Winsor Law Group Blog

In Webster Bank v. Mutka, 481 P.3d 1173 (Ariz. App. 2021), Division One of the Arizona Court of Appeals determined that the statute of limitations to collect on a closed-end home equity line of credit with a fixed maturity date begins on the due date of each unpaid payment, and as to future unmatured payments, on the date the creditor accelerates the debt.

William Mutka obtained a home equity consumer revolving loan agreement (also known as a home equity line of credit or HELOC) from Webster Bank in 2007 and secured the loan agreement with a deed of trust on Mutka’s house.  The agreement allowed Mutka to draw on the credit line for 15 years while making interest-only payments and obligated him to make 180 payments of principal and interest during the second 15-year period of the 30-year loan term.  Mutka drew almost the entire available credit line between 2007 and 2011, and he failed to make any interest-only payments after March 2011.  Webster Bank took no action for more than six years, but then filed a complaint in December 2017 alleging a breach of contract.[1]  Mutka argued in a summary judgment motion that the six-year statute of limitations in A.R.S. §12-548(A) barred the bank’s claim.  The Superior Court denied Mutka’s motion for summary judgment and entered judgment in favor of the bank.

On appeal. Mutka argued that the HELOC was similar to a credit card, and a cause of action to collect the entire balance of a credit card accrues when a debtor fails to make a full, agreed-to minimum monthly payment.  See Mertola, LLC v. Santos, 244 Ariz. 488, 492 (2018).  The Court of Appeals disagreed and explained that the HELOC, unlike a credit card, has precisely defined payments, a defined schedule of payments, and a defined maturity date.  Consequently, the Court of Appeals held that Webster Bank’s cause of action accrued when each past installment payment was unpaid, and its cause of action relating to future installments accrues when it accelerates the balance of the payments. 

In effect, a HELOC creditor’s claim accrues at two different times.  Its claim for unpaid payments arises when the payment is missed.  For example, if a debtor fails to make a HELOC payment from January 2015 forward, and the creditor sues in July of 2021, the creditor may not recover the January through June 2015 payments.  It may still recover payments coming due from July 2015 until the date it files suit.  The creditor’s claim for future payments arises when the creditor decides to “accelerate” the balance of the debt, meaning that the creditor declares the full balance of the debt immediately due and owing.[2]

If you are facing collection on any debts, the attorneys at Winsor Law Group can assist you in identifying defenses and alternatives to litigation.

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[1] The opinion does not identify that the property securing the HELOC had been sold at a trustee’s sale conducted by the first position lienholder in 2013.  Webster Bank was therefore allowed to sue on its promissory note.  Had Webster Bank conducted a trustee’s sale of its second-position deed of trust, A.R.S. §33-814 would require it to file suit within 90 days of the completion of sale.

[2] Acceleration requires an affirmative action by the creditor.  The mere recording of a notice of trustee’s sale does not accelerate a debt unless the notice itself states that the debt is accelerated, or other evidence of an intention to accelerate exists.  Bridges v. Nationstar Mtg., 481 P.3d 701 (Ariz. App. 2021).