The Colorado Court of Appeals recently held that a lender’s ability to enforce its rights under a promissory note and deed of trust lapsed as a result of the lender’s failure to bring a lawsuit within applicable statute of limitations period.  In Tidwell v. Bevan Properties, Ltd., Bevan Properties, LLC (“Bevan”) lent BLT Consulting (“BLT”) $65,000 in May 1998.  In exchange, BLT executed a promissory note in favor of Bevan to be repaid on or before October 1, 1998 that was personally guaranteed by Lloyd and Betty Tidwell and secured by a deed of trust on real estate owned by the Tidwells.  No payments were ever made on the note and Bevan never sued to enforce the payment obligations set forth in the note. 

On July 9, 2010, almost twelve years after the note became due, the Tidwells filed a motion with the Court requesting the Court to rule that the note, personal guarantee, and the deed of trust were invalid as a result of Bevan’s failure to enforce the payment obligations of the note within the required six-year statute of limitation period. The statute of limitation establishes a time frame in which legal rights may be exercised.  Bevan argued that the parties had verbally agreed to extend the payment terms of the note until such time as the Tidwells could sell the real estate securing payment under the note which also served to extend the statute of limitations period.
The Court determined that the six year statute of limitations period for enforcing the note had expired and that Bevan had produced no evidence to support its argument that the parties had agreed to any extension of the loan.  As such, the Court ruled that the note was invalid and the lien against the Tidwells’ property was extinguished.  The ruling effectively left Bevan with no remedy or collection rights for nonpayment on the loan.

This case emphasizes the fact that creditors should be vigilant in timely enforcing the payment terms of a promissory note.  Additionally, creditors should ensure that any modification to a promissory note is well documented in order to preserve your rights as a creditor.  If you would like to discuss your enforcement options as the holder of a promissory note, please contact our Business Law Group partner, David A. Closson at [email protected].