Davidson v. F.D.I.C. ( 1995 )

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
__________________
No. 93-8335
__________________
WILLIAM C. DAVIDSON, P.C.,
Plaintiff-Appellant,
versus
FEDERAL DEPOSIT INSURANCE CORPORATION
AS RECEIVER FOR UNITED BANK OF TEXAS,
Defendant-Intervenor-Appellee.
______________________________________________
Appeal from the United States District Court
For the Western District of Texas
______________________________________________
(January 25, 1995)
Before GARWOOD and EMILIO M. GARZA, Circuit Judges, and HEAD,*
District Judge.
GARWOOD, Circuit Judge:
Plaintiff-appellant William C. Davidson (Davidson) brought
this suit to enjoin and, ultimately, to set aside a nonjudicial
foreclosure sale of his property conducted on behalf of the Federal
Deposit Insurance Corporation (the FDIC) as receiver for United
Bank of Texas. Following the district court's entry of judgment
for the FDIC as receiver, Davidson filed a timely notice of appeal.
*
District Judge of the Southern District of Texas, sitting by
designation.
We affirm.
Facts and Proceedings Below
The facts in this case are undisputed. On October 5, 1983, R.
Bird Corporation, a Texas corporation, acting through its president
Richard Bird, executed a "Real Estate Note" for $350,000 payable,
principal and interest, on April 13, 1984, to United Bank of Texas
(the Bank) in Travis County, Texas. The note, as recited therein,
was secured by a lien on a tract of land located in Travis County,
Texas (the Property), described in a deed of trust dated October 5,
1983, and recorded in the Travis County, Texas real property
records. The note and deed of trust likewise recite that the note
is in part payment of the purchase price of the property and is
also secured by a vendor's lien retained in deed of even date of
the property to the maker of the note. The deed of trust contained
a clause granting the Bank's trustee a power to sell the Property
in the event of default in the note. The note's due date passed,
but the Bank did not foreclose. Thereafter, on October 6, 1986, R.
Bird Corporation deeded the Property to Richard Bird; in the deed,
Richard Bird assumed the outstanding indebtedness against the
Property.
On June 4, 1987, the Texas Banking Commissioner declared the
BankSQa Texas bank, the deposits of which were insured by the
FDICSQinsolvent and appointed the FDIC receiver of the Bank.
Vernon's Ann. Tex. Civ. Stats. art. 489b, §§ 1,3. As the Bank's
receiver, the FDIC acquired the Bank's assets, including the deed
of trust and the promissory note, the cause of action on which
accrued April 13, 1984, the date the note became past due. On
2
March 27, 1990, almost six years after the note became past due and
almost three years after the FDIC became receiver, Davidson
acquired the Property from Richard Bird and subsequently invested
approximately $8,000 in repairs to the improvements thereon.
In March 1992, Davidson petitioned a Texas state court for
injunctive relief against the Bank's substitute trustee under the
deed of trust, seeking to prevent a proposed nonjudicial
foreclosure on the Property. After the state court granted a
temporary restraining order, the FDIC as receiver intervened as a
defendant and removed the case to the district court below, where
Davidson's request for injunctive relief was denied on April 6,
1992. The next day, the Bank's substitute trustee, acting on
behalf of the FDIC as receiver, conducted a nonjudicial foreclosure
sale in Travis County in accordance with the deed of trust. The
FDIC as receiver was the successful bidder at the sale, purchasing
the Property for a $104,300 credit on the note.
Davidson claimed the sale was untimely and asked the district
court to set it aside on that basis. After a bench trial on
stipulated facts, the district court entered judgment for the FDIC
as receiver. The court held that the sale was valid because it
took place within the six-year limitations period of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA),
Pub.L. 101-73, 103 Stat. 183 (1989); 12 U.S.C. § 1821(d)(14).
Davidson now appeals, principally arguing that, on the date FIRREA
became effective, the deed of trust had already become void under
Texas law and therefore could not be revived.
3
Discussion
The ultimate issue in this case is whether the power of sale
contained in the Bank's deed of trust acquired by the FDIC as
receiver was still enforceable on August 9, 1989, the date FIRREA
became effective. Resolution of that issue initially turns on
whether the claim was valid when acquired by the FDIC on June 4,
1987. If time-barred or otherwise void under state law at the time
of the FDIC's appointment as receiver, the claim cannot be revived
merely because a government agency holds it. F.D.I.C. v. Dawson,
4 F.3d 1303, 1306-07 (5th Cir. 1993), cert. denied, 114 S. Ct. 2673
(1994); see also R.T.C. v. Seale, 13 F.3d 850, 853 (5th Cir. 1994)
(government cannot revive claims that are stale when acquired
unless Congress explicitly directs otherwise); F.D.I.C. v. Belli,
981 F.2d 838, 842-43 (5th Cir. 1993); F.D.I.C. v. Bledsoe, 989 F.2d
805, 808 (5th Cir. 1993). An acquired claim is thus valid if, at
the time of the FDIC's appointment as receiver, it is still good
under the law that created it. In Texas, a mortgage is an incident
of the debt; it is therefore generally enforceable so long as the
debt itself is enforceable, which is to say, four years after the
cause of action on the debt accrued. Tex. Civ. Prac. & Rem. Code
§§ 16.004(a)(3) (debt), 16.035 (power of sale) (1986). Here, as
the parties concede, the FDIC became receiver and acquired the deed
of trust some three years after the cause of action on the note
accrued; the claim was therefore good at the time of the FDIC's
appointment.
