If a significant amount of time lapses between when you stop making your mortgage payments and when the lender initiates a foreclosure, or restarts one against you, the action might violate the statute of limitations. When applicable, the statute of limitations can be a strong defense against a foreclosure.
A "statute of limitations" sets the time limit for bringing a legal claim, like initiating a foreclosure. If the case is started after a specific date, the action isn't valid and can be dismissed.
The limitations period varies depending on the type of action or claim that's involved. Oral contracts, written contracts, personal injury, and property damage, for example, all have different statutes of limitations.
In some states, the statute of limitations for foreclosure is six years, based on the right to enforce a promissory note under the Uniform Commercial Code (UCC). In others, the statute of limitations for written contracts applies. But other states have a specific statute of limitations for foreclosure. And in other places, the relevant statute of limitations is the one for enforcing a security interest in land, like one created by a mortgage or deed of trust. In these states, a lender may foreclose even if the statute of limitations for the underlying note has passed.
So, exactly how long the limitations period lasts is quite different among the states. Again, in some states, it's six years, but in others, the period could be ten to twenty years, or shorter or longer.
Sometimes, you can quickly locate the statute of limitations for a foreclosure in your state by browsing in your state's statutes, which are often available online at your state legislature's website. But foreclosure statute-of-limitations laws can be tough to find, and how courts interpret and apply the laws can vary. If you need help determining the statute of limitations that applies to your situation, ask an attorney.
Not only is it sometimes challenging to figure out the length of a statute of limitations, but determining when it starts can also be an issue. Generally, the statute-of-limitations clock for an unpaid installment usually begins when the default, like a missed payment, occurred. Some courts treat each missed payment as a new default that restarts the clock. For the full loan, the statute of limitations usually starts to run when the loan becomes due (on the loan's maturity date, say 30 years after the first installment is due). The limitations period can also commence when the lender accelerates the loan after the borrower defaults. Once the loan is accelerated, the full outstanding balance becomes due. The lender can begin a foreclosure if the borrower doesn't pay off the debt. After acceleration, the loan changes from an installment contract to a debt that's due in a single, lump-sum payment.
Again, the law varies from state to state, so talk to a lawyer if you need help figuring out when the statute of limitations for a foreclosure begins to run in your state.
If the lender starts foreclosure proceedings after the statute of limitations has expired, it doesn't have the right to foreclose.
The statute of limitations is an affirmative defense to foreclosure, which means the borrower must bring up the issue in the foreclosure. You must raise this defense in front of a judge, which is easier in a judicial foreclosure than a nonjudicial one.
If you don't address the statute of limitations, then the defense is waived, and the lender can continue with the process.
If the statute of limitations runs out during the foreclosure, then you can't raise it as a defense to the action. So, in this scenario, even if a foreclosure takes years to complete, you don't have a defense to the foreclosure based on the statute of limitations.
If the lender stops the foreclosure, which might happen if the lender discovers a procedural error or if a court dismisses the action, and then refiles the case after the statute of limitations has expired, you might be able to raise this defense. So long as the lender didn't revoke the loan's acceleration (called "decelerating" the loan), if the lender restarts the case, it must do so within the statute-of-limitations period.
Continuing with the example above, if the foreclosure was dismissed in October 2021, the lender would need to restart the foreclosure before December 2021 to meet the statute of limitations. But if you make a payment in the interim, this payment would usually reset the statute of limitations. Also, the statute of limitations generally restarts if the lender decelerates the loan by giving clear notice that it's canceling the acceleration and permitting you to keep making payments. However, at least one court, in Florida, ruled that dismissing a prior foreclosure action decelerates the loan. (Bartram v. U.S. Bank, 211 So. 3d 1009 (Fla. 2016)). And in New York, the Court of Appeals ruled on four foreclosure cases and said that if the lender voluntarily discontinues the case, the withdrawal revokes the acceleration, and the lender can then bring another foreclosure suit later. (Freedom Mortgage Corp. v. Engel,--- N.E.3d --- (Feb.18, 2021).
Entering into a repayment plan, though, or considering a borrower for loss mitigation, like by accepting loan modification trial payments, doesn't necessarily decelerate the loan. Once again, state law differs on what constitutes deceleration of a loan.
The laws regarding the statute of limitations and foreclosures are complicated and are different from state to state. You'll most likely need an attorney to help you review your ability to raise a defense based on the statute of limitations and argue it in court if you decide to go this route. Also, keep in mind that any given foreclosure or legal situation has many potential claims and defenses. So, consider consulting with local counsel or a legal aid organization to explore all possible defenses that might be available in your particular situation.