Issue 3. 2022 35 A 2021 decision from the Utah Court of Appeals, Daniels v. Deutsche Bank National Trust, et al., presents a cautionary reminder to lenders. The case began with an ordinary $300,000 loan, secured by a deed of trust against the borrower’s home, and ended with the borrowers taking their home free of the bank’s lien. To add insult to injury, the bank was required to reimburse the borrowers $95,523 in legal fees. In January 2007, a couple purchased a newly-constructed house in Kamas, Utah, financed by a loan of over $300,000. By mid-2007, they had defaulted on their loan. After the lender recorded a notice of default, the couple filed for bankruptcy protection, thus staying foreclosure proceedings and tolling the applicable six-year statute of limitations for breach of a written contract. In Utah, a lender must generally move forward to collect any debt made pursuant to a written loan document within six years. But when does the six-year statute start to run? Utah Code Ann. § 78B-2-113(1) clarifies: An action for recovery of a debt may be brought within the applicable statute of limitations from the date: (a) the debt arose; (b) a written acknowledgment of the debt or a promise to pay is made by the debtor; or (c) a payment is made on the debt by the debtor. In other words, the statute of limitations starts to run when the debt arises and may “restart” each time a debtor makes a payment on the debt or when the borrower acknowledges the debt or promises to pay the debt in writing. In the Daniels case, the homeowners obtained a discharge of their personal liability to the bank in their bankruptcy case. However, the bank’s trust deed lien against the home remained in place. After emerging from bankruptcy, the homeowners repeatedly sent letters to the bank asking to help them “keep their home” and to “mediate a new mortgage.” During this time, the homeowners also made some post-bankruptcy payments to the bank. Their last such payment was made on Feb. 25, 2010 — the key date in this case. Fast forward nearly six years later. On Sept. 29, 2015, the lender recorded a new notice of default. Under Utah law, the trustee may have been able to hold the trustee’s sale as early as February 2016. But, for reasons not specified in the Daniels decision, the sale was not scheduled until May 6, 2016. That later sale date, of course, was more than six years after the homeowners had made their last payment on the loan. In April 2016, before the bank completed its foreclosure sale, the homeowners filed a complaint seeking a declaratory judgment that the six-year statute of limitations had run on the bank’s right to foreclose against the property. The homeowners argued that the six-year period began running on the date of their last payment, Feb. 25, 2010, and thus had expired on Feb. 25, 2016. The trial court ruled in favor of the homeowners and quieted title in their favor, free of the bank’s lien. The trial court also ordered the bank to pay the borrowers’ attorneys over $95,000. The bank appealed the trial court’s decision to the Utah Court of Appeals. A CASE STUDY: LENDERS BEWARE OF AN EXPIRING STATUTE OF LIMITATIONS →
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