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Texas Supreme Court Holds Foreclosure Statute of Limitation Reset by Rescission Sent With Reacceleration Notice

 

The Supreme Court of Texas recently held that, when a lender or loan servicer rescinds its acceleration of a loan in compliance with Texas Civil Practice and Remedies Code Section 16.038, the rescission resets the statute of limitation even if it is combined with a notice of reacceleration.

A copy of the opinion in Moore v. Wells Fargo Bank is available at:  Link to Opinion.

In 2004, two borrowers obtained a loan secured by a deed of trust on their home. The deed of trust provided that “all sums secured by this Security Instrument and accrued interest thereon shall at once become due and payable at the option of Lender without prior notice, except as otherwise required by applicable law, and regardless of any prior forbearance.” It also waived any notice of intent to accelerate, but upon acceleration, borrower could reinstate the loan “as if no acceleration had occurred” by paying all sums due plus costs.

The borrowers defaulted on the loan, and the loan servicer issued a notice of intent to accelerate in October 2015, followed by written notice that the loan had been accelerated in February 2016. However, no foreclosure sale ever occurred.

Over the next several years, the borrowers filed for bankruptcy on numerous occasions, all of which the bankruptcy court dismissed. During this period of time, the loan servicer sent the borrowers a “Notice of Acceleration of Maturity” that rescinded its earlier acceleration of the note, and reaccelerated the debt. The loan servicer’s final notice also stated: “Any acceleration of the Note made prior to sending this Notice is hereby rescinded in accordance with the Texas Practice and Remedies Code § 16.038.”

The borrower filed a lawsuit in state court, asserting that the limitations period had run four years after the first acceleration in February 2016, and requesting any foreclosure be barred. The loan owner and servicer removed the case to federal court, and eventually moved for summary judgment. The federal trial court ruled in favor of the loan owner and servicer, and borrowers appealed to the U.S. Court of Appeals for the Fifth Circuit.

The Fifth Circuit certified the question of whether a lender could simultaneously rescind a prior acceleration and re-accelerate a loan under Tex. Civ. Prac. & Rem. Code § 16.038 to the Texas Supreme Court. This opinion followed.

The Texas Supreme Court first recounted that, in Texas, a mortgagee must bring suit to foreclose on a real property lien “not later than four years after the day the cause of action accrues.”  See Tex. Civ. Prac. & Rem. Code § 16.035(a). Although the accrual date is usually the maturity date of the loan, when the loan documents include an acceleration clause, the statute of limitations on the foreclosure claim accrues at the time of acceleration.

In addition, the Court noted, Texas Civil Practice and Remedies Code Section 16.038 allows a mortgagee to rescind a prior acceleration “by a written notice of a rescission or waiver served . . . on each debtor who . . . is obligated to pay the debt.”  The notice must be served “by first class or certified mail and is complete when the notice is deposited in the United States mail, postage prepaid and addressed to the debtor at the debtor’s last known address.”  Rescission under this section “does not affect a lienholder’s right to accelerate the maturity date of the debt in the future nor does it waive past defaults.” Id. § 16.038(d).

The borrowers did not dispute that the notices were properly sent. Instead, they argued that “the limitations period did not reset because these letters further informed them that their loan was reaccelerated.” Relying on Swoboda v. Ocwen Loan Servicing, 579 S.W.3d 628, 632–33 (Tex. App.—Houston [14th Dist.] 2019, no pet.), the borrowers asserted that reacceleration will not reset the statute of limitations unless the earlier acceleration was abandoned. In addition, the borrowers argued that Section 16.038 refers to a mortgagee’s right to accelerate “in the future”, and therefore “that a notice rescinding an earlier acceleration is ineffective if it is accompanied by a notice that the loan is reaccelerated.”

Agreeing with the loan owner and servicer, the Texas Supreme Court held that the statute “does not require that the rescission notice be distinct or separate from other notices that a lender might send to borrowers with a loan in default.” In the absence of any such requirement in the statute, the Court held that none should be read into the statute.

The Court also rejected the borrower’s common-law abandonment argument. The Texas Supreme Court noted that, in Swoboda, “the court of appeals held that an abandonment of acceleration must be clear enough to ‘justify the borrower in believing and acting upon the belief that the effect of the failure to pay an installment was to be disregarded, and that the contract should stand as if there had been no default.’” 

On the other hand, a rescission under Section 16.038, “‘is complete’ upon the lender’s depositing the notice in the mail, addressed to the “debtor’s last known address.” The statute expressly states that a rescission “does not affect a lienholder’s right to accelerate the maturity date of the debt in the future” and does not create a waiting period between rescission and reacceleration of specific duration. “It is the very nature of rescission to remove the earlier acceleration, paving the way for a new one to follow, whether in the same letter or by separate notice.”

Accordingly, the Supreme Court of Texas held a mortgagee’s “simultaneous reacceleration does not nullify a rescission that complies with Civil Practice and Remedies Code Section 16.038.”

Photo: Grindstone Media Grp/stock.adobe.com

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Ralph Wutscher's practice focuses primarily on representing consumer and commercial financial services companies, including depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, financial asset buyers and sellers, loss mitigation companies, third-party debt collectors, and other financial services providers. He represents the lending and financial services industry as a litigator, and as regulatory compliance counsel. For more information, see https://mauricewutscher.com/attorneys/ralph-t-wutscher/

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