Billings v. Propel Financial Services, L.L.C.

Case: 14-51326 Document: 00513485975 Page: 1 Date Filed: 04/29/2016

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

No. 14-51326 FILED
April 29, 2016
Lyle W. Cayce
DAVID BILLINGS; TRESSA BILLINGS, Clerk

Plaintiffs - Appellants
v.

PROPEL FINANCIAL SERVICES, L.L.C.,

Defendant - Appellee

---------------------
Consolidated with 15-50199

BLANCA TORRES,

Plaintiff - Appellee
v.

PROPEL FINANCIAL SERVICES, L.L.C.,

Defendant - Appellant

---------------------
Consolidated with 15-50340

CHERYL L. THIERY,

Plaintiff - Appellee
v.

TEXAS TAX SOLUTIONS, L.L.C.,

Defendant - Appellant

---------------------
Consolidated with 15-50437
 Case: 14-51326 Document: 00513485975 Page: 2 Date Filed: 04/29/2016

Nos. 14-51326, 15-50199, 15-50340, 15-50437

DAVID LEONARD OROSCO,

Plaintiff - Appellee
v.

OVATION LENDING, L.L.C.,

Defendant - Appellant

Appeals from the United States District Court
for the Western District of Texas

Before BARKSDALE, CLEMENT, and HAYNES, Circuit Judges.
HAYNES, Circuit Judge:
These four consolidated appeals present the question of whether the
Truth in Lending Act’s (“TILA’s”) 1 disclosure and consumer-protection
requirements apply to transfers of property tax liens carried out under
Section 32.06 of the Texas Tax Code. We conclude that the transfer of a tax
lien does not constitute an extension of “credit” that is subject to TILA.
Accordingly, we AFFIRM the district court’s dismissal under Federal Rule of
Civil Procedure 12(b)(6) in Billings, et. al. v. Propel Financial Services, L.L.C.,
No. 14-51326, and REVERSE the district courts’ denials of defendants’ motions
to dismiss in Torres v. Propel Financial Services, L.L.C., No. 15-50199; Thiery
v. Texas Tax Solutions, L.L.C., No. 15-50340; and Orosco v. Ovation Lending,
L.L.C., No. 15-50437.

1In addition to TILA, this case concerns the Homeowner Equity and Protection Act
(“HOEPA”). See 15 U.S.C. §§ 1602, 1639.
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Nos. 14-51326, 15-50199, 15-50340, 15-50437
I. Background
A. The Truth in Lending Act
TILA’s disclosure protections apply to the offering of “consumer credit”
by “creditors” as those terms are defined in the statute. See 15 U.S.C. § 1602(f),
(g), (i); see also Tower v. Moss, 625 F.2d 1161, 1166 (5th Cir. 1980). 2 Under
TILA, the term “credit” is defined as “the right granted by a creditor to a debtor
to defer payment of debt or to incur debt and defer its payment.” § 1602(f).
TILA does not define the term “debt,” and thus takes on the definition given to
it by state law. 12 C.F.R. § 1026.2(b)(3) (“Unless defined . . . words used “have
the meanings given to them by state law or contract”).
The Consumer Financial Protection Bureau is the agency charged with
interpreting TILA and promulgating rules to effectuate its purposes. See 15
U.S.C. §§ 1602(b), 1604(a). The regulations implementing TILA are known as
“Regulation Z.” 12 C.F.R. pt. 1026. The staff commentary on Regulation Z
expressly excludes “[t]ax liens [and] tax assessments” from the definition of
“credit,” but states that “third-party financing of such obligations (for example,
a bank loan obtained to pay off a tax lien) is credit for purposes of the
regulation.” 12 C.F.R. pt. 1026, Supp. I, Subpart A, cmt. 2(a)(14)(1)(ii).
B. Tax Lien Transfers Under Texas Law
The statutory scheme authorizing and governing property tax loans in
Texas is set out in the Texas Tax Code and Chapter 351 of the Texas Finance
Code. Texas imposes a property tax, which is secured by a “tax lien” that
automatically attaches to taxable property each year “in favor of each taxing
unit having power to tax the property.” TEX. TAX CODE §§ 32.01(a), 32.07(a).
The property tax lien “takes priority over a homestead interest in the property”

