Demand for Payment, Notice of Intent to Accelerate, and Notice of Acceleration
Because a notice of acceleration matures an obligor’s installment debt and involves the four-year statute of limitations for completing a nonjudicial foreclosure sale under section 16.035(b) of the Texas Civil Practice and Remedies Code or filing a judicial foreclosure suit under section 16.035(c), section 16.038 must be carefully reviewed to ensure compliance with the detailed statutory scheme required to properly waive or rescind a notice of acceleration before the statute of limitations runs. See Tex. Civ. Prac. & Rem. Code § 16.038. Failure to abide by the statute may result in an unenforceable lien. See form 8-1 in this chapter; see sections 5.12 and 10.26 in this manual for additional discussion.
This chapter generally addresses the processes involved in giving notice of default, notice of intent to accelerate, and notice of acceleration. For more in-depth coverage of specific issues related to these notices, see chapter 7 in this manual regarding consumer debt collection, chapter 33 discussing special rights for armed servicemembers, section 36.2 discussing federal loss mitigation programs for residential loans, and section 36.3 discussing federal homeowner counseling programs.
§ 8.2Repayment of Real Estate–Secured Notes
The typical real estate–secured promissory note, whether the mortgaged property is a debtor’s residence or otherwise, provides for repayment in installments with a stated maturity date on which all unpaid amounts are due. The installments usually amortize at least a portion of the principal balance over some or all of the term of the loan, but it is not uncommon for installments of interest only to be due, especially for the earliest installments. Other types of payment arrangements for real estate–secured notes are occasionally used, including demand only notes, notes with no installments due before a stated maturity date (often referred to as term notes), and hybrid term/demand notes (such as no installments due before a stated maturity date but subject to earlier demand by the lender). The focus of this chapter, however, is on making demand for payment on defaulted installment notes (whether before or after the stated maturity date), affording an opportunity for the debtor to cure the default(s) (if required by the governing loan documents or by statute or if the lender should elect to do so without contractual or statutory obligation), notifying the debtor obligated on an unmatured installment note in default of the lender’s intention to accelerate the maturity of the note if the cure is not timely made, and accelerating an unmatured installment note for which the requisite cure of noticed defaults is not timely made.
If the secured note has matured by its terms, the lender and its counsel must comply with any applicable contractual notice requirements before initiating the nonjudicial foreclosure process but, in the likely absence of any such post-maturity contractual notice requirements, may also elect to make demand on the debtor for payment in full of the secured indebtedness and afford at least a modest amount of time to pay that indebtedness before initiating the nonjudicial foreclosure process, especially if the lender is willing to consider an extension of the maturity date or a broader workout of the matured loan. See form 8-2 in this manual for such a demand for payment.
§ 8.4Requisites for Acceleration of Unmatured Installment Note in Default
An installment note is characterized by a certain sum that is payable in smaller, periodic payments before and on its stated maturity date. Without an acceleration right in the governing loan documents, the holder of an installment note that is in default can only (1) sue the debtor periodically for portions of the debt as they accrue, (2) foreclose periodically on only a part of the mortgaged property to the extent necessary to satisfy the matured portion of the debt (if the deed of trust so provides), or (3) wait until the entire debt has become due and payable to fully exercise its remedies for payment.
§ 8.4:1Contractual Requirements for Acceleration
Counsel for the lender should carefully review all relevant loan and collateral documents to determine if, as a threshold matter, a customary contractual right to accelerate is included in the applicable loan documents and, if so, whether there are any particular contractual demand, notice, grace, or cure provisions that must be complied with or recognized in order to establish a default and/or validly accelerate the debt.
Counsel for the lender should be particularly mindful to determine whether any of the applicable loan documents provides for automatic (as contrasted with the much more common optional) acceleration on default. Although so rare as to be almost only a theoretical risk, automatic acceleration will be triggered on the occurrence of any default provided in the loan documents (whether known by the lender and whether the lender would be inclined to exercise available remedies as a result) and, most importantly, the applicable statute of limitations on the entire accelerated debt begins to run at that time. The worst case scenario for the lender in the case of an automatic acceleration is that the debtor is able to successfully assert the defense of limitations following the requisite period after a default that the lender either didn’t know about or had chosen not to act upon.
