The Court addressed the issue of whether the amount due under a secured promissory note providing for installment payments could be reduced for missed payments due more than six (6) years prior to the acceleration of the note.
The Debtor filed a Chapter 13 bankruptcy case seeking to save his home. The home was valued at $152,000 and subject to two secured claims: A first priority claim in the amount of $80,974 held by Wells Fargo; and a disputed second priority claim held by NPL Capital, LLC (“NPL”) in the amount of $64,738.00.
In July 2017, NPL accelerated the note and commenced a foreclosure proceeding which precipitated the bankruptcy filing. The Debtor objected to NPL’s Proof of Claim arguing the claim should be reduced by the cumulative amount of missed installment payments occurring more than six-years prior to acceleration. In this case, seventeen payments between March 2010 and July 2011, totaling approximately $2,621, occurred more than six-years prior to acceleration.
The Debtor argued the statute of limitations began to run on the date each respective installment payment became due and the payments that became due more than six prior to acceleration are barred. The Debtor finds support for his argument in In re Church, 833 P2.d 813 (Colo. App. 1992). Church held that when an obligation is payable in installments, and the holder of the note possesses the option to accelerate and declare all amounts due upon a single default but fails to do so, a separate cause of action arises on each unpaid installment and the statute of limitations begins to run when the payment is missed.
NPL argued that the six-year statute of limitations did not begin until the acceleration of the debt in July 2017 when it initiated foreclosure proceedings and all amounts due under the note became due at that point relying on the more recent cases of Hassler v. Account Brokers of Larimer County, Inc., 274 P.3d 547 (Colo. 2012) and Castle Rock Bank v. Team Transit, LLC, 292 P.3d 1077 (Colo. App. 2012). In Hassler, the Colorado Supreme Court held a suit to recover a deficiency balance after the repossession of vehicle was barred by the six year statute of limitations when the action was filed more than six years after the note was accelerated and opined that while the six-year statute of limitations runs from the date of the default of each installment, when an obligation to be repaid in installments is accelerated the entire remaining balance becomes due.
Castle Rock Bank discusses options the holder of an installment note may exercise upon default. First, the creditor could elect to file suit on each missed installment payment. Second, the creditor could elect to accelerate the note and demand payment of the entire unpaid balance. Third, the creditor could sue for the unpaid balance upon maturity.
The Court held the entire amount due under the installment obligation became payable when the note was accelerated in July 2017 and overruled the claim objection to the extent the Debtor sought to reduce the claim by the amount of the missed installment payments.
The holding was consistent with two recent Colorado District Court decisions: Froid v. Ditech Financial, LLC, 2018 U.S. Dist. Lexis 23377; 2018 WL 835041 (D. Colo. 2018) and Davis v. Wells Fargo Bank, 2017 U.S. Dist. Lexis 167150; 2017 WL 451830 (D. Colo. 2017).