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7th Cir. Rules Lenders’ Claims Against Borrower and Guarantor Were Time-Barred

Illinois mortgage lawThe U.S. Court of Appeals for the Seventh Circuit recently affirmed a trial court’s ruling that two lenders’ claims against a borrower were barred by the applicable statute of limitations. 

In so ruling, the Seventh Circuit held:

1) Under the language of the debt instruments at issue, the statute of limitations began to accrue when an event of default occurred under the terms of the mortgage note and not under the terms of a subsequent forbearance agreement; and 

2) Under Illinois law, the statute of limitations defense does not operate to extinguish a debt or absolve a person in the contract from the obligation, but merely renders that obligation unenforceable in court.

A copy of the opinion in Hovde v. ISLA Development LLC is available at:  Link to Opinion.

The defendant borrower sought investment funds for the purpose of building a condominium development off the coast of Cancun, Mexico. The borrower formed a limited liability company and obtained loans from lenders secured by a mortgage and evidenced by a note with the limited liability company and a personal guaranty from the individual borrower.

The borrower’s venture ultimately failed. Over 10 years later, lenders sued the limited liability company and individual borrower under the note and guaranty seeking to recover the funds they loaned to the borrower and LLC. 

The trial court granted summary judgment to the borrower because any alleged breach of the mortgage, note and guaranty were brought beyond the expiration of the applicable 10-year statute of limitations under Illinois law. The lenders appealed. 


Under the terms of the note, the principal and interest on the loans were due in June of 2007. However, the note also contained an “event of default” acceleration clause that stated, “the outstanding unpaid principal balance of the note, the accrued interest thereon and all other obligations of the borrower to the bank under the loan documents shall automatically become due and payable.” If the borrower admitted in writing to its inability to pay its debts as they became due, then an event of default occurred.

The Seventh Circuit agreed with the trial court that two separate emails from the borrower to the lenders, and not a subsequent forbearance agreement, constituted an event of default and acceleration of the outstanding unpaid principal and interest. The first email was a request from the borrower for an additional loan from lenders in order to satisfy a tax obligation. The subsequent email referenced additional financial troubles including the notification that all construction on the project was suspended. As a result of the event of default and acceleration, the Seventh Circuit held that the statute of limitations was triggered in September of 2008. 

The lenders argued that a forbearance agreement entered into in November of 2008 constituted a new promise to pay, and that the 10-year statute of limitations should accrue in November of 2008. However, the Seventh Circuit did not consider this argument because it was not properly raised at the trial court. As a result, the Appellate Court affirmed the trial court’s ruling that the claims brought under the note were barred by the Illinois 10-year statute of limitations. 


On appeal, the lenders also argued that the trial court erred in holding that the statute of limitations defense was not waived in the guaranty. In support of this argument, the lenders relied on two provisions of the guaranty. First, the lenders argued that the language of the guaranty provided that the guaranty was “continuing, absolute, and unconditional, and shall remain in full force and effect with respect to any guarantor unit satisfaction in full of the borrowers’ liabilities.” Second, the lenders argued that the language of the guaranty provided that the guarantor waived certain defenses, including his statute of limitations defense. 

The guarantor argued that general waivers regarding important statutory rights should only constitute a waiver when the language in the guaranty is explicit. Because the guaranty here did not explicitly reference any waiver of the statute of limitations, the guarantor argued that the court should not rule that he waived any statute of limitations defense. 

The Court noted that the guaranty stated: “the Guarantor agrees that, except as hereinafter provided, its obligations under this Guaranty shall be unconditional, irrespective of … (vii) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor.” 

The Seventh Circuit held that this provision in the guaranty ensures that the guaranty shall be unconditional and that no legal or equitable defense can alter the status of the obligations as unconditional. However, the Court held that the statute of limitations does not impact the unconditional nature of the obligation because Illinois courts recognize that the statute of limitations is not a defense that impacts a party’s obligation and does not operate to absolve a person in the contract from the obligation. Instead, a statute of limitations only affects a party’s ability to enforce the obligation in court.

Thus, the Court held, under the language of the guaranty, the statute of limitations defense was not waived.

As a result, the Seventh Circuit affirmed the trial court’s ruling that the lenders’ claims were barred by the statute of limitations.

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Jake VanAusdall is Senior Counsel in the Nashville office of Maurice Wutscher LLP. He practices in the firm’s Consumer Credit Litigation and Commercial Litigation groups predominantly representing financial institutions. Jake also has substantial litigation experience representing clients involved in intellectual property, construction, contract, and business disputes. Jake has been recognized as a “Mid-South Super Lawyers – Rising Star” in the area of Business Litigation (2018-2022), and is a former member of the Tennessee John Marshall American Inn of Court. For more information, see

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