§ 8.4:2Common-Law Notice Requirements
Although courts recognize the necessity of a lender’s right to enforce a contractual remedy of acceleration, because of the harsh effect that such a remedy has on the debtor, courts will insist that any acceleration be accomplished in strict accordance with all requirements established both by the loan documents and at common law. See Allen Sales & Servicenter, Inc. v. Ryan, 525 S.W.2d 863, 866 (Tex. 1975). A right of acceleration must be stated in “clear and unequivocal” terms to be enforceable. Motor & Industrial Finance Corp. v. Hughes, 302 S.W.2d 386, 394 (Tex. 1957). The common law obligates the holder to provide the following three distinct notices to the debtor: (1) demand for payment; (2) notice of intent to accelerate; and (3) notice that the debt has been accelerated. Shumway v. Horizon Credit Corp., 801 S.W.2d 890, 893 (Tex. 1991); Ogden v. Gibraltar Savings Ass’n, 640 S.W.2d 232, 233 (Tex. 1982); Allen Sales & Servicenter, Inc., 525 S.W.2d at 866. Although the common law notices would not be required if the note or deed of trust provided for the automatic acceleration of the debt, the lender usually has an option to accelerate the debt and, in that event, the requirement for proper service of these common law notices, unless effectively waived, must be satisfied.
The lender must comply with any requirements set forth in the note, deed of trust, or other loan documents in making demand for payment and giving the debtor an opportunity to cure. Even without express notice requirements in the loan documents, it is clear that, unless properly waived, the lender must demand payment of past-due installments from the debtor before exercising the option to accelerate. Williamson v. Dunlap, 693 S.W.2d 373, 374 (Tex. 1985); Allen Sales & Servicenter, Inc. v. Ryan, 525 S.W.2d 863, 866 (Tex. 1975). In the case of a loan secured by a deed of trust, the notice must afford an opportunity to cure the default and “bring home to the [debtor] that failure to cure will result in acceleration of the note and foreclosure under the power of sale.” Ogden v. Gibraltar Savings Ass’n, 640 S.W.2d 232, 233 (Tex. 1982). See form 8-2 in this manual for a letter to the debtor that includes a customary demand for payment.
If the mortgaged property is the debtor’s residence, section 51.002(d) of the Texas Property Code requires that the debtor be given twenty days to cure the default before notice of foreclosure sale is given:
Notwithstanding any agreement to the contrary, the mortgage servicer of the debt shall serve a debtor in default under a deed of trust or other contract lien on real property used as the debtor’s residence with written notice by certified mail stating that the debtor is in default under the deed of trust or other contract lien and giving the debtor at least 20 days to cure the default before notice of sale can be given under Subsection (b).
Tex. Prop. Code § 51.002(d). The notice of default required by section 51.002(d) does not literally have to use the word default as long as the notice puts the debtor on notice of the delinquency and gives the debtor twenty days to cure. Herrington v. Sandcastle Condominium Ass’n, 222 S.W.3d 99, 101 (Tex. App.—Houston [14th Dist.] 2006, no pet.). The debtor is entitled to the notice even if the loan originated before the passage of the statute. Rey v. Acosta, 860 S.W.2d 654, 657–58 (Tex. App.—El Paso 1993, no writ).
The address of the debtor for purposes of section 51.002(d) is the debtor’s last known address, being the debtor’s residence address unless the debtor provided the mortgage servicer with a written change of address before the notice of sale was mailed. Tex. Prop. Code § 51.0001(2)(A). The debtor must inform the mortgage servicer in a reasonable manner of a change of address for purposes of being served with a notice of sale. Tex. Prop. Code § 51.0021.
