Court Rejects Claim That Mortgage Lender Owed Fiduciary Duties To Borrower And Addressed The Discovery Rule For The Statute of Limitations

by Winstead PC
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In Wakefield v. Bank of Am., N.A., a borrower stopped paying on her mortgage because she felt she was assisting in a fraud. No. 14-16-00580-CV, 2018 Tex. App. LEXIS 545 (Tex. App.—Houston [14th Dist.] January 18, 2018, no pet. history). She later sued the lender for breach of fiduciary duty, and the lender filed a motion for summary judgment based on the statute of limitations, which the trial court granted. The court of appeals discussed the discovery rule in the context of a breach of fiduciary duty claims:

The limitations period for fraud and breach of fiduciary duty is four years. “As a general rule, a cause of action accrues and the statute of limitations begins to run when facts come into existence that authorize a party to seek a judicial remedy.” A cause of action “accrues when a wrongful act causes a legal injury, regardless of when the plaintiff learns of that injury or if all resulting damages have yet to occur.” There is, however, a “very limited exception” to the general rule for determining accrual of the cause of action. “The discovery rule exception defers accrual of a cause of action until the plaintiff knew or, exercising reasonable diligence, should have known of the facts giving rise to the cause of action.” Under the discovery rule, accrual may be deferred if “the nature of the injury incurred is inherently undiscoverable and the evidence of injury is objectively verifiable.” “An injury is inherently undiscoverable if it is, by its nature, unlikely to be discovered within the prescribed limitations period despite due diligence.” The issue of when a cause of action accrues is a question of law. And, whether an injury is inherently undiscoverable is a legal question “decided on a categorical rather than case-specific basis; the focus is on whether a type of injury rather than a particular injury was discoverable.”

….

In the context of a fiduciary relationship, “the nature of the injury is presumed to be inherently undiscoverable, although a person owed a fiduciary duty has some responsibility to ascertain when an injury occurs.” The rationale for this presumption is that fiduciaries are presumed to possess superior knowledge, meaning the injured party is presumed to possess less information than the fiduciary. Consequently, the Supreme Court of Texas has repeatedly “held a fiduciary’s misconduct to be inherently undiscoverable.” If a fiduciary relationship exists, “a person to whom a fiduciary duty is owed is relieved of the responsibility of diligent inquiry into the fiduciary’s conduct.”

Id. The court then addressed whether the mortgage lender owed fiduciary duties to the borrower and held that it did not:

Generally, the relationship between a borrower and a lender does not create a fiduciary duty. “[T]he great weight of authority is that while the relationship between the mortgagor and mortgagee is often described as one of trust, technically it is not of a fiduciary character.” “A special relationship does not usually exist between a borrower and lender, and when Texas courts have found one, the findings have rested on extraneous facts and conduct, such as excessive lender control or influence in the borrower’s business activities.” Not every relationship involving a high degree of trust and confidence gives rise to an informal fiduciary duty, and for an informal fiduciary duty to arise in a business transaction, “the relationship must exist prior to, and apart from, the agreement made the basis of the suit.” Wakefield did not allege an informal fiduciary relationship; in her pleadings she based her breach-of-fiduciary-duty claim on her status as “lendee” and did not plead any facts to support the existence of an informal relationship.

Id. After holding that the lender did not owe fiduciary duties, the court held that there was no presumption that the claim was undiscoverable and affirmed the summary judgment based on the statute of limitations.

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