Sounds counterintuitive, right? Stop paying your mortgage and you get to keep your home. Yet, thousands of homeowners may have discovered the fastest way to a free home is just that: simply stop paying the mortgage. Recently, the New York Times reported how the time limit (otherwise known as the “statute of limitations”) lender’s have to bring a foreclosure lawsuit against a homeowner, can work against the lender and in favor of the homeowner, with the result being a “free house” for the homeowner. The article reported that some homeowners who defaulted on their mortgage payments received the unanticipated surprise of having the foreclosure lawsuits dismissed, resulting in the homeowners keeping their homes, all because the lenders waited too long to file the foreclosure lawsuits against the homeowners.
If too much time lapses from the time a homeowner stops making mortgage payments and to when the lender starts the foreclosure process, the foreclosure lawsuit will violate the statute of limitations. The homeowner can argue too much time has passed and it is too late for the lender to bring the foreclosure lawsuit and that the lawsuit is invalid and cannot proceed and should be dismissed. In those states that have “judicial” foreclosure laws, like Illinois, there is a time limit a lender has in which it can bring a foreclosure suit against the homeowner. That time limit to file a foreclosure lawsuit varies from state to state and can range from as little as three years to as much as fifteen years, in some states.
The lender’s foreclosure lawsuit is invalid and the lender is not entitled to foreclose if the lawsuit starts after the statute of limitations has expired. When a homeowner is claiming the lender’s foreclosure lawsuit was not filed in time, the homeowner is raising an affirmative defense to the lawsuit. The homeowner must raise the issue, with the court, that the foreclosure lawsuit was not filed in time. If the homeowner does not raise the issue with the court, then the defense is waived and the lender will continue with the foreclosure lawsuit.
When does the statute of limitations begin to run?
A major issue involving the statute of limitations in a mortgage foreclosure lawsuit is determining when the clock starts to run on the time limit to bring the lawsuit. Usually, the time limit begins from the date the “default” occurred. The default is generally when mortgage payments are stopped being made and is usually calculated from the date of the last payment or calculated from the date the last payment was due.
What if the statute of limitations runs while the lawsuit is pending?
It is not a defense to a foreclosure lawsuit if the statute of limitations runs out during the case. Even if it takes years for the foreclosure lawsuit to complete its course through the legal system, which is often the case when the homeowner hires an attorney who has the experience and knowledge to defend against the lawsuit, the statue of limitations is not a defense to the foreclosure, if the lawsuit was filed before the statute of limitations expired. The lender only needs to start the foreclosure lawsuit before the time limit expires.
What if the lender cancels or dismisses the foreclosure lawsuit?
Sometimes a lender will stop or dismiss the foreclosure lawsuit, which happens, for example, if the lender discovers a procedural error and then decides to re-file the case. In such circumstance, the homeowner may be able to raise the statute of limitations as a defense. The lender must re-file the dismissed foreclosure lawsuit within the time period provided by the statute of limitations; if the lawsuit is not timely re-filed, the lender cannot foreclose.
Many lenders continue to have a backlog of delinquent loans for which they have not filed foreclosure actions. If it has been years since the time a borrower stopped making payments and the lender initiates a foreclosure lawsuit, raising the statute of limitations may be a valid defense to the foreclosure action, because too much time has passed for the lender to file the lawsuit.
So, what are your thoughts on the statute of limitations? Do you think it is right for people to be able to avoid foreclosure and keep their home simply because their mortgage lenders waited too long to file a foreclosure lawsuit? Should lenders be given more time to file foreclosure lawsuits because of the high amount of delinquent mortgage loans they have on their books? How much time should lenders have to file for foreclosure?
If it has been some time since you have made your last mortgage payment and the lender has not filed a foreclosure suit, yet, the statute of limitations may be an issue in your case and a valid defense. Even if you currently have or had a mortgage foreclosure lawsuit filed against you, the statute of limitations may still be an issue in your case, if the lawsuit is dismissed or was dismissed and the lender attempts to or did re-file the lawsuit.
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