TAX BRAKE FOR MORTGAGE DEBT FORGIVNESS
Posted on: Wednesday, 02/06/2008

The California Association of Realtors and www.ClovisRealtEstateAgents.com reports that President Bush signed into law December 20, 2007 a new measure giving tax breaks to homeowners who have mortgage debt forgiven. Under preexisting law, the debt forgiven by a lender, such as for short sales and refinances, was generally taxable to the borrower as debt discharge income. With the passage of the Mortgage Forgiveness Debt Relief Act of 2007, a taxpayer does not have to pay federal income tax on debt forgiven for a loan secured by a qualified principal residence.

This tax break applies to debts discharged from January 1, 2007 to December 31, 2009. Qualified principal residence indebtedness is debt incurred in acquiring, constructing, or substantially improving the residence (up to $2 million for refinances).

For purposes of calculating capital gains, any debts discharged excluded from income under the new law must be subtracted from the basis of the taxpayer's principal residence (but not below zero). However, taxpayers may generally exclude from capital gains income up to $250,000 (or $500,000 for married couples filing jointly) for properties owned and used as their principal residence for at least two of the last five years.

For a copy of the Mortgage Forgiveness Debt Relief Act of 2007, go to http://www.govtrack.us/congress/bill.xpd?bill=h110-3648.

Statute of Limitations:  Deadline on Time to Sue
The California Association of Realtors and ClovisRealEstateAgents.com cares about the public and its members real estate practice knowledge to better instruct, assist and serve our communities. The following question and answer brief was created to serve you by the California Association of REALTORS®
Member Legal Services

INTRODUCTION

Statutes of limitations are laws that set the deadline or maximum period of time within which a lawsuit may be filed. These deadlines will vary depending on the circumstances of the case and the type of case or claim. The periods of time also vary from state to state and vary depending on whether they are filed in federal or state court. If a lawsuit or claim is not filed before the statutory deadline, the right to sue or file a lawsuit or claim is said to be “time-barred.” Under certain circumstances, a statute of limitations may be extended beyond its deadline.

This legal article provides general information about the statute of limitations for civil actions filed in a California state court.  There are different statutes of limitations for administrative proceedings as well as for criminal actions.  The following questions and answers are necessarily general in nature, and are not intended to cover every fact situation. Slightly different facts may produce different results. Accordingly, members must consult their own attorney when involved in potential litigation.

Q 1.  What are statutes of limitations?

Statutes of limitations are laws that set the deadline or maximum period of time within which a lawsuit may be filed. These deadlines will vary depending on the circumstances of the case and the type of case or claim.  In general, for civil actions, they can be found in the California Code of Civil Procedure Sections 312 et seq.  However, sometimes the legislature will insert a specific limitations period within the provisions of a particular statute.  Several of these are discussed below.

Q 2.  Why does the law impose a statute of limitations?

There are several rationales for having statutes of limitations:

Memories Fade: Over time memories fade and people forget about the event.

Evidence is Lost:  Evidence may be lost or disappear.  The best time to bring a lawsuit is as close to the event as possible so as to have the best evidence available to prove a lawsuit or claim (or to defend a lawsuit or claim).

Witnesses Disappear:  People want to get on with their lives without legal interference from the past.  People may move away or die.

Law Requires Diligence on the Part of the Injured Party:  There is a need for closure for all parties involved in the claim or action.

Q 3.  What are types of claims and their statutes of limitations for selected civil claims?

