Texas Commercial Law Firm

There is potential for a lender to be liable for the actions of his agents both in foreclosing liens against real estate, improperly evicting a tenant, and wrongfully taking possession of property improperly foreclosed. Additionally, a lender runs significant risks in repossessing and selling personal property under the UCC. Lender liability as it relates to real property and personal property are discussed below.

1. Lender liability in real property foreclosure. As noted above, a lender may be sued for wrongful foreclosure. Owens v. Grimes, 539 S.W.2d 387 (Tex. Civ. App.--Tyler 1976, writ ref'd n.r.e.); Farrell v. Hunt, 714 S.W.2d 298 (Tex. 1986). A wrongful foreclosure action may arise from the lender's negligence and could result in the imposition of actual and punitive damages against the lender, although the recovery of damages is similar in basis and theory to the tort of conversion of personal property. Generally speaking, a wrongful foreclosure occurs when there is an illegal or wrongful sale of property. Owens v. Grimes, 539 S.W.2d 387 (Tex. Civ. App.--Tyler 1976, writ ref'd n.r.e.). Owens states:

It is generally held that where an illegal or wrongful sale of the property is made under a power of sale contained in a mortgage or deed of trust, the mortgagee or trust deed mortgagee will be held liable to the mortgagor for the damages sustained.

failure to follow the deed of trust or the loan documents, Slaughter v. Qualls, 139 Tex. 340, 162 S.W.2d 671 (1942); University Savings Association v. Springwoods Shopping Center, 644 S.W.2d 705 (Tex. 1982);

the loan is not in default, Calverley v. Gunstream, 497 S.W.2d 110 (Tex. Civ. App.--Dallas 1973, writ ref'd n.r.e.); League City State Bank v. Mares, 427 S.W.2d 336 (Tex. Civ. App.--Houston [14th Dist.] 1968, writ ref'd n.r.e.); Covington v. Burke, 413 S.W.2d 158 Tex. Civ. App.--Eastland 1967, writ ref'd n.r.e.);

statutory requirements have not been followed or the lien is invalid. Ward v. Billups, 76 Tex. 466, 13 S.W. 308 (1890); inequitable conduct by the mortgagee such as accelerating a debt after several late payments were accepted, Hiller v. Prosper Tex., Inc., 437 S.W.2d 412 (Tex. Civ. App.--Houston [1st Dist.] 1969, no writ);

foreclosure proceedings undertaken in order to force the mortgagor to settle a suit against the mortgagee, Winton v. Davie's, 614 S.W.2d 464 (Tex. Civ. App.--Waco 1981, no writ); and

accelerating a debt to force early payment by the borrower, Vaughn v. Crown Plumbing.