§ 8.4:4Notice of Intent to Accelerate
Unless the right to notice of intent to accelerate is waived by the debtor, the lender must give clear and unequivocal notice of its intent to accelerate. Shumway v. Horizon Credit Corp., 801 S.W.2d 890, 893 (Tex. 1991) (finding that waiver of “notice” is sufficient to waive notice of acceleration but not notice of intent to accelerate). The lender must give notice to the debtor of the holder’s intent to accelerate that states explicitly that failure to cure the default will result in acceleration of the entire debt and could lead to a foreclosure and, possibly, a deficiency judgment against the debtor if the proceeds from the foreclosure sale do not fully extinguish the secured debt. Ogden v. Gibraltar Savings Ass’n, 640 S.W.2d 232, 233 (Tex. 1982); Crow v. Heath, 516 S.W.2d 225, 228 (Tex. Civ. App.—Corpus Christi 1974, writ ref’d n.r.e.). In Ogden, the statement that “failure to cure such breach on or before [September 16, 1978] may result in acceleration of the sums secured by the Deed of Trust and sale of the property standing as security thereunder” was not “clear and unequivocal notice that Gibraltar would exercise the option [but] merely restated [the existence of] the option conferred in the deed of trust.” Ogden, 640 S.W.2d at 233–34. Although demand for payment and notice of intent to accelerate are distinct common law requirements, they are not separate requirements. The notice of intent to accelerate can be incorporated with the demand for payment. See form 8-3 in this manual for a letter to a commercial debtor that includes a customary demand for payment, along with a customary notice of intent to accelerate.
Additional cases on notice of intent to accelerate include Motor & Industrial Finance Corp. v. Hughes, 302 S.W.2d 386, 394 (Tex. 1957); Tamplen v. Bryeans, 640 S.W.2d 421 (Tex. App.—Waco 1982, writ ref’d n.r.e.) (holding that failure to give notice of intent to accelerate can result in foreclosure sale’s being set aside); Purnell v. Follett, 555 S.W.2d 761, 764–65 (Tex. Civ. App.—Houston [14th Dist.] 1977, no writ) (holding letter to debtor advising that default “in any of [debtor’s] monthly payments” would result in acceleration not broad enough to cover subsequent default in tax payments); Crow, 516 S.W.2d at 228 (requiring notice of intention to accelerate to state explicitly that failure to cure default would result in foreclosure and would entail possibility of deficiency judgment). A fact issue sufficient to go to the jury was raised by the debtor’s testimony that he did not receive a letter notice of intention to accelerate in Dillard v. Broyles, 633 S.W.2d 636, 640–41 (Tex. App.—Corpus Christi 1982, writ ref’d n.r.e.).
After the acceleration of the secured debt, the debtor must be told that the secured debt has been accelerated. See form 8-4 in this manual for a letter that advises the debtor that the indebtedness has been accelerated. The notice that the secured debt has been accelerated is distinct from and must be given after the notice of intent to accelerate. Shumway v. Horizon Credit Corp., 801 S.W.2d 890, 893–94 (Tex. 1991); Joy Corp. v. Nob Hill North Properties, 543 S.W.2d 691, 695 (Tex. Civ. App.—Tyler 1976, no writ) (holding that letter stating legal action will be taken not notice that acceleration has occurred).
Texas law is unclear whether a mere notice of foreclosure sale can serve as notice of acceleration. The Texas Supreme Court reserved judgment on this issue in Ogden v. Gibraltar Savings Ass’n, 640 S.W.2d 232 (Tex. 1982). The court stated, “We do not decide whether, after proper notice of intent to accelerate, a notice of trustee’s sale is sufficient to give notice that the debt has been accelerated.” Ogden, 640 S.W.2d at 234. In McLemore v. Pacific Southwest Bank, FSB, 872 S.W.2d 286, 291–92 (Tex. App.—Texarkana 1994, writ dism’d by agr.), the court found that the notice of foreclosure sale was effective as a notice of acceleration. See also Meadowbrook Gardens, Ltd. v. WMFMT Real Estate Ltd. Partnership, 980 S.W.2d 916, 919 (Tex. App.—Fort Worth 1998, pet. denied); Phillips v. Allums, 882 S.W.2d 71, 74 (Tex. App.—Houston [14th Dist.] 1994, writ denied). The McLemore court may have been indicating that there is a difference between merely posting a trustee’s notice of foreclosure sale as establishing the fact of acceleration as opposed to giving notice of such acceleration to the debtor and in filing suit for judicial sale. Most commonly, a separate notice of acceleration is given in addition to the notice of foreclosure sale. See form 8-5, which serves as both a notice of acceleration and a transmittal letter for the notice of foreclosure sale.
