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Statute of Limitations on a 2nd Mortgage?

Discussion in 'Bank of America Mortgage Help' started by HeavySigh, Apr 21, 2011.

  1. HeavySigh

    HeavySigh LoanSafe Member

    Let's say you get a $100,000 heloc in Jan 2007. It's to be paid by by Jan 2017.

    In Jan 2010 you default. In Jan 2011 you bankrupt and no longer owe the $100,000. In Jan 2012 you get a modification on an underwater house. You pay the first mortgage without problem.

    Jan 2017 comes, and the Heloc is due. The house is still underwater, so there's no reason for 2ndMtg Bank to foreclose. They can't come after you because the debt was discharged.

    In your state there is a 5 year limitation on debt. In Jan 2022, the house is slightly underwater, or break even. But in Jan 2023 you have equity of $50,000. Can you sell your house without having to give up your equity to the lien, since the debt is past the 5 years of statute of limitations?

    Is that the answer for all these second mortgages that banks won't settle on? Just wait it out if you can?
  2. Moe

    Moe Call 1-800-779-4547 Staff Member Loan Safe Mortgage

    That is a good theory, but something tells me that there is now way out from these debts. But if the HELOC was discharged or wiped out in Bankruptcy, then there should not be an issue later. If they, the lender charged it off, then that is a different story.
  3. yomann

    yomann LoanSafe Member

    Moe - even with a BK7 the loan is discharged, but the lien on the house survives.
    At some point in the distant future, when the owner needs to sell and move on, some settlement to release the lien will have to be negotiated ?
    Just seeking opinions of others in a similar situation ......
  4. HopingtoFind

    HopingtoFind LoanSafe Member

    SOL would only kick in if the house is foreclosed... if you still have the house there is no SOL on the lien so if there is equity assuming that you haven't settled with them to release lien you would have to give up equity to the lien.
  5. troubleinriverside

    troubleinriverside LoanSafe Member

    everyone is somewhat wrong, and somewhat right here. If you are discharged from BK no debt remains, so SOL on the debt does not apply. But the lein does remain, and the bank/or whoever the sell the lein to has the right to someday foreclose. will they ?? who knows ?? Thats the $10 million dollar question. I for one am in that boat, and waiting it out. Here in the IE I dont expect housing to improve for many years, and time is on my side.

    how is the market moving down the I15, Moe ??
  6. TomEason

    TomEason LoanSafe Guide Staff Member

    trouble
    Thanks for that; you are right on with your explanation.
  7. Ponderous

    Ponderous LoanSafe Member

    Statute of Limitation on Non-Recourse HELOC

    I'm having trouble understanding this.

    Assume a non-purchase money Heloc is in default in California (a recourse state as to non-purchase money mortgages with a four year statute of limitations period on an open ended account and/or a written debt).

    I would think that the lender has two options: It could sue to establish personal liability on the debt, or it could foreclose.

    Four years after default, it seems that the SOL on the personal action would have run, and the action to establish personal liability would be time-barred.

    Then, the lender's remaining recourse would be to foreclose the lien. Say it forecloses five years after default. If there is still a deficiency at the time of foreclosure, may a personal action against the debtor still be maintained? Or did the right to enforce personal liability as to the deficiency post-foreclosure expire four years after the initial default?

    I guess this is a chicken and the egg problem. The right to file suit to enforce the debt expired after four years, but whether or not there is a deficiency couldn't be known until foreclosure occurs. So is the deficiency suit barred or not?

    Would it matter if the deficiency existed during the whole four-year period of default? Then, the lender's only remedy throughout that entire four-year period would be to foreclose and sue for the deficiency.

    Shouldn't the lender's failure to do so bar a subsequent effort to collect a deficiency in year five?
  8. TomEason

    TomEason LoanSafe Guide Staff Member

    Ponderous

    Thanks for your post.

    AS I'm sure you know, the SOL is only about lawsuits; a SOL isn't pertinent to a default on a secured loan. The SOL clock doesn't start running until the debt becomes a recourse SOJL, i.e. an unsecured recourse debt. In my state, a secured junior lender is legally barred from suing the debtor, pursuant to CCP Section 726.
    Last edited: May 2, 2012
  9. Ponderous

    Ponderous LoanSafe Member

    Ok, think I got it. Thank you.

    Thanks Tom. I read CCP 726 (I'm in CA too). I think I get it.

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