Boren v. U.S. Nat'l Bank Ass'n

Citation807 F.3d 99
Decision Date26 October 2015
Docket NumberNo. 14–20718.,14–20718.
Parties Charles BOREN; Cyndi Boren, Plaintiffs–Appellants v. U.S. NATIONAL BANK ASSOCIATION, Defendant–Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)

Lennon C. Wright, Houston (argued), TX, for PlaintiffsAppellants.

Bradley Eugene McLain (argued), Jeremy Jason Overbey, Esq., Settlepou, Dallas, TX, for DefendantAppellee.

Before STEWART, Chief Judge, and JOLLY and GRAVES, Circuit Judges.

JAMES E. GRAVES, JR., Circuit Judge:

This case concerns a mortgage-foreclosure dispute arising under Texas state law. The sole issue on appeal is whether the four-year statute of limitations period provided under Texas Civil Practice and Remedies Code § 16.035(a), within which time a lender must bring suit for the foreclosure of real property under a real property lien, bars DefendantAppellee U.S. National Bank Association's ("U.S. Bank" or "bank") counterclaim for judicial foreclosure of PlaintiffsAppellants Charles and Cyndi Boren's (the "Borens") home. The district court granted summary judgment for the bank. For the following reasons, we AFFIRM.

BACKGROUND

In 2005, the Borens obtained a home equity note for the principal amount of $640,000.00 (the "Note"). The Note was payable to Home123 Corporation ("Home123") and was secured by a home equity security instrument, thus granting Home123 a security interest in the Borens' home (the "Deed of Trust"). Both the Note and the Deed of Trust contained acceleration clauses, empowering the lender with an option to accelerate the full balance of the loan in the event of a default.

In 2008, Home123 assigned the Note and Deed of Trust to U.S. Bank as trustee for C–Bass Mortgage Loan Asset–Backed certificates, Series 2007–RP1. In February 2009, the Borens failed to make their required monthly payment under the Note. As a result, in March 2009, U.S. Bank sent a letter to the Borens, which notified them that they were delinquent in the amount of $11,044.04 and provided them with 45 days to cure their default or face acceleration of the loan (the "First Notice of Default"). On May 8, 2009, after the Borens failed to cure this default, U.S. Bank sent another notice informing the Borens that it had "elected to ACCELERATE the maturity of the DEBT" (the "First Notice of Acceleration").

On June 5, 2009, less than one month after the First Notice of Acceleration was sent, U.S. Bank applied under Texas Rule of Civil Procedure 736 (" Rule 736") for an order allowing it to proceed with an expedited nonjudicial foreclosure. The Borens responded by filing a separate petition contesting U.S. Bank's right to foreclose thereby triggering automatic dismissal of U.S. Bank's application.1 The Borens subsequently dismissed their petition without prejudice.

A pattern emerged based on this sequence of events. U.S. Bank filed three additional Rule 736 applications after its first application was dismissed. Each time the bank filed an application under Rule 736, however, the Borens filed a petition contesting the bank's right to foreclose, thereby triggering dismissal of the bank's proceeding. U.S. Bank did not elect to file a counterclaim seeking foreclosure in response to the Borens' petitions and the Borens nonsuited their petitions without prejudice each time U.S. Bank's Rule 736 application was dismissed. During this period, the Borens failed to make any additional payments on the Note.

During the course of these proceedings, U.S. Bank sent two additional notices of default and two additional notices of acceleration to the Borens. By letter dated May 20, 2010, after U.S. Bank's second Rule 736 application was dismissed, U.S. Bank sent a second notice to the Borens informing them that they remained in default on their loan (the "Second Notice of Default"). The Second Notice of Default stated that "the total amount necessary to bring [the Boren's] loan current [was] $74,313.28," which was an amount less than the fully accelerated balance of the loan. In addition, the Second Notice of Default stated that if the Borens did not cure their "default within forty five (45) days ... [the loan servicer would] accelerate the maturity of date of the Note and declare all outstanding amounts under the Note immediately due and payable." On September 1, 2010, after the Borens failed to make further payments, U.S. Bank sent a Second Notice of Acceleration informing the Borens that the maturity date of the Note had been accelerated.

On November 24, 2012, after U.S. Bank's third Rule 736 application was dismissed, U.S. Bank sent the Borens another notice of default (the "Third Notice of Default"). Like the Second Notice of Default, the Third Notice of Default indicated the total amount necessary to bring the loan current was less than the full balance of the loan. The Third Notice of Default also stated that the Borens had one month to cure their default or face acceleration. On February 23, 2013, after the Borens failed to make additional payments, U.S. Bank served a Third Notice of Acceleration to the Borens informing them that "the maturity date of the Note [had been] accelerated."

