The debtor and the debtor’s husband took out a loan from the mortgage company. The mortgage company assigned the loan to a trust over which the bank was the trustee. In 2010, the bank sent the debtor a notice of acceleration. The debtor subsequently filed for Chapter 13 bankruptcy. The bankruptcy was converted to Chapter 11, and the debtor confirmed a plan to continue paying the loan and make a lump sum payment. The debtor failed to make payments, and in 2014, the bank filed another notice of acceleration. That year, the debtor again filed for bankruptcy, but the court dismissed the second bankruptcy case. In 2018, the debtor filed another Chapter 11 bankruptcy. Following a series of meetings and hearings, the debtor filed an objection to the bank’s claim on the debtor’s house, making four claims: “(1) the notices of acceleration were deficient, (2) the bank never abandoned its 2014 Acceleration, (3) the [d]ebtor’s two prior bankruptcy cases did not function to toll the statute of limitations, and (4) the [d]ebtor did not ratify the mortgage to extend the four year limitations period.” The debtor argued in the alternative that the court “consider an installment contract theory whereby [the bank] would be barred from collecting on any missed payment overdue for longer than four years.” The bank responded with a motion for summary judgment, arguing that the statute of limitations had not expired on the 2014 acceleration and that even if it had, the bank “effectively abandoned the 2014 acceleration.”
In In re Wenstrom, 649 B.R. 492 (Bankr. N.D. Tex. 2023), the court granted the bank’s motion for summary judgment. First, the court noted that the bank had a valid note and could enforce it. Second, the court discussed whether the statute of limitations would bar the bank’s claim. “Under Texas law, a secured lender has four (4) years to foreclose on real property from the day the lender’s cause of action to foreclose accrues.” Tex. Civ. Prac. & Rem. Code Section 16.035(a)-(b). The statute may be tolled through abandoning acceleration or equitable tolling. While the debtor raised both arguments, the court decided the matter solely on equitable tolling. Under equitable tolling doctrine, the statute of limitations does not run while a person is barred from taking legal action on a cause of action. Here, the bank was barred from foreclosing on the debtor’s house during the debtor’s 2014 and 2018 bankruptcy cases. The debtor argued that the bank could have taken action by directing its actions towards the debtor’s husband, who was not protected by the automatic stay of the debtor’s bankruptcy cases. However, while the automatic stay did not protect the debtor’s husband, the bankruptcy estate, including the debtor’s house, was protected by the automatic stay. The automatic stay protected the bankruptcy estate, not just the debtor’s interest in the house, and thus, the statute of limitations was tolled during the debtor’s bankruptcy cases. From the 2014 acceleration, when the statute of limitations began to run, through the present case, 2,587 days had passed. The automatic stay from the bankruptcy proceedings protected the bankruptcy estate for 1,264 of those days, leaving 1,323 days in which the bank could have foreclosed on the property, slightly under 100 days before enough days passed to meet the four-year statute of limitations. Because of the equitable tolling during the debtor’s bankruptcy proceedings, the statute of limitations had not run, and the bank could proceed with its suit.
By Gregory Ferrer: [email protected]
Edited By Ashley Boyce: [email protected]
Edited By Hayden Mariott: [email protected]