Four Year Limitations After Closing in Home Equity Litigation

In Jones v. Bank of New York Mellon, CIV.A. H-13-2414, 2015 WL 300495, at *6 (S.D. Tex. Jan. 22, 2015), the U.S. District Court, Southern District of Texas held that the four year statute of limitations applies in home equity loan cases from the date of closing following the precedent of Priester v. JP Morgan Chase Bank, N.A., 708 F.3d 667, 673 (5th Cir. 2013), cert. denied sub nom. Priester v. JPMorgan Chase Bank, N.A., 134 S. Ct. 196, 187 L. Ed. 2d 256 (2013). In Jones the loan was taken out on June 4, 2003. This meant that the four year statute of limitations expired on June 4, 2007. The bank could foreclose the loan since it was a valid loan.

But be careful in bankruptcy cases in Texas. In the Eastern District of Texas in two cases held that upon filing a proof of claim the constitutional violations became defensive in nature and could be asserted even if the violations were more than four years after the closing. In re Johnson, 2009 WL 2982783 (Bankr. E.D. Tex. 2009)(loan made in 2001 and complaint made in 2007)l In re Shankles, 2013 WL 5348879 (Bankr. E.D. Tex. Sept. 23, 2013)(loan made in July 2007 and complaint made in September 2011). These two cases contradict a case from the same bankruptcy court that applied the four years statute of limitations in home equity loan cases. In re Chambers, 419 B.R. 652, 680 (Bankr. E.D. Tex. 2009) subsequently aff’d, 2013 WL 5915238 (5th Cir. May 3, 2013).

The defensive use of constitutional violations through section 16.069 is questionable. The Fifth Circuit in Sigaran v. U.S. Bank Nat. Ass’n, 2014 WL 1688345 (5th Cir. 2014) cast doubt on the ability of borrowers to reframe non-compliance complaints as “defenses” to the invalidity of the home equity lien at least in federal court. The Fifth Circuit held that the four-year residual statute of limitations applied to constitutional infirmities under section 50(a)(6) of the Texas Constitution and that the claim accrues at the time the loan is made.