The debtor commenced a Chapter 13 case and claimed a homestead exemption in real property encumbered by a second-lien deed of trust. In 2003, the debtor executed and the creditor recorded the deed of trust securing a $19,700 obligation with a fifteen-year term and a 2018 maturity date. The debtor made only two payments and did not satisfy the obligation. Although the deed of trust contained an acceleration clause, the creditor never accelerated the note and did not initiate a default action either before or after maturity of the loan. The debtor filed for bankruptcy in 2024, and the creditor filed a proof of claim asserting a secured claim based on the deed of trust. The debtor objected to the claim and then initiated an adversary proceeding under Bankruptcy Rule 7001(b) seeking a determination of the validity, priority, and extent of the purported lien, arguing the claim and lien were time-barred under Texas’s real property lien statute of limitations.
In Johnson v. Ubak-Offiong (In re Johnson), Case No. 24-33992, Adv. No. 25-3069, 2025 WL 2698595, 2025 Bankr. LEXIS 2368 (Bankr. S.D. Tex. Sept. 21, 2025) (opinion not yet released for publication), the bankruptcy court held the creditor’s lien had been extinguished under Texas law and was therefore void in the bankruptcy case. Applying 11 U.S.C. § 502(b)(1), the court held that once a party objects to a claim, a claim must be disallowed to the extent it is unenforceable against the debtor or the debtor’s property under applicable nonbankruptcy law. The court then relied on Tex. Civ. Prac. & Rem. § 16.035(a), which requires a party to sue to foreclose a real property lien within four years after the cause of action accrues, and § 16.035(d), which mandates that upon expiration of the four-year period, the real property lien and power of sale become void. The court identified the accrual triggers recognized by Texas law for this setting: either at acceleration or, if the lender does not accelerate, at maturity. The record showed no acceleration, and the court held that the limitations period began running on the 2018 maturity date and expired four years later. Once that period expired, the lien became unenforceable and was extinguished “regardless of the existence and amount of any debt” allegedly secured by the deed of trust. The court concluded its prior orders disallowing the creditor’s claim had been appropriate and held that under § 506(d), because the creditor did not hold an allowed secured claim, any lien securing the disallowed claim was void. The court also treated the creditor’s challenge to the debtor’s homestead exemption as moot because the lien had been extinguished regardless of exemption status, and stated the debtor should seek and record a release to provide notice to third parties, even though the court’s holding did not attempt to impose a new state law release obligation.
By Landon Womack [email protected]
Edited By Conor Doris [email protected]
Edited By Hayden Mariott [email protected]