A statute of limitations (not “statue“) is the legal time frame in which one party can sue another. As my civ pro professor used to posit: Say you run someone over with your car. Three years and one day after that, if they have not already filed a lawsuit against you, go ahead and throw your statute of limitations party, because you got away with it. You can mail them postcards with photos of the incident, or re-enact it dramatically in the park. There is literally nothing more they can do about the matter; in the eyes of the law, it cannot be litigated. (Note: these examples are for explanation only; don’t be a jerk about it.)
In the law, though, nothing ever stays quite that simple for long. After all, if it did, you wouldn’t need us lawyers anymore, would you? (Don’t answer that. It’s rhetorical. The world needs lawyers.) So the statute of limitations calculation can actually be quite complicated. The statute of limitations can be tolled for any number of reasons. It does not apply to equitable actions; those are governed by laches. And it can vary based on the nature of the claim being asserted.
Mortgage Foreclosures
A residential mortgage is, in its simplest form, a loan of money to buy a home. The loan is secured by an instrument, often called a deed of trust, that is recorded against the title to that home. The deed of trust is basically a lien against the home, which entitles the lender to (a) get paid if the home is sold or refinanced; and (b) foreclose on the home if payments are not made timely. What we have just described sounds an awful lot like a contract: a written agreement between two parties setting out the various rights, obligations, and remedies of each. However, by rule, Maryland has created an entirely separate proceeding by which these instruments are governed. They are not contracts and thus not bound by the rules of contracts; they are like the goalie in soccer – they have their own exclusive set of rules. The purpose of those rules, according to the Court of Appeals of Maryland, is to create a summary proceeding to allow holders of mortgage deeds of trust to quickly and efficiently assert their rights. This makes sense from a policy angle: if we want companies to lend large sums of money at relatively stable interest rates, then they need to be able to assert their rights to recover those sums expeditiously where the borrower defaults. This also lends itself well to abuse: the robosigning scandals after the recent mortgage crisis are a perfect example.
Foreclosing a Mortgage Timely
Without delving too deeply into the various wrinkles of a mortgage foreclosure, one broad question that we should know the answer to is: When can a lender bank foreclose a mortgage? And there are certain minimum time periods contained in both the Rules and the documents themselves; mortgagors (homeowners who take out a mortgage to buy a home) are entitled to certain notices, warnings, and even mediation in most cases before a foreclosure sale may proceed. But the question on the other end of the spectrum is: how long can a lender bank wait before foreclosing? Put a different way, what is the statute of limitations on mortgage foreclosures?
Back in 1947, the Court of Appeals in Maryland held that there is no statute of limitations applicable to mortgage foreclosures in Maryland. Since then, however, the legislature has codified many of the statute of limitations “wrinkles” we mentioned above. So in 2020, a party brought the matter back before the Court of Special Appeals, arguing that those more recent legislative actions suggest that perhaps there now is (or even should be) a statute of limitations requiring that lender bank to foreclose within a certain period of time, or perhaps start receiving some of those taunting post cards my professor suggested.
The Case
So did the Court of Special Appeals agree that there has been some change, and that mortgage lenders are now subject to a statute of limitations? In a word, “no.” (Yeah, that’s succinct. If you want suspense go read a mystery novel; I’m here for the answers.) In Daughtry v. Nadel, the Maryland Court of Special Appeals reviewed a situation where the lender bank waited more than six years to initiate foreclosure proceedings on a defaulted mortgage. The mortgagors filed a motion to dismiss that foreclosure on statute of limitations grounds. The Circuit Court, relying on the prior binding precedent of the appellate court, rejected that claim. The Court of Appeals faced the question: Did the adoption of Court and Judicial Proceedings Section 5-101, which imposes a three-year statute of limitations on civil actions, override that prior precedent? If not, did the merger of law and equity somehow impact the quasi-equitable procedure of mortgage foreclosures? If not again, did any change to the mortgage laws since that precedent impose a shorter time frame?
In giving their 37-page answer, the Court of Appeals noted that due to the Cunningham v. Davidoff ruling of the Court of Appeals, “As of 1947, therefore, it was clear that no statute of limitations applied to mortgage foreclosure actions in Maryland.” The court there considered both whether the civil statute of limitations applied, and whether the equitable doctrine of laches applied. At that time, they found that neither put a time limit on when a mortgage foreclosure must be initiated. In determining what their position here must be, the Court of Special Appeals looked at prior analysis done by the Court of Appeals. (alert readers will have noted that the 1947 case was issued by the Court of Appeals, whereas the more recent decision came from the Court of Special Appeals. as the intermediate appellate court, the Court of Special Appeals is tasked with a difficult combination of holding true to binding precedent from the court above, divining what that senior court might do in newly presented situations, and also deciding with its judgment novel questions of law). In Tipton v. Partner’s Management Co., the Court of Appeals conducted a significant legislative history on Section 5-101. Wisely avoiding reinventing the wheel, the Court of Special Appeals held in Daughtry: “The Court’s analysis of the legislative history in Tipton confirms that the General Assembly did not extend a statute of limitations to foreclosure actions.”
Turning to the question of laches, the Court of Special Appeals once again found that nothing had changed since the Cunningham decision. Finally, they confronted the issue of whether amendments to the mortgage foreclosure statute itself did (or were intended to) add a statute of limitations. In proceeding, the Court of Special Appeals highlights some language that attorneys (and parties and citizens generally) would be wise to know: “The cardinal rule of statutory construction is to ascertain and effectuate the intent of the General Assembly. We look first to the language of the statute, giving it its natural and ordinary meaning. We do so on the tacit theory that the General Assembly is presumed to have meant what it said and said what it meant.”
That is saying a mouthful. When reading statutes, refrain from making unnecessary or unsupported logical leaps. Read only what is there, and not what is not there. Lawyers (and people generally) have a habit of answering more than what was asked, or making logical leaps that skip important steps. The Court of Special Appeals says: “Don’t.”
Abiding by that standard, the court goes on to find that no statute of limitations has been created by the amendments to the foreclosure statute, and none applies to foreclosures by analogy or implication.
So What?
Excellent question. The court made this finding; why do I care? Well, for one thing, community associations are often stuck behind mortgage deeds of trust in chain of title. Whether or not they can foreclose on old debt can be critically important in the process of collecting delinquent assessments. And this case reiterates that no matter how old the debt is, or how inactive the lender bank was, they can still pick right back up and foreclose their deed of trust anytime. (though if you want to hear a pompous know-it-all attorney tell a self-aggrandizing war story about how he once got a mortgage lien stripped off due to bank inactivity, well, let’s just say I know a guy).
Additionally, this means that banks win again. Now, I actually despise the simplistic analysis and explanations like “oh the big guy beat the little guy” or “courts and legislatures and lobbyists all want banks to win.” So do not go too far in that direction; the court here sure seemed to do a very serious deep dive on legislative intent and the cases interpreting this. I think they found the “right” answer. But make no mistake, this case leads to the rule that banks can fall asleep on their rights without losing them, which is not true in almost any other situation. In fact, the property owner can even lose title to the underlying property itself by failing to act, but still the lender’s deed of trust and right to foreclose survives. So while the answer may be right, it certainly is one that community associations (and consumers generally) may find unpleasant. The court’s answer, of course, would be: “take it up with the legislature.” And perhaps someone ought to.
In sum, if you were planning on not paying your mortgage and then throwing a statute of limitations party, well, you’re going to have to wait a while. And if your community has a lien sitting behind a bad, unpaid, underwater, perhaps even irresponsible mortgage lien, your options may be limited as well.