The following are a few of the statutes of limitations for civil claims in California:

• Adverse Possession of Real Property:  5 years (time required to occupy and possess the real property) (Cal. Civ. Proc. Code § 321)
• Adverse Possession of Personal Property (or Torts to): 3 years (Cal. Civ. Proc. Code § 338(c))
• Breach of Written Contract:  4 years (includes action for rescission) (Cal. Civ. Proc. Code § 337)
• Breach of Written Lease: 4 years (Cal. Civ. Proc. Code § 337.2)
• Breach of Oral Contract:  2 years (includes action for rescission) (Cal. Civ. Proc. Code § 339)
• Breach of Oral Lease:  2 years (Cal. Civ. Proc. Code § 339.5)
• Default (“Catchall”) Statute of Limitations:  4 years (this applies to any action not specifically mentioned in the statutes) (Cal. Civ. Proc. Code § 343)
• Enforcement of Civil Judgment (in any state or federal court): 10 years (Cal. Civ. Proc. Code § 337.5(3))
• False Advertising:  3 years (Cal. Civ. Proc. Code § 338)
• Federal Income Taxes (10 year limit on collection of federal taxes) (I. R. C. § 6502(a)(1), Treas. Reg. § 301.6502-1)
• Fraud or Mistake:  3 years (time commences on date of discovery of fraud or mistake not the occurrence) (Cal. Civ. Proc. Code § 338(d))
• Injury to Person or Property or Death From Defective Construction of Real Property Improvement (Patent Defects):  4 years (Cal. Civ. Proc. Code § 337.1) (but see Question 20 below for new residential construction)
• Latent Defect in Real Property:  10 years (Cal. Civ. Proc. Code § 337.15)
• Libel, Slander or False Imprisonment:  1 year (Cal. Civ. Proc. Code § 340(c))  
• Other Personal Injury (e.g., assault, battery, wrongful death): 2 years (Cal. Civ. Proc. Code § 335.1)
• Physical Damage to Private Property Under Inverse Condemnation: 3 years (Cal. Civ. Proc. Code § 338(j)) 
• Property Damage:  3 years (Cal. Civ. Proc. Code § 338(b))
• Slander of Title:  3 years (Cal. Civ. Proc. Code § 338(g))
• Trespass or Injury to Real Property: 3 years (Cal. Civ. Proc. Code § 338(b); but where the injury is to trees, the period is 5 years (Cal. Civ. Code § 3346(c))
• Violation of CC&Rs:  5 years (from time discovered violation or “through reasonable diligence should have discovered the violation” (Cal. Civ. Proc. Code § 336)

Q 4.  What is meant by “the discovery rule”?

Often it is not reasonably possible for someone to discover that an “injury” has occurred until much later after the event or act that has caused the injury. For example, a buyer may not discover a problem within a wall or with a floor until he or she commences remodeling.  The buyer may not discover that the roof leaks until the next major rainstorm.

When it applies, the "discovery rule" permits a lawsuit to be filed within a certain period of time after the injury is discovered, or reasonably should have been discovered. The discovery rule does not apply to all civil injuries, and sometimes the period of time for bringing a claim post-discovery can be short, so it is important to seek legal assistance quickly in the event of the late discovery of an injury.

Q 5.  What is meant by “tolling” the statute of limitations?

Under certain circumstances, the law provides an injured party additional time to sue.   A statute is "tolled" means that something has stopped the statute from running for a period of time. Typical reasons for tolling a statute of limitations include minority (Cal. Civ. Proc. Code §§ 328, 352) (the victim of the injury was a minor at the time the injury occurred); victim is imprisoned (Cal. Civ. Proc. Code §§ 328.5, 352.1); mental incompetence (Cal. Civ. Proc. Code §§ 328, 352)  (the victim of the injury was not mentally competent at the time the injury occurred), and the defendant's bankruptcy (the "automatic stay" in bankruptcy typically tolls the statute of limitations until such time as the bankruptcy is resolved or the stay is lifted).

Q 6. Can a statute of limitations be shortened?

Yes.   It is sometimes possible to shorten a statute of limitations period by contract. For example, an employment contract might require that any claim relating to the employment relationship, including wrongful termination, be filed within one year of the claimed wrongful conduct.  In the context of business transactions, courts often uphold these provisions even though they provide for a shorter limitations period than the statute of limitations under the law.

Q 7.  What is a “statute of repose”?

