Most if not all mortgage agreements contain a debt acceleration clause. That clause allows the bank to declare the entire balance due upon the occurrence of an event—like the failure to make a payment.
In Akouri v. Comerica Bank, one of the questions addressed by the Michigan Court of Appeals is whether the bank’s 2019 foreclosure by advertisement proceeding is time-barred by the 6-year statute of limitations applicable to a breach of contract claim.
By way of background, the homeowners obtained a home equity line of credit (HELOC) from Comerica Bank in 2005. The HELOC was secured by a future advance mortgage on the home. The agreement, unsurprisingly, contained an acceleration clause.
Both parties agreed that the homeowners did not make a payment since 2006. It was also undisputed that Comerica Bank sent a letter in 2015 accelerating the debt and demanding full payment. In 2019, Comerica Bank began the foreclosure proceeding.
Subsequently, the homeowners brought a lawsuit to enjoin the foreclosure proceeding, asking the court to declare Comerica Bank’s causes of action with regard to the HELOC untimely—and therefore unenforceable. Specifically, they argued that the 6-year statute of limitations started running in 2006 when they stopped making payments and defaulted on the HELOC. Thus, the homeowners added, Comerica Bank lost the right to enforce the 2005 mortgage because a mortgage without an underlying enforceable contractual obligation fails as a matter of law.
The Court of Appeals disagreed, finding in favor of the bank.
The Court noted that, although no payment was made since 2006, Comerica Bank was not obligated to pursue an action. Rather, the acceleration clause gave it the discretion to exercise that right any time before the maturity date of the HELOC. Therefore, when Comerica Bank exercised that right in 2015 and the homeowners failed to pay the amount due, the statute of limitation was triggered. And a breach of contract claim would have been timely if brought in 2019.
In conclusion, the Court clarified that even if the failure to pay the amount due since 2006 constitutes a breach of contract, the acceleration clause gave the bank the authority and discretion to exercise its right any time before the maturity date of the HELOC. Once the bank exercised its right in 2015 and declared the entire balance due immediately, the claim accrued and the 6-year statute started running. Thus, the 2019 foreclosure by advertisement proceeding is not time-barred.
This blog is for informational purposes only. It is not intended as legal advice.
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