I’m proud to have represented Northeast Bank in securing a judgment to confirm the validity of a $5 million commercial loan in a Harris County, Texas court. The case began last year, when the Borrower claimed that its $5.6 million note was barred by the statute of limitations and need not be repaid. Northeast Bank filed a declaratory judgment lawsuit, asking the court in Houston to reject the Borrower’s arguments and confirm the validity of the loan. In a complete victory for Northeast Bank, the court confirmed the validity of the loan, rejected the Borrower’s claims, and awarded the bank its attorneys’ fees.
The background of the case dates back to 2009, when the Borrower defaulted on its original loan, forcing the lender to accelerate the note and begin foreclosure proceedings. The Borrower brought litigation in an attempt to stop foreclosure, resulting in a settlement and loan modification. The Borrower and the lender agreed to the loan modification, but the City of Houston, which had a second lien to the Borrower, did not initially sign off on the modification. Several years went by with the Borrower making payments under the loan modification. Then, in 2015, the Borrower claimed that the loan modification had never been effective due the the lack of consent from the City. The Borrower further theorized that since the loan modification was never valid, the lender’s acceleration of the note was never abandoned, and the statute of limitations (which began to run upon acceleration of the note) had expired.
Northeast Bank filed suit against the Borrower, and then the Borrower filed a counterclaim. Both parties asked the court to decide whether the loan modification and the note were valid and enforceable. In late 2015, the court ruled in Northeast Bank’s favor, finding that “the Loan Modification Agreement . . . is fully valid and enforceable.” Then, in late June, the court entered a final judgment in the case, awarding Northeast Bank more than $150,000 in attorneys’ fees incurred enforcing the note.
Congratulations to my client, Northeast Bank, for this win. While this case had unique facts and circumstances, it illustrates that banks can face creative arguments from borrowers seeking to invalidate loans. Banks should be cognizant of these potential arguments and take steps to avoid unwittingly losing the right to enforce a note against a borrower.