The CARES Act, as well as various state law executive orders and other state law statutory provisions prevented foreclosure for a substantial period of time during the Covid pandemic.  This dynamic applied to loans that were already in serious default prior to the Pandemic as well as loans that became in default during or as a result of the Pandemic.   As a result, there was and is a glut of residential mortgages with serious defaults and borrowers who cannot afford their mortgage payments despite the exhaustion of loss mitigation and offered workout options.  Not surprisingly, under the concept of no-good deed goes unpunished, some of these borrowers are now attempting to raise the statute of limitations applicable to foreclosure, to delay or prevent foreclosure.

In situations in which the applicable law preventing foreclosure did not explicitly provide for tolling, a question arises as to whether equitable tolling should apply.  There is very little if any case law to date on this specific topic in the context of the Pandemic, however, there is a precedent for the application of equitable tolling due to the pendency of legal proceedings.

In Texas, it is a general rule that where a person is prevented from exercising his legal remedy by the pendency of legal proceedings, the time during which he is thus prevented should not be counted against him in determining whether limitations have barred his right.  Curry v. Ocwen Loan Servicing LLC, No. CV H-15-3089, 2016 WL 3920375, at *5 (S.D. Tex. July 14, 2016) citing Hughes v. Mahaney & Higgins, 821 S.W.2d 154, 157 (Tex. 1991).  See also Metcalf v. Wilmington Sav. Fund Soc’y, FSB, No. 03-16-00795-CV, 2017 WL 1228886 at *4 (Tex. App. – Austin Mar. 29, 2017, pet. denied) (finding the application of equitable tolling and favoring the practice where creditors properly wait to “seek court confirmation that it is within its rights and has performed all acts necessary to proceed with foreclosure under a deed of trust.”).

Statutory or other governmental authority precluding foreclosure for a set time period is analogous if not equal to a legal proceeding precluding foreclosure, and the lender, should not be penalized for complying with applicable law designed to protect borrowers.  As the case law on this topic develops, hopefully the courts will recognize the equities of the situation as well as the precedent for equitable tolling and apply tolling to preclude the running of the statute of limitations for foreclosure during the Pandemic.

Michael F. Hord, Jr. mhord@hirschwest.com is a shareholder with the firm of Hirsch & Westheimer, P.C. and specializes in complex commercial litigation, including the representation of financial institutions.

This is merely a general discussion of developing case law in this area and nothing in this article is intended to be legal advice.