Pursuant to New York’s Civil Practice Law and Rule § 213 (4), a foreclosure lawsuit in New York is governed by six-year statute of limitations. However, determining the starting point for how to compute the statute of limitations can be challenging. Typically, the promissory note underlying a mortgage is payable in installments, and each installment payment has its own statute of limitations that starts to run from the time each individual payment is due. See Nationstar Mortgage LLC v. Weisblum, 143 AD3d 866 (NY App Div 2d 2016). As a result, if a note holder delays in bringing a foreclosure lawsuit, a certain part of the mortgage note may be uncollectable. It is only once the mortgage is accelerated, meaning the entire balance of the mortgage note becomes due, that the statute of limitations begins to runs for the entire mortgage. See EMC Mortgage Corporation v. Patella, 279 AD2d 604 (NY App Div 2d 2001). The right to accelerate a mortgage note, is often an optional right given to the holder of the note, and can be initiated by two different methods. First, an acceleration notice may be sent stating − unambiguously − that the entire mortgage note is due or second, the holder of the mortgage note can file a foreclosure lawsuit. See Federal National Mortgage Association v. Melbane, 208 AD2d 892 (NY App Div 2d 1994)
The holder of the mortgage note has six years from the date of acceleration to start a lawsuit to foreclose on the subject property before it can be dismissed for being past the statute of limitations. See CPLR § 213 (4). The vast majority of mortgage holders will not wait a full six years before filing suit. However, every so often, a plaintiff discovers that there are issues in their case that prevent them from easily obtaining a final judgment of foreclosure and sale to auction a property only after the they file their foreclosure lawsuit. In this scenario, they may abandon their case or seek to amend their complaint. If they seek to abandon the case, the plaintiff would make a motion withdrawing their case. Alternatively, if the plaintiff fails to act, the case may be dismissed without prejudice by the Court. Mortgage note holders in this situation, may miscalculate the filing of a second (or third) foreclosure lawsuit and in doing so empower the borrower to dismiss the complaint and potentially discharge the mortgage. Creative mortgage note holders have attempted to argued that they are within the statutory period for bringing the lawsuit because they have “decelerated” the loan. In other words, those foreclosure plaintiffs say that the statute of limitations should be tolled because the loan was no longer accelerated and the full amount was no longer being demanded.
If a mortgage holder claims that they have decelerated a loan, a court must do a factual analysis to determine if they meet the requirements set forth in previous case law. First, deceleration requires “an affirmative act by the lender to revoke its election to accelerate.” Melbane. Next, when there is a deceleration notice sent Court must then look to see that it contains the same unambiguous intent required in acceleration notices. See Milone v. US Bank National Association, 2018 NY Slip Op 05760 (NY App Div 2d 2018). Furthermore, the court must look at whether the notice was pretextual and done simply to avoid a looming statute of limitations. See Ibid. When there is no deceleration notice, some lenders have argued that by stipulating to withdraw their foreclosure lawsuits, they have decelerated the loan. See NMNT Realty Corp v. Knoxville 2012 Trust, 151 AD3d (NY App Div 2d 2017).
Recently, the Second Department of the Appellate Division of the Supreme Court of New York has added an additional prerequisite condition to the “affirmative act” requirement where a mortgage note holder argues that the loan at issue has been decelerated. The Appellate Division held in Freedom Mortgage Corporation v. Engel, 163 AD3d 631 (App Div 2d 2018), that a stipulation does not “constitute an affirmative act to revoke [acceleration],” if it is silent on deceleration or does not indicate that the lender would start to accept installment payments again. With this holding the Court has made it harder for mortgage note holders to challenge a statute of limitations defense in New York. If a plaintiff in a foreclosure action is going to argue that their acceleration of the loan was revoked, they will have to meet very specific preconditions to meet the “affirmative act” requirement of Federal National Mortgage Association v. Melbane.
This case is a significant victory for New York homeowners in foreclosure with potential statute of limitations defenses. When evaluating whether a statute of limitations defense applies in a foreclosure matter, it is important to speak with an experienced foreclosure attorney who is familiar with the intricacies of this area of the law. If you have any questions regarding a foreclosure action, please feel free to contact the Law Offices of David I Pankin, PC at 888-529-9600 or by using our easy online contact form.