Fifth Circuit addresses implicit waiver of acceleration and related new Texas statute

A recent Fifth Circuit decision is helpful for lenders seeking to foreclose against a borrower asserting a Texas statute of limitations defense. In Boren et al. v. U.S. National Bank Association, the Borens failed to pay on a home equity note in 2008. 2015 WL 6445721, at *1 (5th Cir. Oct. 26, 2015). In 2009, U.S. Bank accelerated the loan, but then sent a notice of default informing the Borens they could bring their loan current by paying less than the total accelerated amount and threatening to accelerate if the Borens did not make the requested payment. Id. at *1-2.  The notice of default did not explicitly state that the prior acceleration had been rescinded. In 2013, US Bank again accelerated the loan and sought to foreclose on the Borens' property; the Borens argued that the initial 2009 acceleration began to run the four year statute of limitations and the 2013 foreclosure was time-barred. Id. at *2.

US Bank removed the case to federal court, the district court granted summary judgment in favor of the bank, and the Borens appealed. The Fifth Circuit held that the post-acceleration notice of default constituted an implicit waiver of acceleration because the notice "unequivocally manifested an intent to abandon the previous acceleration and provided the Borens with an opportunity to avoid foreclosure if they cured their arrearage." Id. at *4. Accordingly, the Fifth Circuit concluded that the statute of limitations period from the 2009 acceleration ceased to run once the Boren's received the notice of default and that the 2013 foreclosure was not time barred. Id.

The Fifth Circuit also analyzed Tex. Civ. Prac. & Rem. Code § 16.038, enacted in 2015, which provides a statutory framework for lenders to rescind or waive acceleration. The appellate court did not find section 16.038 to be controlling because the statute explicitly did "'not create an exclusive method for waiver and rescission of acceleration.'" Id. at *5 (quoting Tex. Civ. Prac. & Rem. Code § 16.038(e)). The Fifth Circuit, though, characterized the statute as providing "a best practice for a lender seeking to" abandon an acceleration.

Key takeaways from the Boren decision are:

• Banks wishing to rescind or waive acceleration under Texas law should considering following Tex. Civ. Prac. & Rem. Code § 16.038's framework, which requires providing the debtor with a "written notice of a rescission or waiver" by "first class or certified mail" to the debtor's last known address.
• Tex. Civ. Prac. & Rem. Code § 16.038, however, is not the exclusive means of rescinding or waiving acceleration, and other methods will be sufficient, so long as they "unequivocally manifest an intent to abandon" the acceleration. Id. at *4.

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