The problematic issue in this case, then, is whether the deed
of trust remained enforceable on the effective date of FIRREA,
4
August 9, 1989. That is, although both sides concede the validity
of the claim when the FDIC was appointed, both dispute what
happened to the claim in the intervening two years between the
FDIC's appointment as receiver and the effective date of FIRREA.
If the claim died in the interim, FIRREA does not revive it, and
the foreclosure should have been set aside. If the claim survived
the interim, then the limitation provisions of FIRREA apply, and
the foreclosure was timely.1
Accordingly, the emphasis in this litigation has been on what
law applies during the two-year period between the FDIC's
appointment and FIRREA. The district court concluded that, once
the FDIC acquired the Bank's claim, the six-year general
limitations period of 28 U.S.C. § 2415(a), the general statute of
limitations for contract actions, relayed the deed of trust beyond
FIRREA's effective date. In other words, because the deed of trust
was valid when acquired, the Texas four-year limitations period was
displaced by the six-year federal rule under 28 U.S.C. § 2415(a),
which in turn carried the deed of trust over FIRREA's effective
date and into the safe harbor of FIRREA's own six-year limitations
period. According to the reasoning of the district court, it was
1
FIRREA explicitly imposes a six-year statute of limitations
on "any contract claim" brought by the FDIC as a receiver. 12
U.S.C. § 1821(d)(14)(A)(i)(I). According to section
1821(d)(14)(B)(i), the limitations period began in this case on
the date of the FDIC's appointment as receiver, June 4, 1987, and
ended on June 4, 1993. Therefore, if FIRREA applies to this
case if, in other words, the claim acquired by the FDIC receiver
was valid on the effective date of FIRREA, then the April 1992
foreclosure was timely. See F.D.I.C. v. Belli, 981 F.2d 838,
842-43 (5th Cir. 1993) (section 1821(d)(14) does not revive
claims that expired before FIRREA's effective date of August 9,
1989).
5
by way of this statute-of-limitations relay race that the
foreclosure avoided a time bar.
Section 2415(a) provides in part, "[E]very action for money
damages brought by the United States . . . or agency thereof which
is founded upon any contract . . . shall be barred unless the
complaint is filed within six years after the right of action
accrues." Because the debt was not barred on June 4, 1987, when
the FDIC was appointed receiver, the debt then became subject to
section 2415(a)'s six-year limitations period, calculated from the
note's April 13, 1984, maturity. Belli at 840-42; Bledsoe at 807
& n.4. But for FIRREA, the debt would thus have become barred
April 13, 1990. Because the debt was not barred when FIRREA became
effective August 9, 1989, FIRREA's six-year limitations period,
which is calculated from June 4, 1987, meant that the debt would
not be barred until June 1993, well after the foreclosure (see note
1, supra). Bledsoe at 808-809.
Davidson argues that section 2415(a) does not apply to
mortgage foreclosures, and apparently every court that has
considered this question agrees. See United States v. Alvarado, 5
F.3d 1425, 1430 (11th Cir. 1993); Westnau Land Corp. v. U.S. Small
Business Admin., 1 F.3d 112, 115-16 (2d. Cir. 1993) (collecting
cases); United States v. Dos Cabezas Corp., 995 F.2d 1486, 1489
(9th Cir. 1993); United States v. Ward, 985 F.2d 500, 501-03 (10th
Cir. 1993); Cracco v. Cox, 66 A.D.2d 447, 414 (N.Y. 4th Dept.
1979); United States v. Warren Brown & Sons Farms, 1994 WL 654440
(E.D. Ark. Sept. 29, 1994); United States v. Succession of Sidon,
812 F. Supp. 674, 675-76 (W.D. La. 1993); United States v. LaSalle
6
National Trust, 807 F.Supp 1371, 1372-73 (N.D. Ill. 1992); United
States v. Mr. Wonderful Enterprises, 1992 WL 521532 (E.D.N.Y. Feb.
25, 1992); United States v. Freidus, 769 F. Supp. 1266, 1273-74
(S.D.N.Y. 1991); United States ex rel. Small Business
Administration v. Edwards, 765 F. Supp. 1215, 1222 (M.D. Pa. 1991);
United States v. Copper, 709 F. Supp. 905, 908 (N.D. Iowa 1988);
United States v. Matthews, 1988 WL 76567 (E.D.N.Y. 1988); Curry v.
