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Defenses to suits on mortgages for already-foreclosed property

What can a Virginia consumer do when – years after they went through foreclosure on their home because they could not make the payments – they now face a lawsuit on a deficiency balance on the mortgage, perhaps because they were underwater on the debt-to-equity ratio? Or when they unexpectedly face a demand to repay an old second mortgage on foreclosed property? 

Talk to an experienced consumer protection lawyer to understand the potential legal remedies in Virginia. The legal defenses to such lawsuits are complex and elusive in some cases, so legal counsel from an attorney with extensive understanding of Virginia consumer law can be very important.

Has the statute of limitations – or legal deadline for suing – already passed for any of the past-due payments? 

The statute of limitations is a legal term meaning basically a time deadline for filing a certain kind of lawsuit. For a mortgage, the statute of limitations is usually six years in Virginia. 

If the lender did not accelerate the due date – meaning that if the borrower defaulted on payments (how many depends on the contract), the lender called the entire outstanding amount due immediately – then for each installment payment missed, the statute of limitation began to run for that one payment only, according to Virginia statute. Each missed payment (usually monthly) kicks off its own limitations period. 

What this means in the scenario we are considering is that if the lender waits years to sue on the unpaid mortgage deficiency or second mortgage, because each installment has its own deadline, the statute of limitations would bar a claim for any payment that became delinquent more than six years before the lawsuit. 

Defaults older than the statute of limitations does not make that part of the debt void, but the statute of limitations should be asserted in court as a defense. However, payments that were due within the past six years are not defendable under a statute of limitations defense because it has not run. 

Has the limitations period passed for an accelerated balance due? 

If the lender accelerated the mortgage, making the entire amount immediately due, the statute of limitations on the entire amount is six years. If the lender is coming back after six years have passed since the acceleration, that should be a good defense. 

Other potential defenses 

If the debt was accelerated, but the borrower cannot locate the acceleration notice, if they remember getting it, they may be able to assert the defense of laches if years have passed since the acceleration. Laches is a defense to a claim that, in essence, the plaintiff sat on for a long time without asserting their rights through a lawsuit. At some point, it is just unfair to come after a defendant on an old consumer debt and a court may agree.

Finally, lenders may sell and assign deficiency balances and second mortgages that survive foreclosures to other lenders or to debt collectors, sometimes multiple times. Should that be the case in our scenario, the borrower can hold the plaintiff’s feet to the fire and require them to prove the chain of assignment in order to show that they are legally entitled to make the claim. 

A couple of final comments. First, even if the debt has become stale because the limitations period has run, if the debtor makes a payment on the old debt just as a good-will gesture, they could retrigger the running of the limitations period again and revive or reaffirm the debt. Second, if a lender reports the mortgage default to the credit bureaus years later, the consumer can assert rights to a correct credit report because the limitation for having the default on their credit is seven years. 

Third, an attorney should thoroughly assess the debt and lawsuit for potential defenses. Together, you may decide to try to negotiate a settlement for a smaller amount to save on litigation costs.