DS News

44 Legal Industry Update State Focus ARIZONA Statute of Limitations Issues Jump Coasts, Hitting the Pacific Northwest and Southwest Can Waiving Acceleration Avoid the Statute of Limitations' Bar to Foreclosure? By Jamin S. Neil and T. Robert Finlay, Wright, Finlay & Zak, LLP ere are many who hope the expression, "Time heals all wounds," will prove to apply to the financial crisis of 2008-2009, but that same passage of time has an alternate—and potentially severe—consequence for mortgage lenders and servicers: the loss of their ability to enforce the loan after they accelerate the debt. e expiration of the statute of limitations (SOL) on a servicer's right to foreclose has long been an issue in New York and Florida. But, it is becoming an increasingly common defense and attack raised by property owners in the Pacific Northwest and Southwest as well. Opportunistic investors in states such as Arizona are scouring title records looking for loans that have long been in default without the completion of a judicial or non-judicial sale. Borrowers too, in states such as Oregon and Washington, are jumping on the bandwagon, claiming that the servicer is prohibited, by its delay, from now foreclosing on the loan. Consequently, servicers must take a close look at their loan portfolio to determine whether the SOL has run out or is close to expiring. Most importantly, servicers must know what can be done to stop any further running of the SOL clock. For servicers to understand their options, they must first understand what a SOL is and the risk of letting it expire. In the most simplis- tic terms, a SOL is the outward time limit of when a servicer can enforce its Deed of Trust following a particular default. For example, if the SOL is six years, the servicer must complete its foreclosure within six years. If the servicer fails to foreclose within six years, it is arguably prevented from ever foreclosing on its lien, effectively giving the borrower or owner the property free and clear of the Deed of Trust. Needless to say, this is a less than desirable result! If the outward limit to foreclose is, say six years, the key question is ,what triggers the clock to start running the SOL? Contrary to popular belief, it is not the default itself that starts the clock running; but, rather the existence of a prior notice from the servicer declaring the loan in default and that all sums are immediately due (i.e. acceleration). e problem is that, in many instances, the debt was accelerated long ago (often by a prior ser- vicer as part of a previous foreclosure attempt). In that event, the current servicer could have a ticking time bomb on its hands. e SOL defense is generally raised years after a potential acceleration. At that point, servicers (and their legal teams) are left scram- bling to review the entire loan file to determine when the first acceleration occurred, whether there were any tolling events preventing the SOL from having already run, and, most im- portantly, was the loan ever "de-accelerated?" As we are now several years removed from the height of the financial crisis, the six-year SOL on foreclosures in Arizona, Oregon, and Washington are becoming an increasingly bigger problem for servicers in these states. Indeed, because servicers may not be aware that acceleration of the loan arguably starts the SOL running, proving that the loan was de-

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