United States, 679 F. Supp. 966, 970 (N.D. Cal. 1987).
We join the Ninth, Eleventh, Tenth, and Second Circuits in
this respect and hold that section 2415(a) does not directly apply
to foreclosures on security for the debt. It is a well-established
principle that all statutes of limitations against the United
States are to be strictly construed. Badaracco v. Commissioner,
104 S. Ct. 756, 761 (1984). The courts have all agreed that, by
characterizing the action as one for "money damages," the strict
terms of section 2415(a) distinguish between actions for recovery
on the promissory note and actions to foreclose on the security.
In short, although both an action on the promissory note and a
foreclosure under the deed of trust are founded upon contract, only
the former is strictly an action for money damages within the
meaning of section 2415(a).2 We thus disagree with the district
2
We observe that FIRREA's six-year period applicable to "any
contract claim," 12 U.S.C. § 1821(d)(14)(A)(i)(I), has no such
(or similar) "for money damages" limitation as is contained in
section 2415(a). Thus it is clear that FIRREA applies to
foreclosure actions.
This limitation in section 2415(a)'s coverage is explained,
though perhaps not justified, by ancient distinctions between the
right to collect on the debt (or for a deficiency) and the right
to foreclose on a deed of trust. As one New York appellate court
has observed, "It is a long-standing rule that the right to
7
court that section 2415(a) directly governs the mortgage's
foreclosability between the date of the FDIC's appointment as
receiver and the effective date of FIRREA.
While apparently conceding that section 2415(a) does not apply
to foreclosures, the FDIC argues that section 2415(c) represents an
affirmative congressional prohibition on limitations against the
government's rights to foreclose, thus displacing state law to the
contrary. FDIC's Brief at 14 ("[T]he inapplicability of section
2415(a) merely confirms the applicability of section 2415(c), which
places no limitations on the time for . . . foreclosure.").
Subsection (c) provides, "Nothing herein shall be deemed to limit
the time for bringing an action to establish the title to, or right
of possession of, real . . . property." The plain meaning of
foreclose a mortgage securing a debt is distinct from the right
to bring an action for money damages on the note . . . .
Congress recognized and preserved this distinction and intended
that section 2415 apply only to actions for money damages."
Cracco, 66 A.D.2d at 449. An action for the collection of a debt
is an action at law for money damages, whereas an action to
foreclose on a deed of trust is an equitable action to sell the
property, irrespective of the debt's amount. Finally, the
foreclosure remedy is in rem, not in personam, and is therefore
limited to the property itself.
Courts have specifically held that section 2415(a) does not
limit the government's power of sale. See Dos Cabezas Corp., 995
F.2d at 1490 (relying on subsection (c)); Curry v. United States
Small Business Admin., 679 F. Supp. 966, 970 (N.D. Cal. 1987)
(subsection (a) not a bar to the SBA's exercise of a power of
sale in a deed of trust).
In Texas, the right to nonjudicially foreclose a deed of
trust has been described as "a mere right to have recourse to the
property for the satisfaction of the obligor's debt." 30 Tex.
Jur. 3rd, Deeds of Trust And Mortgages, § 5 at 465. Moreover,
Texas law considers a sale under a deed of trust "equivalent to a
strict foreclosure by a court of equity." First Federal Savings
and Loan Ass'n v. Sharp, 347 S.W.2d 337, 340
(Tex.Civ.App.SQDallas 1961), aff'd, 359 S.W.2d 902 (Tex. 1962)
(citation omitted).
8
section 2415(c), however, is to clarify or confirm that subsection
(a) does not apply to actions relating to land titles. Cf. S. Rep.
No. 1328, 89th Cong., 2d Sess. 2 (1966), reprinted in 1966
U.S.C.C.A.N. 2502.3 Section 2415(c) therefore has no independent
preemptive force. Consequently, there is no statutory basis for
the proposition that there are no pre-FIRREA time limits on the
FDIC receiver's power to foreclose.
Finally, the FDIC contends that, if section 2415(a) does not
apply to foreclosures, then there can be no state limitation on the
government's right to foreclose because of the federal common law
rule that time does not run against the sovereign. Guaranty Trust
Co. of New York v. United States, 58 S. Ct. 785 (1938); United
States v. Summerlin, 60 S. Ct. 1019 (1940); see also United States
v. Palm Beach Gardens, 635 F.2d 337, 339-40 (5th Cir.) (explaining
3
This report includes the following with respect to
subsection (c):
"EXCEPTION AS TO GOVERNMENT ACTIONS AS TO TITLE TO REAL AND
PERSONAL PROPERTY
Subsection (c) makes it clear that no one can
acquire title to Government property by adverse
possession or other means. This is done by providing
that there is no time limit within which the Government
must bring actions to establish title to or right of
possession of real or personal property of the United
States. In other words, there is no statute of
limitations applying to Government actions of this
type." 1966 U.S.C.C.A.N. at 2505.
