Bankruptcy courts: foreclosure is not time-barred until 6 years after last payment due date specified in the mortgage or note

Last year, one of our bankruptcy judges ruled that once a mortgage lender waited more than 6 years from declaring a default and demanding the entire balance due (“accelerating the loan”) the statute of limitations specified in the Fair Foreclosure Act barred any later foreclosure suit. At the time, many of us thought the result, contrary to the adage that “no one gets a free house”, was surprising.

Many thought this would provide a windfall as they escaped foreclosure. Alas, that ruling, in Specialized Loan Servicing LLC v Washington, was reversed on appeal. 2015 US LEXIS 105794. The District Court, in a persuasive and well-thought out opinion, showed that the statute setting 6 years to foreclose actually stated that the time began to run on the maturity date set out in the loan documents. Acceleration of the loan is not mentioned there or elsewhere in the Fair Foreclosure Act. Moreover, another statute, governing the time to sue on negotiable instruments, did specify that the time ran from default. From this, the District Court concluded that, since the New Jersey Legislature knew how to make a time period run from default, its choice not to do so in setting 6 years to sue under the Fair Foreclosure Act was deliberate.

More recently, another bankruptcy judge, newly-appointed Jack Sherwood, came to the same conclusion in another well-reasoned decision. Hartman v Wells Fargo Bank NA, 2015 Bankr. LEXIS 2783 (Bankr DNJ 2015)

Oh well, for those hoping for a free house it was nice while it lasted.

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