoot was unaware that fact and assumed she was sole owner of the property. On this assumption, she took out a home equity loan and executed a lien. She took a second loan on the property two years later, paying off the first loan and once again executing a lien. Fidelity, the title company, issued title commitments stating that title to the property appeared to be vested in both Barefoot and her stepfather but did not share the documents with Barefoot. Fidelity closed both loans and recorded the 2005 and 2007 instruments with the Harris County Clerk.
In 2011, Barefoot could no longer make payments on the loan. The loan servicer, Bank of America, advised her to sell the property. She moved out and found a buyer, but the buyer could not obtain title insurance from Stewart Title because the property was not solely vested in Barefoot. Barefoot then tried to get Fidelity to issue the policy, as it had done previously, but Fidelity refused on the same basis. Although Barefoot advised Bank of America of the problem, BOA turned the matter over to a collection firm that sent Barefoot threatening letters. In November 2012, BOA and the original lender HSBC initiated foreclosure proceedings. Nationstar took over loan servicing in 2011 and continued collection efforts. In 2014 HSBC sued Barefoot seeking declarations of the enforceability of the 2007 instrument and subrogation. Barefoot filed counterclaims for fraudulent lien and prohibited debt collection practices and sought mental anguish damages, as well as compensatory damages for water damage that occurred when she turned the water off in anticipation of selling the property. HSBC abandoned its claims on the morning of trial, which proceeded only on Barefoot’s counterclaims.
If nothing else, this case demonstrates all the the things that can happen when a home equity loan goes bad. The trial court found (1) the 2005 and 2007 instruments were void and forfeited the principal and interest payments, (2) that each plaintiff violated §12.002, CPRC, and Chapter 392, (3) that Fidelity owed Barefoot $104,000 in loss of market value due to the water damages, (4) that Barefoot suffered mental anguish damages of $225,000 from Fidelity, $75,000 from BOA, $100,000 from HSBC, and $50,000 from Nationstar, and (5) Barefoot was entitled to attorney’s fees, costs, and prejudgment interest from each plaintiff. The court of appeals affirmed in part and reversed in part. It affirmed the trial court’s award of mental anguish damages against BOA, but reversed both awards as to Fidelity, suggesting a remittitur to $10,000. It further reversed the mental anguish damage awards against HSBC and Nationstar on legal insufficiency grounds and the award of attorney’s fees and costs, which it remanded for reconsideration.
Setting aside the court of appeals’ analysis of the applicability of the fraudulent lien statute and Chapter 392, we focus on mental anguish damages. Citing Saenz v. Fidelity & Guar. Ins. Underwriters, 925 S.W.2d 607, 614 (Tex. 1996), the majority stated that an award of mental anguish damages must be supported both by evidence of the existence of compensable mental anguish and evidence to justify the amount awarded. And according to SCOTX in Parkway Co. v. Woodruff, 901 S.W. 2d 434, 444 (Tex. 1995), “[M]ental anguish is only compensable if it causes a ‘substantial disruption in . . . daily routine’ or ‘a high degree of mental pain and distress.”” This requires “evidence of the nature, duration, and severity of the mental anguish” (citing Service Corp. Intern. V. Guerra, 348 S.W.3d 221, 231 (Tex. 2011). Here Barefoot described her mental anguish in terms such as “so upset” (after an “ugly” conversation with a Fidelity representative), “enraged” (upon receiving a 2012 email from Fidelity showing she was not the sole owner of the property), and “overwhelmed” so that she “can’t take another thing” (upon seeing the water damage). The majority held, however, that Barefoot had failed to show any evidence of mental anguish damages in 2014, when suit was filed, and afterward. It thus reversed the mental anguish award as to Fidelity, holding the evidence legally insufficient to prove mental anguish damages from Fidelity’s conduct “for which Fidelity was properly held liable.”
With respect to the mental anguish damages award against BOA, the majority reviewed Barefoot’s deposition testimony about her reaction to BOA’s first threat of foreclosure in 2012. She described it as “panic,” “devastated,” “pulling [her] hair out and . . . going crazy, literally,” “a complete nightmare,” “angry and exhausted,” “deflated,” not “physically well,” and, again, “panic.” This was enough for the majority to conclude that Barefoot met her burden to prove a “high degree of mental pain and distress” that is “more than mere worry, anxiety, vexation, embarrassment, or rage” (citing Parkway and other precedent, including a federal case in which “panic” over a threat of foreclosure supported award of mental anguish damages under Chapter 392). Moreover, the extended period of her “ordeal” was enough to show “nature,” “duration,” and “severity.” The majority deferred to the credibility evaluations by the factfinder and found the $75,000 award against BOA “fairly and reasonably” compensated Barefoot. With regard to Nationstar, however, the majority held that there was no justiciable controversy because it did not commit a Chapter 392 violation.
The dissent, authored by Justice Poissant, disagreed with the majority’s reversal of mental anguish damages against Fidelity. She argued that Fidelity’s liability should have attached when it recorded the first fraudulent lien in 2005 without telling Barefoot about the title problem. At that time, Fidelity surely knew that filing the lien could eventually cause harm to Barefoot, thus meeting the intent to cause harm requirement of the fraudulent lien statute. Thus the majority erred in limiting its view of Fidelity’s conduct to 2014 and afterward. Citing the same precedent as the majority, Justice Poissant looked at the same evidence and concluded that Barefoot’s mental distress and attempts to rectify the situation occurring prior to 2014, particularly in connection to the sale of her home and the potential foreclosure, created a “substantial disruption of her daily routine and a high degree of mental distress.” She also would have found legally sufficient evidence of supporting mental anguish damages against the lender, HSBC, which knew about the fraudulent liens and nevertheless sought to enforce them and participated in a foreclosure action it knew could not be completed. These actions violated the fraudulent lien statute and entitled Barefoot to mental anguish damages.
Although this case may or may not contribute a whole lot to the jurisprudence of the state, it is instructive for the way an influential court of appeals will read the record for evidence supporting an award of mental anguish damages. A party seeking mental anguish damages should obviously use words and phrases similar to those in this case and elaborate specifically on each occurrence or event during the course of the dispute that elicited those responses. In this particular case, none of the entities involved attempted to contest Barefoot’s description of her mental distress. Doing so undoubtedly presents the dilemma of trying to minimize such evidence without appearing to badger or harass the witness. There was also no jury in this case, leaving one to wonder if a jury might have reacted even more strongly to Barefoot’s evidence than the trial court did. Unfortunately, in of a jury pool made up largely of homeowners and consumers, more than likely most of them have had a run in with a financial institution, insurer, or other faceless entity that they think tooled them around. Courts have to be careful in their treatment of evidence of mental anguish and what factfinders do with it. On one hand, they have to be deferential to the assessment of the jury, but on the other they have to main some kind of identifiable threshold between the annoyances of everyday life and mental distress severe enough to be actionable.