Daily Development for Thursday, January 25, 2001

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

MORTGAGES; FORECLOSURE; LIMITATIONS PERIOD: Although normal statute of limitations on debt will not terminate right to foreclose mortgage, New Jersey common law establishes a separate 20 year limitations period, measured from time that default occurred on mortgage debt.

Security National Partners, Ltd. v. Mahler, 763 A.2d 804 (N.J. Super. 2000)

Although the procedural detail in this case is somewhat complex, the facts boil down to this: the mortgagor failed to make a scheduled mortgage debt payment in March of 1989. The mortgagee brought a judicial foreclosure action, but, due to the fact that the ownership of the note passed through a number of hands during the early 90's (RTC's heyday), the action was not completed, and ultimately was dismissed without prejudice at the motion of the then note holder. In June, 1996, the current note holder commenced a judicial foreclosure proceeding, and the mortgagor raised as a defense the fact that the six year New Jersey statute of limitations had run on the debt.

The court ruled here that there is a distinction between the limitations period on a promissory note and the period applicable to the mortgage that secures it. Although the debt may be barred, the mortgage may still be foreclosed.

There is no specific statute of limitations on foreclosure actions, but the court noted that New Jersey authorities have "borrowed" the twenty year statute of limitations on actions in ejectment (the adverse possession statute) as the measure of the time within which a foreclosure action can be brought.

Although the twenty year period derived from the adverse possession concept, the court here clarified that the normal set of adverse possession factors need not be present to bar the action the passage of twenty years from the date of first default on the note is enough.

Further, although a mortgage foreclosure is an equitable proceeding, and therefore may also be barred by laches, the court emphasizes that the equitable factors that might create a laches defense also are not necessary if the twenty years have run.

Comment: For an excellent extended discussion of these issues, see Nelson and Whitman, Real Estate Finance Law, Third Edition (West 1994) Section 6.11. Note that this section does not appear in the student oriented "hornbook edition" of this excellent treatise.

As Nelson and Whitman point out, the rule that the mortgage is not barred by the running of the statute on the debt is the common law rule in all title jurisdictions, which jurisdictions commonly use the statute of limitations on actions in ejectment as an independent limitations measure. Some even require that for the mortgagor to prevail there must have been acts amounting to disseizin.

It should be noted that laches constitutes a separate time related defense. In one Florida case, laches resulted in a barring of the foreclosure action even when there were seven years left to run under the twenty year statute of limitations. Ratner v. Miami Beach First National Bank, 368 So.2d 1326 (Fla. App. 1979).

There is less agreement in lien theory jurisdictions, although a slight majority of decided casesm including decisions in New York, Minnesota and Michigan, favor permitting the foreclosure to operate when the note has been barred. There is authority authorizing private foreclosure as well under such circumstances. Nelson and Whitman cite an ALR annotation and cases in Colorado and Kentucky for the minority view that the running of the statute on the note bars the action to foreclose as well.

Comment 2: There is some California authority, cited by Nelson & Whitman, that a deed of trust, conferring a separate equitable power upon the trustee, is also not subject to the running of the statute of limitations, even when a foreclosure lawsuit would be barred. The editor recalls that more recent California authority has departed from this rule, but perhaps California readers can substantiate this recollection.

Comment 3: There is also some authority holding that, even after both note and mortgage are time barred, the mortgagor cannot clear the title of the mortgage without tendering the amount of the debt. This is consistent with the notion that a time barred debt still exists. It is an obligation, just not an enforceable one, and equity will not reward those who fail to meet their obligations. An old fashioned notion, but not bad, hey?

Comment 4: Note that this problem is distinct from another problem, commonly addressed in state statutes, where a mortgage remains on the record long after it likely has been paid. In such cases, that mortgage is held unenforceable some substantial period of time after the last time for payment revealed in the mortgage document and, if no time for payment has been established in the document (sometimes the note is not recorded as an exhibit and the mortgage is otherwise silent) then the time runs from the recording of the mortgage. This type of statute was discussed in Vossen v. Parker, 609 N.W.2d 290 (Minn. Ct. App. 2000), the DIRT DD for August 24, 2000 (On the DIRT Website: http://cctr.umkc.edu/dept/dirt/)

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

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