In Re Washington: The Details of a Pivotal Foreclosure Case

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Although you may be aware that there is a statute of limitations on most forms of debt, you should also know about the limitations on foreclosure complaints in New Jersey. What this means for many people with long-lasting, unresolved foreclosures is that they may discover that their bank or lender no longer has any hold on the mortgaged property. A decision that was recently made regarding a NJ bankruptcy case, known as In re Washington, has a lot to teach us – especially those who are currently involved in a long-standing foreclosure matter.

In the New Jersey bankruptcy case, In re Washington, the borrower took out a mortgage for a home in February, 2007. His loan was a 30 year, adjustable rate mortgage and note. Unfortunately, this buyer was unable to follow through with his mortgage agreement, and officially defaulted in July of 2007. His lender began a foreclosure action against him in December of 2007, bringing forward the due date for the total amount owed on the loan (from 30 years down to six years).

The foreclosure action was dismissed in July of 2013 because of the lender’s inability to provide necessary documentation to the court. Afterward, the lender failed to appeal that particular dismissal, nor did it start another foreclosure against the borrower. In all probability, this particular property more than likely slipped through the system, forgotten amongst the thousands of other New Jersey foreclosure cases.

In March, 2014, the debtor in question filed for bankruptcy, during which he began proceedings against his lender to render his loan unenforceable. His fear was that, since the foreclosure never went through, that he would still somehow be held financially responsible for the property. As he was filing for bankruptcy, one can only imagine that he was not in a position to pay back a mortgage for a home in which he wasn’t even residing.

His argument centered around the New Jersey Statute of Limitations; specifically the six year statute of limitations applicable to negotiable instruments according to the Fair Foreclosures Act (N.J.S.A. § 2A:50-56.1). This limitation prohibited the lender from taking any further foreclosure action (or other) against the debtor because the six year statute of limitation time period had expired.

The lender in this matter attempted to argue under New Jersey common law, that foreclosures are subject to a 20 year statute of limitations time period. The court agreed with the borrower in this case, voiding the lender’s lien and any proof of claim in the borrower’s bankruptcy matter.

Due to the outcome of this particular case, it is important to realize that debtors have rights! If you have been involved in a matter wherein a foreclosure drags and drags, seemingly never to be resolved, take the time to read up on your state’s statute of limitations policies regarding foreclosures. Always make sure that your foreclosure matter has been resolved, and if not, ensure that you will not be held responsible for the cost of the home many years later.

Image Credit: Stock Monkeys

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