Authored by: Andrew Thomison of Baker Botts
Abandonment of acceleration resets the statute of limitations.
In U.S. Bank N.A. v. Morris, No. 1:19-CV-00352-SH, 2021 WL 2870718, 2021 U.S. Dist. LEXIS 127559 (W.D. Tex. July 8, 2021), the court held that because a bank repeatedly abandoned the acceleration of a loan and related foreclosure proceedings, the applicable statute of limitations had not expired when the bank exercised its foreclosure rights many years later. Homeowners (the “Defendants”) owned property subject to a secured home equity note (the “Loan”) held by U.S. Bank (the “Bank”), payable in monthly installments and subject to foreclosure if these payments were not made. The Defendants failed to make the monthly payment due in August 2007. As a result, the Bank sent its first notice of acceleration to the Defendants and filed an application for home equity foreclosure in the district court. However, the Bank nonsuited the case and dismissed its claims several months later. Thereafter, on two subsequent occasions, the Bank sent notices of acceleration and filed an application for home equity foreclosure before ultimately nonsuiting its cases. In January 2015, the Bank filed its fourth application for home equity foreclosure, which was entered by the court in July 2015 and permitted the Bank to proceed with non-judicial foreclosure. The Defendants filed suit against the Bank in October 2015 to challenge the foreclosure, but failed to do so successfully. In March 2018, the Bank mailed its final notice of acceleration and filed its final application for home equity foreclosure, which it then nonsuited. The Bank sued the Defendants in August 2019 for the outstanding loan balance. Defendants challenged the suit, claiming the statute of limitations had run since the first missed monthly payment had occurred more than four years ago.
However, under Texas law, if an obligation secured by real property is payable in installments, the four-year limitations period does not begin to run until the maturity date of the last installment. If the obligation is subject to an optional acceleration clause, as the Loan was here, the limitations period begins only when the lender actually exercises the option to accelerate. Further, a lender may abandon acceleration and suspend the running of the statute of limitations until the loan is accelerated again, at which time the four-year limitations period resets. Such abandonment includes nonsuiting the acceleration claim. The limitations period also stops running if litigation related to the enforcement of the loan commences, as was the case here. Thus, because the Bank had abandoned acceleration of the loan by nonsuiting its acceleration actions and then was subject to legal proceedings regarding the loan, the Court held that at no point between the date of acceleration of the Loan and the date of abandonment did the four-year statute of limitations fully run, and therefore the Bank could bring its foreclosure action against the Defendants.