On May 23, 2013, U.S. Bank filed a fourth Rule 736 application, prompting the Borens to file a petition yet again, contesting U.S. Bank's right to foreclose. This time, however, the Borens' petition sought a declaratory judgment that U.S. Bank's right to foreclose was barred by the four-year statute of limitations period provided under Texas Civil Practice and Remedies Code § 16.035. On July 24, 2013, U.S. Bank dismissed their pending Rule 736 application without prejudice and removed the Borens' petition to federal district court. On the same day, U.S. Bank filed an answer in response to the Borens' petition, interposing a counterclaim for judicial foreclosure.

After issue was joined, both parties filed motions for summary judgment. The district court referred the parties' motion to the magistrate judge assigned to the case, who recommended that summary judgment be granted for U.S. Bank. The district court adopted the magistrate judge's recommendation holding, U.S. Bank, "through its actions, abandoned its previous acceleration of the debt," and the statute of limitations, therefore, did not bar foreclosure. The district court then entered an order of judicial foreclosure entitling U.S. Bank to foreclose on the Borens' property. This appeal followed.

STANDARD OF REVIEW

We review a district court's grant of summary judgment de novo.

Young v. Equifax Credit Info. Servs., Inc., 294 F.3d 631, 635 (5th Cir.2002). Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED.R.CIV.P. 56(a). In reviewing summary judgment, we construe all facts and inferences in the light most favorable to the nonmoving party. Canal Ins. Co. v. Coleman, 625 F.3d 244, 247 (5th Cir.2010) (citing Murray v. Earle, 405 F.3d 278, 284 (5th Cir.2005) ).

DISCUSSION

Under Texas law, a secured lender "must bring suit for ... the foreclosure of a real property lien not later than four years after the day the cause of action accrues." TEX. CIV. PRAC. AND REM.CODE § 16.035(a). Whereas here, "a note or obligation [is] payable in installments [and] is secured by a real property lien, the four-year limitations period does not begin to run until the maturity date of the last note, obligation, or installment." EMC Mortg. Corp. v. Window Box Ass'n, Inc., 264 S.W.3d 331, 335 (Tex.Ct.App.2008). "If a note or deed of trust secured by real property contains an optional acceleration clause," however, the action accrues "when the holder actually exercises its option to accelerate." Holy Cross Church of God in Christ v. Wolf, 44 S.W.3d 562, 566 (Tex.2001). To exercise this option, the holder must send "both a notice of intent to accelerate and a notice of acceleration." EMC Mortg. Corp., 264 S.W.3d at 335–36. "Both notices must be ‘clear and unequivocal.’ " Id. (quoting Wolf, 44 S.W.3d at 566 ).

The acceleration of a note can be abandoned "by agreement or other action of the parties." Khan v. GBAK Props., 371 S.W.3d 347, 353 (Tex.Ct.App.2012). In addition, "a holder can abandon acceleration if the holder continues to accept payments without exacting any remedies available to it upon declared maturity." Wolf, 44 S.W.3d at 566–67. "Abandonment of acceleration has the effect of restoring the contract to its original condition," thereby "restoring the note's original maturity date" for purposes of accrual. Khan, 371 S.W.3d at 353 (citations omitted).

U.S. Bank initially triggered § 16.035(a)'s four-year statute of limitations when it provided the Borens with notice of its intent to accelerate and then notice of its acceleration in May 2009. It did not file a counterclaim for judicial foreclosure until more than four years later. As a result, if the applicable accrual date for the statute of limitations period is the date that U.S. Bank sent its First Notice of Acceleration, the bank's judicial foreclosure claim is time barred.

U.S. Bank argues, however, that it abandoned its initial acceleration of the Note when it sent the Second Notice of Default in May 2010. The Second Notice of Default stated that the Borens could bring their loan current by submitting the amount of their past due monthly payments—rather than the full balance of the loan—and provided that the bank would accelerate the loan if the Borens failed to cure this arrearage within forty-five days. According to U.S. Bank, by sending this notice, it restored the Note to its original terms and the statute of limitations did not begin to run again until it sent a subsequent notice of acceleration following the Borens' failure to submit any payments.

"Where, as here, the proper resolution of the case turns on the interpretation of Texas law, we are bound to apply Texas law as interpreted by the state's...

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