By Michael L. Moskowitz and Michele K. Jaspan

LENDERS BEWARE: How One Borrower Acquired His House Practically for FreeIn the case of In re Washington, No. 14-14573-TBA, 2014 WL 5714586 (Bankr. D.N.J. Nov. 5, 2014), the United States Bankruptcy Court for the District of New Jersey held that the mortgagee and mortgage servicer (“the Mortgagees” or “Plaintiff”) were time-barred under New Jersey state law from enforcing borrower’s default under both the note and mortgage. As a result, the borrower hit the jackpot and was entitled to own his home, free and clear of the mortgage debt, even though he only made three mortgage payments before the loan went into default.


The borrower originally executed a thirty-year note with a defined maturity date, which contained standard provisions for notice of default and acceleration. Upon borrower’s default in payment, lender accelerated the loan and a foreclosure action was commenced. Three years after the complaint was filed, the Office of Foreclosure returned the foreclosure judgment package with deficiencies. Approximately 31 months later, on May 31, 2013, the Clerk’s Office issued a notice of intent to dismiss the foreclosure action due to lack of prosecution unless Plaintiff produced certain documents. Although Plaintiff served a notice of intent to file an order to show cause to request additional time, the clerk’s office issued a Foreclosure Dismissal Order, dismissing the foreclosure complaint for lack of prosecution, without prejudice, with reinstatement to be made by motion for good cause. No motion or complaint was filed. The clerk’s notice of intent to dismiss the complaint was filed less than one month shy of the expiration of the six year statute of limitations. Notably, the dismissal order was entered six years after acceleration of the mortgage.

More than seven years after the foreclosure complaint was filed, Borrower filed a Chapter 7 bankruptcy petition, which he later converted to Chapter 13. Debtor’s Plan proposed to sell the residential property free and clear of all liens. Debtor filed an adversary proceeding for determination of the validity, priority and extent of the mortgage lien. Debtor moved for partial summary judgment and Mortgagees cross-moved.

Debtor argued that a claim for foreclosure on the note accrued when the default was declared and the loan was accelerated, more than seven years prior to the filing of the bankruptcy petition. Pursuant to N.J.S.A. 12A:3-118(a), the statute of limitations is measured as six years from the due date, or accelerated due date, and as such, Debtor argued Mortgagees were now time barred from re-filing the action.

Mortgagees conceded the six-year statute of limitations for enforcement of the note, but argued that the enforcement of the mortgage was subject to 20-year common law statute of limitations. Debtor countered that since the loan was accelerated to June 1, 2007, Defendants would be out of time to commence an action, pursuant to N.J.S.A. 2A:50-56.1, which requires a mortgagee to file a foreclosure action within six years of the maturity date. Significantly, this statute’s effective date was in 2009, five (5) years before the ruling in the instant case.

The question the bankruptcy court determined was whether the acceleration of the note and mortgage advanced the maturity date so that N.J.S.A. 2A:50-56.1 preempted a foreclosure action in this case. Regrettably for the Mortgagees, the Court answered in the affirmative.

The court’s well-reasoned analysis reviewed the history of the New Jersey’s promulgation of the Fair Foreclosure Act, effective August 2, 2009, which established the statute of limitations relative to foreclosure proceedings. In summary, the statute provides that, an action to foreclose a residential mortgage shall not be commenced until the earlier of (i) six years from the date fixed for the making of the last payment or the maturity date, (ii) thirty six years from the date of recording of the mortgage, or (iii) twenty years from the date on which debtor defaulted, which default has not been cured.

Mortgagees unsuccessfully argued that a subsequent foreclosure complaint filing should relate back to the filing date of the initial complaint in December 2007. In determining that the maturity date reference in the statute includes an accelerated maturity date, the court found that: (i) the maturity date was accelerated to June 1, 2007, (ii) neither Defendants nor the debtor took any steps to de-accelerate the note or mortgage, and (iii) Defendants failed to file a foreclosure complaint within six years of the accelerated maturity date.

Thus, the court grudgingly held the Mortgagees were time barred from re-filing a foreclosure complaint and from obtaining a final judgment of foreclosure. The court further found the putative secured claim to be unenforceable and the Debtor retained the property, free and clear of all liens. Debtor was further discharged from the underlying debt on the note since the six-year statute of limitations had passed.


In light of this decision, lenders must continually review their portfolio of mortgage loans that have been in default for five or more years, to ensure the foreclosure process is timely commenced so as not to run afoul of the six-year statute of limitations. Practitioners must keep their eyes on the calendar and not allow a case to linger unnecessarily. Moreover, they need to file pleadings and motions on a timely basis and proactively apply to the court for appropriate relief.

Richard Weltman & Michael Moskowitz |

About Weltman & Moskowitz, LLP, A New York and New Jersey Business, Bankruptcy, and Creditors’ Rights Law Firm:

Founded in 1987, Weltman & Moskowitz, LLP is a highly regarded business law firm concentrating on creditors’ rights, bankruptcy, foreclosure, and business litigation. Michael L. Moskowitz, a partner with the firm, focuses his practice on business and bankruptcy litigation, as well as creditors’ rights, foreclosure, adversary proceeding litigation, corporate counseling, M&A, and transactional matters. Michael can be reached at (212) 684-7800, (201)794-7500 or Michele K. Jaspan, an associate of the firm, contributed research and reporting to this article.