Lee A. Hardy and Polly Hardy v. Wells Fargo Bank, N.A.

Opinion issued December 30, 2014.

In The

Court of Appeals

For The

First District of Texas

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NO. 01-12-00945-CV

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LEE A. HARDY AND POLLY HARDY, Appellants

V.

WELLS FARGO BANK, N.A., Appellee

On Appeal from the 157th District Court

Harris County, Texas

Trial Court Case No. 2011-07737

MEMORANDUM OPINION

Lee A. and Polly Hardy appeal the take-nothing summary judgment on their

wrongful foreclosure claim against Wells Fargo Bank, N.A. In five issues, the

Hardys contend that the trial court erred in granting summary judgment in Wells

Fargo’s favor on their wrongful foreclosure claim because (1) Wells Fargo’s 2010

foreclosure action was barred by the statute of limitations; (2) there is no evidence

that the substitute trustee who conducted the foreclosure was properly appointed;

(3) one lender was the owner or holder of the promissory note and the deed of trust

had been assigned to another lender; (4) there is no evidence that the Hardys were

provided with the required notice of default prior to the foreclosure sale; and (5)

Wells Fargo misapplied the Hardys’ payments on the promissory note.

We reverse and remand for further proceedings.

Background

In July 1978, the Whitneys purchased a home in Humble, Texas, and

executed a promissory note and a deed of trust in favor of Valley Mortgage

Company, Inc. The Note’s original principal sum was $45,800 and the last

payment was due August 1, 2008—the Note’s maturity date.

The Hardys bought the home from the Whitneys in July 1986, and assumed

the balance owed on the Note which, along with the Deed of Trust, was

subsequently assigned to Washington Mutual Bank (WaMu) and, later, to Wells

Fargo.1 The Note includes an optional acceleration clause: “If any deficiency in the

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Wells Fargo contends that U.S. Bank National Association was the owner and

holder of the Note and that Wells Fargo serviced the mortgage for U.S. Bank. The

only evidence of this is an affidavit submitted by Wells Fargo during summary

judgment proceedings. This statement, however, appears to conflict with the

March 2, 2010 Substitute Trustees Deed conveying the Property from Wells

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payment of any installment under this note is not made good prior to the due date

of the next such installment, at the option of the holder, this note shall become

immediately due and payable without notice and the lien given to secure its

payment may be foreclosed.” The Deed of Trust has a similar provision.

As reflected by the summary judgment evidence, the Hardys began to fall

behind on their mortgage payments in 2004 and defaulted under the terms of the

Note and Deed of Trust.2 A July 12, 2005 notice of substitute trustee’s sale and

internal WaMu records indicate that WaMu, the then-current mortgagee and

mortgage servicer, attempted to exercise its option to accelerate the Note on July

11, 2005, and the Property was scheduled to be sold at auction on August 2, 2005.

The sale, however, did not proceed as scheduled. Instead, payments on past due

installments were periodically made between August 16, 2005 and July/September

20063 (and accepted by WaMu).

Wells Fargo was assigned the Note and Deed of Trust in December 2006,

and entered into a Stipulated Partial Reinstatement/Repayment Agreement (PRRA)

with the Hardys on April 2, 2007 (2007 PRRA), the terms of which included the

Fargo—which is identified as both the current mortgagee and mortgage servicer—

to David Brown.

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According to mortgage records provided by the Hardys, the September 2004

payment was made in June 2005.

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There is a gap in the mortgage records from September 26, 2006 through March 9,

2007.

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Hardys’ acknowledgement that they were one year behind on their mortgage and

their agreement to pay the balance due (April 2006 through August 2008), plus

interest, late charges, property preservation fees, and estimated attorney’s fees and

costs, in fifteen installments beginning on May 2, 2007. The 2007 PRRA further

recites:

The receipt of such payments referred to in paragraph two (2) of this

agreement does not construe a waiver of our rights or remedies

contained in the Note and/or Mortgage; and acceptance of any

payments made by you will not be deemed to affect the acceleration

of the Note and/or Mortgage in the event of default under the terms of

this agreement and the remainder of the accelerated loan balance shall

remain due and owing.

We will hold legal action only upon receipt of agreed funds, signed

agreement, and proof of income. Fees and costs will be paid first,

with the remainder toward accrued payments.

The summary judgment evidence reflects that the Hardys only made the first three

payments pursuant to the 2007 PRRA (May, June and July 2007).