. . .
"Subsection (c) expressly provides that nothing in
the new section shall be construed to limit the time in
which the Government may bring an action to establish
the title to, or right of possession of, real or
personal property." Id. at 2510.
9
that the general rule "derives from the common law principle that
immunity from limitations periods is an essential prerogative of
sovereignty"), cert. denied, 102 S. Ct. 635 (1981). Setting aside
whether this particular rule applies in the absence of a
significant federal interest in conflict with state law, see United
States v. California, 113 S. Ct. 1784, 1791 (1993), we decline to
view the legal issue narrowly as one of limitations. We believe
the more precise issue to be whether the mortgage survives the
debt, and, in a case such as this, that question is normally
determined by state, not federal, law. See, e.g., Curry v. United
States Small Business Admin., 679 F. Supp. 966, 970-72 (N.D. Cal.
1987) (relying on the California state law doctrine that the
mortgage does survive a limitations bar on the underlying debt).
Although generally federal law governs issues involving rights
of the United States arising under nationwide federal programs, it
begs the question here to assume, as the government does, that the
FDIC acts in this case pursuant to a significant federal interest.
It is now well established that there is no general federal common
law, Erie Railroad Co. v. Tompkins, 58 S. Ct. 817, 822 (1938), and,
further, that federal common law rules should displace state laws
only in the case of a significant conflict with specific or unique
federal interests. See Boyle v. United Technologies Corp., 108
S. Ct. 2510, 2514-16 (1988). Here, the displacement of state law in
favor of federal common law presupposes the existence of a
significant federal proprietary interest in conflict with state
law. See United States v. Kimbell Foods, Inc., 99 S. Ct. 1448
(1979); Clearfield Trust Co. v. United States, 63 S. Ct. 573 (1943).
10
See also 19 Charles A. Wright et al., Federal Practice and
Procedure § 4514 (1982). Absent such an interest or some express
congressional policy to the contrary, state law governs state-law
rights held by the FDIC in its limited capacity as the receiver of
a nonfederal entity. In its supposition that federal law applies
to this case, the FDIC cites a series of cases in which the courts
applied Kimbell Foods to displace state rules in favor of federal
common law. The absence here of a significant federal interest,
however, critically distinguishes this case from those in which the
courts applied federal law to preserve the government's right to
foreclose.
For instance, in United States v. Ward, 985 F.2d 500, 503
(10th Cir. 1993), a Tenth Circuit case relied on by the FDIC here,
the United States had itself made loans secured by real estate
mortgages. The loans were made by the Farmers Home Administration
(FmHA) in accordance with federal policy under the Farm and Rural
Development Act of 1949. Accordingly, the case involved the rights
of the United States in a nationwide federal programSQthe very
reason the Court displaced state law in Kimbell Foods. It was
explicitly upon this basis that the Tenth Circuit preempted state
law:
"The basic reason why the Wards cannot prevail is that
federal law governs issues involving the rights of the
United States arising under nationwide federal programs.
Consequently, because the underlying loans were made to
the Wards by the Farmers Home Administration of the
Department of Agriculture and emanated from the Farm and
Rural Development Act of 1949, a nationwide federal
program, the government is not affected by Oklahoma's
lien expiration law." Ward, 985 F.2d at 503 (citations
omitted).
11
For this reason, the court in Ward determined, "[I]f the government
is barred from the enforcement of the mortgage, the limitation must
come from federal law." Id.
Indeed, all other circuit court decisions arguably on point
deal with loans or subsidies made or guaranteed by the federal
government under the auspices of some congressionally established,
nationwide program. In addition to Ward, see, for example, United
States v. Alvarado, 5 F.3d 1425 (11th Cir. 1993) (loan made by the
FmHA); United States v. Dos Cabezas, 995 F.2d 1486 (9th Cir. 1993)
(same); Cracco v. Cox, 66 A.D.2d 447 (4th Div. N.Y. 1979) (same);
United States v. City of Palm Beach Gardens, 635 F.2d 337 (5th
Cir.) (action to recover funds used in the construction of a
nonprofit hospital sold to a profit-making organization pursuant to
the Hill-Burton Act), cert. denied, 102 S. Ct. 635 (1981); Alger v.
United States, 252 F.2d 519 (5th Cir. 1958) (action for the
recovery of federal meat subsidies made under the Livestock
Slaughter Subsidy Program authorized under the Emergency Price
Control Act of 1942); United States v. Borin, 209 F.2d 145 (5th
Cir.) (same), cert. denied, 75 S. Ct. 33 (1954). Besides FmHA
loans, the most common fact pattern involves loans made or
guaranteed by the Small Business Administration (SBA). See United
States v. Kimbell Foods, Inc., 99 S. Ct. 1448 (1979); Westnau Land
Corp. v. United States Small Business Admin., 1 F.3d 112 (1993);
United States v. Sellers, 487 F.2d 1268 (5th Cir. 1974). In such
cases, there is likewise a valid federal interest connected to a
nationwide program. See Kimbell Foods, Inc., 99 S. Ct. 1448 (1979)
(involving a loan guaranteed by the SBA).
