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Q: Statute of Limitations.. ( Answered,   2 Comments )
Subject: Statute of Limitations..
Category: Relationships and Society > Law
Asked by: scubasteve2-ga
List Price: $50.00
Posted: 21 Oct 2005 13:12 PDT
Expires: 20 Nov 2005 12:12 PST
Question ID: 583188
My wife is being sued for approximately $24,000 by a North Carolina
corporation which claims to have purchased the second mortgage on a
property which foreclosed several years ago.

We are currently living and are being sued in North Carolina.  The
mortgage was executed in California for property located in

Our attorney seems to think the California statute of limitations may
apply and has determined it to be a 6 year limitation.  He is urging
us to settle.

My questions are:

1.  Does California SOL apply to a suit in NC?
2.  If #1 is "yes": what is the statute of limitations?
      The above link has two different statutes which could be applicable, but
      there is some question as to which one.  336a claims 6 years, and 337
      says 4.  Both mention mortgage and notes.  This is the critical question,
      since we are certainly past the 4 year mark, but not past 6.

Request for Question Clarification by weisstho-ga on 21 Oct 2005 14:17 PDT
Hello, Steve,

Critical question:

1.  Is the North Carolina company claiming that they have a promissory
note that they purchased from the California mortgagee?  Or,

2.  Does the North Carolina company have a judgment from a California
court in the amount of the deficiency from the sale of the California
residence (the sale price of the home + the costs of the lender were
less than the mortgage balance)?


Clarification of Question by scubasteve2-ga on 21 Oct 2005 15:06 PDT
Hi Weisstho.

1.  Is the North Carolina company claiming that they have a promissory
note that they purchased from the California mortgagee?  Or,

They state in the suit:

1. Plaintinff is a corporation doing business in Mecklenburg County,
North Carolina.

2.  Defendant is a resident of Wake Forest, Wake County, North
Carolina and is not an infant nor an incompetent person.

3.  On or about October 8, 1997, Defendant executed and delivered to
AKT Mortgage Group, Inc., a Note in the original principal amount of
$25,000.00 with interest to accrue at the rate of 14.5% per annum, a
copy of which is attached hereto as Exhibit "A" and incorporated
herein by reference.  Plaintiff is the owner and holder of this

4.  Defendant is in default under the terms of the Note for, among
other things, failure to make the payments thereunder when due."

5.  (establishes the amount they're seeking, which is the entire loan
amount + interest + fees)

6.  (seeking attorneys fees)

2.  Does the North Carolina company have a judgment from a California
court in the amount of the deficiency from the sale of the California
residence (the sale price of the home + the costs of the lender were
less than the mortgage balance)?

No!  There is no judgement from California.  I am unaware of any
deficiency from the sale of the residence.  I believe both first and
second loans were satisfied in the sale of the property.

I am looking at a document called "Trustee's Deed Upon Sale" which states:

The undersigned grantor declares under penalty of perjury:

1) The grantee herein WAS the foreclosing beneficiary.
2) The amount of the unpaid debt together with costs was ... $84,792.20
3) The amount paid by the grantee at the trustee sale was ...$84,792.20

and LONESTAR MORTGAGEE SERVICES, L.L.C  (herein called trustee), as
the duly appointed Trustee under the Deed of Trust hereinafter
described, does hereby grant and convey, but without warranty, express
or implied to

(herein called Grantee), all of its right, title and interest in and
to that certain property situated in the County of BUTTE, State of

I don't know who Lonestar is...

Clarification of Question by scubasteve2-ga on 21 Oct 2005 15:07 PDT
Bank of America was the original mortgage.
Subject: Re: Statute of Limitations..
Answered By: weisstho-ga on 21 Oct 2005 21:19 PDT
Dear Steve,

Thanks for giving us a chance to answer your question!  I hope, very
much, that this gets you in the ballpark.

The short answer:  The six year statute of limitation does NOT appear
to apply to your wife's case. The appropriate statute would be either
4 years, and very probably only 3 months.