2 Because HOEPA is a part of TILA, it is subject to the same terms and definitions.
Thus, any transaction that is not a “consumer credit transaction” as defined by TILA falls
outside the scope of HOEPA as well.
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Nos. 14-51326, 15-50199, 15-50340, 15-50437
and, with limited exceptions, over “the claim of any creditor of a person whose
property is encumbered by the lien” and “the claim of any holder of a lien on
property encumbered by the tax lien.” § 32.05(a), (b).
When property taxes become delinquent, the owner “may authorize
another person to pay the taxes,” and “a tax lien may be transferred to the
person who pays the taxes on behalf of the property owner.” § 32.06(a-1), (a-2).
To effectuate the transfer of a tax lien under Texas law, the property owner
must execute and file with the appropriate taxing unit a written authorization
for another person or entity (the “transferee”) to pay an amount equal to the
owner’s property taxes. § 32.06(a-1). The transferee then pays the taxing unit,
which in turn certifies that the transferee paid an amount equal to the
outstanding taxes, penalties, interest, and collection costs and that the tax lien
has been transferred, and issues a tax receipt to the transferee. § 32.06(b).
The tax lien maintains its special priority status after it is transferred,
§ 32.06(c), and the transferee is subrogated to all rights and remedies of the
transferring taxing unit, § 32.065(c). The transferee and property owner may
contract for repayment terms, and any such contract must be recorded in the
county deed records. § 32.065(b).
The Texas Tax Code includes a number of protections for property
owners who use a tax lien transfer to defer payment of their property taxes.
For example, the code limits the maximum interest rate a transferee may
charge, § 32.06(e), and limits the types of fees that may be charged,
§ 32.06(e-1); TEX. FIN. CODE § 351.0021. The code also requires that
transferees make certain disclosures in every tax lien transfer, including the
type and approximate amount of any fees that property owners may incur in
connection with the transfer. TEX. TAX CODE § 32.06(a-4), (a-5). Several
provisions of the Tax Code incorporate by reference provisions of federal law

