Abandonment of Acceleration

Posted by NCBRC - August 16, 2017

A creditor may abandon acceleration of a Note either by explicit agreement or by actions consistent with abandonment. In re Williams, No. 16-33276 (Bankr. S.D. Tex. Aug. 3, 2017).

Chapter 13 debtor, Durwyn Williams, defaulted on his home equity loan from U.S. Bank Trust which was serviced by Caliber Home Loans. On June 28, 2010, Caliber accelerated the balance due on the Note, and commenced foreclosure proceedings against the property securing the Note. In August, 2014, with foreclosure proceedings still ongoing, Caliber sent Mr. Williams a notice reiterating that his property was in foreclosure and that there was an outstanding balance of approximately $250,000.00. When Mr. Williams filed chapter 13 bankruptcy in June, 2016, Caliber filed a proof of claim for over $500,000.00. Mr. Williams objected to the proof of claim as precluded by the four-year statute of limitations triggered when Caliber invoked the Note’s acceleration clause.

Under Fifth Circuit precedent, Boren v. U.S. Nat. Bank Ass’n, 807 F.3d 99, 104 (5th Cir. 2015), abandonment of acceleration may result from agreement “or other action” of the parties. Courts have found that “other action” by the creditor may include continued acceptance of payments or assurances of future payments on the Note, issuance of a new intent-to-accelerate notice, or institution of new foreclosure proceedings. In this case, Caliber argued that it abandoned the acceleration when it sent Mr. Williams the August, 2014, statement reflecting an amount lower than the accelerated balance. In support of this position, Caliber cited Leonard v. Ocwen Loan Servicing, L.L.C., 616 Fed. Appx. 677 (5th Cir. 2015) and Boren, 807 F.3d at 99, in which correspondence from the creditor to the debtor, while not using the word “abandon,” explicitly indicated that payment of less than the accelerated balance would stave off foreclosure.

The court was not persuaded. In this case, all correspondence from Caliber to Mr. Williams reconfirmed the existence of the acceleration by reminding him that his property was currently in foreclosure and that he should not remit the balance of the loan. Even if that were not the case, however, the statement Caliber points to as indicating a balance less than the accelerated amount, was issued after the four-year statute of limitations had already run.

The court also rejected Caliber’s argument that it abandoned acceleration when it made advances for ad valorum taxes and insurance on the property. Citing Bank of New York Mellon v. Maniscalo, 2016 WL 3584423 *3 (E.D. Tex. March 3, 2016), the court found that a lender does not abandon acceleration merely by taking action to protect its lien.

There was, thus, no abandonment of acceleration, Caliber failed to foreclose within four years, and the lien on Mr. Williams’ property was void. The court sustained that portion of Mr. Williams’ objection to the proof of claim.

Turning to Caliber’s demand for the ad valorum taxes and insurance, the court found that the parties’ lending agreement provided for such payments to be made upon default by the debtor and for the amounts to be added to the indebtedness secured by the property. The limitations period that precluded Caliber’s claim for the balance of the Note, did not likewise preclude the separate claim for the indebtedness based on payment of the taxes and insurance. The court placed an equitable lien in favor of Caliber for $65,448.09, representing amounts expended over four years to protect its interest.

Williams Bankr SD Tex opinion Aug 2017

 

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