Skip to main content
Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Indiana Supreme Court: Statute of limitations begins when lender exercises optional acceleration clause

Courts State Issues Statute of Limitations Debt Collection Acceleration Mortgage Lenders

Courts

On February 17, the Indiana Supreme Court reversed a trial court’s decision to dismiss a lender’s action as time-barred, holding that under the state’s two statutes of limitation, “a cause of action for payment upon a promissory note with an optional acceleration clause can accrue on multiple dates”—one of which “is when a lender exercises its option to accelerate before a note matures.” According to the opinion, the consumer executed a promissory note and mortgage in 2007 and stopped making payments in 2008. The note was subsequently transferred to the lender, and in 2016, the lender accelerated the debt and demanded payment in full. The lender sued to recover the note in 2017. The consumer argued that the claim was barred by a six-year statute of limitations for a cause of action upon a promissory note under Ind. Code Ann. § 34-11-2-9, and the trial court agreed, granting the consumer’s motion to dismiss. The Indiana Court of Appeals affirmed the decision, finding that the lender did not accelerate the debt within six years of the initial default, and clarified, on rehearing, that the relevant Uniform Commercial Code statute of limitations (Ind. Code Ann. § 26-1-3.1-118(a)) should also apply.

The Indiana Supreme Court reversed the trial court’s ruling, determining, among other things, that the six-year statute of limitations did not start running until the lender exercised the optional acceleration clause in 2016, which was well within the applicable statutes of limitations. “We find that. . .under either applicable statute of limitations, [the lender’s] claim is timely,” the Court wrote. “We thus reverse the trial court’s order dismissing [the lender’s] complaint and remand.”