The high volume of foreclosures during and following the Great Recession in the United States led to the revelation of many troubling lending practices. It also led to problematic judicial decisions that erode borrower protection by curtailing or eliminating procedural requirements and substantive defenses with respect to foreclosure. This Article examines the treatment of statute of limitation and res judicata defenses after a loan has been accelerated following a borrower default. Some courts ignore the traditional rule that acceleration under a contract starts the clock for statute of limitation purposes or that acceleration consolidates the loan instrument into a single obligation as opposed to an installment obligation. Instead, these courts have permitted lenders to accelerate loans repeatedly without triggering the statute of limitations or res judicata defenses. Consequently, lenders are permitted to assert foreclosure claims with respect to the same underlying debt amount over and over again. Rather than being used as a last resort, acceleration and the subsequent foreclosure process can now be wielded as a significant threat to borrowers throughout the life of their home loan. Consistent with favoritism demonstrated in our prior research, we argue that creating exceptions for lenders in the application of statutes of limitation and res judicata defenses provides little incentive for banks and servicers to reform questionable lending and collection practices.
This article in not only of interest in defending against foreclosures, but also has clear implications in Chapter 13 bankruptcy, since 11 U.S.C. §1322(c)(2) allows modification of mortgages if "the last payment on the original payment schedule for a claim secured only by a security interest in real property that is the debtor’s principal residence is due before the date on which the final payment under the plan is due ...." If acceleration of a mortgage constitutes the "last payment on the original payment schedule", such acceleration could allow cram-down of a mortgage.
In construing the West Virginia statute of limitations, which limits actions for consumer loans to " one year after the due date of the last scheduled payment of the agreement" W. Va. Code § 46A-5-101(1), the 4th Circuit Court of Appeals held in Delebreau v. Bayview Loan Servicing, that because no additional payments were scheduled after the acceleration date that was the date from which the Statute of Limitations ran.
While 11 U.S.C. §1322(c)(2) uses the phrase "original payment schedule" where the West Virginia statute of limitations only uses the phrase "last scheduled payment of the agreement", such difference should not be conclusive.
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