Update: The COVID-19 outbreak is having a severe impact on the operations of civil courts across the country, forcing courts to prioritize criminal matters over less urgent civil cases. Some courts are tolling—stopping temporarily—civil statute of limitations periods during the coronavirus pandemic to help reduce case backlog. Check your court’s website or on the Chart: Statutes of Limitations in All 50 States to learn whether your state has implemented such measures. For more coronavirus-related legal changes, see COVID-19: The Law and Your Legal Rights During the Coronavirus Outbreak.
Sometimes, months or even years might pass by after a borrower stops making loan payments before the lender initiates a foreclosure. So, it's important for borrowers who're significantly behind in mortgage payments to understand what a statute of limitations is, and be aware of the time limit for their particular state, to ensure that a statute of limitations doesn't bar the foreclosure.
A "statute of limitations" sets a time limit for initiating a legal claim. All types of legal actions have a statute of limitations. The time frame will vary based on the kind of action or claim; different statutes of limitations exist for oral contracts, written contracts, personal injury, and fraud, for instance.
In some states, the statute of limitations for foreclosure is six years, which is based on the right to enforce a promissory note under the Uniform Commercial Code (UCC). Other states base the statute of limitation for a foreclosure on the one for written contracts. But the law varies from state to state. State law might provide a specific statute that addresses foreclosures. Or the relevant statute of limitations could be the one for enforcing a security interest in land, such as a security interest created by a mortgage or deed of trust.
So, the statute of limitations could be six years, ten to twenty years, or shorter or longer, depending on state law.
The statute of limitations for an unpaid installment usually starts to run when the borrower defaults on the loan by missing a payment. Some courts treat each missed payment like a new default, which restarts the clock. For the full loan, the statute of limitations typically begins when the loan becomes due (that is, on the loan's maturity date). The limitations period also gets triggered when the lender accelerates the loan.
If the lender initiates a foreclosure after the statute of limitations has expired, the borrower can raise it as a defense. You must raise this issue in front of a judge, which is easier in a judicial foreclosure than a nonjudicial one, to defeat the lender’s foreclosure action. If you don't assert a statute of limitations defense, then this defense is deemed waived.
So, it's critical that borrowers are aware of the statute of limitations in their state because it could mean a quick end to a foreclosure if the time limit has expired.
If the statute of limitations runs out after the lender starts the process, then the statute of limitations won't work as a defense to the foreclosure. Even when a foreclosure takes years to complete, which is common in some states, if the statute of limitations runs out while the foreclosure is in process, the foreclosure can still proceed.
For example, say your lender files a foreclosure lawsuit against you in January of 2019, and the statute of limitations runs out in June of 2019, while the foreclosure is pending. You can't bring up the statute of limitations as a defense in this situation. To comply with a statute of limitations, the lender simply has to begin the foreclosure before the specified period expires. But if the foreclosure is canceled or dismissed, then the statute of limitations will generally apply to any subsequent foreclosure—if the lender didn't revoke the loan's acceleration. So, the lender could restart the foreclosure, but the restart would have to occur within the period provided for in the statute of limitations.
Going back to the example above, if the foreclosure was dismissed in April of 2019, the lender would need to start another foreclosure before June of 2019 to fall within the statute of limitations. But if you make a payment in the interim, the statute of limitations usually resets. Also, the statute of limitations generally starts over if the lender de-accelerates the loan by giving clear notice that it is canceling the acceleration and permitting you to keep making payments. Though, at least one court, in Florida, has ruled that dismissing a prior foreclosure action de-accelerates the loan. (Bartram v. U.S. Bank, 211 So. 3d 1009 (Fla. 2016)). Also, the New York Court of Appeals ruled on four foreclosure cases and said that a lender’s voluntary withdrawal of the action revokes the election to accelerate, absent a contemporaneous statement to the contrary. (Freedom Mortgage Corp. v. Engel,--- N.E.3d --- (Feb.18, 2021).
But entering into a repayment plan or considering you for a loss mitigation option, such as by accepting loan modification trial payments, doesn't necessarily de-accelerate the loan. Again, state law and the circumstances determine whether the loan was de-accelerated and the statute of limitations restarted.
Statute of limitations laws are complicated and vary quite a bit from state to state. While a statute of limitations defense is a valuable tool that can stop a foreclosure in its tracks, you have to use it appropriately. If you think that the statute of limitations has expired in your situation, consider talking to a lawyer in your state who can advise you about the length of limitations period and when it begins to run in your case, as well as advise you about the likelihood of success for a statute of limitations defense. A lawyer can also identify any other defenses or deficiencies in the lender’s foreclosure action.