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Nos. 14-51326, 15-50199, 15-50340, 15-50437
and apply those provisions to transferees. See TEX. TAX CODE § 32.06(d-1),
(f-3).
C. Factual Background
In each of these four consolidated cases, plaintiffs are individuals who
obtained property tax loans from defendant property tax lenders in exchange
for the transfer of their tax liens pursuant to Sections 32.06 and 32.065 of the
Texas Tax Code. Each loan was evidenced by a promissory note executed by
the plaintiff and payable to the lender. In each case, plaintiffs brought suit
against the defendant lenders alleging, inter alia, that defendants committed
TILA violations. The defendants moved to dismiss under Federal Rule of Civil
Procedure 12(b)(6), contending that TILA does not apply because tax lien
transfers are not “consumer credit transactions” as defined by TILA. In three
of the consolidated cases, the district court denied defendants’ motions to
dismiss, concluding that TILA does apply to the tax lien transfers, but certified
the question for immediate appeal. In the fourth case, the district court held
that because property taxes are not “debt” under Texas law, and the transfer
of the tax liens to a private party does not change the nature of the tax
obligation such that it becomes “debt,” the transfer of a tax lien to a private
lender is not a consumer credit transaction subject to TILA. These appeals,
now consolidated, followed.
II. Jurisdiction and Standard of Review
Plaintiffs allege violations of TILA, 15 U.S.C. § 1601, et seq. The district
court had subject matter jurisdiction under 28 U.S.C. § 1331. We have
appellate jurisdiction over plaintiffs’ appeal from the district court’s final
judgment of dismissal in Billings, et. al. v. Propel Financial Services, L.L.C.,
No. 14-51326, under 28 U.S.C. § 1291. We have appellate jurisdiction over the
appeals in the remaining three cases—Torres v. Propel Financial Services,
L.L.C., No. 15-50199; Thiery v. Texas Tax Solutions, L.L.C., No. 15-50340; and
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Nos. 14-51326, 15-50199, 15-50340, 15-50437
Orosco v. Ovation Lending, L.L.C., No. 15-50437—under 28 U.S.C. § 1292(b),
as the district court in each case certified the order denying defendants’ motion
to dismiss for immediate interlocutory appeal and we granted defendants’
timely filed requests for permission to file interlocutory appeals. “[We] review[]
de novo a district court’s grant or denial of a Rule 12(b)(6) motion to dismiss,
accepting all well-pleaded facts as true and viewing those facts in the light
most favorable to the plaintiff[s].” True v. Robles, 571 F.3d 412, 417 (5th Cir.
2009) (internal quotation marks and citation omitted).
III. Discussion
The question presented by these appeals is whether TILA governs tax
lien transfers made under Section 32.06 of the Texas Tax Code. To be subject
to TILA’s (and HOEPA’s) requirements, the tax lien transfers must constitute
“consumer credit transactions,” which turns on the meaning of the word “debt”
as that word is used in TILA’s definition of the term “credit.” See 15 U.S.C.
§ 1602(f) (defining “credit” as “the right . . . to defer payment of debt or to incur
debt and defer its payment” (emphasis added)). It is undisputed that tax
obligations (and the tax liens resulting therefrom) imposed by a taxing
authority are not “debt” for purposes of TILA, and, in fact, the commentary to
Regulation Z excludes “[t]ax liens [and] tax assessments” from the definition
of “credit.” 12 C.F.R. pt. 1026, Supp. I, Subpart A, cmt. 2(a)(14)(1)(ii). Instead,
the parties’ arguments focus on whether the transfer of a tax lien to the lenders
and the resulting promissory note, executed by the plaintiffs and payable to
the lenders, extinguishes the original tax obligation and creates a new debt
that is subject to TILA.
Defendants contend that the tax lien transfers do not constitute
extensions of “credit,” as that term is defined under TILA, and thus are not
subject to TILA, relying on this court’s holding in Tax Ease Funding, L.P. v.
Thompson (In re Kizzee-Jordan), 626 F.3d 239 (5th Cir. 2010). Defendants
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Nos. 14-51326, 15-50199, 15-50340, 15-50437
contend that In re Kizzee-Jordan establishes that the tax lien transfers were
not extensions of “credit” under TILA because the transactions were merely
transfers of tax obligations from one entity to another, and thus did not create
any new “debt” that might be subject to TILA. Plaintiffs disagree, relying
primarily on the staff commentary to Regulation Z, which states that “third-
party financing of [tax] obligations (for example, a bank loan obtained to pay
off a tax lien) is credit for purposes of the regulation.” 12 C.F.R. pt. 1026, Supp.
I, Subpart A, cmt. 2(a)(14)(1)(ii). Plaintiffs contend that the tax lien transfers
at issue here constitute third-party financing of tax obligations, and further
argue that the resulting loans are “consumer credit” because the purpose of the
loans was to pay property tax obligations assessed against the property owners’
homes and avoid foreclosure. We agree with defendants that this question has
largely been answered by our holding in In re Kizzee-Jordan, 626 F.3d 239, and
accordingly, we hold that tax lien transfers are not extensions of “credit”
subject to TILA. 3
In In re Kizzee-Jordan, we considered whether the transferee of a Texas
property tax lien holds a tax claim that is protected from modification by 11
U.S.C. § 511 of the Bankruptcy Code. Id. at 240. The question before the court
was whether, after transfer to the lender, the tax lien remained a tax claim
such that § 511 applied, or whether the tax claim was extinguished and
replaced by a new debt when the lender paid the taxing authorities. Id. at 241,
244. In answering this question, we first looked to federal bankruptcy law and
concluded that “a tax claim is a broad claim for the payment of taxes and that
a private entity may seek the benefit of § 511 in pursuing such a claim.” Id. at
243. Turning next to Texas law, we noted that under Texas’s tax scheme, when

