Murphy v. HSBC Bank USA, 95 F. Supp. 3d 1025

Background

Murphys refinanced in 2006, then intentionally defaulted in 2008; Wells Fargo (servicer) accelerated the loan and filed an expedited nonjudicial foreclosure under Tex. R. Civ. P. 736.10.
Murphys filed a separate state-court suit contesting the right to foreclose; the 736 proceeding was abated/dismissed. A state-court summary judgment later granted for Wells Fargo/HSBC, which was appealed.
HSBC sent new notices (2011 notice of intent to accelerate; 2012 notice of acceleration) and filed a second 736 application in August 2012. Murphys sued again in September 2012 alleging the lien was time-barred under Tex. Civ. Prac. & Rem. Code § 16.035.
District court initially held the 2008 acceleration was abandoned and that the 2012 foreclosure was timely; that decision was later found to contain factual/legal errors and vacated for reconsideration.
On de novo review the court: (1) concluded the Murphys caused the 2008 736 dismissal; (2) recognized unilateral abandonment by a lender is legally possible; and (3) found a genuine factual dispute whether HSBC’s 2011 communications (demanding less than full accelerated balance and offering cure) amounted to abandonment of the 2008 acceleration, precluding dismissal on limitations grounds.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the 2008 acceleration was abandoned	Murphys: dismissal order and lack of lender action do not show abandonment; abandonment requires mutual agreement or overt joint conduct	HSBC: dismissal plus subsequent notices and a 2011 notice offering cure (demanding less than full accelerated balance) show abandonment; unilateral abandonment is possible	Court: lender can unilaterally abandon; 2011 notice raises a genuine fact issue — summary judgment/dismissal denied
Whether abandonment requires joint action/express agreement	Murphys: abandonment requires agreement or mutual conduct	HSBC: no express agreement needed; lender actions can rescind acceleration alone	Court: unilateral abandonment is recognized; joint action not required
Whether limitations tolled during pendency of first lawsuit	Murphys: prior litigation does not automatically toll for these facts; Hughes is inapposite	HSBC: statute of limitations tolled while prior suit pending (Hughes/Hughes-derivative tolling argument)	Court: rejects Hughes-based tolling argument here; tolling not adopted for these facts on this record
Whether HSBC should get discovery/ability to answer and raise res judicata	Murphys: HSBC already had discovery in earlier litigation; HSBC’s request speculative	HSBC: needs discovery on "other actions" showing abandonment and should be allowed to answer or reurge res judicata after state-court finality	Court: vacated prior judgment, denied dismissal on limitations, allowed HSBC to reurge res judicata within 20 days and referred case for new schedule; discovery request left open for proper Rule 56(d) showing

Key Cases Cited

Templet v. HydroChem, Inc., 367 F.3d 473 (5th Cir. 2004) (Rule 59(e) standard; extraordinary remedy to correct manifest error)
In re Transtexas Gas Corp., 303 F.3d 571 (5th Cir. 2002) ( Rule 59(e) jurisprudence )
Khan v. GBAK Properties, Inc., 371 S.W.3d 347 (Tex. App.—Houston [1st Dist.] 2012) (discusses abandonment/restoration after acceleration)
Holy Cross Church of God in Christ v. Wolf, 44 S.W.3d 562 (Tex. 2001) (accrual when optional acceleration is exercised)
Hughes v. Mahaney & Higgins, 821 S.W.2d 154 (Tex. 1991) (tolling principles in context of related litigation; held inapplicable here)
San Antonio Real Estate Bldg. & Loan Ass’n v. Stewart, 61 S.W. 386 (Tex. 1901) (older precedent on mutual action/waiver principles)
DTND Sierra Invs., LLC v. Bank of New York Mellon Trust Co., 958 F. Supp. 2d 738 (W.D. Tex. 2013) (unilateral rescission/notice can constitute abandonment)
Industrial Indem. Co. v. Chapman & Cutler, 22 F.3d 1346 (5th Cir. 1994) (narrow application of Hughes tolling)