20-year statute of limitations for mortgage loan does not apply to residual claim

A recently published ruling[i] focused on the question of what limitation period applies to a residual claim from a real estate financing, after the mortgage right has been extinguished. Is it the 20-year period, as the lender argued, or is it the 5-year period as it applies to an "ordinary" claim?

What is the case?

ING bank granted a loan for the purchase of a property, obtaining a mortgage right on the property as security. After some time, the borrower runs into financial difficulties and the obligations to ING can no longer be met. ING calls for an auction and the property is sold by foreclosure. Subsequently, the mortgage right is cancelled, but the remaining debt cannot be paid.

Even before the mortgage right was extinguished, ING - using the mortgage deed - executed garnishment. After the property is delivered, ING asks (read: summons) the borrower to pay the remaining claim, which does not happen. For more than five years, funds are periodically collected through the garnishment. At some point, the borrower notifies ING that its claim is time-barred and that the garnishment must be lifted.

Decision

ING takes the position that the residual claim is not time-barred, but the court disagrees.

If there is a mortgage-backed claim, the claim does not expire in the first 20 years. There is no difference between the part of the claim that can be paid from the mortgage proceeds and the part that remains as a residual claim thereafter. In principle, a claim from a money loan that is not secured by a mortgage has a limitation period of 5 years from the day the claim is due and payable. The 20-year limitation period no longer applies to the residual debt remaining after foreclosure of the mortgage. At the moment the property is delivered after the foreclosure sale, the mortgage right is extinguished. From that moment, there is an "ordinary" claim without security interest, so the 5-year limitation period applies.

ING further argues that the garnishment has interrupted the residual claim. On this point, too, the court does not follow ING.

By interrupting the statute of limitations, a new limitation period begins to run. There are only two exceptions to this: bringing a claim in court which is followed by an award of the claim or seeking a binding opinion, which is obtained. Placing an executory garnishment is not equivalent to filing a claim in court, the court considered. The court referred to an earlier Supreme Court ruling.[ii] An appeal to reasonableness and fairness does not help ING either. If it had wanted to interrupt the claim, ING could have provided an overview of the repayments and the residual debt with an unequivocal statement that it reserved its right to performance. That did not happen.

The residual claim is time-barred, foreclosure garnishments must be lifted and enforcement suspended.

Relevance to real estate practice

This ruling on prescription of a residual claim, is relevant to real estate practice when there is an under-recovery and when current obligations are no longer being met.

In such a case, care must be taken that after the mortgage right is enforced, the residual claim does not lapse. The limitation period for this residual claim is 5 years, while the limitation period for a mortgage loan is 20 years. The statute of limitations for the residual claim begins to run when the mortgage right is extinguished, according to this ruling. This statute of limitations must be interrupted in time to prevent the claim from being uncollectible. Interruption can be done by sending an unequivocal summons by registered mail or even better, by bailiff's writ. Interruption can also be made by instituting legal action or seeking a binding opinion. Executory garnishment under the notarial mortgage deed is not an act of interruption. After interruption, a new limitation period begins to run. If you still have a residual claim on account of real estate financing after the mortgage right has been enforced, do not forget to interrupt it in good time if direct collection is not possible.

[i] Amsterdam District Court in preliminary relief proceedings July 16, 2020, ECLI:NL:RBAMS:2020:3626, JOR 2021, 16.

[ii] HR of September 30, 2016(ECLI:NL:HR:2016:2222, JOR 2017/74, inc. Pegroam/X).