From Foreclosures to Free Homes
There's some good news from the normally depressing world of mortgages and foreclosures. Homeowners in many states have begun to break free from predatory loans without losing their properties. How is this possible? Recent headlines from Florida reveal that courts can nullify foreclosures that exceed the statute of limitations and bar lenders from taking further action to collect loan payments.
Statutes vary by state; Florida residents generally qualify if the current lender doesn't properly initiate a foreclosure within five years after the last payment. One homeowner in Orange County benefited from this law after not paying the bank for almost eight years. Despite a 2008 foreclosure action, lenders repeatedly sold his mortgage and mishandled the paperwork.
The man hired a lawyer who successfully convinced a judge to dismiss the current bank's effort to seize his home. This was feasible because prior foreclosure actions were invalidated as financial institutions sold the loan to other companies. When the latest lender tried to foreclose, over five years had elapsed since the last mortgage payment.
The Orange County homeowner's attorney believes that this statute prohibits further attempts at foreclosure. Nonetheless, major mortgage lenders claim that every missed payment resets the time limit. Many lawyers feel that this interpretation is incorrect because it contradicts the intent of a statute of limitations. This controversy may be settled by the state's Supreme Court in the autumn.
There are many other stories of Florida property owners who have used this law to avoid foreclosure. In late 2014, the Daily Business Review reported on Deutsche Bank's failed attempt to seize a pricey penthouse from a condo association in southern Florida. Its prior occupant had stopped paying the loan and association fees in 2006.
The bank's mortgage servicer quickly demanded that he pay the entire principal, a sum that exceeded $1.4 million. The owner was unable to come up with this money or pay condo fees, and the association eventually acquired his property. A court decided in favor of the condo association and prohibited Deutsche Bank from initiating further efforts to seize the home.
In both of the above-mentioned cases, lenders were able to maintain mortgage liens on the affected properties. This means that they can collect the loan principal if someone sells the home within about 20-30 years. Nevertheless, the existing owners are free to occupy or rent out these houses as long as they wish.
Every state sets a different maximum number of years that can elapse between the last mortgage payment and a foreclosure action by the current lender. Nolo explains that the statute of limitations on written contracts applies if a state legislature doesn't establish a specific limit for mortgage foreclosures. Many official legislative websites provide information on these statutes.
Depending on the state, the maximum period varies from as many as 15 to as few as three years. For example, AllLaw indicates that Nevada maintains a six-year limit. Texas homeowners only have to wait four years. The majority of states enforce written contract or foreclosure statutes of limitations that confine property seizures to fewer than seven years after the last payment.
How it Works
Laws about foreclosures are fairly complex, so it's important to take the time to understand when these limits actually apply. If the current lender initiated foreclosure action in the past and it remains in process after the limit is reached, a court probably won't dismiss it. For example, a bank could avoid the statute by filing a lawsuit one day before the time runs out.
Nonetheless, there are many situations in which these limits do apply. Lenders often cancel foreclosures after realizing that errors were made and the lawsuits were filed improperly. A bank cannot legally initiate a new foreclosure action if the statute of limitations has already been exceeded and no payments were made in between the two cases.
The bottom line is that these limits have the potential to benefit many homeowners who have struggled with unreasonable and error-prone lenders for years. It's important for people to learn about and assert this right. In situations where it doesn't apply, homeowners can still report unethical bank practices to state attorney generals and the Federal Trade Commission.