Foreclosures Begin to Expire, Freeing Homeowners From Loans

by on Apr 13, 2015 in Debt News

Approximately seven years have already passed since the U.S. housing crisis began to make headlines. Why is this important? Homeowners have begun to benefit from the statute of limitations on foreclosures. In some states, this means that people can remain in their homes if they haven't made any loan payments in five to six years.

It may be hard to believe, but well over 20,000 households find themselves in this situation. For several years, they haven't sent mortgage payments or been forced to leave their homes. A bankruptcy judge recently brought a foreclosure action to an end because it had remained in process for over six years, the limit in New Jersey.

Slow court decisions, missing mortgage papers and mishandled loan adjustments have delayed many foreclosure actions. At the same time, government agencies repeatedly updated loan modification rules and nullified prior adjustments. In 2010, CBS News reported that "horror stories" of failed mortgage modifications were widespread and banks often rejected homeowners' applications for nonsensical reasons.

Another problem is that lenders have been very slow to approve short sales, an alternative to foreclosure that allows homes to be sold for less than the inflated loan principal. If a house has a single mortgage, approval frequently takes at least 60 days. Owners with multiple lenders usually wait 17 or more weeks for banks to authorize a selling price, according to the National Association of Realtors.

Because banks often make it impossible for homeowners to escape foreclosure by modifying their loans or initiating short sales, people may have little choice but to stay in their homes and wait. As courts contend with massive numbers of foreclosures involving falsified or missing documents, the statute of limitations draws nearer for many Americans.

It has been estimated that banks may seize about 800,000 more homes before the aftermath of the mortgage debacle comes to an end. This would bring the total associated foreclosures to about 7.5 million. However, this might not happen if homeowners continue benefiting from the statute of limitations. It's no surprise that lenders are trying to convince judges to interpret these laws in their favor.

Homeowner attorneys say that banks must file foreclosures before the statute of limitations expires. They believe that the clock starts ticking after borrowers don't make payments for multiple months. On the other hand, lenders assert that the limit doesn't apply to them because it is extended each month when a mortgage payment isn't received.

Although the statute can't end court cases that are currently underway, it may affect refiling. Attorneys working for property owners in Florida have claimed that any court dismissal bars the lender from refiling the foreclosure action more than five years after an owner defaulted. The state supreme court plans to clarify this matter.

Law firms working for the banks caution that financial institutions might scale back lending in Florida if judges uphold the statute of limitations. New York and New Jersey courts are also addressing this issue. Six years after he stopped making payments, a homeowner in Morris County, New Jersey was freed from a burdensome mortgage.

While some people may consider this unfair to the lender, it's clear that banks played an enormous role in creating the situation and were unwilling to negotiate with many homeowners. Before the "bubble" burst, buyers paid inflated prices that were bolstered by mortgage fraud. Loan servicers like Nationstar rejected requests to modify loan terms or waited until borrowers fell too far behind on their payments.

It's hard to feel sorry for lenders that have caused so much hardship through corrupt and inept practices. One example of this behavior was revealed in a West Virginia Record news report from October 2013. A homeowner sued Nationstar because it rejected his mortgage payments and repeatedly gave him contradictory instructions that led to foreclosure.

Although many legal battles have yet to be fought, it's encouraging to discover that statutes of limitations are helping homeowners escape predatory loans. Such limits can be as low as three and as high as 15 years in different parts of the country, according to Nolo.

If you need legal assistance to benefit from these rules, please contact us for further information.