§ 8.5Waiver of Common-Law Acceleration Requirements
The common law requirements for demand for payment, notice of intent to accelerate, and notice of acceleration may be waived by the terms of the governing loan documents. In the years following Ogden v. Gibraltar Savings Ass’n, 640 S.W.2d 232 (Tex. 1982), Texas courts of appeal struggled to define what quality of waiver was required to effectively waive the clear and unequivocal notices required in Ogden. The Texas Supreme Court ended the confusion in Shumway v. Horizon Credit Corp., 801 S.W.2d 890 (Tex. 1991). Several months after the Shumways defaulted on their loan, Horizon accelerated the payments due on the note without notice of presentment, notice of intent to accelerate, or notice of acceleration, and then sued the Shumways for the entire unpaid balance plus interest. The sole issue in Shumway was whether the Shumways waived presentment and notice under the terms of the note. The language in question was as follows: “ENTIRE BALANCE DUE. If I [the Shumways] default under this Note, you [Horizon] may require that the entire unpaid balance of the Amount of Loan plus accrued interest and late charges be paid at once without prior notice or demand.” Shumway, 801 S.W.2d at 982.
The Shumway court saw no reason why the waiver of presentment, notice of intent to accelerate, and notice of acceleration should not have to meet the same clear and unequivocal standard imposed by Motor & Industrial Finance Corp. v. Hughes, 302 S.W.2d 386 (Tex. 1957), for creating an optional right to accelerate and the Ogden case for giving the common law notices. Accordingly, the supreme court held that a waiver of presentment, notice of intent to accelerate, and notice of acceleration is effective if and only if it is clear and unequivocal. Offering specific guidance on how to satisfy this standard, the court stated the following:
To meet this standard, a waiver provision must state specifically and separately the rights surrendered. Waiver of “demand” or “presentment”, and of “notice” or “notice of acceleration”, in just so many words, is effective to waive presentment and notice of acceleration. Likewise, a waiver of “notice of intent to accelerate” is effective to waive that right. However, waiver of “notice” or “notice of acceleration” does not waive notice of intent to accelerate, a separate right. Waiver of “notice” or even “all notice” or “any notice whatsoever”, without more specificity, does not unequivocally convey that the borrower intended to waive both notice of acceleration and notice of intent to accelerate, two separate rights.
Shumway, 801 S.W.2d at 893–94 (citations omitted).
Because the Shumways had agreed in their note to acceleration “without prior notice or demand,” they waived presentment and notice of acceleration, but not notice of intent to accelerate. Shumway, 801 S.W.2d at 894–95.
Even if the lender is unable to rely on the validity of certain waiver provisions, if the lender discovers that any of the notices have not been properly given, then the easiest solution, time permitting, is to simply send correct notices. See Slusky v. Coley, 668 S.W.2d 930 (Tex. App.—Houston [14th Dist.] 1984, no writ).
A court of appeals case decided in 2012 highlights the importance for a lender and its counsel of carefully coordinating across the set of loan documents, especially the note and deed of trust, the purported waivers of the common law acceleration requirements. In Mathis v. DCR Mortgage III Sub I, L.L.C., 389 S.W.3d 494 (Tex. App.—El Paso 2012, no pet.), the note included language that the court found sufficient under Shumway to waive notice of intent to accelerate and notice of acceleration. Mathis, 389 S.W.3d at 507. If the deed of trust securing the note had included no waivers of the common law acceleration requirements or waiver language identical to that in the note, the lender (who purported to accelerate the maturity of the note without sending an earlier, separate notice of intent to accelerate) would have prevailed based on the valid waiver language in the note. The deed of trust included, however, different and far less “clear and unequivocal” waiver language. Construing the note and the deed of trust together as a single instrument and—because acceleration is not favored in the law—applying strict scrutiny to the combined waiver provisions, the court found the purported waiver language in the deed of trust created a reasonable doubt as to whether the parties clearly and unequivocally intended to waive notice of intent to accelerate, thereby concluding that the purported acceleration (no notice of intent having been given) void as a matter of law. Mathis, 389 S.W.3d at 507–08.
