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5th Cir. Holds Mortgagee Needed to Issue New Acceleration Notice Before Foreclosing

The U.S. Court of Appeals for the Fifth Circuit held that where a mortgagee rescinded a notice of intent to accelerate and then filed a foreclosure action without first issuing a new notice of intent to accelerate, it failed to meet its burden to show clear and unequivocal notice of intent to accelerate prior to filing suit, and therefore was not entitled to foreclosure judgment.

Accordingly, the Fifth Circuit reversed the ruling of the trial court granting summary judgment in favor of the bank, and dismissed the foreclosure action.

A copy of the opinion in Wilmington Trust, N.A. v. Angel Rob, et al is available at:  Link to Opinion.

The defendant borrowers obtained a loan from the lender, which loan was secured by a Texas Home Equity Security Instrument on the borrowers’ home.  The borrowers’ loan was subsequently assigned to the plaintiff bank in 2014.

On April 15, 2011, one of the bank’s predecessors mailed the borrowers a notice of default and intent to accelerate.  On June 22, 2011, the borrowers were sent a notice of acceleration.  On March 6, 2012, the predecessor sent a notice of default and intent to accelerate, followed by another notice of acceleration on May 22, 2013.

On Nov. 3, 2014, the bank sent the borrowers a “Notice of Rescission of Acceleration,” which stated that the lender “hereby rescinds Acceleration of the debt and maturity of the Note,” and that the “Note and Security Instrument are now in effect in accordance with their original terms and conditions, as though no acceleration took place.”

On June 25, 2015, the bank sued the borrowers seeking a judgment of foreclosure or, alternatively, a judgment of equitable subrogation.  In August 2015, the bank filed an amended complaint stating that the bank “accelerates the maturity of the debt and provides notice of this acceleration through the service of this Amended Complaint.”

On Aug. 26, 2016, the bank moved for summary judgment, which the trial court granted.  The borrowers appealed.

At issue on appeal was whether the bank properly accelerated the note.

In addressing the issue, the Fifth Circuit noted that the bank’s “lien includes an optional acceleration clause, under which the ‘Lender at its option may require immediate payment in full of all sums secured by this Security Instrument.’”

Under Texas law, “[e]ffective acceleration requires two acts: (1) notice of intent to accelerate, and (2) notice of acceleration.”  Also, “[b]oth notices must be clear and unequivocal.”

The Fifth Circuit determined that the bank’s “complaint could serve as adequate notice of acceleration, but only if it was preceded by a valid notice of intent to accelerate.”

In determining whether there was a valid notice of intent to accelerate, the Fifth Circuit first noted that “Texas courts have not squarely confronted whether a borrower is entitled to a new round of notice when a borrower re-accelerates following an earlier rescission.”

Thus, “[f]orced to make an Erie guess we hold that the Texas Supreme Court would require such notice, and that [the Bank] has therefore failed to meet its summary judgment burden.”

Further, “[t]he Texas Supreme Court would likely conclude that [the Bank] acted ‘inconsistently’ by rescinding acceleration and then re-accelerating without notice.”

The Fifth Circuit determined that once the bank rescinded the notice of acceleration, the borrowers did not have “clear and unequivocal notice that [the Bank] would exercise the option.”

“Because [the Bank] failed to meet its burden to show clear and unequivocal notice of intent to accelerate prior to filing suit, it is not entitled to a foreclosure judgment.”

Accordingly, the Fifth Circuit reversed the trial court’s grant of summary judgment, and entered a judgment of dismissal.

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Jeffrey Karek practices in Maurice Wutscher's Commercial Litigation, Consumer Credit Litigation, and Appellate groups. He has substantial experience in defending consumer finance lawsuits in both state and federal trial courts, and on appeal. Such litigation includes allegations brought under TILA, HOEPA, RESPA, FDCPA, TCPA, FCRA, and state consumer protection statutes, including in the defense of putative class actions. Jeff received his Juris Doctor from the University of Michigan Law School, and graduated magna cum laude with a Bachelor of Business Administration degree from Western Michigan University.

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