3 As a result, we need not reach defendants’ additional arguments that the application
of TILA to such transactions violates the Clear Statement Rule of statutory construction or
that the property tax loans at issue are not consumer credit transactions.
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Nos. 14-51326, 15-50199, 15-50340, 15-50437
a tax lien is transferred in exchange for payment of the taxes on behalf of the
property owner, “[t]he transferee of the tax lien is then subrogated to and is
entitled to exercise any right or remedy possessed by the transferring taxing
unit, including or related to foreclosure or judicial sale[.]” Id. at 244 (alteration
in original) (internal quotation marks and citation omitted). We rejected the
arguments that the transferee did not hold a tax claim because only a tax lien
is transferred under state law, and that the tax claim was extinguished and
replaced by a new debt owed under the promissory note. Id. Importantly, we
explicitly held that a tax claim is not extinguished when the transferee pays
the property taxes to the taxing authority. Id.
In reaching this conclusion, we noted that, under Texas law, the tax
collector issues a tax receipt to the transferee—not the property owner—upon
the transferee’s payment of the outstanding tax obligation, noting that if the
tax lien were extinguished, the receipt would be issued to the property owner.
Id. Additionally, we pointed to the fact that a lien cannot be assigned under
Texas law without the underlying claim also being assigned to the new
lienholder, and thus the tax lien could not be assigned if the tax claim had been
extinguished by the lender’s payment to the taxing authority. Id. at 244–45,
245 n.29. Finally, we cited the fact that, under the tax scheme, the transferee
is subrogated to all the rights and remedies of the taxing authorities upon
transfer of the lien, reasoning that “[i]f the tax claim were extinguished . . . and
replaced by a new debt, . . . the transferee could simply prosecute the new
debt[,]” and there would be no need to provide for rights of subrogation. Id. at
245. Thus, we held that a tax lien transfer under Texas law preserves the
existing tax claim, and “changes only the entity to which the [property owners]
are indebted for the taxes originally owed, not the nature of the underlying
debt.” Id. at 244 (emphasis added). In doing so, we rejected the argument that
the lenders held something other than a tax claim because the lenders, as
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Nos. 14-51326, 15-50199, 15-50340, 15-50437
subrogees of the taxing authority, possessed rights beyond those possessed by
the taxing authority that transferred the tax lien (i.e., by statute, the lenders
are permitted to charge additional closing costs and fees and can apply a higher
interest rate). Id. at 245–46. We noted that “where a statute provides a
subrogation right, its nature is governed by the terms of the statute creating
the right[,]” and acknowledged that, in creating this statutory scheme, the
Texas legislature granted the property tax lenders statutory subrogation
rights that include any rights held by the taxing authorities, in addition to
other rights the taxing authorities do not possess. Id. Nevertheless, we held
that this “does not change the fact that the lenders are subrogated, nor does it
change the nature of the underlying debt as a tax debt.” Id. at 246.
Accordingly, we concluded that the transferee held a tax claim for purposes of
§ 511. Id.
Applying our holding in In re Kizzee-Jordan to the instant cases, it is
clear that the payments made by defendants to the relevant taxing authorities
and the subsequent transfer of the tax liens and execution of the promissory
notes did not extinguish the original tax obligations, but rather, simply
transferred the preexisting tax obligations to new entities. Thus, the transfers
and promissory notes did not create new debts that would be subject to TILA,
but rather transferred existing tax obligations, which are not “debts” subject
to TILA. Plaintiffs argue that In re Kizzee-Jordan is inapplicable here because
it arose in the bankruptcy context and did not involve the interpretation of
TILA. However, our holding in In re Kizzee-Jordan interpreted the impact of
a tax lien transfer under the same provision of the Texas Tax Code that is
applicable to the instant cases and relied largely on interpreting the Tax
Code—not the Bankruptcy Code. Our ultimate holding in that case necessarily
rests on the conclusion that when a lender pays a taxing authority and in
exchange receives the tax lien along with an executed promissory note from
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Nos. 14-51326, 15-50199, 15-50340, 15-50437
the property owner under Section 32.06 of the Texas Tax Code, the lender holds
the preexisting tax claim—not a new debt arising from the execution of the
promissory note. Accordingly, our holding in In re Kizzee-Jordan forecloses the
plaintiffs’ contention that TILA applies to the tax lien transfers at issue here. 4
We hold that the transfer of a property tax lien is not an extension of “credit”
subject to TILA.
IV. Conclusion
For the foregoing reasons, we AFFIRM the district court’s dismissal
under Federal Rule of Civil Procedure 12(b)(6) in Billings, et. al. v. Propel
Financial Services, L.L.C., No. 14-51326, and REVERSE the district courts’
denials of defendants’ motions to dismiss under Rule 12(b)(6) in Torres v.
Propel Financial Services, L.L.C., No. 15-50199; Thiery v. Texas Tax Solutions,
L.L.C., No. 15-50340; and Orosco v. Ovation Lending, L.L.C., No. 15-50437 and
RENDER judgment dismissing those cases.

4 We are not the only court to reach a similar conclusion. Defendants also rely on the
Third Circuit’s holding in Pollice v. Nat’l Tax Funding, L.P., 225 F.3d 379, 409–11 (3d Cir.
2000), that tax liens transferred to property tax lenders do not constitute “consumer credit
transactions” under TILA. The Third Circuit determined that tax liens are not “debts,” and
therefore concluded that TILA did not apply to the payment plans at issue in the case,
because “the payment plans . . . [did] not involve the granting of a right to defer payment of
‘debts,’ but rather the granting of a right to defer payment of tax obligations, which are not
‘debts.’” Id. at 410. In so holding, the Third Circuit acknowledged the Staff Commentary to
Regulation Z, but distinguished the payment plans at issue in Pollice from the scenario where
the bank makes an independent loan to the property owner that the property owner then
uses to pay off his or her tax obligation. In the scenario presented in Pollice, and in the
instant cases, the tax obligation is simply transferred from the taxing authorities to the
transferee lending institution, and there is no independent line of credit extended to the
property owner, despite the negotiation of terms in the payment plans (or promissory notes).
10