12
Here, the FDIC asserted the power of sale, not in its
corporate capacity, but only in the limited capacity of receiver of
a local, nonfederal entity. The real estate lien note and the deed
of trust documented a local transaction between private parties in
Texas, and the deed of trust was secured by a lien on Texas real
property. In this context, the concerns of Kimbell Foods are not
implicated.4 See California, 113 S. Ct. at 1791 (1993) (discussing
in dicta how the application of federal law presupposes the
government acting "in its sovereign capacity"). The Supreme Court
has recently made clear that the capacity in which the FDIC acts
may have a determinative impact on whether a state or federal rule
should control. In O'Melveny & Myers v. F.D.I.C., 114 S. Ct. 2048
(1994), the FDIC, as receiver for a failed federally insured,
California-chartered savings and loan, asserted a tort claim
against former counsel for the S&L. Although both sides conceded
that state law created the right upon which the FDIC acted, the
government argued that federal law should control whether
"knowledge of corporate officers acting against the corporation's
interest will be imputed . . . to the FDIC." Id. at 2052. On that
issue, the FDIC argued for "federal pre-emption . . . over the law
4
Whereas there is no significant federal interest here, there
is a strong local interest in state regulation of land titles.
See Mason v. United States, 43 S. Ct. 200, 203-04 (1923); see
generally 14 Charles A. Wright et al., Federal Practice and
Procedure § 3652 n.4 (1985). Such strong state interests should
"be overridden by the federal courts only where clear and
substantial interests of the National Government, which cannot be
served consistently with respect for such state interests, will
suffer major damage if the state law is applied." United States
v. Yazell, 86 S. Ct. 500, 507 (1966) (refusing to displace state
law relating to family property arrangements).
13
of imputation . . . [applicable] to the FDIC suing as receiver."
Id. at 2053.
In O'Melveny, the FDIC quoted the following language of
Kimbell Foods: "[F]ederal law governs questions involving the
rights of the United States arising under nationwide federal
programs." Id. "But the FDIC is not the United States," the Court
responded, "and even if it were we would be begging the question to
assume that it was asserting its own rights rather than, as
receiver, the rights of [the S&L]." Id. In the absence of an
applicable and contrary federal rule, the Court refused to displace
state law merely because of the FDIC receiver's connection to the
suit. Before tolerating the preemption of state law, the Court
insisted that the FDIC identify a "significant conflict between
some federal policy or interest and the use of state law." Id. at
2055 (citation omitted). With particular emphasis on the FDIC's
role as receiver, the Court found a palpable lack of a "specific"
and "concrete" federal interest: "The rules of decision at issue
here do not govern the primary conduct of the United States or any
of its agents or contractors, but affect only the FDIC's rights and
liabilities, as receiver, with respect to primary conduct on the
part of private actors that has already occurred." Id.
The Court rejected the suggestion of the FDIC that there was
a federal interest in simply not depleting the deposit insurance
fund. Because "neither FIRREA nor the prior law sets forth any
anticipated level for the fund," the Court concluded that the FDIC
was effectively asserting a "federal policy that the fund should
always win." Id. The Court rejected this so-called "more money"
14
argument. Id. See also United States v. Yazell, 86 S. Ct. 500,
504-05 (1966). In this case, the FDIC has made the identical
argument: "Because the FDIC/Receiver's foreclosure of this
property reduces the monetary exposure of the federal deposit
insurance fund '[t]he FDIC's right to recovery in these instances
is determined under comprehensive federal law that preempts state
law in this field'" (quoting Gaff v. FDIC, 919 F.2d 384, 390 (6th
Cir. 1990), modified, 933 F.2d 400 (1991)).
By asserting here the same generalized federal interest in
winning, the FDIC has again failed to identify, nor can we find, a
specific, concrete federal interest within the meaning of Kimbell
Foods. As a result, state law should govern state-law rights held
by the FDIC in its capacity as receiver of a state-chartered
institution.