§ 8.6Right to Accelerate/Acceleration Affected by Lender’s Actions
The cases cited in this section reveal the variability in outcomes on a lender’s right to accelerate or the validity of a prior acceleration based on the actions of the lender. Because acceleration of the maturity begins the running of the statute of limitations, if the parties desire to undo the acceleration, a written reinstatement agreement executed by the lender and the debtor, wherein the acceleration is rescinded and prior or modified payment provisions are set, is advisable. In some circumstances, however, the lender may be deemed to have reinstated the loan without a written reinstatement agreement, thereby waiving acceleration. Such conduct might involve acceptance of a late or partial payment. Acceptance of late payments has been held to preclude the lender from validly accelerating maturity because of a subsequent late payment without giving a second notice of default and opportunity to cure. See Dhanani Investments, Inc. v. Second Master Bilt Homes, Inc., 650 S.W.2d 220, 221–23 (Tex. App.—Fort Worth 1983, no writ) (finding that lender accepted seven late payments and attempted to accelerate without notice of intent to accelerate); see also Highpoint of Montgomery Corp. v. Vail, 638 S.W.2d 624, 627 (Tex. App.—Houston [1st Dist.] 1982, writ ref’d n.r.e.) (finding that notice of intent to accelerate still required even though note contained clause providing that “time is of the essence” and that waiver of one opportunity to accelerate “shall not constitute a waiver on the part of the holder of the right to accelerate the same at any other time”); McGowan v. Pasol, 605 S.W.2d 728, 732 (Tex. Civ. App.—Corpus Christi 1980, no writ) (finding that acceptance of several late payments precluded holder from accelerating maturity because of single late payment, as note did not provide that failure to exercise option to accelerate on default did not constitute waiver of right on subsequent default).
But other cases have upheld waivers of notice of intent to accelerate even after acceptance of late payments if the note contains an express waiver in such circumstances. See Emfinger v. Pumpco, Inc., 690 S.W.2d 88, 89 (Tex. App.—Beaumont 1985, no writ) (clause provided, “Failure to exercise this option upon any default shall not constitute a waiver of the right to exercise it in the event of any subsequent default.”), disapproved on other grounds by Shumway v. Horizon Credit Corp., 801 S.W.2d 890, 893 (Tex. 1991); see also Zeller v. University Savings Ass’n, 580 S.W.2d 658, 660–61 (Tex. Civ. App.—Houston [14th Dist.] 1979, no writ).
In Dillard v. Broyles, 633 S.W.2d 636, 645 (Tex. App.—Corpus Christi 1982, writ ref’d n.r.e.), the court found that a substantial delay (twenty-two months) between the date of the notice of acceleration and the date of notice of sale did not invalidate the sale since “[l]aches and stale demand are peculiarly available against the assertion of equitable rights, and may not be invoked to resist the enforcement of a purely legal right.” Dillard, 633 S.W.2d at 645. Acceleration of maturity was not waived where a lender accepted two years’ payments on the note pending the mortgagor’s bankruptcy. Thompson v. Chrysler First Business Credit Corp., 840 S.W.2d 25, 30–31 (Tex. App.—Dallas 1992, no writ). A creditor may revoke its acceleration of a debt’s maturity if the debtor has not detrimentally relied on the acceleration. Swoboda v. Wilshire Credit Corp., 975 S.W.2d 770, 776–77 (Tex. App.—Corpus Christi 1998), disapproved on other grounds by Holy Cross Church of God in Christ v. Wolf, 44 S.W.3d 562, 570 (Tex. 2001).
