With the backlog of delinquent loans in many lenders’ queues, it could potentially take months or even years after a borrower stops making payments before the lender initiates a foreclosure on a mortgaged property. Consequently, it is important for borrowers to understand what a statute of limitations is, as well as be aware of the time limit for their particular state, to ensure that the home foreclosure is not barred by the statute of limitations.
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 type of action or claim. For example, there are different statutes of limitations for oral contracts, written contracts, personal injury, and fraud. In the context of home foreclosure, the statute of limitations for written contracts (that is, mortgages) is usually the applicable statute or there may be a specific statute that addresses foreclosures, as is the case in New Jersey. If the foreclosure is initiated after the statute of limitations has expired, the lender’s claim is invalid and the lender is not entitled to foreclose.
If the relevant time period for a foreclosure statute of limitations has run out, then this is an affirmative defense to foreclosure. The statute of limitations defense must be asserted by the homeowners to defeat the lender’s claim. If the homeowners do not assert the statute of limitations defense, then this defense is deemed waived. Therefore, it is extremely important for borrowers to be aware of the statute of limitations for foreclosures in their state because it could mean a quick end to a foreclosure if the time limit has expired.
On the other hand, if the statute of limitations runs out after the foreclosure process has already started, then the statute of limitations will not be a defense to the foreclosure. This means that even if a foreclosure takes years to complete (which is common in New York, where the average foreclosure takes around three years) and the time period under the statute of limitations covering foreclosures runs out while the foreclosure is in process, this will not prevent the foreclosure from going through. For instance, if the lender files a foreclosure lawsuit in January, 2012, but the statute of limitations runs out in June, 2012 while the foreclosure is pending, a statute of limitations defense is not available. In order to comply with a statute of limitations, the lender must simply begin the foreclosure before the time period expires.
However, if the foreclosure is cancelled or dismissed (perhaps due to a procedural error by the lender), then the statute of limitations will still apply to any subsequent foreclosure. The lender could restart the foreclosure, but the restart would have to occur within the time period provided for in the statute of limitations. In the example above, if the foreclosure was dismissed in April, 2012, the lender would need to restart the action prior to June, 2012 to fall within the statute of limitations. It is important to note that if the borrower makes a payment in the interim, this will reset a statute of limitations in most cases.
Each state has its own set of statutes of limitations. Generally, for a written contract, including mortgages, the statute of limitations will vary from three years to 15 years, though this differs from state to state with most falling within the three-to-six-year range. Nevada is typical with a statute of limitations of six years covering foreclosures. (However, the statute of limitations for secondary lienholders to sue to collect the debt after a foreclosure is six months in Nevada.) To determine the statute of limitations in your state, you will need to look in your state's statutes. State statutes are often posted on a state’s legislature webpage. For help on researching your state's statutes, see our article Finding Your State's Foreclosure Laws.
The statute of limitations clock for a mortgage foreclosure usually starts when the default occurs--that is, when the borrowers stop making mortgage payments. It is usually calculated from the date of the last payment or from the due date of the first missed mortgage payment. Again, this depends on your state's particular statute.
The foreclosure process varies from state to state and a statute of limitations defense is a valuable tool that can stop a foreclosure in its tracks if used appropriately. If you think that the statute of limitations has expired, you may want to consult with an attorney who can advise you regarding the likelihood of success for a statute of limitations defense, as well as identify any other defenses or deficiencies in the lender’s foreclosure action.