Wednesday, November 02, 2016

More On Statute Of Limitations In Foreclosure Cases

DSNews reports:
  • [T]he expiration of the statute of limitations (SOL) on a servicer’s right to foreclose has long been an issue in New York and Florida. But, it is becoming an increasingly common defense and attack raised by property owners in the Pacific Northwest and Southwest as well.

    Opportunistic investors in states like Arizona are scouring title records looking for loans that have long been in default without the completion of a judicial or non-judicial sale. Borrowers too, in states like Oregon and Washington, are jumping on the bandwagon, claiming that the servicer is prohibited, by its delay, from now foreclosing on the loan. Consequently, servicers must take a close look at their loan portfolio to determine whether the SOL has run or is close to expiring. Most importantly, servicers must know what can be done to stop any further running of the SOL clock.

    For servicers to understand their options, they must first understand what a SOL is and the risk of letting it expire. In the most simplistic terms, a SOL is the outward time limit of when a servicer can enforce its Deed of Trust following a particular default. For example, if the SOL is six years, the servicer must complete its foreclosure within 6 years. If the servicer fails to foreclose within six years, it is arguably prevented from ever foreclosing on its lien, effectively giving the borrower or owner the property free and clear of the Deed of Trust. Needless to say, this is a less than desirable result!

    If the outward limit to foreclose is, say six years, the key question is – what triggers the clock to start running the SOL? Contrary to popular belief, it is not the default itself that starts the clock running; but, rather the existence of a prior notice from the servicer declaring the loan in default and that all sums are immediately due (i.e. acceleration). The problem is that, in many instances, the debt was accelerated long ago (often by a prior servicer as part of a previous foreclosure attempt). In that event, the current servicer could have a ticking time bomb on its hands.

    The SOL defense is generally raised years after a potential acceleration. At that point, servicers (and their legal teams) are left scrambling to review the entire loan file to determine when the first acceleration occurred, whether there were any tolling events preventing the SOL from having already run, and, most importantly, was the loan ever “de-accelerated."

    As we are now several years removed from the height of the financial crisis, the six year SOL on foreclosures in Arizona, Oregon and Washington are becoming an increasingly bigger problem for servicers in these states. Indeed, because servicers may not be aware that acceleration of the loan arguably starts the SOL running, proving that the loan was de-accelerated (or that the running of the statute was tolled) may prove crucial to avoiding the bar to foreclosure.[1]

    This article discusses the applicable SOL period in all three states, what events or actions servicers take that could commence its running, servicers’ ability to waive acceleration and the need to create further precedent confirming this right. ...

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