Case Law Review

By: Laura Treu, Vermont State Counsel and Aaron Monahan, Underwriting Bridge Associate

Huntington v. McCarty, 174 Vt. 69 (2002)

This case illustrates how a promissory note and a mortgage are individually governed by different statutes of limitations. An action on the note is civil and has a six-year statute of limitations while an action on the mortgage is an action in land with a fifteen-year statute of limitations. See 12 V.S.A. §§ 502 and 511.

In Huntington v. McCarty, 174 Vt. 69 (2002), a borrower appealed the Superior Court’s order granting a lender the right to foreclose via power of sale under the mortgage. The Supreme Court of Vermont affirmed the order, agreeing the mortgage was still enforceable because the applicable statute of limitations had not yet run. Id. at 73.

The facts of the case are as follows: in November 1990, Patricia Raitt Baker executed a promissory note secured by a mortgage in favor of George Huntington. See Id at 70. Raitt Baker defaulted on the note by failing to make payments in November 1991. Almost seven years later, in August 1998, Huntington filed a complaint for foreclosure of the mortgage in the Superior Court. Raitt Baker moved to dismiss Huntington’s complaint, claiming that the six-year statute of limitations for suit under a promissory note had passed, rendering both the note and the mortgage unenforceable. The trial court held that enforcement under the note was barred by the six-year statute of limitations, but found the mortgage was governed by the fifteen-year statute of limitations; therefore, the mortgage was still enforceable. On appeal, Raitt Baker made two arguments, (1) the mortgage was unenforceable because the statute of limitations had run on the underlying promissory note; and (2) the option to foreclose by power of sale was barred since the statute of limitations period under the note had run and the power of sale is governed by the note Id.

In making its decision, the Vermont Supreme Court looked to Island Pond Nat’l Bank v. Lacroix, 104 Vt. 292 (1932)), which held:

“Where a promissory note is secured by a mortgage, the mortgage is an incident to the note. However, a promissory note and a mortgage are individually governed by different statutes of limitations – the enforcement of a note in a civil action with a six-year of statute of limitations, whereas enforcement of a mortgage is an action in land with a fifteen-year statute of limitation.” Id.

Because of the holding in Island Pond Nat’l Bank v. Lacroix, the Supreme Court disagreed with Raitt Baker’s argument that tied the statute of limitations of a note and mortgage together. A note and a mortgage each have their own statute of limitations, and in the case at hand, the mortgage’s had not yet run; therefore, the mortgage was still enforceable. Id.

To address Raitt Baker’s second argument, the Supreme Court relied upon the holding from Houghton v. Tolman, 74 Vt. 467 (1902), a case that held that the remedies under a mortgage survive the extinguishment of the note. The Supreme Court makes it a point to re-affirm the holding from Houghton in that:

“…the statute of limitations does not extinguish the debt, but only bar the remedy; and that a mortgage has two independent remedies, one upon the note and one upon the mortgage …. the debt is not extinguished by barring the remedy on the note but continues to exist for all purposes of foreclosing the mortgage until that remedy is barred also….” Id. at 71.

The Supreme Court pointed out that statutes of limitation are intended to ensure that a defendant can “be secure in their reasonable expectation that the slate has been wiped clean of ancient obligations”. Id. at 72. Further, , that the defendant’s “reasonable expectations” are that they are bound to the terms of the mortgage for a period of fifteen years after the debtor defaulted on the mortgage. Id.

The mortgage at question in this case contained the foreclosure by power of sale provision, and though Raitt Baker tried to argue that even if the mortgage survived, the remedy did not, as power of sale was only for collection of money. The Court did not agree with that argument. Raiit Baker was relying on Houghton v. Tolman, 74 Vt. 467, (1902), which the Court distinguished and noted that since 1902 and that holding, the Vermont legislature created power of sale for remedies in mortgages so long as they were explicitly included, and therefore the statute of limitation in mortgages would have to apply to this remedy contained in the mortgage. Id at 73. Thus, it was reasonably expected that it was a possibility that that it could be triggered. Id.

The holding in this case is important because it tells us that for mortgages of record, especially mortgages that appear to be old and otherwise undischarged, we cannot simply ignore them just because the note may not be unenforceable. There is a 15-year statute of limitations for re-entry of land under (see 12 V.S.A. §502), thus a mortgage can still be enforced unless we know for certain we are 15 years past the date of final maturity.

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