NJ Federal Court Reverses So-Called "Free House" Mortgage Foreclosure Ruling; Says 20-Year Statute Of Limitations Applies, Not Shorter 6-Year Period

From a client alert from the law firm Maurice Wutscher LLC:

• The U.S. District Court for the District of New Jersey recently held that New Jersey’s 20-year statute of limitations for residential foreclosures applied to a re-filed foreclosure action, reversing a bankruptcy court’s ruling that the shorter six-year statute of limitations period applied.
  
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  The Court noted that the bankruptcy court interpreted the words “six years from the date fixed for making the last payment or maturity date set forth,” to mean an “accelerated” mortgage or advanced maturity date.
  
  However, the Court held, the word “accelerated” does not appear in the relevant subsection and is not defined. Moreover, the Court found no indication in the record to indicate that the maturity date in the loan documents (March 1, 2037) was accelerated by the default or by the filing of the foreclosure action.
  
  In addition, the Court found persuasive two state court rulings, holding that if the maturity date were accelerated to the date of default then the plain meaning of the language in the six-year limitations period would be rendered superfluous, and that merely filing a complaint does not reasonably accelerate the mortgage and note. See Pennymac Corp. v Crystal, No. F-31289-14 (N.J. Super. Ct. Ch. Div. May 8, 2015); Wells Fargo Bank v. Jackson, No. F-29217-14 (N.J. Super. Ct. Ch. Div. May 6, 2015).(1)
  
  The Court also held that applying the shorter six-year statute of limitations would ignore the intended purpose of the statute. The Court noted that the New Jersey residential foreclosure statutes of limitations have “been construed to address problems caused by the presence of residential mortgages on property records, which have been paid or which are otherwise unenforceable,” and that the policy behind the statute is that “all homeowners should be given every opportunity to pay their home mortgages and that mortgagees benefit when defaulting loans return to performing status.”
  
  In addition, and perhaps most importantly, the Court repeated the bankruptcy court’s words that “[n]o one gets a free house.” The Court held that “[d]eeming the mortgage collection claim as time-barred would be inequitable,” and “would be contrary to public policy by depriving [the creditors] of any remedy for [the borrower’s] default.”

For the entire alert, see NJ fed court reverses bankr court ruling that foreclosure was barred by NJ six-year statute of limitations.

For an earlier post on this story, see Expiring Statute Of Limitations Leaves New Jersey Homeowner With Free & Clear Home While Foreclosing Lender Left Holding The Bag.

For the court ruling, see Specialized Loan Servicing LLC v. Washington, No. 2:14-cv-8063-SDW (D. N.J. August 11, 2015).

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(1) It appears that, inasmuch as these trial court rulings do not constitute binding precedent on others who may be in similar circumstances (although they do bind the actual litigants in this case), it will ultimately take a ruling by the New Jersey Supreme Court (the best authority on New Jersey law, according to the U.S. Supreme Court) to sort out, once and for all, which limitations period applies in the state under these facts. See Commissioner v. Estate of Bosch, 387 U.S. 456 (1967) and the subsequent cases thereunder ("This is not a diversity case but the same principle may be applied for the same reasons, viz., the underlying substantive rule involved is based on state law and the State's highest court is the best authority on its own law.").