Deutsche Bank can't rescind acceleration of loan at last minute

J Thomas Black
Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization
Posted on May 17, 2014

In Texas, there are "statutes of limitation" for the collection of certain debts. For example, mortgage companies must foreclose within 4 years of default, or lose their power of sale. As stated in a recent court case from the U.S. District Court for the Southern District of Texas, Callan v. Deutsche Bank Trust Company Americas, U.S. Dist. Ct., SD Texas 2014:

Under Texas law, "a sale of real property under a power of sale in a mortgage or deed of trust that creates a real property lien must be made not later than four years after the day the cause of action accrues," and "on the expiration of the four-year limitations period, the real property lien and a power of sale to enforce the lien becomes void." TEX. CIV. PRAC. & REM. § 16.035(b), (d). Ordinarily, the cause of action does not begin to accrue until "the maturity date of the last note, obligation, or installment." Id. § 16.035(e). Where the note or deed of trust contains an optional acceleration clause, however, as in this case, the cause of action accrues "only when the holder actually exercises its option to accelerate." (citations omitted)

So, once a mortgage is accelerated or called due, the four years starts. In this particular case, Deutsche Bank started to foreclose twice in the four years, only to cancel it. Then the homeowner actually filed chapter 13 bankruptcy, but it was dismissed. The four years was "tolled" or stopped during the bankruptcy, because the bankruptcy prevents a foreclosure from occurring.

But in this case, Deutsche Bank sent the debtor a letter just 3 days before the statute of limitations would have run, and attempted to rescind or cancel the acceleration, so that it's debt would not be time-barred. The court said that it couldn't do that, at least when the debtor had relied on the acceleration. The court wrote:

Here the Deutsche exercised its right to accelerate for three years and 362 days and vigorously pursued that right in two foreclosure proceedings, causing the debtor to declare bankruptcy. Unlike the cases cited above, Callan never made any affirmative action consistent with an agreed waiver of the acceleration. The statute of limitations on Deutsche's lien is four years from the date of acceleration—November 6, 2011. Deutsche is unabashedly trying to extend the statutorily defined limitations period after twice trying and failing to foreclose on its lien. Equity demands that Deutsche cannot assert its right of acceleration to the end of the limitations period, only to abandon that right to extend the statute of limitations by another four years. Deutsche's eleventh-hour rescission where Plaintiff had detrimentally relied on the acceleration was ineffective. The lien expired on November 6, 2011 and is void. For the reasons explained above, Plaintiff's claims for quiet title and declaratory judgment are granted.

I think this is an excellent case, and was properly decided. We have a similar case that we will be filing such an action on, we are just letting the remaining time run on it.

 

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