A lender may reestablish the waiver of notice of intent-to-accelerate provisions by giving the debtor notice that no further late payments will be accepted and that the lender will insist on strict compliance with the terms of the note. See Bowie National Bank v. Stevens, 532 S.W.2d 67, 68–69 (Tex. 1975); Slivka v. Swiss Avenue Bank, 653 S.W.2d 939, 941–42 (Tex. App.—Dallas 1983, no writ), disapproved on other grounds by Shumway, 801 S.W.2d at 894.
Once the note’s maturity has been accelerated, the lender may be put to an election if the maker tenders past-due installments. The lender may be required to either accept the past-due installments and cancel the acceleration or refuse the tendered installments, return them to the maker, and proceed with the foreclosure. Stergios v. Babcock, 568 S.W.2d 707, 708 (Tex. Civ. App.—Fort Worth 1978, writ ref’d n.r.e.).
A lender is prevented from accelerating the maturity of a note if the mortgagor’s default was the result of accident, mistake, or the inequitable conduct of the lender. See Hiller v. Prosper Tex, Inc., 437 S.W.2d 412, 414–15 (Tex. Civ. App.—Houston [1st Dist.] 1969, no writ) (finding that mortgagee failed to provide information to mortgagor regarding amount of substantial excess proceeds in escrow account, which mortgagor requested be used to pay accruing monthly installments).
Waiver of the contract terms by the lender does not occur merely because the holder of the note does not immediately declare default. Slaughter Investment Co. v. Cooper, 597 S.W.2d 455, 457 (Tex. Civ. App.—Dallas 1980, no writ).
Waiver by the lender of some rights is not waiver of strict performance of other rights. See Bluebonnet Savings Bank, F.S.B. v. Grayridge Apartment Homes, Inc., 907 S.W.2d 904, 911 (Tex. App.—Houston [1st Dist.] 1995, writ denied) (finding that bank repeatedly passing on posted foreclosure sales did not waive right to finally foreclose when bank’s attorneys notified debtor that passing of sale did not constitute waiver by bank of its right to foreclose).
§ 8.7Partial Payment in Accord and Satisfaction; Inadequate Payment
Care should be taken by the lender in accepting partial payments. Acceptance of a partial-payment check with the notation that it is “in payment of all claims” or “payment in full” may result in the borrower’s debt being paid in full. See, e.g., Boland v. Mundaca Investment Corp., 978 S.W.2d 146 (Tex. App.—Austin 1998, no pet.); Hixson v. Cox, 633 S.W.2d 330 (Tex. Civ. App.—Dallas 1982, writ ref’d n.r.e.).
The amount owing must be paid in order to cure default. See Arguelles v. Kaplan, 736 S.W.2d 782, 784 (Tex. App.—Corpus Christi 1987, writ ref’d n.r.e.); Forestier v. San Antonio Savings Ass’n, 564 S.W.2d 160, 164–65 (Tex. Civ. App.—San Antonio 1978, writ ref’d n.r.e.). The amount due includes principal, interest accrued, and attorney’s fees. French v. May, 484 S.W.2d 420, 426–27 (Tex. Civ. App.—Corpus Christi 1972, writ ref’d n.r.e.). If a dispute exists about the amount due, the debtor must tender the amount the debtor believes in good faith to be due in order to obtain an injunction. See Lee v. Howard Broadcasting Corp., 305 S.W.2d 629 (Tex. Civ. App.—Houston 1957, writ dism’d by agr.); see also Church v. Rodriguez, 767 S.W.2d 898 (Tex. App.—Corpus Christi 1989, no writ).