A statute of repose is different from a statute of limitations.   A statute of repose usually applies in products liability cases and is designed to limit the exposure of manufacturers and sellers. A statute of repose begins to run from some specified time or event regardless of whether any claim has accrued or any injury has occurred. Thus, a statute of repose may actually bar a claim before it has even accrued. 

“Accrual” of a claim means when the time starts running on a claim for the statute of limitations purposes.

Q 8.  What is the statute of limitations applicable to a real estate agent’s inspection and disclosure duty?

A cause of action against a real estate agent for negligent misrepresentation based on the statutory duty to inspect residential property and disclose, under California Civil Code Section 2079, is governed by the 2-year statute of limitations under California Civil Code Section 2079.4, not by the 3-year statute of limitations for fraud actions under California Code of   Civil Procedure Section 338. (Loken v. Century 21-Award Properties (1995) 36 Cal. App. 4th 263.) (See also Williams v. Wells & Bennett Realtors (1997) 52 Cal. App. 4th 857.)

However, after the Field case, this 2-year limitation period may not apply to buyer’s brokers only to seller’s brokers if the plaintiff claims this failure to be a breach of fiduciary duty (Field v. Century 21 Klowden-Forness Realty (1998) 63 Cal. App. 4th 18). 

The 2-year period starts from the date of possession. The date of possession is whichever of the following occurs first: (1) the date of recordation; (2) the date of close of escrow; or (3) the date of occupancy. (Cal. Civ. Code § 2079.4.)

Note that the statute of limitations for a “failure to inspect or disclose” claim brought under California Civil Code Section 1102 (the TDS law) apparently is the 3-year statute of limitations under California Code of Civil Procedure Section 338(a) (action for liability created by statute when the statute doesn’t provide a particular limitations period).

Q 9.  What is the statute of limitations for breach of fiduciary duty?

Since no statute specifically mentions breach of fiduciary duty, it falls into the default or “catchall” statute of limitations provision which is 4 years (Cal. Civ. Proc. Code § 343).

Q 10.  What is the statute of limitations for an action to foreclose on a lien?

There is no general statute of limitations governing actions to foreclose liens. The lien is regarded as incidental to the principal obligation, and is extinguished when the statute runs on the principal obligation (which may be any of several time periods). (Cal. Civ. Code § 2911(1).) 

A number of special statutes limit actions to foreclose certain kinds of assessment liens. (See Cal. Civ. Code § 2911 (lien for public improvement assessment); Cal. Civ. Proc. Code § 329 (lien for street improvements, 330 (sale of land by government official on which a lien exists).)   See Question 16 for the limitations period to foreclose on a mechanic's lien.

Q 11. Is there a time limit on the exercise of a power of sale under a deed of trust?

Yes.   A lien of a mortgage, deed of trust, or other instrument that creates a security interest in real property is not enforceable by foreclosure or trustee’s sale (and is said “to expire”) the later of the following times:
(1) If the final maturity date or the last date fixed for payment of the debt or performance of the obligation can be determined from the recorded evidence of indebtedness, 10 years after that date.
(2) If the final maturity date or the last date fixed for payment of the debt or performance of the obligation cannot be determined from the recorded evidence of indebtedness, or if there is no final maturity date or last date fixed for payment of the debt or performance of the obligation, 60 years after the date the instrument that created the security interest was recorded.

(3) If a notice of intent to preserve the security interest is recorded within the time specified in paragraph (1) or (2), 10 years after the date the notice is recorded.

(Cal. Civ. Code § 882.020(a).)

The times, however, may be extended just as for waivers described in Code of Civil Procedure Section 360.5, except that an instrument is effective to extend the prescribed times only if it is recorded before expiration of the prescribed times (Cal. Civ. Code § 882.020(c)).


Q 12.  What is the statute of limitations for discriminatory denial of credit?

The limitations period for an action for discriminatory denial or offer of credit is 2 years (Cal. Civ. Code §1812.35).

Q 13.  What is the statute of limitations for a claim under a title insurance policy?

