Idaho Supreme Court
By Lewis Stoddard, Attorney at RCO Legal, P.S., Boise, Idaho

Case Law Update Clarifying the Statute of Limitations for Foreclosure in Idaho.

On May 27, 2017 the Idaho Supreme Court clarified when the foreclosure statute of limitations begins to run: note maturity plus five years. Idaho Borrowers and their counsel have been challenging foreclosures by claiming that the 5 year foreclosure statute of limitations begins to run from the date of acceleration or the date a notice of default is recorded (whichever is sooner), not maturity. Specifically, in the case of Baughman v. Wells Fargo Bank, N.A. et al., the Court held that where a note expressly states a maturity date and contains no provisions providing for a change in maturity date “if the amounts owed under the note are declared to be immediately due and payable because of a default,” the five year statute of limitations for foreclosure begins to run after maturity, even if the loan is accelerated through the issuance and recording of a notice of default or other method.

By way of background, Baughman (“the borrower”) refinanced real property with a $1.2M promissory note secured by a Deed of Trust. The promissory note required monthly payments and stated a maturity date of March 1, 2047. The borrower defaulted in December 2007. In January 2008, the beneficiary sent the borrower a letter advising her that failure to cure the default by the following month “shall result in the acceleration (immediately becoming due and payable in full) of the entire sum secured by the loan security instrument” and foreclosure. By January 29, 2009 the default was still not cured, so a “Notice of Default and Election to Sell under Deed of Trust” was recorded, which is the first formal step to start an Idaho non-judicial foreclosure. The Notice of Default provided that the beneficiary under the subject deed of trust “…has declared and does hereby declared all sums secured thereby immediately due and payable…” The property was ultimately sold at a non-judicial foreclosure in January 2010 and a trustee’s deed was issued; however, an erroneous assignment ultimately caused the trustee’s deed to be rescinded.

In July 2013, before the non-judicial foreclosure could be restarted, the borrower filed an action seeking to quiet title and sought an injunction to stop further foreclosure attempts. The borrower claimed that any foreclosure was time-barred by the 5 year statute of limitations found in Idaho Code § 5-214A, made applicable to deeds of trust pursuant to I.C. § 45-1515. The beneficiary responded and counterclaimed for judicial foreclosure. The District Court granted summary judgment in favor of the beneficiary, but in so doing held that the 5 year statute of limitations began to run from the date that the Notice of Default was recorded, which made the counterclaim for judicial foreclosure timely by 4 days. In so ruling, the District Court found that “acceleration occurs once a notice of default is recorded” under I.C. § 45-1506(12).

On appeal, the borrower argued that the loan was accelerated on February 22, 2008, not the January 29, 2009 recording of the notice of default. The borrower relied on two Idaho Supreme Court cases from 1937 and 1979 for the proposition that the statute of limitations runs when the note holder accelerates the debt. The Idaho Supreme Court disagreed and found that the language of Idaho Code § 5-214A is clear and sets the maturity date, not the acceleration date, as the critical date for statute of limitations purposes:

An action for foreclosure of a mortgage on real property must be commenced within five (5) years from the maturity date of the obligation or indebtedness secured by such mortgage. If the obligation or indebtedness secured by such mortgage does not state a maturity date, then the date of the accrual of the cause of action giving rise to the right to foreclose shall be deemed the date of maturity of such obligation or indebtedness.

Since the subject promissory note stated a maturity date of March 1, 2047 and did not contain any provisions modifying the maturity date upon acceleration, the five-year statute of limitations could not begin to run until March 1, 2047.

Prior to this decision, best practice for avoiding statute of limitation challenges required rescinding a recorded notice of default if the related non-judicial foreclosure were stopped or put on hold for any extended period of time. Absent specific language in a particular promissory note modifying the maturity date upon acceleration, the Baughman case indicates that this step is no longer required.

The Idaho Supreme Court also commented on permitted bases to rescind a trustee’s deed. The Idaho Supreme Court interpreted the statute governing rescission (Idaho Code § 45-1510) to only permit “rescission when the sale is invalid for one of three reasons: (1) by reason of automatic stay provisions of the U.S. bankruptcy code, (2) by reason of a stay order issued by any court of competent jurisdiction (3) or is otherwise invalid.” The Court’s interpretation is notable because it clarifies that rescission is only permitted when the sale is legally invalid, not merely flawed but otherwise valid. Before this decision, beneficiaries could arguably rescind for reinstatement or other workout option. While rescission of a trustee’s deed for reasons beneficial to the borrower are likely to go unchallenged, the Idaho Supreme Court does not appear to envision the use of I.C. § 45-1510 for such purposes. Beneficiaries and trustees may need counsel to advise regarding situations where rescission is legally compelling.