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The Texas Constitution imposes some of the nation’s most stringent requirements on home equity lending. Unlike most states, Texas places detailed origination requirements on loans directly in its constitution, including:
- Maximum loan-to-value ratio of 80%
- Closing costs capped at 2% of the loan amount
- A 12-day cooling-off period before closing
- Closing at a lender’s office, title company, or attorney’s office
The stakes for lenders are enormous. If a lender fails to comply with certain constitutional requirements governing the “extension of credit,” it may be required to forfeit all principal and interest and disgorge amounts previously collected. Most defects, however, are subject to a notice-and-cure process that gives the lender 60 days to remedy the violation.
But what happens when the lender breaches the loan agreement itself—without violating any constitutional requirement?
That question was recently answered by the Texas Supreme Court in Staub v. BBVA USA, No. 24-1057 (Tex. May 29, 2026).
In Staub, the lender mistakenly charged borrowers approximately $10,000 in excess interest because it failed to apply the lower contractual interest rate available to loans secured by the borrowers’ homestead. The lender breached the contract, but it did not violate any provision of the Texas Constitution governing home equity loans. The borrowers argued that the constitutional forfeiture remedy should still apply.
The Texas Supreme Court disagreed.
Focusing on the text and structure of the Constitution, the Court held that the forfeiture provisions apply to violations of the constitutional requirements governing the extension of credit—not to every breach of a home equity loan agreement. Nothing in the Constitution suggests that ordinary breach-of-contract claims should be transformed into claims for complete loan forfeiture.
The decision provides important clarity for lenders. Texas home equity lending already carries significant compliance obligations and severe constitutional penalties. Extending forfeiture remedies to contractual disputes would have created substantial uncertainty and risk far beyond what the Constitution contemplates.
Staub is a reminder that while Texas courts rigorously enforce constitutional home equity protections, not every lender mistake becomes a constitutional violation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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