Reversal: Delay unreasonable in invoking mortgage acceleration clause

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The Indiana Court of Appeals has reversed a trial court’s order that foreclosed a couple’s interest in two mortgaged properties, finding a mortgage banking company was unreasonably delayed in invoking a promissory note’s acceleration clause.

In 1992, Dean and Paula Blair singed a $110,300 promissory note secured by a mortgage in favor of United Companies Lending Corporation on two Evansville properties.

The note contained an optional acceleration clause, which allowed UCLC to decide whether to accelerate the loan balance after a default. UCLC also had the option to accelerate the mortgage upon default of the note.

Nearly one year after signing the note, the Blairs sued UCLC and its agent, John Ash, alleging breach of contract and various torts. That lawsuit was stayed after the Blairs filed for bankruptcy, but the stay was lifted for UCLC to proceed with its foreclosure action. When UCLC filed for bankruptcy, EMC Mortgage, LLC took over the Blair’s note and mortgage.

In 2003, the Blairs received their bankruptcy discharge, but nearly six years later, EMC sought to reopen the Blairs’ bankruptcy by filing a complaint for declaratory judgment, asking the bankruptcy court to clarify the extent, validity, and priority of EMC’s lien. It also sought the impact of the Blairs’ partial bankruptcy discharge on EMC’s ability to collect the indebtedness due under the note and mortgage.

EMC eventually filed a foreclosure suit against the Blairs, and the Vanderburgh Superior Court awarded partial relief to the Blairs on their statute of limitations defense. The trial court found EMC’s complaint as to the note violated the six-year statute of limitations in Indiana Code section 34-11-2-9 for delinquent payments before July 3, 2006.

But it rejected the Blairs’ claims that EMC did not invoke the acceleration clause in a reasonable time. EMC was awarded $193,359.00 plus prejudgment and post-judgment interest, attorney fees, and costs for the mortgage, as well as $76,758.00 for the note. It foreclosed the mortgage and ordered a sheriff’s sale for both of the Blairs’ properties.

But the Indiana Court of Appeals reversed the trial court’s decision in Dean Blair and Paula Blair v. EMC Mortgage, LLC, 18A-MF-808,

finding EMC was unreasonably delayed in accelerating the note and mortgage. By failing to make demand within a reasonable time, the appellate court concluded EMC’s rights were time-barred.

“The statute of limitations on a note is six years from the date that the cause of actions accrues, and the statute of limitations on a mortgage is ten years from the date the cause of action accrues,” Judge James S. Kirsch wrote.

The appellate court cited Stroud v. Stone, No. 18ACC-1722, 2019 WL 1496836 (Ind. Ct. App. Apr. 5, 2019), finding that EMC waited an unreasonable amount of time when it waited to invoke the acceleration clause in April 2011.

“The rights to the Note and the Mortgage were assigned to EMC in 2000. At that time, EMC could have taken its first steps to pursue its rights under the Note and Mortgage, but it did not,” Kirsch continued.  “Considering that the Blairs had defaulted five years earlier, this would have been the prudent course for EMC to have taken.

“Even more puzzling is EMC’s decision to wait until June of 2009 to file its Complaint for Declaratory Judgment,” the court concluded. “This was nearly six years after the Blairs received their bankruptcy discharge.”

Finding no explanation for EMC’s delay, the appellate court found the delay did not prevent the statute of limitations from taking effect. It therefore reversed the trial court’s judgment.

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