The U.S. Court of Appeals for the Eighth Circuit recently reversed the dismissal of a borrower’s lawsuit against his mortgagee for failing to restore his title after a non-judicial foreclosure and subsequent execution of a loan modification agreement, holding that the borrower’s claims were not time-barred and accrued only when he tried to sell the home more than five years after the modification agreement. 

A copy of the opinion is available at: Link to Opinion.

A borrower refinanced his home mortgage loan in 2003, and defaulted in 2008. The loan servicer gave the borrower notice and held a non-judicial foreclosure sale under Missouri law, at which the mortgagee made the winning bid.

A deed conveying title of the encumbered property to the mortgagee was recorded in 2008 and then the mortgagee sued to evict the borrower. A few months later, the borrower and mortgagee entered into an oral agreement to reinstate the mortgage by paying $6,600 and the eviction proceeding was halted.

However, the parties did not address how the borrower’s title would be restored. The parties then signed a loan modification agreement, which once again did not specify how the borrower’s title would be restored. 

In 2013, the borrower moved and decided to sell the home. However, his real estate broker discovered during a title search that the home was still titled in the mortgagee’s name. 

The borrower then sued the servicer in Missouri state court.

The mortgagee intervened and removed the case to federal court, “seeking an order setting aside the deed from the foreclosure sale and enforcing the modified loan — in other words, judicial permission to proceed as if everything happened the way it was supposed to occur.” 

The borrower sought damages instead of accepting a deed back to him because he no longer resided in the subject property, which had deteriorated and later declared a nuisance. 

The parties filed cross-motions for summary judgment and the trial court granted the mortgagee’s motion, finding that the borrower’s claims were time-barred by Missouri’s five-year statute of limitations. The borrower appealed.

The central question before the Eighth Circuit was whether the borrower’s claims accrued in 2008 or 2013. 

The Eighth Circuit explained that under Missouri law, claims generally accrue “when the damage … is sustained and is capable of ascertainment.” In addition, however, in cases involving fraud, the claim does not accrue until “discovery … of the facts constituting fraud.”

The Appellate Court concluded that it need not decide which standard applied because it found that the borrower’s “claims were all timely even under the usual, easier to trigger ‘capable of ascertainment’ standard.”

The Eighth Circuit rejected the mortgagee’s, and trial court’s, reasoning that the borrower could have discovered the status of title more than five years before filing suit, rejecting such a literal approach in reliance on a Missouri Supreme Court opinion holding that the phrase “capable of ascertainment” means when the “plaintiff has sufficient knowledge to be put on ‘inquiry notice’ of the wrong and damages….” 

Relying on its interpretation of the Missouri Supreme Court’s ruling, the Eighth Circuit held that “the statute of limitations on [borrower’s] claims only started running ‘when a reasonable person would have been put on notice that an injury and substantial damages may have occurred and would have undertaken to ascertain the extent of the damages.’”

Because the Eighth Circuit found that the mortgagee could not point to anything that would have led a reasonable person to inquire why his title was not restored, the party asserting the defense bears the burden of proof, and all seemed well until the borrower tried to sell his home, the Court concluded the borrower had no duty to inquire and that his lawsuit was timely.

Thus, the trial court’s summary judgment in favor of the mortgagee was reversed and the case was remanded “for consideration of the merits of [borrower’s] claims.”