§ 8.8Demand for Payment Should Include Demand for Rents
In 2011 the Texas legislature enacted Texas Property Code chapter 64, Assignment of Rents to Lienholder, also known as the Texas Assignment of Rents Act (TARA). See Acts 2011, 82d Leg., R.S., ch. 636 (S.B. 889), eff. June 17, 2011. Upon the enactment of TARA, all assignments of rent in Texas became collateral assignments (as opposed to the “absolute assignment with license-back” common in Texas since Taylor v. Brennan, 621 S.W.2d 592, 594 (Tex. 1981)), regardless of the form the assignment takes in the security instrument. Tex. Prop. Code § 64.051(b). Chapter 9 of this manual covers TARA in depth, including the means by which an assignee of the rents (the holder of the note and deed of trust) may enforce the collateral assignment of rents against the assignor of the rents. See language demanding payment of rents and proceeds to which the assignee is entitled under TARA in forms 8-2 through 8-4 and forms 9-1 and 9-2 in this manual.
Even though commercial real estate loan guaranties in Texas are often more replete with waivers than the other customary documents that evidence and secure such a loan, there appears to be no requirement that notice of intent to accelerate be given to a guarantor of the debt (absent contractual language to the contrary). See Miller v. University Savings Ass’n, 858 S.W.2d 33, 36 (Tex. App.—Houston [14th Dist.] 1993, writ denied). For an excellent discussion of other cases in which guarantors were not afforded a variety of rights of note makers, see Long v. NCNB–Texas National Bank, 882 S.W.2d 861, 866 (Tex. App.—Corpus Christi 1994, no writ) (holding that guarantor was not entitled to notice of foreclosure sale served under section 51.002 of the Texas Property Code); Goff v. Southmost Savings & Loan Ass’n, 758 S.W.2d 822, 824–25 (Tex. App.—Corpus Christi 1988, writ denied) (waiver in guaranty upheld); and Micrea, Inc. v. Eureka Life Insurance Co. of America, 534 S.W.2d 348, 357 (Tex. Civ. App.—Fort Worth 1976, writ ref’d n.r.e.) (notice to guarantor of acceleration waived and not properly pleaded). A guarantor is, however, a debtor within the meaning of sections 9.102(a)(28) and (60) and 9.611 of the Texas Business and Commerce Code. See Carroll v. General Electric Credit Corp., 734 S.W.2d 153, 154–55 (Tex. App.—Houston [1st Dist.] 1987, no writ) (failure to notify guarantor of nonjudicial foreclosure sale of personal property bars assertion of deficiency claim on behalf of creditor); see also Hernandez v. Bexar County National Bank, 710 S.W.2d 684 (Tex. App.—Corpus Christi), writ ref’d n.r.e. per curiam, 716 S.W.2d 938 (Tex. 1986); Peck v. Mack Trucks, Inc., 704 S.W.2d 583 (Tex. App.—Austin 1986, no writ).
Notwithstanding the Miller case, the Long case, and the various cases cited in Long that do not confer on guarantors all of the rights of a note maker, prudence suggests that the demands and notices that a lender may choose or be obligated to send to a note maker (debtor) also be served on each guarantor.
§ 8.10Limitations on Installment Notes
Nonnegotiable installment notes are subject to a four-year statute of limitations under state law. Tex. Civ. Prac. & Rem. Code § 16.004(a)(3). Negotiable installment notes are subject to a six-year statute of limitations under state law. Tex. Bus. & Com. Code § 3.118(a). Unlike the limitations period for foreclosure of a real property lien securing an installment note (which, according to section 16.035(e) of the Civil Practice and Remedies Code, does not begin to run until the maturity date of the last installment), the limitations period to sue to enforce an installment note begins to run on the due date of each installment. Tex. Bus. & Com. Code § 3.118(a) (as to negotiable installment notes); Gabriel v. Alhabbal, 618 S.W.2d 894, 897 (Tex. Civ. App.—Houston [1st Dist.] 1981, writ ref’d n.r.e.); Lufkin Nursing Home, Inc. v. Colonial Investment Corp., 491 S.W.2d 459, 463 (Tex. Civ. App.—Amarillo 1973, no writ) (as to nonnegotiable installment notes). Because of the foregoing considerations, lenders have historically included in their loan documents the right to accelerate the maturity of an installment debt upon default.
