In In re Washington, Case No. 14-14573 (Bankr. D.N.J. Nov. 5, 2014), the Bankruptcy Court held that under New Jersey law, a mortgage holder is time-barred from foreclosing on a residential mortgage if the complaint is not filed within six years of the date the mortgage loan was accelerated by the mortgagee.

On August 11, 2015, the United States District Court for the District of New Jersey reversed the decision, holding that the claim is time barred twenty years from the date of default. As a result, the mortgage is still valid and must be paid by the mortgagor.

The District Court looked to several recent state court cases (all unpublished) and the plain meaning of the statute in question. In May 2015, two Chancery Division Judges (Morris County and Hudson County) did not follow the Washington decision. The Judges disagreed with the Bankruptcy Court’s interpretation of N.J.S.A. § 2A:50-56.1.

The District Court followed the reasoning of the state court judges and found that the acceleration of a residential mortgage upon default does not accelerate the maturity date of the mortgage loan, since the maturity date is generally a specified date in the mortgage document (ie. date for last payment). Without a change in the maturity date, the District Court found that the twenty year statute of limitations was applicable to the facts before the Court.

It is too early to tell if the debtor will appeal to the Third Circuit Court of Appeals. If an appeal is filed, we will monitor and report on the case.