On May 2, 2008, another Stipulated Partial Reinstatement/Repayment

Agreement (2008 PRRA) was executed in which the Hardys acknowledged they

were sixteen months behind on their payments and agreed to pay the balance

(February 2007 through August 2008), plus interest, late charges, property

preservation fees, and estimated attorney’s fees and costs, in four installments

beginning on May 12, 2008. Like the 2007 PRRA, the 2008 PRRA states that

“acceptance of any payments made by [the Hardys] will not be deemed to affect

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the acceleration of the Note and/or Mortgage in the event of default under the

terms of this agreement and the remainder of the accelerated loan balance shall

remain due and owing.” The record reflects the Hardys’ first three payments

required under the 2008 PRRA, but not the final payment of $14,250.18 due on

August 1, 2008—the Note’s original maturity date.

On January 22, 2010, Wells Fargo issued a default notice advising that

payment of the past due balance had not been received, the Note was in default,

the Hardys had the right to pay the past due balance, and Wells Fargo was

initiating foreclosure proceedings. Attached to this notice of default was a copy of

the Notice of Substitute Trustee Sale, executed on February 1, 2010, that recited

the foreclosure sale’s auction date as March 2, 2010. The Hardys acknowledged

their awareness of the March 2, 2010 sale date, and inability to raise funds

sufficient to satisfy the total secured debt.

At the foreclosure sale, the Property was sold to David Brown and a

Substitute Trustee’s Deed was executed reflecting the sale. Brown subsequently

conveyed the Property to RESCONN Investments, LLC, which evicted the Hardys

in May 2011.

The Hardys sued Wells Fargo, Brown, and RESCONN. In their Third

Amended Complaint, the Hardys claims against Wells Fargo alleged (1) wrongful

foreclosure; (2) fraud; (3) violations of the Deceptive Trade Practices Act; (4)

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breach of contract; (5) breach of an implied covenant of good faith and fair

dealing; and (6) mental anguish. Wells Fargo’s traditional summary judgment

motion was granted and the court ordered that the Hardys take nothing on their

claims against Wells Fargo.4 The Hardys, who appeal only the grant of summary

judgment with respect to their wrongful foreclosure claim, do not contest the

take-nothing judgment rendered on their fraud, DTPA, breach of contract, breach

of implied covenant of good faith and fair dealing, and mental anguish claims.

Statute of Limitations

The Hardys maintain that the summary judgment on their wrongful

foreclosure claim was error because any foreclosure action was barred by the

statute of limitations.

A. Standard of Review

Our review of a trial court’s summary judgment is de novo. Valence

Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). To prevail, the

summary judgment movant must show that no genuine issue of material fact exists

and that the trial court should grant a judgment as a matter of law. TEX. R. CIV. P.

166a(c); KPMG Peat Marwick v. Harrison Cnty. Hous. Fin. Corp., 988 S.W.2d

746, 748 (Tex. 1999). We examine the entire record and do so in the light most

favorable to the nonmovant, taking as true all evidence favoring the nonmovant if

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Brown and RESCONN also filed separate motions for summary judgment, which

the trial court granted. Neither Brown nor RESCONN are parties to this appeal.

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reasonable jurors could, and indulging every reasonable inference and resolving

any doubts against the motion. See City of Keller v. Wilson, 168 S.W.3d 802, 824

(Tex. 2005); Dorsett, 164 S.W.3d at 661.

B. Applicable Law

Proof of a wrongful foreclosure claim demands demonstration of a defect in

the foreclosure sale proceedings and a causal connection between the defect and a

grossly inadequate selling price. See Sauceda v. GMAC Mortg. Corp., 268 S.W.3d

135, 139 (Tex. App.—Corpus Christi 2008, no pet.) (citing Charter Nat’l

Bank-Houston v. Stevens, 781 S.W.2d 368, 371 (Tex. App.—Houston [14th Dist.]

1989, writ denied)). A defect in foreclosure proceedings may occur when there is

no default or when the sale is otherwise void. See Slaughter v. Qualls, 162 S.W.2d

671, 675 (Tex. 1942) (deciding that foreclosure sale was void because, inter alia,

note was not in default at time of sale); Lavigne v. Holder, 186 S.W.3d 625, 627–

28 (Tex. App.—Fort Worth 2006, no pet.) (reversing summary judgment in favor

of creditor because, in absence of default, creditor could not accelerate debt or

foreclose against property). A defect may also occur when the statutory foreclosure

procedures are not followed. See Houston First Am. Sav. v. Musick, 650 S.W.2d

764, 768 (Tex. 1983).

