Texas Supreme Court holds that waiver of the statue of limitations with respect to anti-deficiency laws was not void against public policy
In Godoy v. Wells Fargo Bank, N.A., 575 S.W.3d 531 (Tex. 2019), the Texas Supreme Court considered whether certain statute of limitation waivers contained in a guaranty agreement were void against public policy. GDG Mortgage, Inc. (“GDG”) borrowed $250,000 from Wachovia Bank (the “Bank”), pursuant to a loan which was secured by real property owned by GDG. Gerald Godoy (“Godoy”) guaranteed the loan pursuant to a guaranty agreement which included broad waivers with respect to certain rights and defenses available to guarantors, including waivers of defenses arising under anti-deficiency laws, waivers of defenses as to statutes of limitations and a waiver of “any defenses given to guarantors at law or in equity”.
GDG defaulted on the loan, and the Bank purchased the real property at a foreclosure sale in November of 2011, at a purchase price which was not sufficient to satisfy the unpaid balance of the loan in full. In June of 2015, the Bank sued Godoy to recover the deficiency.Godoy argued that the statute of limitations had run pursuant to Section 51.003 of the Texas Property Code, which requires that any action to recover a deficiency must be brought within two years of the foreclosure sale of the underlying property. The Bank argued in response that Godoy effectively waived the two-year statute of limitations by execution of the guaranty agreement. The trial court held in favor of the Bank, and Godoy appealed, arguing that under Simpson v. McDonald, the Texas Supreme Court had previously held that statute of limitations defenses may only be waived if the language in the waiver is specific and for a reasonable period of time, and that indefinite waivers are void against public policy. The Court of Appeals affirmed the trial court’s decision, and Godoy appealed again.
The Texas Supreme Court affirmed the decision of the Court of Appeals, holding that, although certain of the waiver provisions contained in the guaranty agreement were unenforceable (notably the blanket waiver of statute of limitations defenses and the waiver of “any defenses given to guarantors at law or in equity”), the guaranty agreement’s waiver of any defenses arising by reason of any “anti-deficiency” law was enforceable. The Texas Supreme Court reasoned that that effect of such waiver was to waive a particular, identifiable, statute of limitations – the two-year period in which to seek a deficiency judgment under Section 51.003 of the Texas Property Code- and, by default, to apply the four-year statute of limitations applicable to collection of debt pursuant to Section 16.004(a)(3) of the Civil Practice and Remedies Code. The Court therefore concluded that such statute of limitations waiver was both “specific” and “for a reasonable time”, and therefore enforceable. Because the Bank sued Godoy within the four-year period provided under the Civil Practice and Remedies Code, the statute of limitations did not bar the suit.
Article courtesy of Andrew Thomison (Baker Botts)