A failed loan modification and years of returned payments landed this major trustee in hot water. Here's how a simple servicing slip snowballed into a multi-year court battle
A Texas appeals court has handed down a partly reversed but still stinging ruling in a years-long dispute between The Bank of New York Mellon and a pair of Beaumont homeowners, awarding a substantial judgment for what began as a mishandled home equity loan.
The case, involving David and Teresa Hall, centered on what mortgage professionals will recognize as a familiar—and preventable—breakdown in servicing communication. And while the legal issues are complex, the takeaway for the industry is simple: sloppy servicing can be costly.
It all started in 2000, when the Halls took out a $44,800 home equity loan from New Century Mortgage Corporation. That loan changed hands over the years, eventually landing with The Bank of New York Mellon (BNYM) as trustee in 2009, and serviced by Specialized Loan Servicing (SLS) beginning in December 2011.
By 2011, the Halls believed they had paid off the loan after sending a certified check for $45,146.37 to Bank of America, the loan servicer at the time. But years later, they were told the payment had not been properly applied. BNYM claimed the Halls were delinquent and moved to foreclose on their home.
In December 2017, the parties reached a settlement to resolve a lawsuit that had arisen from the foreclosure attempt. Under the Rule 11 Agreement, the total debt would be set at $57,207.95, refinanced over 18 years at 4% interest. The Halls were to make three trial period payments: $19,244.39 in February 2018, followed by $582.16 in both March and April. SLS also agreed to pay $1,250 to the Halls and to provide appropriate credit reporting.
The Halls complied with their end of the deal. But SLS and BNYM failed to complete the modification. The bank never finalized or returned the signed documents, and payments were either returned or not credited to the Halls’ account. The loan modification was not booked until August 2021—almost four years after the agreement.
The couple filed suit again in 2019, and in 2022, a Jefferson County jury found that BNYM had breached the settlement agreement and made negligent and deceptive misrepresentations. The jury awarded $1,219,274.08 in damages, including $135,146.15 in trial attorney’s fees. The trial court entered final judgment in January 2023, adding $139,797.12 in prejudgment interest and court costs, bringing the total to $1,359,071.20.
BNYM appealed, challenging the enforceability of the Rule 11 Agreement, the sufficiency of the evidence, and the scope of damages. In a revised opinion issued in May 2025, the Ninth District Court of Appeals upheld key parts of the ruling but trimmed the damages.
The appellate court affirmed that BNYM breached the Rule 11 Agreement and was liable under Texas Finance Code § 392.304(a)(14) for misrepresenting the status of its services. However, it reversed the jury’s findings on other claims, including negligent misrepresentation and damages under § 392.304(a)(8), which applies to misrepresenting the “character, extent, or amount” of debt.
The court also ruled that there was legally and factually insufficient evidence to support the jury’s awards of $15,000 in past and $85,000 in future economic losses, and determined the $500,000 in past mental anguish damages to be excessive. It ordered a new trial on damages relating to the TDCA claim under § 392.304(a)(14).
Despite the partial reversal, the court left no doubt that the bank’s failure to process the agreed-upon loan modification and mismanagement of borrower communications played a decisive role in the dispute.
For mortgage professionals, the case underscores the critical importance of execution and follow-through. From incomplete settlement documentation to lost modification paperwork, the failures in this case allowed a simple agreement to spiral into multi-year litigation.
The ruling is a reminder that servicers and trustees alike must treat loan workout agreements with the same rigor and precision as originations. Timely booking, accurate payment processing, and clear communication aren’t just operational best practices—they’re legal safeguards.
And in this case, the lack of those safeguards came with a steep cost.
