MIAMI — In September, Susan Rodolfi celebrated an unusual anniversary: five years of missed mortgage payments.
She is like a ghost of the housing market’s painful past, one of thousands of Americans who have skipped years of mortgage payments and are still living in their homes.
Now a legal quirk could bring a surreal ending to her foreclosure case and many others around the country: They may get to keep their homes without ever having to pay another dime.
The reason, lawyers for homeowners argue, is that the cases have dragged on too long.
There are tens of thousands of homeowners who have missed more than five years of mortgage payments, many of them clustered in states like Florida, New Jersey, and New York, where lenders must get judges to sign off on foreclosures. However, in a growing number of foreclosure cases filed when home prices collapsed during the financial crisis, lenders may never be able to seize the homes because the state statutes of limitations have been exceeded, according to interviews with housing lawyers and a review of state and federal court decisions.
“No one gets a free house,” Judge Michael B. Kaplan of the US Bankruptcy Court in Trenton, N.J., wrote in an opinion late last year, reflecting what he characterized as a longstanding “admonition” that he and others made during the foreclosure crisis.
But after effectively ending a New Jersey homeowner’s foreclosure case in November because the state’s six-year statute of limitations had expired, he wrote in his decision, “With a proper measure of disquiet and chagrin, the court now must retreat from this position.”
It is difficult to know for sure how many foreclosure cases are still grinding through the court systems since the financial crisis. It is even harder to say how many of those borrowers are still living in their homes.
Bank of America, for example, has initiated the foreclosure process on roughly 20,000 mortgages that have not been paid in at least five years. The bank estimates that 90 percent of those homes are still occupied.
The courts are not the only source of delay. Over the years, the federal government has made 69 changes to its mortgage modification programs, forcing lenders to repeatedly scrap previous offers to homeowners and extend new terms.
Of course, the banks have also dragged out this reckoning through shoddy paperwork, botched modifications, and general dysfunction as they struggled to cope with a flood of soured mortgages. Many cases were passed between lawyers like hot potatoes and lay dormant on court dockets.
Since housing prices peaked in 2006, roughly 6.7 million Americans have lost their homes to foreclosure. Another 800,000 people could share that fate by the time all of the delinquent mortgages from the crisis are settled, according to a Moody’s Analytics estimate.
“This whole event is going to take 10 years to sort out,” said Mark Zandi, chief economist at Moody’s Analytics. “So we probably have one or maybe two more years to go until it is all over.”
But the laws in places like Florida could prove to be a wild card. In a state where “hanging chads” decided the 2000 presidential election, a legal technicality could help settle the state’s foreclosure crisis.
Lawyers for homeowners in Florida contend that lenders have five years to file for foreclosure after a homeowner defaults, normally after several months of missed payments, and the mortgage is “accelerated,” meaning that the bank says the debt is due all at once. Banks say they have many more years to file for foreclosure, arguing that the five-year clock resets every time a homeowner misses a monthly payment — regardless of when the mortgage was accelerated. Some Florida judges have agreed.
The statute of limitations does not halt a foreclosure case that is continuing in court. But in some Florida courts, homeowners’ lawyers have argued that once a foreclosure is dismissed even for technical reasons, the lender cannot evict the delinquent borrower if the statute of limitations has passed.
The issue is now before the Florida Supreme Court.
The lenders’ lawyers have warned in court papers that if the state’s high court sides with the homeowners, “it would spawn a public policy hazard” and dissuade banks from extending mortgages in Florida in the future.
The statute of limitations issue is also coming up in the New York courts.
“It’s becoming a more common way to get out from under these cases,” said Linda Tirelli, a lawyer in White Plains, N.Y., who represents homeowners facing foreclosure.
In June, it also appeared that Rodolfi was literally home free.
When a lawyer then working for her mortgage servicer did not show up for a routine hearing, the judge dismissed her foreclosure case.
But her servicer, Nationstar Mortgage, recently won a reversal of the dismissal, saying the lawyer had missed the hearing because of “inadvertence, mistake, and excusable neglect.” Rodolfi’s lawyers plan to appeal.
“People who are paying their mortgage might see this as a windfall for the homeowner,” said one of her lawyers, Martin G. McCarthy. “But the lenders are more than partly to blame, and in Susan’s case, I wouldn’t feel bad for them.”