Acceleration Notices Can Be Unilaterally Withdrawn Despite Borrower's Claim of Detrimental Reliance
Every lender that has accelerated a note in order to pursue foreclosure has likely faced the argument from a borrower at one time or another that foreclosure proceedings were filed too late because of a prior acceleration that started the statute of limitations.
The U.S. Court of Appeals for the Fifth Circuit has attempted to clarify Texas law on this issue, which has been the subject of debate both at the Fifth Circuit and in Texas intermediate courts.
The Fifth Circuit held that under Texas law, a lender has a unilateral right to withdraw an acceleration notice, and effectively, restart the statute of limitations on a foreclosure action, and that detrimental reliance by the borrower is not an exception to the lender's right to do so.
In Texas, a foreclosure action for real property must be brought not later than four years after the date the cause of action accrues. Otherwise, the lien becomes void. Tex. Civ. Prac. & Rem. Code Ann. §16.035. If the note is payable in installments, the statute of limitations does not begin to run until the maturity date of the note. Accrual begins when the note has matured by its terms, or when the holder exercises its option to accelerate the note. However, pursuant to §16.038, if the maturity date has been accelerated, but the accelerated date has been rescinded or waived before the statute of limitations expires, the acceleration is deemed rescinded and waived, and the note is governed by §16.035 as if no acceleration had occurred.
In Jatera Corporation vs. U.S. Bank National Association, the loan servicer for the lender sent the borrower on a home equity note a notice of acceleration (in 2010) and demanded full payment of the note. The lender then filed suit for foreclosure, and the borrower signed an agreed final judgment in 2011, consenting to foreclosure. In January of 2011, the borrower vacated the property, and rented an apartment.
Subsequently, in 2012, a new loan servicer for the lender sent the borrower a "notice of default," and demanded the past due balance be paid in order to cure the default; otherwise, the note would be re-accelerated. In 2015, the borrower conveyed her interest in the home to a third party, which in turn conveyed the property to Jatera Corporation.
The new servicer then re-initiated foreclosure proceedings. In response, Jatera filed suit in state court, seeking a declaration that the lien on the property was void because the servicer did not file suit within the four-year statute of limitations that accrued upon the original notice of acceleration. The lender removed the case to federal court.
Jatera alleged that the borrower's detrimental reliance on the acceleration notice in 2010 prevented the lender from waiving the original acceleration. Jatera relied upon a 1998 Texas Court of Appeals decision in which the court had stated, in dicta, that the lender could withdraw or revoke an acceleration notice "so long as the debtor has not detrimentally relied on the acceleration." See Swoboda vs. Wilshire Credit Corp.
On cross motions for summary judgment, the District Circuit held that Jatera could not show that it detrimentally relied on the acceleration notice, and entered summary judgment in favor of the lender and servicer.
Interpreting Texas law, and in particular §16.035, the Fifth Circuit held that the lender may abandon an acceleration "either by the lender's unilateral actions" or "by agreement," and thereby suspend the limitations period. Further, the Court, relying on previous Fifth Circuit precedent, held that sending a second notice letter to the borrower, demanding less than the full amount of the debt after the lender had previously accelerated the debt, was "an unequivocal expression of the bank's intent to abandon or waive its option to accelerate." See Martin vs. Fed. Nat'l Mortg. Ass'n (5th Cir. 2016).
The Fifth Circuit noted that no Texas court had held that a lender's unilateral right to revoke acceleration was subject to a detrimental reliance exception. The Court noted that since Swoboda, a number of Texas courts have cited this language as well (including 5th Circuit cases). The Court further noted that more recently, federal and Texas state courts have expressed doubts about whether this exception exists. The Court also heavily relied upon Tex. Civ. Prac. & Rem. Code Ann. §16.035, which was enacted in 2015, and stated that a "statute is presumed to have been enacted by the legislature with complete knowledge of the existing law and with reference to it." Because the Texas legislature did not include a detrimental reliance exception in the statute, the Fifth Circuit stated that it must have done so with "knowledge of the case law." Thus, the Court held, "it is unlikely the Texas Supreme Court would be willing to read such language into the statute."
Accordingly, until a Texas Court says otherwise, it is likely that a lender may continue to revoke or withdraw an acceleration notice, and re-start the statute of limitations, despite any claims of detrimental reliance by the borrower.