Foreclosure in 2013 Valid after Abandoned Acceleration in 2004

A foreclosure of real property conducted in 2013 after notice of acceleration was made in 2004 was validated by the Fifth Circuit in the case of Rivera v. Bank of Am., N.A., 14-40837, 2015 WL 1843705, at *1-3 (5th Cir. Apr. 23, 2015). This was because the lender accepted payments in 2006 and did not invoke acceleration again until 2010. The Fifth Circuit held that the acceptance of payments in 2006 without invoking the remedies upon maturity constituted an abandonment of the acceleration.

Under Texas law, a secured lender must foreclose on its real property lien not later than four years after the cause of action accrues otherwise it could lose the ability to enforce the note and lien. If the deed of trust contains an optional acceleration clause then the default of the borrower does not start the limitations. The cause of action accrues when the holder actually exercises the option to acceleration. This was fortunate for the lender since acceleration was argued to have occurred in 2004 making a 2013 foreclosure invalid. Sometimes borrowers go into default and lenders accelerate the note and then the borrowers decide to come forward with payments to avoid the foreclosure. In order to remove the effects of acceleration a lender will have a borrower sign a reinstatement agreement to reverse the effects of the acceleration and the commencement of the statute of limitations.

In Rivera the borrowers defaulted in 2003. In January 2004 the borrowers received a notice that the loan was to be accelerated. In May 2004 the borrowers filed for bankruptcy. Their bankruptcy case was dismissed in April 2005. Then the borrowers filed a second bankruptcy in May 2005. Their second bankruptcy was closed in July 2005. The lender accepted mortgage payments in 2006 and applied them to loan payments due in 2004. In 2010 the lender sent a notice of default and intent to accelerate the balance of the loan. In 2012 the lender sent loan modification documents that were not signed. In February 2013 the lender notified the borrowers that the home would be posted for foreclosure sale in March 2013. The borrowers contended that the note was barred by limitations since acceleration was made in 2004 and the lien was enforced in 2013.

The Fifth Circuit disagreed and held that the holder cold abandon acceleration if it accepted payments without exacting any remedies available to it upon maturity. The court found that the lender abandoned its prior acceleration by accepting continued payments and that its foreclosure in 2013 since it was within four years of the lender invoking the acceleration in 2010. The court held that the “foreclosure action in 2013 was within the four-year limitations period.”