BNY Mellon breached a mortgage settlement agreement, a Texas appeals court ruled, but reduced the homeowners’ $1.36 million award after finding limited evidence for most damages
A Texas appeals court has reaffirmed a lower court’s finding that The Bank of New York Mellon breached a foreclosure settlement agreement with homeowners David and Teresa Hall - but slashed their $1.36 million jury award by more than half, citing insufficient evidence for most of the emotional distress and credit damage claims.
The dispute stems from a 2017 Rule 11 Agreement - a judicially recognized settlement - that was intended to resolve earlier foreclosure litigation involving the Halls' home equity loan. Under the agreement, the loan was to be modified to a principal of $57,207.95 at 4% interest over 18 years. The agreement also required the Halls to make three specific trial payments and provided for $1,250 in additional compensation to them, while BNYM would handle escrow for taxes and insurance and adjust credit reporting according to standard procedures.
Although the Halls made all required payments and signed the documents, BNYM - through its servicer, Specialized Loan Servicing - never countersigned the modification. The Halls testified that their payments were inconsistently applied or returned, and that no formal modification was ever finalized. Their efforts to clarify the situation, they claimed, were met with delay and vague assurances.
In 2019, the Halls sued again, alleging that the bank had failed to honor the agreement, misrepresented the status of the modification, and harmed their credit through faulty reporting.
The Jefferson County jury found in favor of the Halls on multiple claims, including breach of contract, negligent misrepresentation, and deceptive conduct. It awarded more than $1.2 million in compensatory damages, including $90,000 for past credit harm, $250,000 for expected future credit injury, $700,000 for mental anguish, and over $135,000 in attorney’s fees. Prejudgment interest pushed the total to $1,359,071.20.
BNYM appealed, arguing that the Rule 11 Agreement was unenforceable and that there was no valid basis for tort-based damages. The Texas Court of Appeals disagreed on enforceability, finding that the agreement was valid and that BNYM had breached it. Testimony and correspondence presented at trial supported the conclusion that both parties intended to be bound by the settlement and understood that the trial payments would reduce the loan balance.
However, the appellate court reversed the verdict on multiple damages claims. It ruled that the $250,000 award for future credit damage, $90,000 for past credit harm, and $200,000 for future mental anguish were not supported by sufficient evidence. The court also suggested a remittitur - a voluntary reduction - of $450,000 in past mental anguish damages, leaving only $50,000 if the plaintiffs accept the adjustment. If not, a new trial on damages will be required.
Additionally, the court reversed the trial court’s award of $265,146.15 in attorney’s fees and remanded the fee issue for further proceedings.
The decision is a cautionary tale for mortgage servicers and investors in asset-backed certificates. It underscores the binding nature of Rule 11 Agreements in Texas and the risks of failing to follow through with modification terms—even when final documentation is incomplete.
Critically, the court held that oral assurances and partial compliance with settlement terms, combined with evidence of intent, were sufficient to create enforceable obligations. The servicer’s inconsistent treatment of borrower payments and failure to finalize terms led directly to the breach.
While emotional distress and reputational harm are more difficult to prove, the breach of contract finding stands as a stark reminder that borrowers are entitled to rely on settlements—especially after they've performed their part.
