Can a lender collect upon a promissory note that matured six or more years ago?
Short answer: No. The statute of limitations applies to each matured/defaulted note installment payment separately as it becomes due under the note amortization schedule, and it does not begin to run on any installment until it is due. Andra R. Miller Designs LLC v. US Bank NA, 244 Ariz. 265, 270, 418 P.3d 1038, 1043 (App. 2018) review denied (July 3, 2018). See also, Ancala Holdings L.L.C. v. Price, 220 Fed. App. 569, 572 (9th Cir. 2007) (a cause of action “accrues” each time a party fails to perform as required by the contract) and Ortiz v. Trinity Fin. Servs. LLC, 98 F.Supp. 3d 1037, 1042 (D. Ariz. 2015) (each time the debtor fails to make a payment when it becomes due, a separate breach occurs and a cause of action “accrues”, starting the clock).
Because the maturity date of a promissory note is the last scheduled installment payment of the debt instrument, the cause of action for that final installment payment “accrues” on the loan maturity date. As a result, a lender cannot sue upon the promissory note six years or more after the scheduled maturity date.
EXAMPLE: Loan Maturity Date: 1/1/2015. Current Date: 1/2/2021. A Collection Lawsuit or Foreclosure Sale is barred, as more than six years have passed since the loan maturity date.
7. Application of the six-year statute of limitations to loans that have not been accelerated:
When does a cause of action “accrue” upon a defaulted unmatured installment promissory note for the purpose of calculating the six-year statute of limitation if the lender has not taken an affirmative act to accelerate the loan?
Short answer: The statute of limitations applies to each matured/defaulted Note installment payment separately as it becomes due under the Note amortization schedule, and does not begin to run on any installment until it is due.
If the creditor does not exercise the option to accelerate an installment contract debt and/or to determine the date of “accrual” of a cause of action upon a matured/defaulted monthly installment payment, the statute of limitations applies to each matured/defaulted Note installment payment separately as it becomes due under the Note amortization schedule, and does not begin to run on any installment until it is due. Andra R. Miller Designs LLC v. US Bank NA, 244 Ariz. 265, 270, 418 P.3d 1038, 1043 (App. 2018) review denied (July 3, 2018). See also, Ancala Holdings L.L.C. v. Price, 220 Fed. App. 569, 572 (9th Cir. 2007) (a cause of action “accrues” each time a party fails to perform as required by the contract) and Ortiz v. Trinity Fin. Servs. LLC, 98 F.Supp. 3d 1037, 1042 (D. Ariz. 2015) (each time the debtor fails to make a payment when it becomes due, a separate breach occurs and a cause of action “accrues,” starting the clock).
The rules discussed above concerning deter- mining the date of “accrual” of a cause of action based upon a defaulted mortgage loan installment promissory note have been applied consistently by the Arizona Court of Appeals and the United States District Court for the District of Arizona in the following line of cases: Andra R. Miller Designs LLC v. US Bank NA, 244 Ariz. 265, 418 P.3d 1038 (AZ App. 2018) review denied (July 3, 2018). Baseline Financial Services v. Madison, 229 Ariz. 543, 278 P.3d 321 (AZ App. 2012); Navy Federal Credit Union v. Jones, 187 Ariz. 493, 930 P.2d 1007 (AZ App. 1996); Hummel v. Rushmore Loan Management LLC, 2018 WL 3744858 (D. AZ 2018); and Ortiz v. Trinity Financial Services LLC, 98 F.Supp.3d 1037 (D. AZ. 2015). Furthermore, as was fully discussed above, the Arizona Supreme Court, in Mertola, LLC v. Santos, 244 Ariz. 488, 490, 796 Ariz. Adv. Rep. 16, 422 P.3d 1028, 1030 (2018) distinguished installment debt from credit card debt in the context of selecting the correct rules to determine when a cause of action “accrues” to calculate the six-year statute of limitation.
EXAMPLE #1: Loan Maturity Date: 1/1/21. Last Payment: 1/1/15. Current Date: 1/2/21. Both a Collection Lawsuit and a Foreclosure Sale are barred.
EXAMPLE #2: Loan Date: 1/1/10. Loan Maturity Date: 1/1/40. Loan is not accelerated. Last Payment Made: 1/1/15. Current Date: 1/2/21. The limitations period bars a suit on any payments due under the loan on 1/1/15 or earlier. The lender may, however, still commence a Collection Lawsuit or Foreclosure Sale based upon the installment payments due from 2/1/15 going forward.
Do the same rules apply to determine when a cause of action “accrues” to pursue a
non-judicial Foreclosure Sale of real property as apply to a matured or unmatured installment promissory note?
Short answer: Yes.
See, Andra R. Miller Designs LLC v. US Bank, 244 Ariz. 265, 269, 418 P.3d 1038, 1042 (AZ Ct. App. 2018), review denied (July 3, 2018).
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