Question.My state has a four-years statue of limitations on contract actions. How can the SBA sue after it has expired?
Answer. It is settled law that state limitations statutes are relevant in determining a claim’s viability at the time the federal agency acquires the claim. If the state statute of limitations has expired before the government acquires a claim, that claim is not revived by transfer to a federal agency. FDIC v. Former Officers & Directors of Metro. Bank, 884 F.2d 1304, 1309 n. 4 (9th Cir.1989), cert. denied, 496 U.S. 936, 110 S.Ct. 3215, 110 L.Ed.2d 662 (1990). However, if it has not expired before the government acquires the claim, then the government will enjoy the full length of the federal statue of limitations.
In United States v. Summerlin, 310 U.S. 414, 60 S.Ct. 1019, 84 L.Ed. 1283 (1940), the Court held “that the United States is not bound by state statutes of limitations in enforcing its rights.” Therefore, the relevant federal statue of limitations for contract actions is contained in 28 U.S.C. § 2415(a) and is six (6) years. Therefore, the SBA, as a federal agency has six (6) years to file a lawsuit to collect, but is not barred by any limitations period in an action to foreclose on real property. In this case, 28 U.S.C. § 2415(a) is silent on foreclosure actions. The Supreme Court has instructed that, as a sovereign, the United States is subject to a limitations period only when Congress has expressly created one. Guaranty Trust Co. v. United States, 304 U.S. 126, 133, 58 S.Ct. 785, 789, 82 L.Ed. 1224 (1938) (citing United States v. Thompson, 98 U.S. 486, 488-89, 25 L.Ed. 194 (1878)). In the absence of such a limitation none exists. In Farmers Home Administration v. Mudhead, 42 F.3d 964 (5th Cir. 1995), the court also noted that there is “absent a specific federal limitation” and commented that “28 U.S.C. § 2415(c) does not apply
to actions to foreclose mortgages.” Id. at 966 & n.5.
Therefore, when reviewing a foreclosure action in connection with a defaulted SBA loan, borrowers should not be surprised to find themselves embroiled in a foreclosure action many years into the future and well beyond the state state of limitations for such actions.