Lazy Lenders May Lose Their Mortgage Rights

In a recent decision, the Arizona Supreme Court reversed long-standing precedent in finding that a lender who did not pursue a foreclosure of its mortgage within six years of the default on the underlying indebtedness lost its right to foreclose. Aroca v. Tang Investment Company LLC, 544 P.3d 653 (Ariz. 2025). In Aroca, the borrowers executed a note in 2007 secured by a mortgage on their real property. The borrowers made interest-only payments for a year but then stopped making payments altogether. Despite the non-payment, the lender failed to initiate foreclosure proceedings or take any action to enforce its rights on the underlying debt. 

Fourteen years later, in 2022, the lenders brought an action seeking declaratory relief to clear the mortgage from the title to their property. The borrowers argued that because the lender had not brought any action within the six-year statute of limitations on the underlying debt, the mortgage should be cleared from their title. In response, the lender cited Arizona Revised Statutes § 33-714, which provides that a mortgage lien “that is not otherwise satisfied or discharged” expires 50 years after the mortgage or deed of trust was recorded. The lender argued that therefore, it had until 2057 to foreclose. The trial court agreed with the lender and dismissed the borrower’s quiet title action. 

The dismissal was consistent with the Arizona Supreme Court’s 1914 holding that equitable principles prohibited a plaintiff from obtaining a judgment clearing an old mortgage when the mortgage debt remained unpaid. Provident Mut. Bldg.-Loan Ass’n v. Schwertner, 140 P. 495 (Ariz. 1914). In 1941, however, the Arizona legislature adopted Arizona Revised Statutes § 12-1104(B), which relates to quiet title actions and provides “[i]f it is proved that the interest or lien or the remedy for enforcement thereof is barred by limitation, plaintiff shall be entitled to judgment barring and forever estopping assertion of the interest or lien in or to upon the real property . . .”

The Aroca court overturned Provident finding that the later adoption of § 12-1104(B), takes precedent over the court’s earlier finding in Provident. As a result, because the lender in Aroca failed to take action on the underlying debt or mortgage within the six-year statute of limitations to sue after borrowers’ default on the note in 2007, the lender was barred from taking such action and its mortgage should be cleared from the borrowers’ title to their real property. 

Other jurisdictions have taken a different approach. For instance, Minnesota Statutes § 541.03 provides that no action to foreclose a real estate mortgage shall be maintained unless “commenced within 15 years from the maturity of the whole of the debt secured by the mortgage.” And if the time of the maturity of the debt secured by the mortgage is not clearly stated in the mortgage, the time to foreclose begins to run from the date of such mortgage. Moreover, unlike Aroca, the Minnesota Court of Appeals’ decision in Reid v. Westgate Investments, 8 N.W.3d 651 (Minn. Ct. App. 2024) makes clear that the 15-year statute of limitations for foreclosure of the mortgage allows foreclosure even if the six-year statute of limitations applicable to default under the underlying promissory note has run. 

For more information, contact Mark W. Vyvyan.