Statute of Limitations
The Statute of Limitations prescribes the maximum time after an event that the injured party may commence legal proceedings. More specifically, the Statute of Limitations imposes upon a mortgage holder a set period of time from acceleration of the underlying debt within which a foreclosure action must be commenced.
In New York and New Jersey, the statute of limitations is six years for mortgage foreclosure actions. If the loan has not been accelerated (aka the process whereby the whole debt is called due) the six-year time period runs from the date of each missed payment. Where the loan has been accelerated the six-year time period runs from the date of acceleration.
What if a lender starts a foreclosure action before the six-year time period expires but the action is not completed within the six-year time period?
The short answer is that the time period is for commencing an action – not completing one. Therefore, so long as the lender starts the action within the six-year time period the debt will be protected.
The long answer is that the lender needs to be careful. Many foreclosure actions are discontinued and restarted (especially in downstate New York) because of non-compliance with Court-imposed rules, attorney mistake and a wide array of other reasons (See Standing (link here). While there are certain methods to re-commence a foreclosure action that has been discontinued after the statute of limitations has run they are inherently risky. Simply put there is too much distressed on the market to purchase a loan with Statute of Limitations Concerns.
How can a prospective purchaser evaluate a loan for Statute of Limitations concerns?
The most important information to learn is when acceleration occurred. Typically, this is done within the complaint but a prior lender could have accelerated within a demand letter. Information is key and the more the better. Statute of Limitations are rare but should be avoided at all costs.