In a case involving the defunct Norlarco Credit Union, theColorado Supreme Court recently ruled that the financialinstitution could not sue to recover the balance on a defaulted carloan.

According to the ruling issued Monday, Daniel Shane Hasslerobtained vehicle financing through a security agreement withAccount Brokers' predecessor in interest, Norlarco.

Hassler defaulted on the loan, Norlarco repossessed the vehicleand later sold it at auction. The credit union used the proceeds topay off the balance of the loan. However, the amount did not coverthe entire balance. Norlarco transferred the remaining balance toAccount Brokers, which sued Hassler.

While the suit came less than six years after Norlarco sold thevehicle at auction, the litigation was filed more than six yearsafter the repossession and after Hassler defaulted on the loan.

An earlier ruling by a lower court sided with Account Brokerssaying the statute of limitations did not have an impact on theclaim until Norlarco sold the vehicle.

Earlier this week, the Colorado State Supreme Court reversedthat ruling. The court said under Colorado law and of the parties'security agreement, the present debt became due when it wasaccelerated following Norlarco's repossession of the vehicle anddemand for the loan's full payment. The court further said thatthese actions occurred more than six years before the initiation ofthe present suit.

If a security agreement is to be repaid in installments, theruling said, the payment is due on the date that each installmentis missed.

By repossessing Hassler's vehicle in October 2001 and seekingthe loan's balance shortly after that request, the court's rulingsaid the Norlarco invoked the security agreement's optionalacceleration clause. Norlarco filed its collection claim againstHassler on May 7, 2008, more than six years after the repossession,an action that is barred by the statute of limitation, the courtsaid.

The NCUA placed Norlarco into conservatorship in 2009 due in large part to themismanagement of its residential loan program. Its assets werelater sold to the $1.1 billion Public Service Credit Union inDenver.