Understanding Foreclosure Statutes of Limitations

If you missed a mortgage payment a few years ago can your mortgage servicer foreclose on your home now? It might be too late for the mortgage company to foreclose, but it depends on several factors. One major factor is your state's statute of limitations laws for mortgage foreclosure. This article discusses what the statute of limitations is, different limitation periods in different states and how they’re calculated, and when the statute of limitations can be restarted.

What Are Statutes of Limitations?

Statutes of limitations are laws that limit the amount of time someone can bring a legal case against you. The concept is simple: In the case of a foreclosure, if your lender waits too long to sue you, they can lose in court. But the statute of limitations gets more complicated because limitations periods vary based on the state you’re in and the type of claim.

For example, in California, there's a four-year statute of limitation for using the courts to enforce a written contract. If you’re sued in California for breach of a written contract after four years, you can raise the statute of limitations as a defense to win the case. But the statute of limitations in California is shorter for oral contracts. It’s only two years.  

Statutes of limitations also vary depending on the state you live in. If you live in Arizona, the statute for written contracts is six years, two years longer than California’s. There may be different statutes of limitations within the same state for different legal issues like property damages, personal injury, and wrongful death.

Foreclosure statutes of limitations vary greatly from state to state. Some states have a six-year statute of limitations based on the Uniform Commercial Code’s (UCC) timeline to enforce a promissory note. In other states, the statute of limitations for foreclosure is based on the state's limitations period for written contracts or for enforcing the security interest in the mortgage or deed of trust. Depending on state law, the foreclosure limitations period could be six years, 10-20 years, or a shorter or longer time.

When Does a Statute of Limitations for Foreclosure Begin?

If the statute of limitations sets a timeline, when does that timeline begin? In foreclosure cases, it usually begins when you default on your home loan by missing a payment. But this looks different in different states. In some states, if you have multiple missed payments, each missed payment restarts the clock on the statute of limitations. In other states, the first missed payment starts the clock on the limitations period. Some mortgages have an acceleration clause, which allows the lender to call the entire loan due if you default. In some states, this action starts the statute of limitations.

How To Calculate the Statute of Limitations Time Period

There are a few terms you need to know when it comes to statutes of limitations. When the "statute of limitation begins to run" is the start date. You add the time period to the statute's start date to determine its end date. After the expiration date, you can use statutes of limitations as a defense to a foreclosure action.

Some statutes of limitations are tolling. This means the limitations period stops running until some other event occurs. For example, some coronavirus relief measures stopped foreclosures for a time but tolled the foreclosure statute of limitations until it was legal to foreclose again. Had the statutes not tolled, the foreclosure statute would have expired due to the coronavirus relief measures. 

Since the statutes of limitations vary so much by state, it’s important to get legal advice from a local foreclosure attorney if you think you may be able to use this as a defense to foreclosure.

Using the Statute of Limitations as a Foreclosure Defense

If the mortgage company starts foreclosure proceedings after the statute of limitations has expired, you have a good defense against the foreclosure. You must assert this defense to a judge. If you don’t raise the defense yourself, the statute of limitations defense is waived. When this happens, the foreclosure case can proceed even though the statute has expired. The process for raising this as a foreclosure defense will vary based on whether you’re going through a judicial or nonjudicial foreclosure.

Some states require lenders to do a judicial foreclosure. Other states allow lenders to choose from a judicial or nonjudicial foreclosure. With a judicial foreclosure, the mortgage company has to go to court to convince a judge to order the foreclosure sale. With a nonjudicial foreclosure, the mortgage company doesn't need to go to court. It only needs to follow the state's laws and procedures in conducting the foreclosure. 

With a judicial foreclosure lawsuit, it's easy to raise the statute of limitations as a defense. You can raise this defense in your answer to the mortgage company's complaint. You might be able to orally raise it at the court hearing as well. Using a statute of limitations defense is more difficult with nonjudicial foreclosures. These usually go much faster than judicial foreclosures. And you may need to file a lawsuit for wrongful foreclosure to raise the statute of limitations defense. If so, it’s important to act quickly since the proceedings are more time-sensitive.

If the Statute of Limitations Expires During a Foreclosure Process

If the statute of limitations expires during the foreclosure process you can’t use it as a defense. You can only use it as a defense if it expired before the lender began the foreclosure. This is important because the foreclosure process can sometimes take years. It’s also useful to know when the foreclosure process actually starts. Your lender must follow certain rules and laws to initiate foreclosure, including waiting until you’re 120 past due on your mortgage.

If the Foreclosure Is Canceled by the Lender or Dismissed by the Court

Say your mortgage company legally began a foreclosure before the statute of limitations expired. Then it stopped or canceled the foreclosure because of a procedural error or missing document and the statute of limitations expired. If the mortgage company refiles the case after the statute of limitations has expired, you can raise this as a defense with the second foreclosure proceeding as long as the lender hasn't decelerated the mortgage loan.

A Statute of Limitations That Has Run Can Be Reset

There are a couple of ways the statute of limitations can restart. If you’ve defaulted on your home loan and the lender has started the foreclosure process and then you make a monthly payment, the limitations period can be reset. This means you could reset the statute of limitations by making payments as part of a loss mitigation plan or loan modification since the foreclosure process started. 

The other way to restart the statute of limitation is for the lender to "decelerate" the loan. When a lender declares that the entire loan must be paid in full even though it's before the maturity date, it's called a loan acceleration. To decelerate the loan, the lender declares the loan is no longer accelerated. This means you're only responsible for the missed monthly payments instead of the entire mortgage balance.

The New York Court of Appeals is the highest court in the state of New York. It ruled in Freedom Mortgage Corp. v. Engel, 2021 NY Slip Op 01090, that when the lender voluntarily stops the foreclosure, its acceleration of the mortgage is revoked too. Since the loan is decelerated, the statute of limitations is restarted. This means the mortgage company is free to file another foreclosure. While this is the law in New York, many other states' courts say the lender ending its foreclosure action doesn't automatically decelerate the loan. 

Let’s Summarize…

A statute of limitations prevents foreclosures from being brought after the time limit expires. But these statutes vary by state and may start to run at different times in different states for foreclosure cases. The trick is to determine when the time period described in your state’s statute of limitations starts to run. Some statutes of limitations for foreclosure are less than six years while others are longer than 20 years. Sometimes the statutes of limitations for foreclosure can vary within the same state depending on the situation.

A mortgage company may be able to reset the statute of limitations in some cases. Or you may inadvertently restart the statute of limitations by making a past-due payment after the foreclosure has started. If you think the statute of limitations may have been violated, it's important to consult with an experienced foreclosure attorney since these laws can be complex and vary significantly from state to state.