When is a NPN worthless?

Question

When browsing NPNs on the internet note sale sites I frequently see NPN for sale that, in my mind, should be time barred by the applicable state's statute of limitations. This one in particular is from my home state of MI and I know that the statute of limitations for breach of contract is 6 years. The relevant information is: "Last Payment Received Date:Oct 1, 2012".

If this is correct, and no payment whatsoever was made in over 6 years, can collecting on this note even be pursued? Wouldn't the loan servicer decline to pursue it for fear of violating the FDCPA?

Chris Seveney · Answer

@Ken V.First off - not an attorneyIn my experience with this the servicer may not want to collect because of violating FDCPA. Some will say if the loan has not matured then you can still collect the current payments but can only go after those which have not expired.These situations for me have ended in legal battles which are not worth the fight, so for me loans which are past statute of limitations I don’t bother with.

Ken V. · Answer

For Michigan: Discharge; Mortgage, Land Contract, or Tax LienMCL 600.3175(1) 15 YEARSWhen a recorded mortgage on real property, land contract, or tax lien (except tax liens held by the state or any political subdivision of the state) on lands or property has been paid or satisfied or when 15 YEARS have elapsed since the debt or lien secured by the mortgage, land contract, or tax lien became due and payable or since the last payment made on it, and no civil action or proceedings have been commenced to collect the same and in case of tax deeds when no service of notice to interested persons (of any kind) has been filed with the county clerk, the owner of the land or property may institute an action in the circuit court to discharge the mortgage, the land contract, or tax lien.

Ken V. · Answer

Thanks @chris seveney. I am an attorney (although not a collections attorney so I could be misguided) - and that is why i am baffled when I see these notes. It seems there is already plenty of unknowns and excitement with NPNs. And the judges look for reasons to keep the debtor in his/her home. To sign up for a note that provides such a beautiful excuse for the judge to throw a bone to the debtor seems too cavalier to me. Thanks

Wayne Brooks · Answer

State specific of course, but typically.....the statutory time limit doesn’t necessarily “kick in” from the date of last payment, but from the last attempt to collect, etc. In FL it’s been established that every missed payment is a new breach, essentially rendering the bulk of the SOL moot.

Ken V. · Answer

@Scott Matthew C, No. I see notes for sale with a last pay date greater than 6 years, that I wondered about. Notwithstanding the 15 years SOL, the mindset of someone living in a house for so long without paying is something I doubt that I could be able to fully appreciate. My concern is that he/she would never agree to any modification but yet be willing to fight any foreclosure action (in pro per of course). I think that I would pass on the note. Life is too short.

Scott Matthew C. · Answer

@Ken V. Have you ever come across one after the 15 year mark in MI? The max I’ve seen is 9 years. I’ve yet to see anything beyond that. I’m sure they are out there somewhere here in MI. Thanks for starting this thread.

Chad U. · Answer

Disclosure - not an attorney either. You may not be able to collect anything past the note's SOL, but you can still enforce the Trust Deed on the property (as long as it's not past it's SOL), which entitles you to foreclose on the borrower. However, some states, such as Ohio, have recent Federal court rulings whereby they are conjoining the enforceability SOL's of the note and mortgage/Trust into the same. Also be careful that there hasn't been several substitution of Trustees in the past, as some states have a limitation on the number times one can commence foreclosure proceedings against a borrower. I"m not sure what that is in Michigan.

Matt Skog · Answer

@Chris Seveney, Good to hear from you again, Chris.I think that unless you have physically driven by the property in question recently, I might pass on it.The sad thing in regard to many note sellers, is that while *they* may be okay with a slow paying client, those who are trying to buy the note are valuing it as truly being *on time* when it's being marketed as *performing*.

Ken V. · Answer

Thanks @Bryan Hartlen. The note seller told me that he was checking with his local attorney on this issue. I will report his response.

Bryan Hartlen · Answer

@Ken V. My understanding (and I’m not an attorney... and haven’t even played one on TV) is that statute of limitations would only disqualify collecting on the payments that were beyond the specified period. Payments due that hadn’t aged beyond the period and all future payments are still in play.