Texas Statute Provides Clarity for Unilateral Rescission of Acceleration

By: Joshua A. Huber

In Texas, lenders must foreclose a deed of trust lien within four (4) years of acceleration,[i] and there is little dispute regarding what actions are required to “accelerate” a loan for purposes of the statute of limitations.[ii] Whether, and how, a lender can unilaterally “decelerate” a loan – that is, rescind a prior acceleration – was far less clear and generated extensive litigation in Texas by borrowers who, as a result of a delay in the foreclosure process, claimed that their lenders were time-barred from enforcing their lien rights.[iii]

Recent legislation now provides clarity on this issue. Texas House Bill 2067, effective September 1, 2015 and codified as Section 16.038 in the Texas Civil Practice and Remedies Code, makes clear that servicers may unilaterally rescind a prior valid acceleration, thereby avoiding the four (4) year statute of limitations. As recently noted by the Fifth Circuit, “[t]he new statute provides a specific mechanism by which a lender can waive its earlier acceleration.”[iv] Section 16.038 allows a lender or loan servicer to unilaterally rescind acceleration of the debt by serving each debtor at their last known address, by first class or certified mail, with notice that the accelerated maturity date is rescinded or waived. The service requirements for such notice tracks that of Tex. Prop. Code § 51.002(e) and is complete when mailed, not received.[v]

Despite the enactment of this Texas statute, borrowers have continued to rely on statute of limitations arguments to attempt to avoid foreclosure. However, the new law provides clear guideposts which, if followed, will afford servicers and lenders a strong defense and assurances that delays resulting from loss mitigation, litigation or other factors will not adversely affect their ability to enforce deeds of trust in Texas.

[i] See Tex. Civ. Prac. & Rem. Code § 16.035(a).

[ii] Boren v. U.S. Nat. Bank Ass’n, 807 F.3d 99, 104 (5th Cir. 2015) (acceleration requires both a notice of intent to accelerate and a notice of acceleration).

[iii] See, e.g., Callan v. Deutsche Bank Truste Co. Ams., 93 F.Supp.2d 725, 734 (S.D. Tex. Mar. 21, 2015) (observing that “there is no Texas case law on the validity of unilateral notices of rescission of acceleration.”).

[iv] Boren, 807 F.3d at 106.

[v] See Tex. Civ. Prac. & Rem. Code § 16.038(c).

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