Abandonment of Acceleration Must Be Expressly Stated to Avoid a Statute of Limitation Bar
Arkansas courts have had few opportunities to address statute of limitations arguments as they pertain to enforcement of security instruments. However, as can happen, when the courts have the opportunity to opine on what are viewed as consumer issues, they seem to do so with what can be described as a plebian voice. The recent case of Ocwen Loan Servicing LLC, v. Oden, 2020 Ark. App. 384 case, is an example of this tenor.
The facts of the case are fairly simple aside from multiple servicing transfers. The Odens executed a mortgage and note December 1, 2007 and made their last payment to GMAC in November of 2010. The loan was accelerated, and a notice of acceleration was sent to the Odens on March 11, 2011. A Notice of Default was filed a non-judicial foreclosure sale was scheduled. Subsequently the loan was service transferred to the Plaintiff and the foreclosure sale was cancelled. In the interim, multiple delinquency notices were sent to the Odens which made demand for payment that was less than the total amount due. A second foreclosure Notice of Default was filed on July 27, 2016 and a sale was scheduled for October 12, 2016. The loan then service transferred to Kondaur, and ultimately service transferred back to the Plaintiff, and a non-judicial foreclosure was initiated in 2017
The Odens then filed a petition for declaratory judgment. They alleged, correctly, that the statute of limitations to enforce a promissory note in Arkansas is five years. Ocwen responded that the note remained enforceable because (1) the prior acceleration of the debt was abandoned as evidenced by subsequent attempts to collect less than the total balance ; (2) payment of taxes revived the debt; and (3) equity should prevent the borrowers from recovering a windfall as a result of their failure to pay the debt.
The Arkansas Court of Appeals first determined that there is no Arkansas law dictating that the acceleration of a debt is abandoned solely because the creditor attempts to collect less than the fully accelerated amount. It distinguished Acala v. Deutsche Bank National Trust Co. for Long Beach Mortgage Loan Trust 2006-5, 684 F. Appx. 436 (5th Cir. 2017), which held that a noteholder may unilaterally abandon acceleration by “requesting payment on less than the full amount of the loan.” The Arkansas court ruled that the multiple delinquency notices sent after the loan was accelerated in 2011 were not unequivocal. The Court then adopted the Texas standard and held that absent “evidence of abandonment or a contrary agreement between the parties, a clear and unequivocal notice of intent to accelerate and a notice of acceleration is enough to conclusively establish acceleration and therefore accrual,” citing Holy Cross Church of God in Christ v. Wolf, 44 S.W.3d 562, 563 (Tex. 2001). As a result, Arkansas has now adopted a standard that abandonment of acceleration must be clear and unequivocal; delinquency notices sent to the borrower for an amount less than the total does not meet this high standard.
Unfortunately, the strongest argument for tolling the statute of limitations for the payment of annual property taxes, was refused an audience by the court. Arkansas has long recognized that the statute of limitations is restarted with the payment of taxes or insurance on behalf of another. Lueken v. Burch, 214 Ark. 921, 925-26, 219 S.W.2d 235, 238 (1949) (When a mortgagee “discharged] an obligation imposed by the mortgage on the mortgagor such as payment of taxes or the premiums for insurance to protect the property, the mortgagee ha[s] the right to add the cost of such payments to the debt secured as part thereof, and the implied promise to repay would constitute a new point from which the statute of limitations would run.”); Polster v. Langley, 201 Ark. 396, 144 S.W.Zd 1063, 1065 (1940) (as between the contracting parties, payment of taxes interrupted the running of the statute of limitations).
The Court also declined to entertain equitable arguments made by Ocwen that the Odens used their default as a “sword to evade their obligations.” The court determined that it was precluded from hearing the issue as the lower court did not rule on the same, and failure to obtain a ruling from the lower court constituted a waiver of the issue on appeal.
Article featured in the Fall 2020 USFN Report.