A Recent New Jersey Bankruptcy Court Case May Allow You To Defeat a Foreclosure Case If Your Complaint Was Filed More Than Six Years After Your Loan Balance Was Accelerated.

People Have Asked: “Can I Defeat A Foreclosure Case Past The Statute of Limitations?

THIS ARTICLE HAS NOW BEEN UPDATED WITH THE PASSING OF ASSEMBLY BILL 5001 as of February 2019.  See the updated article here: https://toddmurphylaw.com/new-jersey-revises-statute-of-limitations-on-foreclosures/

The New York Times posted an article in November of 2014 reporting on an interesting case in the New Jersey bankruptcy court where a judge – reluctantly – barred a foreclosure action because the complaint was filed beyond the statute of limitations under New Jersey’s Fair Foreclosure Act.  See NY Times Article Here.

Judge Kaplan in In Re Washington held that, “by application of N.J.S.A. § 2A:50-56.1(a) and (c), Specialized Loan Servicing was time-barred under New Jersey state law from enforcing either the note or the accelerated mortgage. As a result, Specialized Loan Servicing’s proof of claim was subject to disallowance under 11 U.S.C. § 502(b)(1) and deemed unenforceable against the debtor or the debtor’s property under applicable state law. As a result, the lender’s claim was unsecured, and the underlying lien was deemed void pursuant to 11 U.S.C. § 506(a)(1) and (d).”

What Does the New Jersey Fair Foreclosure Act Say About Statutes of Limitations?

The statute reads:

“1. An action to foreclose a residential mortgage shall not be commenced following the earliest of:

a. Six years from the date fixed for the making of the last payment or the maturity date set forth in the mortgage or the note, bond or other obligations secured by the mortgage, whether the date is itself set forth or may be calculated from information contained in the mortgage or note, bond, or other obligation, except that if the date fixed for the making of the last payment of the maturity date has been extended by a written instrument the action to foreclose shall not be commenced after six years from the extended date under the terms of the written instrument.  N.J.S.A. § 2A:50-56.1(a) (emphasis added).

What Happened in the Bankruptcy Court Case?

In a Bankruptcy Court Case title In Re Washington, The home owner purchase a three-family house in February 2007 with a 30-year adjustable rate Mortgage and Note. In July 2007 the borrower defaulted on the Note and the foreclosure action was filed by the Lender in December 2007. The foreclosure Complaint accelerated the due date for all amounts owed on the loan as a result of the payment default. In July 2013 the foreclosure action was dismissed for lack of prosecution due to the Lender’s failure to produce certain documents to the Court. The Lender did not appeal the decision or commence another foreclosure action against the homeowner. Then, on March 12, 2014 the borrower filed for Bankruptcy and commenced an Adversary Proceeding against the Lender to render the loan wholly unenforceable.

Citing the New Jersey Statute of Limitations, the borrower argued that the six-year statute of limitations applicable to loans as per the Fair Foreclosure Act (see N.J.S.A. § 2A:50-56.1) barred the Lender from commencing an action due to the borrower’s default on the note taking the position that the six-year statute of limitation period had expired due to the default and acceleration of the maturity date that occurred when the foreclosure complaint was filed in 2007. Judge Kaplan held that the six-year statute of limitation period applied to the foreclosure action and the Lender failed to commence a foreclosure action within the six year period following the accelerated maturity date that occurred back in June 2007. Therefore, the Lender’s lien was void and no longer enforceable against the Debtor. As a result, the Lender’s proof of claim in the Bankruptcy case was also barred due to the underlying lien being unenforceable as a result of the decision.

Acceleration Was The Key Here.

Because the loan was accelerated, the date of the last payment became the date of acceleration.  That date, in this case was December 2007.  Even though the lender filed a case within the time frame originally, the case was dismissed for lack of prosecution causing the lender to have to start from the beginning and in so doing, the Complaint was then filed outside the six year date.

How will this case hold up in New Jersey State Court?

Its worth a try.  This is still a recent case and the concept is only just beginning to be litigated in New Jersey State Court.  So, more will be know as those cases come down.  The NJ State Court is not required to follow the Bankuptcy Court case but can use it for guidance.  This particular set of facts doesn’t come up often since most lenders don’t wait so long to file a foreclosure action, but if your complaint has come more than 6 years after the lender declared you in default, then it is worth a try to raise this as a defense when you answer your complaint.

What You Should Do If You Are Served With a Foreclosure Complaint in New Jersey?

Don’t just ignore the Complaint.  You only have 35 days to file an answer.  As soon as you receive the Complaint, contact an experienced New Jersey foreclosure attorney who can review your situation and advise of the next steps.  If the date on the Complaint is six years after your loan balance was accelerated, look at this possibility carefully, review the latest State Court case law and determine whether or not this is a valid defense for you.

Can I Defeat A Foreclosure Case Past The Statute of Limitations in New Jersey?  Well, maybe!

*Update: The bankruptcy court case In Re Washington was overturned on appeal in August of 2015. The United States District Court for the district of New Jersey reversed its decision and now, the debtor does not get a free home, the mortgage must be paid by the mortgager.

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