We note in passing a relevant lower court decision, in which
a California district court applied California law to determine
whether a mortgage can survive the extinguishing or barring of the
underlying debt. Curry v. United States Small Business Admin., 679
F. Supp. 966, 970-72 (N.D. Cal. 1987).5 In so doing, the district
5
In contrast to the case sub judice, the government in Curry
had made the loan secured by the mortgage. The court therefore
appropriately determined that federal law controlled, but chose,
in the absence of a specific federal rule, to adopt the relevant
state law under the terms of Kimbell Foods. State law was
therefore adopted as the federal rule and applied to the facts at
hand. Here, in comparison, we determine that state, not federal,
law controls and hence need not determine the propriety of
adopting the state rule. On this basis, we distinguish United
States v. Cooper, 709 F. Supp. 905 (N.D. Iowa 1988), in which the
court refused to adopt the Iowa state rule that the barring of a
debt bars the mortgage. Because the loan in Cooper was made by
the SBA under a nationwide federal program, the case fell clearly
within Kimbell Foods. Its decision not to adopt state law as the
15
court in Curry confronted a situation remarkably similar to the one
here. There, the government, through the SBA, made a loan to the
plaintiff secured by a deed of trust with a power of sale. At
issue was the validity of the attempted nonjudicial foreclosure
under the deed of trust, notwithstanding that the underlying loan
obligation was extinguished by the general six-year statute of
limitations found in section 2415(a). The court reviewed
California law to determine the effect of this limitations bar on
the enforcement of the mortgage. California, at least at the time
of the Curry decision, followed the majority rule "that a deed of
trust 'never outlaws' and that the power of sale may be exercised
even though the statute of limitations has barred any action on the
underlying debt or obligation." Id. at 971.6 For this reason, the
court held that the SBA could exercise its power of sale even
though section 2415(a) barred an action on the note.
Though in one sense, the situation in this case is identical
to Curry, in another, it is the reverse. Here, unlike Curry, there
is no dispute that the FDIC could sue on the note because section
2415(a), which applies directly to the debt only, carried the
FDIC's power to enforce the debt past FIRREA's effective date.
Thus, in this case, we are not concerned with the effect of a
relevant federal rule of decision is therefore inapposite to the
case at hand.
6
These facts were complicated by the passage of a California
statute designed to reverse the general rule that a power of sale
survives indefinitely. Id. at 971. Nevertheless, the exceptions
built into the statute were such that the law could not
invalidate a power of sale until five years after the statute's
operative date. The SBA's interests fell within this safe harbor
provision. Id. at 972.
16
barred debt on the mortgage, but instead with the effect of an
enforceable debt on the mortgage. The critical question in this
case, therefore, is the obverse of Curry's: can the power of sale
under a deed of trust be extinguished when the note secured by the
deed of trust is still enforceable? In other words, although both
parties agree that the FDIC is not barred from suing the debtor on
the note for the underlying debt, they dispute whether enforcement
of the mortgage itself is barred. To answer this question, we turn
to the law of Texas and inquire into the connection between
mortgages and the notes they secure.
It is a general and long-established principle in Texas that
a mortgage is a mere incident of the debt. In Duty v. Graham, 12
Tex. 214 (1854), the Texas Supreme Court held that, a mortgage
being merely security for the debt and not a conveyance in itself,
the debt "is the principal thing," to which the mortgage is only an
"incident." Id. at 217. See also Slaughter v. Owens, 60 Tex. 668,
672 (1884) ("The vendor's lien exists by reason of the debt alone.
So long as that continues and can be enforced the lien subsists and
can be foreclosed."); Falwell v. Hening, 78 Tex. 278, 279 (1890)
("The lien was incident to the claim for the purchase money. If
the note was not barred the lien was not"; limitations on note
suspended by absence of maker from state); Stone v. McGregor, 99
Tex. 51, 87 S.W.334, 336 (1905) (". . . the note was barred by the
statute of limitation of four years . . . nothing occurred to
suspend the statute of limitation . . . . There being no right of
recovery on the note, there can be no foreclosure of the lien . .
. ."); Brown v. Cates, 99 Tex. 133, 87 S.W. 1149, 1151 (1905) (" .
17
. . the limitation available to a purchaser of property incumbered
by a lien to secure a debt of his vendor is that which applies in
favor of the debtor against the creditor; and that, so long as the
creditor's cause of action against the debtor upon the debt is not
barred, the right to foreclose against the purchaser of the
property continues. But when the debt is barred the action to
foreclose the lien is also barred"); Jolly v. Fidelity Union Trust
Co., 118 Tex. 58, 10 S.W.2d 539, 541 (1928) ("The rule has been
long established in this state that the lien by which a debt is
secured is incident to the debt; and that a written extension of
the maturity of the debt, by the debtor, operates as an extension
of the lien also, unless the extension agreement shows
otherwise").7
7
We acknowledge that there is some historical justification
in Texas for a distinction between a judicial and a nonjudicial
foreclosure with respect to this rule. Although Texas law has
long recognized that a mortgage is merely an incident of the
debt, in 1887 the Texas Supreme Court drew a short-lived
distinction between judicial and nonjudicial foreclosures.
Fievel v. Zuber, 3 S.W. 273 (Tex. 1887). In Fievel, the court
held that a nonjudicial foreclosure under a power of sale, unlike
a judicial foreclosure, could be exercised after the statute of
limitations had barred enforcement of the underlying debt. Id.
at 274. The court reasoned that statutes of limitations do not
"destroy" the debt, but merely bar its judicial enforcement.
