May 10, 2016
by Elizabeth Loefgren
Sirote & Permutt, P.C. – USFN Member (Alabama)
Although rules surrounding statutes of limitation vary among states, the difficulties faced by lenders across the country are relatively consistent. Many lenders have lost their ability to foreclose or collect on the note if too much time has passed from the original default date.
This problem is especially prevalent in judicial foreclosure states where foreclosure cases were dismissed for various reasons during the financial crisis and lenders are now trying to re-file foreclosure complaints. Although there are various situations in which the statute of limitations can be tolled, lenders are exploring alternate methods to restart the clock.
Before a loan is accelerated, some courts consider the failure to pay each month’s installment as a new default that restarts the statute of limitations clock. When a loan is accelerated, it is converted from an installment contract to a single-payment lump-sum debt, and the statute of limitations cannot be restarted until the loan is decelerated.
Recently, cases around the country have addressed whether a loan can be unilaterally decelerated (without the acknowledgement or consent of the borrower) and, if so, what actions will decelerate a loan. See Deutsche Bank Trust Company Americas v. Beauvais, No. 3D14-575, 2016 WL 1445415, __ So. 3d __ (Fla. 3d DCA Apr. 13, 2016) (mortgagee had no obligation to take any affirmative action to decelerate loan following dismissal of foreclosure action); Cadle Co. II, Inc. v. Fountain, 281 P.3d 1158 (Nev. 2009) (“Because an affirmative act is necessary to accelerate a mortgage, the same is needed to decelerate. Accordingly, a deceleration, when appropriate, must be clearly communicated by the lender/holder of the note to the obligor.”)
Due to the inconsistency of judicial rulings on this issue, lenders and servicers are exploring the need to formally decelerate a loan in an attempt to restart the statute of limitations clock instead of relying on the dismissal of the foreclosure complaint or other action.
Additionally, a recent case out of Utah highlights another possible scenario that may restart the statute of limitations clock. In Koyle v. Sand Canyon Corporation, 2016 WL 917927 (D. Utah Mar. 8, 2016), the district court discussed how a debtor’s bankruptcy case may impact the statute of limitations. Here, the court held that the bankruptcy tolled the statute of limitations. However, even if the statute of limitations had not been tolled, the court held that the borrower acknowledged the debt during his bankruptcy when he signed an Agreed Order in which he assented to pay his regular monthly payments under the loan.
In Koyle, the court found that this acknowledgement restarted the clock under Utah law and so the lender’s action was not barred by the statute of limitations. Moreover, if the statute of limitations had run, the court stated that the debt collector still could have foreclosed on the deed of trust, and that the statute of limitations would simply have barred enforcement of the note.
With each new case surrounding mortgage default and the statute of limitations, this area of law continues to evolve.
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