Lawrence Mathis owned and operated a commercial laser
printing and direct mail business in Austin. In March 2000 he bought a 20,000
SF building, and arranged SBA financing. A first lien Note for $440,000
(approx. 50% of the purchase price) was given to Norwest Bank, NA, and SBA
through its affiliate CenTex Certified Development Corporation accepted a
second lien Note for $365,000 (approx. 40% of the purchase price).
Mathis
had difficulty servicing the debts and he started making late payments in 2003.
In 2006, CenTex acquired the Norwest Note. At that time, Mathis was still
several months behind on his payments.
For years
Mathis continued to make late payments, and CenTex continued to accept them.
Until 2009. In February 2009 Mathis sent CenTex a check for three installment
payments. This was the first time that a payment was rejected, but not until
April 2009. Shortly thereafter CenTex sent Mathis a letter of intent to
foreclose on the property in May 2009.
Mathis
sued to stop the foreclosure, claiming the debt was improperly accelerated. And
as a consequence, CenTex had no right to foreclose. The trial court initially
granted Mathis’ request to stop the foreclosure, but at a full trial in 2010
the court reversed itself and ruled for CenTex.
Displeased
with that final Judgment, Mathis appealed.
While
Texas law requires notice of intent to accelerate a real estate debt, it can
also be waived if done so properly. At least with regard to commercial
transactions. The waiver must be clear
and unequivocal. And from my experience, most commercial loans contain
a full waiver clause, giving the lender the option to send a notice of intent
to accelerate the debt and opportunity to cure a default, or bypassing it and
instead sending a notice of foreclosure.
It is
also my experience that many times the notice waiver can be negotiated and
eliminated. Then, lenders are forced to give a written notice of intent to
accelerate and an opportunity to cure the default before acceleration. But the
loan docs in this case did not contain the type of clause that would have been
of great benefit to Mathis. Instead, the scales were tilted in the lender’s
behalf.
The
Texas Court of Appeals looked at the waiver provision in the Note and the
waiver provision in the Deed of Trust. They were not the same. The waiver
provision in the Note appeared to be ‘clear and unequivocal.’ But not so in the
Deed of Trust. The Deed of Trust stated: “If [Mathis] defaults . . . and the
default continues after [Lender] gives [Mathis] notice of the default and the
time within which it must be cured, as may be required by law or by written
agreement . . .”
Feeling
confused by the two clauses, the Court of Appeals concluded that the waiver
provisions in the Note and Deed of Trust could not be rectified. Absent clear and unequivocal evidence
that the Lender and Mathis intended to waive any formal requirement to send
notice of default and intent to accelerate the debt before foreclosure, the
Judgment of the trial court was reversed because the attempted Note
acceleration was ineffective.
Mathis
wins. CenTex loses. Well not really. All CenTex has to do now is to send out a
notice of intent to accelerate, then accelerate the debt and foreclose next
month. But I digress.
See Mathis v. DCR Mortgage III Sub I L.L.C.;
08-10-00310-CV; Texas Court of Appeals 8th District; October 10,
2012.
Lessons learned:
1. Be
wary of commercial loan docs. Yes they are one-sided and intended to be so. But
that doesn’t mean that Borrowers must be in default the moment they sign the
docs. Many lenders are willing to make reasonable accommodations. But you have
to know what to ask for. And then ask.
2. Texas
law will usually help consumer-borrowers and residential tenants. Not so in a
commercial context. Don’t count on Texas laws helping you. Many provisions that
are non-waivable in Texas consumer and residential law are waivable in Texas
commercial law.
3. Exercise
your Democratic right / obligation. Even if you are a Republican. Vote!
Reprinted with the permission of North
Texas Commercial Association of REALTORS®, Inc.