§ 8.11:1Reasonable Notice to Cure
For loans not secured by the debtor’s residence, the lender and its counsel may wish to afford the debtor a reasonable time under the circumstances to cure a default before acceleration of the secured debt, even if the governing loan documents include valid waivers of the common law acceleration requirements. A common practice in Texas is to give the debtor at least ten days after receipt of the demand letter to cure the default. At least two courts have held cure periods of ten days or less to be reasonable. See Hammond v. All Wheel Drive Co., 707 S.W.2d 734, 737–38 (Tex. App.—Beaumont 1986, no writ) (relying on presentation requirements of former Texas Business and Commerce Code section 3.504 (now section 3.501) requiring payment by close of next business day following presentment); Investors Realty Trust v. Carlton Corp., 541 S.W.2d 289, 290–91 (Tex. Civ. App.—Dallas 1976, no writ) (finding ten-day period sufficient under circumstances).
§ 8.11:2Coordination between Debtor and Its Counsel
The attorney for the lender, as soon as practicable before mailing any notice to the debtor, should check with the lender to verify that it has not accepted late payment or agreed to a delay in accelerating the debt. Posting notice of foreclosure when the lender and the debtor have agreed to some form of repayment could expose the lender to liability. It is advisable for the attorney to send all proposed correspondence to the debtor first to the lender for review, allowing the lender, among other things, to verify that the address(es) listed for the debtor is/are the debtor’s last known address(es) according to the records of the lender. Tex. Prop. Code § 51.0001(2). The attorney may also wish to advise the lender not to send notices of payoff due or computer-generated dunning letters to the debtor once the matter is placed with the attorney.
§ 8.11:3Mailing Correspondence to Debtor
All correspondence should be sent (and must be sent in the case of a loan secured by the debtor’s residence) by certified mail. To substantiate delivery, the notice letters should be sent with return receipt requested. Additionally, the attorney should have the mailing receipt stamped by the post office to prove mailing. These procedures are useful to counter the argument that the debtor never received notice. See Handelman v. Handelman, 608 S.W.2d 298, 300–301 (Tex. Civ. App.—Houston [14th Dist.] 1980, writ ref’d n.r.e.) (discussing certified mail receipt provision requiring signature by obligor on green card); Hensley v. Lubbock National Bank, 561 S.W.2d 885, 891 (Tex. Civ. App.—Amarillo 1978, no writ) (finding sworn denial of receipt of notice some evidence of nonnotification of sale).
The attorney for the lender may also wish to send a duplicate demand letter by regular mail at the same time the certified letter is sent. Often, even though the certified letter is returned marked “refused,” the letter sent by regular mail is not returned. A certificate of mailing (PS Form 3817) stamped at the post office serves as proof of mailing the letter by regular mail. If the attorney does not have all notice mail stamped at the post office, special procedures should be adopted in the attorney’s mail room to substantiate mailing. The attorney may wish to have the person handling the mailing log the actual deposit of the mail (time, date, and place) and should at least have that person sign a mailing affidavit at the time of mailing. Both the certified mail and regular mail envelopes should be marked “Forwarding and Address Correction Requested.” Receipts of certified mail should be monitored to determine if address problems exist before actually foreclosing. The client should be informed of the attorney’s receipt of green return-receipt cards. Copies of the green cards may simply be mailed to the lender as they are received.
At least two objectives should be paramount in the notice process: (1) getting notice to the debtor in a reasonable time to cure the default and (2) minimizing the debtor’s trial defenses based on perceived unreasonable conduct of the lender. The lender should be prepared to restart the notice process if any of the multitude of possible mailing and mail-receipt problems develop (for example, wrong address, changed address, divorce, and separate addresses). Acceleration and foreclosure are harsh remedies strictly construed against the lender. Delaying the process by a month is much less costly than defending the propriety of the sale and the entitlement to a deficiency because of mailing problems.
§ 8.11:5Curing Defective Notice
A defective notice may be cured by a subsequent corrected notice. Slusky v. Coley, 668 S.W.2d 930, 933 (Tex. App.—Houston [14th Dist.] 1984, no writ).