Your wife owned a home in Butte County, California and on or about
October 8, 1997 signed a promissory note and mortgage in favor of AKT
Mortgage Group, Inc. in the amount of $25,000 with interest at 14.5%.

From your description it appears that the first mortgage, a mortgage
given to Bank of America, was ?foreclosed? through Lonestar Mortgage
Services, a trustee in charge of handling the sale of the home.
Lonestar did what most trustees do which is to sell the home to the
mortgage lender, Bank of America, for the amount of the debt, $84,792.

Do we know whether the $84,792 included both the amount due to Bank of
America and AKT?

Uniformly, lenders bid at their own foreclosure sale, but they must be
careful. If they bid the amount of their loan and the property turns
out to be worth less than the amount of the loan, the lender may be
barred from seeking any deficiency, since the mortgage has been fully
satisfied by the bid. On the other hand, if the lender bids less than
the amount of the loan and seeks a deficiency, the lender may be
challenged by your wife on the grounds that the bid was below the fair
market value.  There was probably an appraisal performed prior to the
foreclosure sale and that would be information that is very
interesting. Also, what did Bank of America sell the home for?

To answer your question we do not need to know the answer in this
public forum. BUT, you do want to collect all of that information in
order to present your defenses as I will discuss below.

A term you will want to know is ?Affirmative Defense? which is ?a
defense in which the defendant introduces evidence, which, if found to
be credible, will negate civil liability, even if it is proven that
the defendant committed the alleged acts. Statute of limitations and
payment are some examples of affirmative defenses.

I believe that this matter is a matter of North Carolina law, so long
as there is not a forum selection clause in the promissory note.
Please review the text of the note that is attached to the Complaint
and see if there is any indication as to whether your wife and AKT
?agreed? to have any particular law, specifically California, to apply
to the enforcement of the note.

If the note does specify California law, and in reply to your original
question, the period of limitation would appear to be four years under
the California Code of Civil Procedure section 337 and even perhaps
only three months after the sale of the home to Bank of America.

It appears to me that the six year statute under section 336a is the
time applicable to the trust deed, not the note. It is very common for
there to be a separate limitation period for the mortgage (or ?trust
deed?) and the related promissory note. Here in Michigan, for example,
there is a 10 year statute on a mortgage, but only a 6 year statute on
the note.

The four year statute under section 337 would be applicable to a
promissory note standing by itself. However, a lawsuit on a promissory
note based upon a deed of trust (or mortgage) must be brought within
three months after the sale from Lonestar to Bank of America.
Since your wife resides in North Carolina the lender probably cannot
sue her in California courts, even under California?s generous ?long
arm statute.?  This
question is moot, anyway, due to the plaintiff having brought the suit
in North Carolina.
The plaintiff claims to be the owner and holder of this instrument,
which would appear to say that the plaintiff has been assigned all of
the right, title and interest in the promissory note. You may know
that an ?assignment? is the transfer of a claim, right, interest, or
property from one to another. It is also the name of the written
instrument by which this transfer is effected.

One of your affirmative defenses would be to state that an assignment
has not been proven and you deny that it has occurred. Further, that
your wife has no knowledge nor has she consented to an assignment
(although her consent may not be required, and no doubt would not be
required ? still, she states the defense.)
The plaintiff is really hoping on one thing:  that your wife will not
be contacting an attorney and/or answering the complaint. With no
answer to the complaint, the plaintiff gets a default judgment and can
then garnishee money from accounts or paychecks or, ultimately,
perhaps attach real property.
Other than the statute of limitation, either the 3-month or 4-year,
there may be other affirmative defenses, such as:
A.  Usury (14.5% is high, but it may be permissible; but maybe not);
B.  Whether your wife can be held solely liable under the note;
C.  If the loan was an FHA loan, there may be a mortgage servicing
defense ? ask the attorney; and
D.  Procedural defenses may be available where the mortgagee/trustee
failed to follow proper foreclosure procedures.
You may be finding that it is difficult to get an attorney that does
not have a conflict of interest, which is to say does not represent
the plaintiff. Further, if you have California law applying to your
case in North Carolina, you ideally need an attorney conversant and
expert in the law of both states, particularly where you might have
North Carolina civil procedure and California commercial law and
limitation periods. But here is an idea:  Use the Martindale website
found here:

Look for:  Lawyers only
Select general area of practice:  Commercial Law
U.S. States:  North Carolina
Other Memberships:  California

This should show you 6 North Carolina attorneys specializing in
Commercial Law that are licensed in California.

