Texas Commercial Law Firm

Once a secured party obtains possession of collateral, they are required to maintain possession until they provide proper notice of disposition in accordance with Tex. Bus. & Comm. Code Ann. §9.504, and any transfer of the collateral to a third party without notice to the debtor is actionable. Tanenbaum v. Economics Laboratory, Inc., 628 S.W.2d 769 (Tex. 1982); First City Bank - Farmer's Branch, Texas v. Guex, 677 S.W.2d 25 (Tex. 1984).

As noted above, a secured party may be liable for any breach of the peace caused by improper repossession, Garza v. Brazos County Federal Credit Union, 603 S.W.2d 298 (Tex. Civ. App.--Waco 1980, no writ), and repossession includes a non-delegable duty by the secured party to avoid breach of the peace. Mbank El Paso, N.A. v. Sanchez, 836 S.W.2d 151 (Tex. 1992). In Sanchez the Supreme Court stated:

because the bank chose to pursue non-judicial repossession, it assumed the risk that a breach of the peace might occur... having chosen it's remedy [the bank] must stand by the attendant duties and liabilities thereof. Under §424 of the restatement (second), of torts, the bank remains liable for breaches of the peace committed by its independent contractor.

5. Mitigation Not Required By The Mortgagee. A Lender has no duty to foreclose in a timely fashion in order to mitigate a borrower's losses which may occur where a borrower's assets are depreciating. Cocke v. Meridian Savings Association, 778 S.W.2d 516 (Tex. Civ. App.--Corpus Christi 1989, no writ). In Cocke the borrower complained that the lender did not mitigate its damages when it dawdled and did not foreclose until ten months after it could have foreclosed. During the ten months which passed, the borrower claimed the property value decreased by $300,000. The court concluded:

we decline to create a duty to mitigate in property law. See Brown v. RepublicBank First National, 766 S.W.2d 203 (1988). In property law, a party who believes the foreclosed property was sold for an inadequate price can seek avoidance of a deed of trust foreclosure with proof of grossly inadequate price and irregularities that were calculated to cause and did contribute to the inadequacy in price.

The rule that a lender has no duty to mitigate was later upheld by the Texas Supreme Court. Federal Deposit Insurance Corp. v. Coleman, 795 S.W.2d 706 (Tex. 1990). In Coleman, the Texas Supreme Court affirmed a deficiency judgment for the lender and ruled against the borrower's arguments that the foreclosure was delayed without reason in a declining real estate market causing the borrower substantial damages.

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