The U.S. Court of Appeals for the Fourth Circuit recently held that the one-year statute of limitations period in West Virginia's Consumer Credit and Protection Act began to run as of the date of loan acceleration when all outstanding loan amounts became due and payable, and not from the loan maturity date over two decades in the future.
A copy of the opinion is available at:
Plaintiffs ("Borrowers") obtained a mortgage refinancing loan that was secured by a deed of trust. The trust deed provided for optional loan acceleration in the event of default. After the Borrowers had made a number of late payments, the loan servicer ("Servicer") assessed late payment fees.
The parties subsequently entered into a loan modification agreement, which extended the loan maturity date to the year 2030. Nevertheless, the Borrowers were unable to make their payments on time, and the Servicer eventually exercised its right to accelerate the loan, demanding immediate payment of the loan in full.
Shortly thereafter, the Servicer initiated foreclosure proceedings, but on the date scheduled for the foreclosure sale of the Borrowers' property, the Borrowers filed a petition for bankruptcy protection. The Servicer ceased the foreclosure action and filed a proof of claim in the bankruptcy proceedings for the balance due.
Almost two years after the Servicer accelerated the loan, and while the bankruptcy proceedings were still pending, the Borrowers filed a putative class action, claiming that the Servicer had improperly assessed late fees in violation of the West Virginia Consumer Credit and Protection Act, W. VA. Code §§ 46A-1-101-46A-8-102 ("WV Consumer Credit Act").
The Servicer filed a motion for summary judgment, arguing that the Borrowers' claims were time-barred under the WV Consumer Credit Act's one-year statute of limitations. The district court granted summary judgment, ruling that the one-year limitations period began to run as of the date of loan acceleration. The Fourth Circuit affirmed.
The Servicer filed a motion for summary judgment, arguing that the Borrowers' claims were time-barred under the WV Consumer Credit Act's one-year statute of limitations. The district court granted summary judgment, ruling that the one-year limitations period began to run as of the date of loan acceleration. The Fourth Circuit affirmed.
As you may recall, the statute of limitations in the WV Consumer Credit Act provides in pertinent part: "[w]ith respect to violations arising from . . . consumer loans, no action pursuant to this subsection may be brought more than one year from the due date of the last scheduled payment of the agreement." W. Va. Code § 46A-5-101(1).
In analyzing whether "due date of the last scheduled payment of the agreement" referred to the loan maturity date, or to the loan acceleration date, the Court concluded that the statute unambiguously referred "to the last date under the parties' agreement providing for payment of a specified loan amount." In so ruling, the Court reasoned that the parties' "agreement" included not only the original payment schedule set forth in the promissory note, but also the acceleration clause contained in the deed of trust.
Rejecting the Borrowers' assertions that the acceleration date was not a "last scheduled payment date" for purposes of the statute of limitations, the Court pointed out that the deed of trust expressly provided that, upon acceleration, "all sums secured by this Security Instrument . . . shall at once become due and payable." Thus, according to the parties' "agreement, the event of acceleration materially altered the parties' original schedule of payments, allowing the lender to demand full payment of the loan amount upon the borrower's default."
Rejecting the Borrowers' assertions that the acceleration date was not a "last scheduled payment date" for purposes of the statute of limitations, the Court pointed out that the deed of trust expressly provided that, upon acceleration, "all sums secured by this Security Instrument . . . shall at once become due and payable." Thus, according to the parties' "agreement, the event of acceleration materially altered the parties' original schedule of payments, allowing the lender to demand full payment of the loan amount upon the borrower's default."
Thus, the Fourth Circuit held that, once the Servicer exercised its right to demand full payment, the entire loan amount became due, thereby triggering the one-year statute of limitations under the WV Consumer Credit Act.
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
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Email: RWutscher@mtwllp.com
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