The statute of limitations is a principle of law that provides that those who have actionable legal claims against others must file their lawsuits in court within a specified period of time from the date the cause of action accrued. Each distinct legal cause of action, e.g., breach of contract, negligence as well as an action to recover on the balance due on a delinquent secured debt, has its own distinct limitations period.
Breach of Contract
Since the obligation to repay debt arises out of the existence of a binding legal contract between the creditor and debtor, the applicable limitations period for bringing an action to recover the balance due on a secured debt would be that period established by each state for breach of contract actions.
Established by Each State
There is no uniform statute of limitations period for breach of contract actions. Each state establishes its own limitations period, which may be the same or different than that designated in other jurisdictions. For example, the limitations period for breach of contract actions is eight years in Montana, but it is only three years in North Carolina.
Nature of Secured Debt Collection
A secured debt is a transaction where the creditor takes a security interest or collateral in the underlying property for which the loan was taken. The most common form of consumer secured debt transaction is a car loan. Most secured debt is enforceable by virtue of the borrower executing a legally binding promissory note with the lending institution. Once the borrower defaults on the repayment terms of the promissory note, the lender can take possession of the collateral, sell it and apply the sales proceeds toward the balance due on the loan. The borrower remains liable for any deficiency that remains.
Running of the Clock
The statute of limitations clock begins on the date the cause of action accrued; which, in the case of an action to recover on a secured debt, is the date on which the borrower defaulted on the terms of the promissory note. The clock stops on the day the creditor files suit in a court that has jurisdiction to hear the matter.
Considerations
Once a borrower defaults on his secured loan obligation, even though the lender may recoup a portion of its losses by selling the underlying collateral, the lender must still comply with the applicable state statute of limitations period if it wishes to file suit for any remaining balance due. The statute of limitations is an affirmative defense that must be raised by the borrower after the complaint has been filed against him in court. If suit is filed outside the relevant limitations period, only by request of the borrower will the court dismiss the action as time-barred. Once dismissed, the lender has no further legal recourse against the borrower.
0 comments:
Post a Comment