In Arizona the Statute of Limitations (“SOL”) for enforcing a written contract for a debt is 6 years. A.R.S. §12-548. That means that 6 years after a written contract is breached, the non-breaching party can no longer sue to enforce it. So, as the height of the financial crisis fades behind us, some kind or lax lenders may be SOL and some homeowners may receive a lucky break! The key is when the SOL started to run.
The Arizona Court of Appeals decided in March 2017, in Mertola, LLV v. Santos that for credit card payments due monthly, the SOL for the balance is not triggered when a payment is missed, but only when the lender accelerates the full amount of the debt. Likely that same analysis will be applied to home loans. Even where the lender demands payment in full, if the lender continues to accept monthly installments or other payments, those actions may waive the acceleration or “de-accelerate” the loan, reinstating the term for the principal balance.
It is clear that filing a judicial foreclosure accelerates the full balance of the loan. Initiating a non-judicial foreclosure or noticing a trustee’s sale accelerates the loan as well. However, each time a homeowner reinstates the loan, it is de-accelerated and the SOL for the balance is un-triggered.
As it approaches 6 years from a defaulted home loan, lenders should be reviewing loan files to ensure that anyone sent an acceleration notice has been given clear direction that the loan was de-accelerated or collection efforts have been filed. However, the best case for a defaulting homeowner would be for their lender to have accelerated the principal balance, but failed to pursue collection for the full 6 years. Once the SOL passes, the homeowner owns the home free of the defaulted loan, but still must take action to have it removed before another home loan or transfer of title. If the lender won’t consent to a “Release and Reconveyance,” a declaratory action may be necessary.