Fifth Circuit clarifies four-year statute of limitation rule for home equity loans

By Charmaine Little | Apr 12, 2017

NEW ORLEANS (Legal Newsline) – A four-year statute of limitations was the key factor in a ruling by the U.S. Court of Appeals for the Fifth Circuit in an appeal concerning a home equity loan.

The court’s opinion summarized that the lender, Owen Loan Servicing LLC, which acquired the 2007 loan from Overland Mortgage LP, sued the borrower, Robert Berry, and wanted permission to foreclose on the home. The borrower filed an appeal with allegations that the lender violated the Texas Constitution’s home equity loan regulations during the closing phase. 

Initially, the district court said that the claims were not valid because of a four-year statute of limitations rule. The Fifth Circuit found that to be in an error.

The disagreement for the loan came in 2010 after Berry missed payments and was sent a notice of default and intent to accelerate. A notice of acceleration was later delivered to Berry three years after, in 2013. Ocwen took legal action in 2014. 

Berry filed his response in November 2014, alleging violations of the Texas Constitution. Ocwen in May 2015 argued that Berry’s claims about constitutional violations were “barred by the statute of limitations” because his claim was filed more than four years after the closing of the loan. Both parties moved for a summary judgment in August 2015, and the U.S. District Court for the Northern District of Texas ruled in Ocwen’s favor.

Berry argued that Fith Circuit precedent would normally apply a four-year statute of limitations to his constitutional arguments had he filed the lawsuit, his arguments were raised as affirmative defenses and as a counterclaim.

Berry was under the assumption that he filed within the legal timeframe. Still, the lower court rejected this argument because Berry did not use the Prac. & Rem. Code 16.069 regulation in his counterclaim, even though he relied on it to prove his case. Berry filed an appeal.

That's when the Fifth Circuit applied the case of Wood v. HSBC Bank USA, NA. The conclusion of that case was that, “no statute of limitations applied to a borrower’s quiet title action alleging that lien securing a home equity loan was invalid because of violations of the Texas Constitution.”

Berry specifically used this case in hopes of proving that the statute of limitations was not tolled. Ocwen argued that that case was not only irrelevant, but should not be taken into consideration because Berry didn’t use it in his opening brief.

The Fifth Circuit decided it could not bar Berry from using Wood during his case just because he didn’t mention it in his opening brief. It chose to stick with the ruling in Wood that said, “the Texas Supreme Court held that constitutionally noncompliant home equity loans are invalid… and that no statute of limitations applied to a quiet title action alleging such violations.”

The Fifth Circuit concluded that the lower court “erred” when it originally said that Barry could not use a violation of the Texas Constitution is section 50(a)(6) as a factor in waiving the statute of limitations rule.

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U.S. Court of Appeals for the 5th Circuit U.S. District Court for the Northern District of Texas

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