In my January, 2011 blogpost with the catchy title “California anti-deficiency rules redux: California’s new anti-deficiency component, CCP §580e, protects short sellers on first mortgages” and my March, 2010 post on tax issues in foreclosure, I raised the the concept of a “statute of limitations,” pertaining mostly to when actions for breach of contract become too stale to pursue. I recently received an email from a reader wanting to know just when a statute starts to tick. This post will answer that question.
First, what is a statute of limitations? A statute of limitations (ironically referred to as an “SOL”…only coincidentally related to that other meaning of SOL…) is a law–a statute–which prescribes the timelines for the filing of a lawsuit to pursue a claim. Simply stated, once a party becomes aware of a possible claim, it must brought before the timeline set forth in the SOL runs. The policy behind these statutes is two fold: 1.) People should be able to get on with their lives without having to look over their shoulder for old grudges and mistakes to show up, and 2.) After too long, evidence disappears and memories get too fuzzy to be reliable. With the notable exceptions of murder and espionage (and maybe one or two other things) virtually every claim in American law is subject to a limitations period, though what those periods are vary from claim to claim and from one jurisdiction to the next.
In California, a claim for breach of a written contract must be brought within four years or it is barred. (CCP §337) Promissory notes, which are the “IOU’s” behind mortgages and home loans, are written contracts. Thus a claim for non-payment of a loan memorialized by a written promissory note must be brought without four years or it is forever barred. Simple enough, but the question posed is: When does the four year time period start to tick? The answer–like the answer to nearly all legal questions–is that it depends.
Initially, the statute starts to tick on breach. That is, on the first day that a payment which is due is not made, the clock starts ticking. Example: If your mortgage payment is due on January 1, 2013 and you don’t pay it–and nothing else occurs to restart the clock–then the claim will be barred on January 1, 2017 if not filed before then. But, as noted, certain events can intervene to restart the clock, and it is these niggling little things that can cause so much trouble. What are they? Good question. Glad you asked.
1. Any payment resets the clock. If you make a payment, any payment–partial, full, pennies, nickels, dimes, quarters–the clock restarts the next day. So if your ordinary mortgage payment is $1,200, and is due on 1/1/13, if you send the bank $50 on December 31, 2017, you have reset the clock to Day One.
2. Any admission resets the clock. If you acknowledge the debt, orally or in writing, you have reset the clock. So if you default on January 1, 2013 and on December 31, 2017 the bank calls you and asks when you intend to pay it off, if you say something like “I know I owe it but I’ve been having financial trouble for the past four years,” you have reset the clock to Day One.
3. Absence from the jurisdiction tolls the statute. If you are out of the country and not subject to service of process, the SOL is “tolled” during that time time and that span is added to the overall time line. So if you move to Italy for three years and then come back, the timeline may actually be seven years.
4. Any temporary legal obstacle tolls the statute. If the bank is prevented from filing an action by some form of legal obstacle, like the automatic stay of bankruptcy or some other form of delay, the time during which its remedies are unavailable is also added to the timeline.
There are quite a few others which either toll or extend the time period, but these are the big four mostly common in the mortgage setting.
So, in sum, if you’re trying to outrun a SOL, don’t make any payments and don’t admit to the bank that you owe the money. Capiche?