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Fifth Circuit Overturns Foreclosure Judgment: Texas Law on Acceleration Reviewed

Posted By USFN, Tuesday, June 19, 2018
Updated: Monday, June 18, 2018

June 19, 2018

by Dustin J. Dreher
Barrett Daffin Frappier Turner & Engel, LLP – USFN Member (Texas)

The U.S. Court of Appeals for the Fifth Circuit recently held that a borrower is entitled to both (1) notice of intent to accelerate, and (2) notice of acceleration following a rescission of only the acceleration of the loan. [Wilmington Trust v. Rob, Case No. 17-50115 (5th Cir. May 21, 2018).] The case is an important and cautionary one for servicers in the state of Texas.

In Rob, the borrowers defaulted on a Texas home equity loan. Although a prior servicer had sent multiple notices of default and intent to accelerate (as well as notices of acceleration) upon acquiring the loan, Wilmington Trust sent the borrowers a “NOTICE OF RESCISSION OF ACCELERATION” (Rescission). The Rescission stated that the lender ‘“hereby rescinds Acceleration of the debt and maturity of the Note’ and that the ‘Note and Security Instrument are now in effect in accordance with their original terms and conditions, as though no acceleration took place.’” It is important to note that nowhere in the court’s opinion does it state that the Rescission sought to rescind the separate notice of intent to accelerate.

Following the Rescission, Wilmington Trust sought to obtain a judgment for foreclosure by filing a foreclosure complaint, stating that Wilmington Trust “accelerates the maturity of the debt and provides notice of this acceleration through the service of this Amended Complaint.” The district court entered a judgment allowing the foreclosure of the home.

Appellate Analysis
On appeal, the Fifth Circuit reviewed the requirements for acceleration under Texas law. In Texas, effective acceleration requires two separate and unique acts, both of which must be clear and unequivocal: (1) notice of intent to accelerate; and (2) notice of acceleration. Typically, the notice of intent to accelerate is sent by the mortgage servicer. It is often referred to colloquially as either a demand or breach letter in order to comply with the terms of the deed of trust. Specifically, section 22 of the Texas Single-Family Fannie Mae/Freddie Mac Uniform Security Instrument states: “The notice shall specify: (a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to Borrower, by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice will result in acceleration of the sums secured by this Security Instrument and sale of the Property.”

The court concluded that the Rescission effectively rescinded not only the acceleration of the sums secured by the security instrument but also Wilmington Trust’s intent to accelerate the sums due. Since Wilmington Trust did not provide a clear and unequivocal notice of an intent to accelerate, the attempt to accelerate the loan in the foreclosure complaint was invalid, and Wilmington Trust was not entitled to a foreclosure judgment.

Rescissions of acceleration are sent by (or on behalf of) mortgage servicers for a number of reasons. The most common reason is to stop the limitations period from running without waiving the default. In fact, in 2015 the Texas legislature passed HB 2067 to authorize lenders, servicers, and their attorneys to unilaterally waive an acceleration notice by simply sending a notice of rescission by First Class or Certified U.S. Mail to each debtor’s last known address before the limitations period expires.

Closing Words

Prior to the Rob case, there was no indication that rescinding the acceleration would also rescind the separate intent to accelerate, absent specific language to that effect. Based on the present federal court case, however, should a rescission of acceleration be sent, the safest course for the servicer is to now ensure both (1) notice of intent to accelerate, and (2) notice of acceleration are made in order to effectuate a valid foreclosure. Stay tuned for more developments if an appeal of Rob is filed.

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