The limitations period of an action on an obligation under a title insurance policy, certificate, abstract or guaranty is 2 years  after the discovery of the loss (Cal. Civ. Proc. Code § 339(1)).

Q 14.  What is the statute of limitations for proceedings challenging public agency decisions under the California Environmental Quality Act (CEQA)?

The statute of limitations is 30 days (Cal. Pub. Res. Code § 21167).

Q 15. What is the statute of limitations for mechanics’ lien actions?

An action to enforce a mechanic's lien on real property must be filed within 90 days after the lien is recorded.   If credit is given after the lien is recorded, within 90 days after expiration of credit, provided notice of the credit has been recorded, but in no case longer than 1 year after completion of the work. (Cal. Civ. Code § 3144(a).)
If the mechanics’ lien claimant (e.g., the contractor) fails to file an action within the required time period, “the lien automatically shall be null and void and of no further force and effect” (Cal. Civ. Code § 3144(b)).

Q 16.  What is the statute of limitations to petition the court to vacate, correct, or confirm an arbitration award?

The petition to vacate or correct arbitration award must be filed within 100 days after service of copy of the award on the petitioner (Cal. Civ. Proc. Code §1288).
However, the petition for confirmation of arbitration award must be filed within 4 years of service of copy of award on the petitioner (Cal. Civ. Proc. Code §1288).

Q 17.  What is the statute of limitations for an action under the Fair Employment and Housing Act (FEHA)?

Filing a state court action for employment or housing discrimination under FEHA (Cal. Gov't. Code §§ 12900 et seq.) must be done within 1 year of receipt of a “right to sue” letter from the FEHA notifying the plaintiff that it will not be issuing a timely administrative accusation. (Cal. Gov’t. Code § 12965(b) for employment discrimination; Cal. Govt. Code § 12980(d) for housing discrimination.)

Q 18.  What is the statute of limitations for an action to cancel (“avoid”) an instrument transferring community real property executed by only one spouse?

An action to avoid an instrument executed by one spouse, affecting community real property, must be filed within 1 year from the date of recordation of the instrument (Cal. Fam. Code § 1102).


Q 19.  What is the statute of limitations for an action claiming unfair competition under California Business and Professions Code Sections 17000 et seq.?

An action for unfair competition under California Business and Professions Code Sections 17000 et seq. must be filed within 4 years of accrual (Cal. Bus. & Prof. Code § 17208).


Q 20.  What is the statute of limitations for defects in new construction of residential real property of one unit (single-family home or new condominium)?

SB 800 (Cal. Civ. Code §§ 895 et seq. ), which sets forth standards for the original construction of residences and specifies procedures for homeowners seeking to sue for defects, provides for a general 10-year statute of limitations (Cal. Civ. Code 941(a)).  SB 800 imposes liability on a builder, general contractor, subcontractor, materials supplier, product manufacturer, or design professional for deficiencies (i.e., violations of the applicable standards) in construction, design, specifications, surveying, planning, supervision, testing, or observation of construction. (Cal. Civ. Code § 896.) 

However, the law also sets specific statutes of limitations for certain types of defects.  Where the law sets forth shorter statutes of limitations, those time periods will be the applicable ones. (Cal. Civ. Code § 896.)  See Question 11 on the C.A.R. legal article, SB 800: California’s Construction Defect Law, for more details.

The statutes of limitations in Cal. Civ. Proc. Code § 337.1 (4-year limitations period for actions based on patent defects in real property) and Cal. Civ. Proc. Code § 337.15 (10-year limitations period for actions based on latent defects in real property) do not apply when SB 800 is applicable (Cal. Civ. Code § 941(d).)

Q 21.  What is the statute of limitations on an action to enforce payment on a note that is due at a definite time?

An action to enforce an obligation to pay a note that is due and payable at definite time (other than certificate of deposit) is within 6 years of the due date or accelerated due date (Cal. Com. Code § 3118(a)).

Q 22.  Where can I obtain additional information about this and related subjects?

This legal article is just one of the many legal publications and services offered by C.A.R. to its members.