The Supreme Court of Virginia affirmed the circuit court’s finding that the borrower’s breach of contract claims against his lender accrued when his debt was accelerated prior to foreclosure for statute of limitations purposes.

In Kerns v. Wells Fargo Bank, N.A., 296 Va. 146, 153, 818 S.E.2d 779 (2018), the borrower took out loan to purchase a property. The lender assigned the Promissory Note to Wells Fargo. At some point the borrower fell behind in his mortgage payments. Wells Fargo sent him a pre-acceleration letter, dated June 20, 2010, advising him of the default, and the consequences if the borrower failed to bring the loan current. Treating the entire loan accelerated, Wells Fargo instructed the trustee to foreclose on the property. On August, 23, 2011, the trustee conducted a foreclosure sale.

Exactly five years after the foreclosure sale, the borrower filed the lawsuit claiming, inter alia, Wells Fargo breached the loan agreement by failing to give him a contractually required opportunity to cure his default and by improperly accelerating the balance due. The borrower alleged that Wells Fargo ’s pre-acceleration notice had been “back-dated to June 20, 2010” but had actually been mailed on June 21, 2010. In short, the borrower claimed that Wells Fargo issued a 29-day acceleration notice rather than a 30-day notice in breach of the terms of the loan documents.

In finding for Wells Fargo, the circuit court dismissed the borrower’s action holding that the five-year statue of limitations (Va. Code § 8.91-246) barred his breach of contract claims.

On appeal, the borrower argued that the lower court erred in dismissing his breach of contract claims on the statute-of-limitations grounds and ruled that the five-year limitation period began to run earlier than the date of the foreclosure sale.

The Virginia Supreme Court, in affirming the lower court, found that the circuit court narrowly held the time limitation began when Wells Fargo actually accelerated the debt and made the entire outstanding balance immediately due. “By impermissibly altering the legal relationship between the parties in this manner the circuit court held, the alleged contractual breach by Wells Fargo caused [the borrower] legally cognizable harm.”

The borrower further argued that the acceleration did not cause his injury to his contractual rights because Wells Fargo had no right to accelerate due to the allegedly defective pre-foreclosure notice, and thus no legally recognized acceleration could have occurred. The Supreme Court rejected this line of reasoning stating that the argument inverts the Virginia Code by “suggesting that no breach of contract (if later proven to be a true breach) could ever trigger the accrual of a right of action because the transgressor had no right to breach.”

Moreover, the borrower claimed that if he filed his breach of contract claims after acceleration but before foreclosure sale, there would be no cause of action because he had yet to lose his property. The Court was not persuaded. The risk of future “unrealized damages”, the Court stated, has never been a basis for pushing forward the date of accrual. According to the Court, the borrower “had five years to file his breach of contract claims after Wells Fargo had accelerated his debt. Much of that period came after foreclosure, giving Kerns ample time to calculate and prove any compensable damages that he could hope to recover.”

In sum, the Supreme Court found, that the circuit court correctly held that the borrower’s breach of contract claims — whether viewed as a right of action under Va. Code §8.01-230 or a cause of action under Code § 8.01-246 — accrued when the debt was accelerated prior to foreclosure. Because the borrower did not file his suit within five years of this date of accrual, the statute of limitations barred his claims.

Hugh J. Green