Pub. 9 2019 Issue 3

8 www.azbankers.org the note. There is a permanent injunction barring the enforcement of any ongoing contractual obligation between the parties. So, when does the clock start ticking? In Ortiz v. Trinity Fin. Servs. LLC , 11 the federal district court in Arizo - na adopted the reasoning of Navy Federal Credit Union , 12 as it relates to the commencement of the statute of limitations in a foreclosure. The court held that neither Atlee nor De Anza specifically addressed the issue of whether the six-year limitation period arose from the first default or could be separately enforced on each default. Ortiz had filed for bankruptcy and had received a discharge more than six years before the notice of sale. However, the court did not examine the impact of the discharge on the running of the limitation period. Does that, in fact, make a difference? If Navy Federal applies to a foreclosure, then the six-year statute of limitations would only terminate six years after the last payment is due, or six years from a notice of sale and acceleration, if not rescinded. Does a discharge in bankruptcy change that? In other words, must a lender start the countdown of six years to bring the foreclosure action ( in rem claim) when the debtor misses the first payment that would have been “due” after the entry of dis- charge? The discharge permanently enjoins the enforcement of the debt obligation ( in personam ) and thereby extinguishes the concept that there can be an ongoing “default” in payments that would trigger the ongoing rights to enforce those defaults. The in rem remedy clock must start at that point because no further installment payments are due against the borrower/debtor. Let’s examine the foregoing based on the following hypothetical situation: The homeowners took out a second mortgage in 2005. They went into default on the second mortgage in 2009 and filed for bankruptcy under Chapter 7 later that year. They never reaffirmed the debt on the second mortgage and they received a discharge at the end of 2009. No payments were ever made on the second mortgage after the default arose. The homeowners never heard from the lender. In 2018, the lender gave notice of default and recorded a notice of trustee sale. In the lender’s view, there was never an acceleration or notice of trustee sale, so the trigger for starting the six-year clock never commenced. Although the debt obligation under the promissory note has been discharged, the lender asserts it still has an in rem remedy to recover the property. Does it? The last payment made on the mortgage was more than six years before the notice of trustee sale – early in 2009. Three events took place more than six years before the notice of trustee sale: • The bankruptcy was filed • The discharge was entered • The date for the first payment due after discharge passed by Even if the payment was due for the in rem obligation after the discharge, the last in personam obligation was made before the Continued from page 6 The homeowners took out a second mortgage in 2005. They went into de- fault on the second mortgage in 2009 and filed for bankruptcy under Chap- ter 7 later that year. They never reaffirmed the debt on the second mortgage and they received a discharge at the end of 2009. No payments were ever made on the second mortgage after the default arose. The homeowners never heard from the lender. In 2018, the lender gave notice of default and recorded a notice of trustee sale. In the lender’s view, there was never an acceleration or notice of trustee sale, so the trigger for starting the six-year clock never commenced. Although the debt obligation under the promissory note has been discharged, the lender asserts it still has an in rem remedy to recover the property. Does it?