By Robert D. Forster, II, Esq.

Barrett Daffin FrappierTurner & Engel, LLP *

USFN Member (TX, AZ, CA, CO, GA, NV)

The Texas Supreme Court recently addressed the 5th Circuit’s certified question regarding whether simultaneous rescission and reacceleration can reset the limitations period under Texas law. It concluded that "a rescission that complies with the statute [Tex. Civil Practice and Remedies Code Section 16.038] resets limitations even if it is combined with a notice of reacceleration” (Moore v. Wells Fargo Bank, N.A., 683 S.W.3d 843, 845 (Tex. 2024)).

Acceleration and Rescission Under Texas Law

Texas law holds a four-year limitations period applies to both judicial and non-judicial foreclosures, starting the day after the cause of action accrues (Tex. Civ. Prac. & Rem. Code § 16.035(a), (b), (d)). Typically, this accrual date is the loan's maturity date. However, if the loan includes an acceleration clause, the statute of limitations starts at the time of acceleration (Tex. Civ. Prac. & Rem. Code § 16.035(e); Holy Cross Church of God in Christ v. Wolf, 44 S.W.3d 562, 566, Tex. 2001).

To accelerate a loan, the debtor must receive clear notices of both the intent to accelerate and the actual acceleration (Ogden v. Gibralter Sav. Ass’n, 640 S.W.2d 232 (1982)). The four-year clock starts when these notices are sent.

Circumstances such as loss mitigation or servicer changes can occur while the limitations clock is running. To reset the clock and prevent foreclosure bars, lienholders may choose to rescind acceleration. Tex. Civ. Prac. & Rem. Code §16.038, effective June 2015, allows lenders to unilaterally rescind acceleration via written notice.

Per this statute, if the lienholder, servicer, or their attorney sends a written notice of rescission or waiver of acceleration to each debtor via first class or certified mail before the limitations period expires, the acceleration is considered rescinded (Tex. Civ. Prac. & Rem. Code § 16.038). This does not affect the lienholder's right to accelerate the loan again in the future or waive past defaults (§16.038(d)).

Background

In Moore v. Wells Fargo Bank, N.A., the Moores secured a note with a deed of trust in 2004. They subsequently defaulted and, by October 2015, received a notice of intent to accelerate, followed by an acceleration notice in February 2016. In August 2020, the Moores filed a lawsuit in state court for a declaratory judgment alleging that the limitations period had expired four years after the February 2016 acceleration. After removing the case to Federal Court, the servicer and mortgagee argued for an effective rescission of acceleration under Tex. Civ. Prac. & Rem. Code § 16.038, leading to summary judgment in their favor, which the Moores appealed to the 5th Circuit Court of Appeals of the United States (“5th Circuit”).

The 5th Circuit queried the Texas Supreme Court on whether a lender could rescind a prior acceleration and re-accelerate the loan simultaneously under Tex. Civ. Prac. & Rem. Code § 16.038. The Texas Supreme Court affirmed this possibility, thus negating the need to answer whether such an attempt voids both rescission and reacceleration.

In October 2016, the mortgage servicer issued a notice rescinding the previous acceleration and re-accelerating the loan, specifying that such rescission did not waive any rights or claims. Subsequent notices in 2016 and 2017 updated the Moores on their debt and the opportunity to cure defaults.

A final notice in March 2019 confirmed rescission per Tex. Prac. & Rem. Code §16.038, prompting the Texas Supreme Court to determine if such notices, combining rescission and reacceleration, were valid under the statute.

Texas Supreme Court’s Interpretation

The Court ruled that Tex. Civ. Prac. & Rem. Code § 16.038(d) does not mandate a waiting period between rescission and reacceleration, thus allowing them to occur in the same notice (Moore, 683 S.W.3d 843, 847). The decision emphasized that this reset does not harm the borrower, as it restores the original loan terms and offers another chance to cure defaults.

Implications for Mortgage Servicers

While the Court upheld the validity of a single notice for rescission and reacceleration under Tex. Civ. Prac. & Rem. Code § 16.038, it did not address the proper reacceleration notice requirements. The opinion expressly states the holding remains consistent with Wilmington Trust v. Rob, 891 F.3d 174, 177 (5th Cir. 2018), which suggests separate notices for intent to accelerate and acceleration might be necessary.

Thus, lenders should ensure compliance with proper notice requirements for acceleration, as specific determinations on validity may be fact-dependent, particularly when express waivers of notice are involved (Shumway v. Horizon Credit Corp., 801 S.W.2d 890, 893–94, Tex. 1991).

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USFNews - July 24, 2024

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