by William Meyer, Esq.
SouthLaw, PC
USFN Member (IA, KS, MO, NE)

Editor’s note: SouthLaw, PC represented the lender in the case mentioned in this article.

In a recent ruling, the Kansas Court of Appeals addressed a residential mortgage foreclosure lawsuit in which the Kansas Trial Court ruled the case was barred by the statute of limitations.  The Court of Appeals ruled the trial court erroneously concluded the lender’s claims were time barred under K.S.A. 60-511(1)’s five-year limitation’s period based upon the date the lender’s 2011 Notice of Intent to Accelerate was sent to the borrower.  The case is a published opinion and styled Wilmington Savings Fund Society, FSB v. Holverson, et al., Kansas Court of Appeals No. 122,179.  This case is noteworthy as it defines when a debt acceleration occurs, relying heavily on Florida law as persuasive authority on acceleration.

The facts of this case were atypical.  The residential mortgage loan was sold and transferred multiple times. Prior to the filing of the foreclosure case, the borrower filed a Chapter 7 bankruptcy which discharged the borrower’s personal obligation to repay the mortgage debt.  Additionally, the borrower filed a Chapter 13 bankruptcy after the foreclosure case was filed but the bankruptcy case was later dismissed. 

In 2013, Bank of America filed the foreclosure case, the bank voluntarily dismissed the case in 2016 when the mortgage loan was transferred to a new investor.  Later in 2016, the foreclosure case was refiled by Bayview, and Wilmington was eventually substituted into the case as the new plaintiff.

In the 2016 case, the borrower successfully argued to the trial court that the 2011 Notice of Intent to Accelerate, accelerated the debt as of 2011 and therefore the 2016 case was filed just outside of the five-year limitations period. The court found, he Kansas savings statute (K.S.A. 60-518) did not apply because the plaintiff that filed the 2016 case (Wilmington) was not the same plaintiff that filed and dismissed the 2013 case (Bank of America).  The trial court granted borrower’s Motion for Summary Judgment.

On appeal, the lender asked the Court of Appeals to consider three arguments to reverse the trial court.  First, lender argued the 2011 Notice of Intent to Accelerate was irrelevant for statute of limitations purposes as that acceleration occurred when the 2013 Complaint was filed.  Second, lender argued the 2013 case was dismissed in 2016 on the condition that the note and mortgage were reinstated to their original terms and therefore, as of the date of the dismissal in 2016, the debt was decelerated which reset the statute of limitations clock.  Third, the lender asked the Court of Appeals to follow a line of Florida cases (see Bartram v. U.S. Bank, Nat’l Ass’n, 211 So.3d 1009 (Fla. 2016)) for the proposition that a residential mortgage loan can be “accelerated” no earlier than the filing date of a lawsuit to enforce the debt because most residential notes and mortgages give the borrower the contractual right to re-instate the debt (i.e. decelerate) up until judgment and sometimes even after judgment.  Lender also cited Florida authority for the concept the debtor breaches the note and mortgage for every month in which the debtor fails to make payment (as each and every breach constitutes a separate cause of action).

The Court of Appeals reversed the trial court based on the lender’s first argument – i.e. the 2011 Notice of Intent to Accelerate was not sufficient to accelerate the debt and therefore the statute of limitations did not bar the lawsuit.  The Court of Appeals ruled, to accelerate a debt, the lender’s acceleration “letter must explain that it is electing to exercise the option to accelerate the balance of loan…[t]hen [the lender must]…affirmatively act toward enforcing that intention to accelerate the loan.”  The Court concluded that the lender’s 2011 Notice of Acceleration did not constitute an affirmative act toward enforcing the loan. 

Distilling the opinion’s language to its core, it is clear the Court is signaling an acceleration notice alone is not sufficient to accelerate a debt.  Notice must be followed by something definitive such as the filing of a complaint. To reach its ruling on the lender’s first argument, the Court of Appeals did not have to stray far from existing Kansas authority, but it did when it dove deeply into Florida law and embraced Florida’s pro lender stance on acceleration as related to statutes of limitation.  Although the Court of Appeals did not decide this issue, the tenor of the Court’s opinion suggested it would have favorably considered the lender’s argument that the lender’s 2016 voluntary dismissal of the 2013 case decelerated the debt which would have also resolved the statute of limitations issue in the lender’s favor.  Given that mortgage foreclosures are equitable actions in Kansas, it seems clear the Court of Appeals viewed any result in which the debtor acquired a free house as unacceptable.

This is a significant victory for foreclosing lenders, and the bright line rule emerging from this case is (absent unusual circumstances) the acceleration of a debt does not trigger the statute of limitations until a lawsuit is filed to enforce the debt.

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June 2021 e-Update