Over the past several years, those who service loans in the State of Washington have seen a dramatic rise in the number of lawsuits in which delinquent borrowers seek to quiet title to their homes on the grounds that lenders are barred from foreclosing based on Washington’s six-year statute of limitations.
Historically, these lawsuits allege that the foreclosure is time-barred because Notice of Acceleration letters have been issued more than six years prior to the initiation of the foreclosure process. However, based on recent case law, we foresee a real danger of an increase in the amount of lawsuits brought by borrowers who have had their debts discharged in bankruptcy and either continued to make their monthly payments following their discharge, or engaged in a game of cat-and-mouse with the servicer, as result of which the servicer did not commence foreclosure within the six-year period following the discharge. Indeed, in at least one instance, the borrowers who obtained a bankruptcy discharge order successfully quieted title to their home against Fannie Mae based on Fannie Mae’s failure to foreclose with the six-year period. The potential of these lawsuits—and given the result discussed above—creates a significant risk to the mortgage industry, which should be addressed, assessed, and mitigated by lenders and servicers.
Contributed by Carolyn Horvath, Oak Creek Capital LLC https://OakCreekCapitalPartners.com