Whatever relevance this distinction between nonjudicial and
judicial foreclosures may have had at the time of Fievel, the law
of Texas has since been changed to conform to the larger
principle that the mortgage follows the debt. Shortly after a
statutory provision in 1905 that limited the time for exercising
a power of sale to ten years after the maturity of the debt, the
Texas legislature, in amendments some eight years later, exactly
matched the limitations period for nonjudicial (as well as
judicial) foreclosures to the four-year rule for debts. See,
e.g., Stubbs v. Lowrey's Heirs, 253 S.W.2d 312, 313
(Tex.Civ.App.SQEastland 1952, writ ref. n.r.e.) (where the debt
was barred by limitations, the foreclosure sale under a deed of
trust was "void"); Howard v. Stahl, 211 S.W. 826, 828
(Tex.Civ.App.SQAmarillo 1919, no writ) (same); Rudolph v. Hively,
18
Consistent with this principle, Texas law matches the
limitations period of the mortgage to that of the note. Each is
four years from the maturity of the debt. Tex. Civ. Prac. & Rem
Code § 16.004(a) (debt); 16.035(a), (b), & (d).8 If the debt is
188 S.W. 721, 722-23 (Tex.Civ.App.SQAmarillo 1916, writ ref.)
(same). The relevant Texas statutes do not distinguish for
limitations purposes between judicial and nonjudicial
foreclosures. See note 8, infra.
Likewise, at least prior to the adoption of Article 9 of the
Uniform Commercial Code, the Texas law of chattel mortgages and
other personal property liens reflected the principle that the
mortgage follows the debt it secures. University Savings and
Loan Ass. v. Security Lumber Co., 423 S.W.2d 287, 292 (Tex. 1967)
("[L]iens are incidents of and inseparable from the debt.").
Indeed, the statute of limitations on chattel mortgages was
considered implicit in the four-year period for debts (found
formerly in article 5527). Alexander v. Ling-Temco-Vought, Inc.,
406 S.W.2d 919, 924-25 (Tex.Civ.App.SQTexarkana 1966, writ ref.
n.r.e.). Consequently, the "lien followed the debt, and was not
barred so long as the debt was not barred." Liquid Carbonic Co.
v. Logan, 79 S.W.2d 632, 633 (Tex.Civ.App.SQAustin 1935, no
writ). To the extent Texas' version of Article 9 of the Uniform
Commercial Code does not speak to this question, these common-law
principles still control and "supplement . . . provisions" of the
code. Tex. Bus. & Com. Code § 1.103 (1994).
8
Section 16.035 provides in relevant part:
"(a) A person must bring suit for the recovery of
real property under a lien debt or the foreclosure of a
lien debt not later than four years after the day the
cause of action accrues.
(b) A sale of real property under a power of sale
in a mortgage or deed of trust that secures a lien debt
must be made not later than four years after the day
the cause of action accrues.
(c) The running of the statute of limitations is
not suspended against a bona fide purchaser for value,
a lienholder, or a lessee who has no notice or
knowledge of the suspension of the limitations period
and who acquires an interest in the property when an
outstanding lien debt is more than four years past due,
except as provided by:
(1) Section 16.062, providing for suspension
in the event of death; or
19
barred by limitations, so is the mortgage, a mere incident of the
debt. If limitations has not run on debt, without reference to
tolling or debt extension, then limitations has not run on the
mortgage. Here, the applicable limitations period on the debt is
that fixed by federal law at six years. We conclude that, absent
special circumstances, it is not consistent with the manifest
scheme of the Texas law to void the lien when the stated
limitations years on the debt have not elapsed. To do so would be
contrary to the general rule that the mortgage follows the debt and
would pervert the purpose of the Texas law, which seeks to
harmonize the limitations period applicable to both the note and
the security. Moreover, such a result would discriminate against
the federal law by not allowing the holder of a note as to which
the applicable federal limitations years had not passed the same
privileges as the holder of a note as to which the applicable state
limitations years had not elapsed.
(2) Section 16.036, providing for recorded
extensions of lien debts.
(d) On the expiration of the four-year limitations
period, it is conclusively presumed that a lien debt
has been paid and the lien debt and a power of sale to
enforce the lien become void at that time."
Section 16.036 provides in part that "parties primarily
liable for a lien debt . . . may suspend the running of the four-
year limitations period for lien debts through a written
extension agreement" to be "signed and acknowledged as provided
by law for a deed" and recorded in the real estate records "of
the county where the real property is located."
Section 16.037 provides: "An extension agreement is void as
to a bona fide purchaser for value, a lienholder, or a lessee who
deals with real property affected by a lien debt without actual
notice of the agreement and before the agreement is acknowledged,
filed, and recorded."
20
To be sure, Texas law strives to protect from secret tollings
or extensions the unknowing bona fide purchaser who acquires the
land when the limitations period on the debt has facially expired.
