Texas Supreme Court Allows Mortgage Servicers to Reset the Statute of Limitations in a Single Letter

Texas Supreme Court Allows Mortgage Servicers to Reset the Statute of Limitations in a Single Letter

On February 23, 2024 the Texas Supreme Court decided the appeal in Moore v. Wells Fargo Bank, No. 23-0525 (Tex. Feb. 23, 2024) and answered the Certified Questions put forth by the United States Court of Appeals for the Fifth Circuit. The Texas Supreme Court, through its decision has substantially cleared all the doubts about whether a rescission notice be sent to the borrower accompanied by the reacceleration notice in the same letter.

The Moores secured a loan of $170,700 against their property in Sugar Land from Wells Fargo Bank through PHH Mortgage Corporation. The trust deed contained an acceleration clause stating, “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.” The deed of trust also waives any notice of intent to accelerate.”. It also gave a right to the borrowers to reinstate the loan by paying the amount claimed in the rescission notice and the costs thereto.

The mortgage service provider issued a notice of intent to accelerate in October 2015 and also informed the borrowers in writing that acceleration proceeding had been started on their loan on February 2, 2016. A foreclosure sale was also scheduled for Mar 1, 2016 but it did not occur.

In October 2016, the mortgage service provider sent a Notice of Acceleration of Maturity to Moores. The mortgage service provider also gave the notice of reacceleration of Debt in the same document/letter which reset the date of foreclosure and sale to November 2016.

Subsequent notices were issued on November 2016, January 2017, March 2017, and March 2019. In last 8 years the Moores have not paid any amount claimed in the reacceleration notices, and the Bank had not foreclosed the property till 2019.

In August 2020, the Moores moved to state court, seeking a declaratory judgment stating that the limitation period of four years had run per the Tex. Civ. Prac. & Rem. Code § 16.038 for foreclosure and sale from the first rescission notice in 2016. Under Section 16.038, the lender can rescind its acceleration and reset the limitations period by notifying the borrower of the rescission in a manner that complies with the statute. The Wells Fargo and PHH moved the case to federal court and requested for summary judgment. They pleaded that they complied with Section 16.038in sending the rescission notice and reacceleration notice in the same letter.

The Fifth Circuit certified the Texas Supreme Court to decide whether a lender simultaneously rescind a prior acceleration and re-accelerate a loan under Tex. Civ. Prac. & Rem. Code § 16.038. It also posed a question as to whether any such attempt by the lender renders only the re-acceleration as void, or both the re-acceleration and the rescission.

The Texas Supreme Court, decided in favour of Wells Fargo and PHH, rejecting Moore’s arguments that § 16.038 of Tex. Civ. Prac. & Rem. Code’s language refrains the lender to send the notice of rescission and notice of reacceleration in the same letter. The Texas Supreme Court relied on City of Rockwall v. Hughes, 246 S.W.3d 621, 631 (Tex. 2008) and stated that the words “in the future” in Tex. Civ. Prac. & Rem. Code § 16.038(d) does not mean that the lender has to wait for any certain period of time to send notice of reacceleration after issuing notice of rescission.

The loan industry is rapidly growing, and the lenders are bringing out several different schemes for the borrowers to make their repayments hassle-free, but lenders have had fair share of challenges in recovering their dues from the borrowers who default on the loan under different circumstances. Though many borrowers default due to their critical financial situation but many borrowers misuse the loop holes in the law to their advantage. As we witnessed in the Moores’ case thathow the Appellants tried to take away the lender’s right to foreclose and sell their property base the language that the words “in the future” used in Tex. Civ. Prac. & Rem. Code § 16.038(d) restrict the lenders to send the notice of rescission and notice of reacceleration in the same letter.

This Texas Supreme Court, however, rejected their plea citing City of Rockwall v. Hughes,which stated that “Changing the meaning of the statute by adding words to it, we believe, is a legislative function, not a judicial function.”

Courts are doing their best to safeguard the interest of lenders and mortgage service providers. May be its time for legislature to step up and rectify the loopholes in the statutes to avoid such incidences in future.