In a foreclosure suit, a federal district court in Texas recently held that the bank’s acceleration had not been abandoned, and therefore, the bank’s attempt to enforce its mortgage lien more than four years after acceleration was barred by limitations. Murphy v. HSBC Bank USA, No. H-12-3278, 2014 U.S. Dist. LEXIS 57612 (S.D. Tex. Apr. 23, 2014) (opinion available here).

In June 2008, HSBC filed a state court suit seeking to foreclose on the plaintiff’s real property encumbered by its mortgage lien. The plaintiffs then filed suit in another Texas state court challenging HSBC’s right to foreclose on their property. Pursuant to Texas Rule of Civil Procedure 736.10 in effect at that time, the trial court abated and then dismissed HSBC’s foreclosure action.

After successfully defending the claims asserted in the plaintiffs’ lawsuit, HSBC sent the plaintiffs a new notice of acceleration of their mortgage debt, and then in August 2012 filed a new application for non-judicial foreclosure in Texas state court. Refusing to accept defeat, the plaintiffs responded by filing their own new suit claiming that the note and deed of trust were now unenforceable based on the statute of limitations. After these two cases were consolidated, they were successfully removed to federal court.

In Texas, a sale of real property pursuant to a mortgage or deed of trust “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 real property lien become void.” Tex. Civ. Prac. & Rem. Code § 16.035(b), (d). An action to enforce a real property lien will accrue when a note holder exercises its option to accelerate payment of the mortgage. See Holy Cross Church of God in Christ v. Wolf, 44 S.W.3d 562, 566 (Tex. 2001).

Acceleration—and in turn accrual—can be abandoned, however, by agreement or other action of the parties. The plaintiffs argued that limitations barred HSBC’s second foreclosure action because it was not filed within four years of its acceleration in June 2008. HSBC contended that its second foreclosure suit was not barred because it abandoned the acceleration when it agreed to the dismissal of its first foreclosure suit, and therefore, its action to enforce its lien did not accrue until it sent the second acceleration notice in 2012.

The court concluded that under Texas law a creditor cannot unilaterally abandon its acceleration and instead required joint agreement among the parties. HSBC contended that such joint agreement was satisfied because the plaintiffs signed the dismissal order in its first foreclosure suit as “approved as to form and substance.” The court noted that there was a split of authority in Texas as to the effect of this language, but ultimately concluded that signing the order in this manner did not make it an agreed, non-appealable judgment, particularly where the record showed that the plaintiffs had objected to its entry. Therefore, the court found no agreement to abandon the acceleration, and with no agreement to abandon, HSBC’s original accrual date remained intact, making its second foreclosure suit untimely. The court rendered a final judgment dismissing the action and declaring HSBC’s lien void.

Mortgage holders should assume that any acceleration has not been abandoned unless the abandonment is expressly agreed to by both parties to the loan and must take any necessary action to enforce its lien within four years of acceleration.