Fifth Circuit applies Texas common law to hold that time to foreclose is stayed during mortgagor’s bankruptcy

In HSBC Bank USA, N.A., as Trustee for Merrill Lynch Mortgage Loan v. Crum, No. 17-11206 (5th Cir. Oct. 17, 2018) the Fifth Circuit affirmed a district court’s entry of summary judgment in favor of a foreclosing mortgagee that the suit was timely brought, holding that the statute of limitations was tolled each day the mortgagee was prevented by the automatic bankruptcy stay from foreclosing, including the day the stay was implemented and the day the stay was lifted.

Texas law requires a foreclosure suit to be brought within four years after the cause of action accrues. A cause of action accrues on the maturity date of the note, or if applicable, when the holder exercises its option to accelerate. In this case, the holder accelerated the note on June 10, 2009. Unless the limitations period was tolled, the statute of limitations would have expired on June 10, 2013. To reset the limitations period, the holder would have had to abandon the acceleration prior to that date. However, the holder abandoned the acceleration on October 15, 2013 – 127 days after the limitations period would have expired. Thereafter, the mortgagee sent another notice of acceleration, filed a foreclosure suit, and was granted summary judgment. The mortgagor appealed, contending that the mortgagee’s lawsuit was untimely because the statute of limitations had expired on June 10, 2013.

On appeal, the mortgagor conceded that the bankruptcy tolled the statute of limitations, but argued it did so for only 126 days, making the foreclosure suit untimely – by one day. Although the parties agreed that the Texas common law tolling principle may be incorporated through 11 U.S.C. § 108(c) to provide for tolling during the bankruptcy stay, they disagreed about how to calculate this tolling period.

The mortgagor insisted that one of several rules be applied to calculate the tolling period, each of which results in a 126-day tolling period. First, the mortgagor cites Bankruptcy Procedure Rule 9006(a)(1) which reads, “[w]hen the period is stated in days or a longer unit of time[,] … exclude the day of the event that triggers the period; … and … include the last day of the period[.]” This method applies when “computing any time period specified in these rules, in any local rule or court order, or in any statute that does not specify a method of computing time.” But these rules are not themselves tolling provisions; rather, they are methods for computing periods of time. The mortgagor next cites the Texas Code Construction Act, also a method of computing time, which states, “[i]n computing a period of days, the first day is excluded and the last day is included.” Finally, the mortgagor suggests that the tolling period might be the precise amount of time, down to the minute, of the bankruptcy stay.

The Court of Appeals rejected the mortgagors suggested methods for computing time noting that those methods are only used when the rule or the law itself does not provide such a method and agreed with the mortgagee that the Texas common law provides a method for computing time. “The method is strongly implied by the principle itself, which does not allow a statute of limitations to run against parties during the time that they are not able to exercise their remedy.” In the context of a bankruptcy stay, this means that the limitations period is tolled every day that the stay is in place – including the day the stay is implemented and the day it is lifted – because the party is “prevented from exercising [its] legal remedy” on both of those days. Applying this method, the Court of Appeals affirmed the district court’s ruling that the mortgagee’s foreclosure was timely because the mortgagor’s bankruptcy suit tolled the statute of limitations for 127 days.

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