Texas recently passed a statutory rescission law that provides clarity for lenders to unilaterally rescind acceleration of a defaulted loan. The new law is not the only method for rescinding acceleration and the common law principles of abandonment still remain. H.B. 2067, the new statutory rescission provision, is codified at Texas Civil Practice and Remedies Code 16.038 and it applies to all promissory notes accelerated before, on, or after June 17, 2015, as well as all notices of rescission served before, on, or after June 17, 2015. Before your eyes glaze over, this new law helps lienholders and loan servicers especially in light of increasing challenges that their liens are unenforceable due to the statute of limitations running. It also provides a less expensive alternative to litigating as to whether common law abandonment of acceleration has occurred.
Prior to the enactment of H.B. 2067, if a note or deed of trust contained an acceleration clause, default did not by itself start limitations running on the note. Rather the cause of action accrued when the holder of the note actually exercised its option to accelerate the note. Absent evidence of abandonment (or an agreement between the parties), a clear and unequivocal notice of intent to accelerate and notice of acceleration was enough to conclusively establish acceleration. See Holy Cross Church v. Wolf, 44 S.W.3d 562, 566 (Tex. 2001). A note holder could be deemed to abandon acceleration if it continued to accept payments from a borrower without using any of the remedies available to it once the note was declared to have matured. See Khan v. GBAK Props., Inc., 371 S.W.3d 347, 353 (Tex. App.-Houston [1st Dist.] 2012, no pet.); Rivera v. Bank of America, et al.; Summary Calendar No. 14-40837 (5th Cir. 2015) (unpublished opinion).
Section 16.038 of the Texas Practice and Remedies Code now allows unilateral rescission or waiver of acceleration by a simple written notice. Written notice is effective if mailed by the lienholder, the servicer of the debt or the attorney representing the lien holder on each debtor. The statute does require that an attorney for the servicer can send out the notice, but only if that attorney also acts as counsel for the mortgagee. The notice must be made via first-class or certified mail to the debtor’s last known address, and is complete when mailed. An affidavit that service was complete is prima facie evidence of service and proof of receipt is not required for the rescission or waiver to be effective. While the new statutory provision offers great benefits, it does not allow rescission after the four-year limitations period has already run.
Lienholders and loan servicers have a new tool for their toolbox. It will not cure all the challenges but should greatly assist lienholders and servicers and reduce the amount of litigation over the abandonment issue. The opinions in this blog are solely the author’s and any comments or suggestions should be sent to john@jrjoneslaw.com.