If you ?Select general area of practice? for ?all areas? you will find
77 attorneys licensed in both the Tar Heel State and the Golden State.

$24,000 is obviously real money and deserves a real defense. If the
analysis as to the statute of limitation is correct, this matter can
be dismissed on a motion for summary judgment early in the life of the
law suit.

I hope that I have given you a roadmap ? here is the summary:

1.  Collect all of the paperwork that you can, both on the original
mortgage and the second mortgage which the plaintiff now seeks to

2.  See if you can find out what Bank of America sold the home for.

3.  Does the promissory note require that California law be used in
enforcing the note?

4.  If so, find an attorney competent in both North Carolina and
California law and civil procedure.  If not, North Carolina law should

5.  It appears that the applicable statute of limitation would be
either 4 years or 3 months ? from the date of the last payment.

6.  Look for other affirmative defenses, such as usury, payment.

7.  Look for defects in the foreclosure that might impair the
collectability of the note itself.

It is almost certain that you will have an additional question ?
please hit the Clarification key and ask away. I will get back to you
as soon as I can.

Good luck!

Search strategy:

California + ?statute of limitation?
California Civil Code
?North Carolina? statutes
Martindale Hubbell

Request for Answer Clarification by scubasteve2-ga on 22 Oct 2005 05:49 PDT
Hi Weisstho.

I tracked down a certified copy of the Deed of Trust for the second
mortgage.  In it:

13.  Governing Law; Severability.  The state and local laws applicable
to this Deed of Trust shall be the laws of the justisdiction in which
the property is located.  The foregoing sentence shall not limit the
applicability of federal law to this Deed of Trust.  In the event that
any provision or clause of this Deed of Trust or the Note conflicts
with applicable law, such conflict shall not affect the other
provisions of this Deed of Trust or the note which can be given the
effect without the conflicting provision, and to this end the
provisions of this Deed of Trust and the Note are declared to be
severable.  As used herein, "costs," "expenses" and "attorneys' fees"
include all sums to the extent not prohibited by applicable law or
limited herein.

The Note (provided in the suit) is one page and does not elect a
forum.  I'm not an expert here.. but the Deed of Trust appears to be
an entirely separate document with a California selection.   I would
think the Deed of Trust has no bearing on our case, as we are being
sued under the note.

Your answer to the question included:

"I believe that this matter is a matter of North Carolina law, so long
as there is not a forum selection clause in the promissory note."

When you state "matter of North Carolina law" - does that mean the
North Carolina SOL would apply to this case, since the case was
brought in North Carolina and there are no provisions in the Note
selecting a forum?

Also, the only information I have regarding the foreclosure was
provided by the County Recorder's office.  This paperwork only seems
to concern the first mortgage.  As such, I cannot determine if the
$84,792 sale price satisfied both loans or not.  I am also unable to
determine when or if the second mortgage foreclosed.

Is it possible for one mortgage to foreclose and the other to not?

Clarification of Answer by weisstho-ga on 22 Oct 2005 19:27 PDT
Hi again, Steve,

Good questions, all. I hope that these clarifications help:

1.  As to your first observation about the Deed of Trust versus the
Note and specifically, that the Note appears to be separate ? you may
well be correct. One thing to look for is a clause that states that
the terms of the one document (say the Deed) are merged and integrated
into the other document (e.g. the Note). It would make sense though
for the Trust Deed to be based upon the law in the jurisdiction in
which the property is located (the Deed and the Property are joined at
the hip, so to speak) while the Note could be enforceable any ole

2.  Please do not assume that there is ?one? right set of answers to
this problem. That?s the beauty of the law profession ? you make an
argument. It may well be that a competent attorney could argue
California law applies while another argues (on the same facts) that
North Carolina law applies ? and they could both be found correct.