Section 16.035(c); 16.037 (see note 8, supra). However, as between
the parties, and those holding under them in subordination to the
mortgage, informal, unrecorded extensions of the debt, not meeting
the standards of section 16.036 (see note 8, supra), suffice also
to extend the lien. See, e.g., Jolly, supra at 541 (predecessor to
section 16.035(c) "not intended . . . to have application where an
unbarred lien is extended by the parties to it, and no other
persons are affected by the extension, except those holding under
voluntary conveyance from the mortgagor in subordination to the
lien"; and not intended to change "rule . . . long established . .
. that the lien by which a debt is secured is incident to the debt;
and that a written extension of the maturity date of the debt, by
the debtor, operates as an extension of lien also, unless the
extension agreement shows otherwise"); T.A. Hill State Bank of
Weimar v. Schindler, 33 S.W.2d 833, 837 (Tex. Civ. App.SQGalveston
1930, writ ref'd) (predecessor to section 16.035 did not change
prior settled law "that any renewal of the note made before it
became barred which was valid as between the parties preserved the
lien until the expiration of four years after the maturity of the
debt fixed by the renewal, except as against subsequent innocent
purchasers and lienholders"); Mercer v. Daoran Corp., 676 S.W.2d
580, 581-82 (Tex. 1984) (one who becomes junior lienholder before
senior lien debt is facially barred is not protected by section
16.035's predecessor from subsequent unrecorded extension of senior
21
debt). Similarly, as between the parties, an informal, unrecorded,
and unacknowledged written promise to pay a limitations barred debt
is held to revive both the debt and the lien securing it. Beeler
v. Harbour, 116 S.W.2d 927, 930-931 (Tex. Civ. App.SQFort Worth
1938, writ ref'd). See also Falwell.9
Here, when the FDIC was appointed receiver in June 1987, four
years had not elapsed since the note's original maturity date.
Consequently, at that time the note and lien were each fully in
force. The appointment of the FDIC as receiver brought into play
section 2415(a), the federal six-year statute of limitations. As
a result, the debt would not become barred before 1990. For
purposes of its effect on Texas limitations law as applied to the
validity of the lien, it seems to us that this would be treated at
least as favorably to the validity of the lien as if the parties
had previously, by unrecorded instrument, extended the note's
maturity, so it would not be barred before 1990. On August 9,
1989, when FIRREA came into effect, no innocent, ignorant third
party purchaser for value had (or had had) any interest in the
property. In those circumstances, and as the debt was not barred,
the FDIC receiver could then have foreclosed its lien consistent
with Texas law. FIRREA then took over, and its limitations period,
9
In Falwell, the payee filed suit in February 1885 on a March
1878 note of Abercrombie's maturing November 1, 1880, and to
foreclose the implied vendor's lien securing it; limitations did
not bar the note because Abercrombie had been out of the state
continuously since a time prior to November 1880; on November 2,
1878, Abercrombie had conveyed to Falwell the land deeded
Abercrombie by the payee in March 1878. Falwell then knew of the
payee's lien. It was held that the lien was properly foreclosed
as to Falwell. "The lien was incident to the claim for the
purchase money. If the note was not barred the lien was not."
22
which did not expire before June 1993, directly applied, unlike
that of section 2415(a), not only to claims on the note but also to
foreclosure claims (see note 2, supra).10 As the lien was
foreclosable on FIRREA's effective date, application of FIRREA
would not revive a void or barred lien. When Davidson, the only
bona fide purchaser involved, first acquired an interest in the
property in March 1990, limitations concerning the lien was
governed by FIRREA, and had not expired.
Consistent with the general principle in Texas that a mortgage
survives so long as the debt, provided the rights of innocent,
ignorant third-party purchasers for value are not prejudiced, the
FDIC in this case was not barred from exercising the power of sale
contained in the deed of trust on or before the effective date of
FIRREA. That being the case, the foreclosure was timely under the
limitations provisions of FIRREA, found in 12 U.S.C. §
1814(d)(14)(A)(i).
Conclusion
For the foregoing reasons, the judgment of the district court
is
10
We recognize that this is a nonjudicial foreclosure, but
nothing in the Texas statutes treats such a foreclosure
differently for limitations purposes from a judicial foreclosure.
See note 8, supra. We are aware of no Texas authority holding
that a nonjudicial foreclosure is limitations barred where
neither the debt nor a judicial foreclosure action is so barred.
Moreover, Texas law considers a nonjudicial sale under a deed of
trust "equivalent to a strict foreclosure by a court of equity."
First Federal Savings and Loan Ass'n v. Sharp, 347 S.W.2d 337,
340 (Tex. Civ. App.SQDallas 1961), aff'd 359 S.W.2d 902 (Tex.
1961). Of course, we do not here deal with a situation in which
it is contended that the express terms of the instrument were
transgressed by the nonjudicial sale. We are concerned only with
the effect of the general limitations statutes.
23
AFFIRMED.
24