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Reduced Limitation Periods Have Significant Consequences for Mortgagees

Thursday, September 07, 2017
Previously, under the Limitation Act 1950 ("the 1950 Act") claims to recover money owing under a deed or mortgage, had to be brought within twelve years of the money falling due for repayment.  However under the Limitation Act 2010 ("the 2010 Act"), this has been reduced to a limitation period of six years.  

The deadline for making such a claim may already be upon some mortgagees.  Take note of the important dates and exceptions outlined below.  

Recovery of Principal Sum
Claimants seeking to recover the principal sum secured by a mortgage or other charge, will have either a six or twelve year limitation period within which to bring an action for the sum.  This is dependent upon when the relevant deed or mortgage states that repayment of the principal sum is due.

If repayment of the principal is due on or after 1 January 2011 (the date the 2010 Act came into force), then the six year limitation period applies. The deadline for principal repayment is the "start date" of the limitation period, which is also defined in the 2010 Act as the "primary period".

Where the deed or mortgage in question specifies a date for repayment of the principal sum as prior to 1 January 2011,  then the limitation period is twelve years, in accordance with the 1950 Act.

Recovery of Interest
Claims for the recovery of arrears of interest payable in respect of any sum of money secured by a mortgage, are prohibited or statute barred, after six years.  This six year period, or "primary period" runs from the date on which the interest became due as is imposed under the 1950 and 2010 Acts.

Acknowledgments of Debt and Part Payments
If it can be proven that an acknowledgment of debt or part payment has been made after the primary period has started, then Section 47 of the 2010 Act will apply.  This section provides for an exception to the usual limitation period.

If a creditor (including a mortgagee as the case may be) can prove such an acknowledgment or part payment has been made, they have a fresh claim for recovery.  The limitation period for this fresh claim starts on the day after the acknowledgment or part payment was made.  In the case of both being made, the limitation period will begin on whichever of the two was made most recently.

What constitutes an "acknowledgment of debt"?  Firstly, the acknowledgment must have been made to the claimant.  Secondly, it must be in writing.  Thirdly, the acknowledgment must be in relation to a liability to the claimant or a right or title that the claimant holds.  

Payments or part payments of interest are treated as acknowledgments for the purpose of Section 47 and can therefore trigger a "fresh claim" as discussed above.  If an acknowledgment or a part payment was made before 1 January 2011, the twelve year limitation period applies, from the day after the date on which it was made.

The 2010 Act contains other statutory exemptions to when the limitation period commences.  These include where the mortgagee for instance, is a minor; incapacitated; intellectually disabled or has a mental disorder.  

It is important to note that if a defendant successfully argues that the claimant is time-barred by establishing a limitation defence, although the relief sought by a mortgagee would not be granted, the mortgagee's right, interest or title will not be extinguished.  Because of this, the dates on which any written acknowledgments of debt; payments of interest and part payments of the principal sum are made, are crucial.

If you have any questions or concerns about this topic please contact Peter Fuscic on (09) 306 6746 (pfuscic@mcveaghfleming.co.nz) or Erica Burke on (09) 306 6725 (eburke@mcveaghfleming.co.nz) from our Auckland City Office.

© McVeagh Fleming 2017

This article is published for general information purposes only.  Legal content in this article is necessarily of a general nature and should not be relied upon as legal advice.  If you require specific legal advice in respect of any legal issue, you should always engage a lawyer to provide that advice. 

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