3.  Statutes of Limitation are matters of ?law? and without a
prevailing argument to the contrary a North Carolina court with North
Carolina parties before it would be applying North Carolina law,
including its own Limitation periods. I cannot give you an opinion,
since it is a matter of legal brain surgery unique to North Carolina,
as to whether an argument could be had that California law (and
potentially its short limitation period) should apply, particularly if
your wife were resident in California when the three month limitation

4.  You ask ?is it possible for one mortgage to foreclose and the
other to not??  I suppose that, yes, it is. Let?s look at it like
this:  your wife signed two promissory notes and, as such, she is
personally liable to pay those notes. But, besides her signature and
personal credit, she also gave the home as a ?guarantee? or ?surety.? 
Two forms of repayment are then available: the home and your wife.

That is why, in most jurisdictions, there is only one limitation
period ? that for a contract ? here, the promissory note. But, because
of the special use of a family home special limitation periods may
appear ? like the California three month period.

I presume that there wasn?t a surplus from the sale of the home ?
otherwise your wife would have received a check after the sale from
Bank of America to the new owner. Therefore, there was probably a
deficiency where the amount of the notes exceeded the sale price.

So, faced with a deficiency, the lender decides to hold back the
second note and wait and collect it down the road. They think maybe
your wife marries well, gets a job, wins the power ball, whatever ?
she ultimately gains the financial ability to pay off the note ? and
interest keeps accruing. After all, why would they try to collect then
? she obviously had indicated that she was unable at the time of the
foreclosure to make good on the second note. Makes sense.

BUT, it may not be kosher. Particularly if the proceeds of the second
mortgage were spent on improvements to the home. Another good point to
mention to your attorney ? refer this point to #3 above.

5.  Many thanks for MYOARIN?s comment below ? interesting site. 

6.  Anything else, Steve?  Feel free to ask again. 

Best regards,

Subject: Re: Statute of Limitations..
From: myoarin-ga on 22 Oct 2005 06:28 PDT
Of course all this is not legal or professional advice, as the
disclaimer below explains  - but Weisstho obviously brings a lot of
legal expertise to bear.

It appears that no lien on the property was registered for the second
mortgage, since it is very unlikely that Bank of America would have
taken possession with another lien still on the house.  Your
information from the county recorder seems to support this.  Your wife
should know if the $84,792 was the amount plus interest, etc. due to B
of A or whether it could have included the $25,000.

Weisstho asked about the price B of A got for the house.  Here is the
real estate site for Butte County.  The realtors listed at the end of
the page, may be able to help you answer that.  They have a wealth of
information at their fingertips.

Good luck, Myoarin
Subject: Re: Statute of Limitations..
From: myoarin-ga on 24 Oct 2005 05:25 PDT
Greetings to you both again,
Subsequent clarifications also very interesting.

It seems so strange that a collection agency would have taken
assignment of a note that from what we know here appears to be past
the Statute of Limitations.
Steve, since you say that the note is for $25,000, but that the claim
is for ca. $ 24,000, when did your wife make the last payment on the
note?  I think that would be the date for the start of the SofL.
There may be an explanation, however:  Section 351 of the Cal. Code of
Civil Procedure.  This old passage states that a SofL is "tolled"
(suspended) while the defendent is out of the State.  I understand
that the US Supreme Court has ruled against this section, and there
have been recommendations to repeal it, but it still seems to be on
the books, if one can trust the text of the code that I found.

These two sites refer to the recommendations to repeal:
(see page 97 ff)

Collection agencies buy receivables at a hefty discount.  Sure, they
have a note for the face amount plus interest, but they can settle for
a lot less and still make a profit  - and save themselves the hassle
and risk of a court case.
The threat of such is one of their weapons, but they are open for
bargaining, as discussions here about credit card claims have shown.

But I hope, Steve, that you have a better position.
Regards, Myoarin

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