“A sale of real property under a power of sale in a mortgage or deed of trust

that creates a real property lien must be made not later than four years after the day

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the cause of action accrues.” TEX. CIV. PRAC. & REM. CODE ANN. § 16.035(b)

(West 2002). “If a series of notes or obligations or a note or obligation payable in

installments is secured by a real property lien, the four-year limitations period does

not begin to run until the maturity date of the last note, obligation, or installment.”

Id. § 16.035(e). “When this four-year period expires, the real-property lien and the

power of sale to enforce the lien become void.” Holy Cross Church of God in

Christ v. Wolf, 44 S.W.3d 562, 567 (Tex. 2001). However, if the note or deed of

trust contains an optional acceleration clause, the cause of action accrues (and the

statute of limitations begins to run) when the holder “actually exercises” its option

to accelerate. Id. at 566; Khan v. GBAK Props., Inc., 371 S.W.3d 347, 353 (Tex.

App.—Houston [1st Dist.] 2012, no pet.). The note holder, however, may only

“accelerate” the maturity date of the note if its last installment is not yet due. See

CA Partners v. Spears, 274 S.W.3d 51, 65 (Tex. App.—Houston [14th Dist.] 2008,

pet. denied). Accordingly, once the maturity date of the last installment has passed,

the holder’s cause of action accrues—and limitations begin to run—on the maturity

date of the final installment. Id.

A noteholder who effectively exercises its option to accelerate may

nevertheless “abandon acceleration if the holder continues to accept payments

without exacting any remedies available to it upon declared maturity.” Khan, 371

S.W.3d at 353 (quoting Holy Cross, 44 S.W.3d at 566). Acceleration can be

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abandoned by agreement or other action of the parties. Holy Cross, 44 S.W.3d at

567 (citing San Antonio Real–Estate, Bldg. & Loan Ass’n v. Stewart, 94 Tex. 441,

61 S.W. 386, 388 (1901)); Khan, 371 S.W.3d at 353. Abandonment of acceleration

has the effect of restoring the contract to its original condition, including restoring

the note’s original maturity date. See Holy Cross, 44 S.W.3d at 567; Khan, 371

S.W.3d at 353.

C. Was the Note Accelerated Before the August 1, 2008 Maturity Date?

The Note includes an optional acceleration clause, which means that the

cause of action accrues (and limitations commences) when the holder “actually

exercises” its option to accelerate. Holy Cross, 44 S.W.3d at 566. If there is no

acceleration (or the acceleration is abandoned), the holder’s cause of action for

foreclosure accrues—and limitations commences—on the maturity date of the final

installment. Spears, 274 S.W.3d at 65.

The Hardys maintain, and the summary judgment evidence supports, that

WaMu, Wells Fargo’s predecessor in interest, mortgagee, and mortgage servicer at

the time, exercised its option to accelerate the Note in July 2005. Wells Fargo does

not dispute this.

D. Does Passage of the Note’s Maturity Date Void any Prior Acceleration

of Note for Purposes of Statute of Limitations?

Citing to Spears, Wells Fargo contends that because the Note matured on

August 1, 2008, any prior acceleration was void and, the statute of limitations

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having commenced on the date of maturity, the foreclosure fell within the

limitations period and the grant of summary judgment on this basis was not error.

274 S.W.3d at 65. Spears, however, does not support the proposition that passage

of the maturity date voids any prior acceleration of a note. Rather, Spears states

that if a note contains an optional acceleration clause, the action accrues when the

holder actually exercises its option to accelerate. Id. (citing Holy Cross, 44 S.W.3d

at 566). If, however, the maturity date of the last installment has passed, the holder

may no longer “accelerate” the note, and the holder’s cause of action accrues—and

limitations begins to run—on the maturity date of the final installment. Spears,

274 S.W.3d at 65.

E. Was Acceleration Abandoned?

Wells Fargo argues that it proved as a matter of law that it abandoned the

acceleration by acceptance of the Hardys’ mortgage payments pursuant to the 2007

PRRR and 2008 PRRR. According to Wells Fargo, acceptance of these payments

reinstated the loan, and, therefore, Wells Fargo’s option to foreclose on the

Property did not expire until four years after the date the last payment was due on

the Note: four years after the Note’s August 2008 maturity date. Wells Fargo

further contends that the 2007 PRRA and the 2008 PRRA expressly state “that

Wells Fargo did not waive any of its rights in conjunction with acceleration,

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reinstatement, or continuing with foreclosure if [the Hardys] could not cure the

default” and, therefore, it was entitled to foreclose on the Property in 2010.

The Hardys respond that (1) the 2007 PRRA and the 2008 PRRA are

ineffective to abandon acceleration and reinstate the loan to its original terms, (2)

both agreements merely indicate Wells Fargo’s agreement to forbear from

exercising its right to foreclosure at that time, and (3) both agreements expressly

state that acceptance of payments does not affect the acceleration of the Note in the

event of default, and thus, the acceptance of partial payments made pursuant to

these agreements cannot abandon acceleration.

Citing to 15 W. Mike Baggett, Texas Practice Series, Texas Foreclosure:

Law and Practice, § 1.20 (2001), the Hardys argue that abandonment requires a

written agreement between the parties that unambiguously states that the

acceleration of the note is canceled and the Note is reinstated to be paid in

installments pursuant to the original terms. The Hardys contend that neither the

2007 PRRA nor the 2008 PRRA meet this standard, and therefore, both

agreements are ineffective to abandon acceleration and reinstate the loan to its

original terms. Texas law, however, is clear that acceleration may be abandoned by

the conduct of the parties alone—no written agreement is required. See Holy

Cross, 44 S.W.3d at 567 (citing San Antonio Real–Estate, 61 S.W. at 388); see

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also Khan, 371 S.W.3d at 355–56 (rejecting argument that abandonment of

acceleration and reinstatement of original terms requires written agreement).

Citing to Marques v. Wells Fargo Home Mortgages, Inc., 2011 WL

2005837, *3–4 (E.D. Cal. 2011) the Hardys also contend that instead of

abandoning acceleration and reinstating the Note, the 2007 PRRA and the 2008

PRRA merely indicates Wells Fargo’s agreement to forbear from exercising its

rights to foreclose on the accelerated Note at that time and that forbearance is not

the same as reinstatement. Marques, however, treated the question of whether the

agreement modified the terms of the Note and did not speak to the issue of whether

the note holder abandoned acceleration.

The Hardys also argue, contrary to Wells Fargo’s position, that their

remittance of partial payments pursuant to the 2007 PRRA and 2008 PRRA (and

Wells Fargo’s acceptance of such payments) is not conclusive evidence that

acceleration had been abandoned and the Note reinstated, citing to Thompson v.

Chrysler First Business Credit Corporation, 840 S.W.2d 25, 30 (Tex. App.—

Dallas 1992, no writ). Thompson, however, does not support this general

proposition. On the contrary, Thompson stands for the proposition that when a

federal bankruptcy court issues an order of adequate protection pursuant to which

the parties enter into a repayment agreement, and the lender accepts payments

made pursuant thereto, such payments do not establish that the lender abandoned

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the acceleration of the Note for purposes of summary judgment. Thompson, 840

S.W.2d at 30–31G; see also Khan, 371 S.W.3d at 354 (discussing Thompson).

Here, there is no “adequate protection” agreement and the 2007 and 2008 PRRAs

are not comparable to such an agreement. Accordingly, Thompson is

distinguishable.

Although the Hardys’ reliance upon Thompson and other legal authorities is

misplaced, they, nevertheless, correctly note that both PRRAs expressly provide

that, in the event of default on the agreement, the acceptance of payments does not

affect the acceleration of the Note:

The receipt of such payments referred to in paragraph two (2) of this

agreement does not construe a waiver of our rights or remedies

contained in the Note and/or Mortgage; and acceptance of any

payments made by you will not be deemed to affect the acceleration

of the Note and/or Mortgage in the event of default under the terms of

this agreement and the remainder of the accelerated loan balance shall

remain due and owing.

The evidence is clear that the Hardys made only the first three of fifteen

installment payments required by the 2007 PRRA and the first three of four

installment payments required by the 2008 PRRA. As such, the Hardys failed to

comply with both agreements. Because the Hardys defaulted under both PRRAs,

Wells Fargo’s acceptance of payments under either agreement did not abandon

acceleration. Thus, Wells Fargo did not meet its burden of proving that it was

entitled to summary judgment as a matter of law. Accordingly, the trial court erred

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in granting summary judgment in Wells Fargo’s favor on the Hardys’ wrongful

foreclosure claim because a fact issue existed as to whether foreclosure was barred

by the statute of limitations.

We sustain the Hardys’ first issue. In light of our resolution of this issue, we

need not address the remaining arguments raised on appeal.

Conclusion

We reverse the trial court’s judgment with respect to the Hardys’ wrongful

foreclosure claim against Wells Fargo and remand for further proceedings.

Jim Sharp

Justice

Panel consists of Justices Jennings, Sharp, and Brown.

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