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Will the New York Court of Appeals eventually weigh in on the issue of whether a loan is accelerated based upon the very specific language on the demand letter? The changing law is complicated by the fact that New York has four Appellate Divisions, each with jurisdiction over different counties. This causes splits in the law, and the same facts can lead to opposite legal results for property owners within the same state.  The statute of limitations does not begin to run on the entire mortgage debt unless and until there has been an acceleration of the mortgage debt. [See, e.g., Nationstar Mortgage, LLC v. Weisblum, 143 A.D.3d 866 (2d Dept. 2016).]

The mortgage debt may be accelerated by a notice sent to borrower by the creditor or creditor’s loan servicer; however, the notice to the borrower must “clearly and unequivocally” establish the creditor’s intent to accelerate the mortgage debt upon the expiration of the cure period listed in the notice. 

In the First Department (Bronx and Manhattan), a default notice that says the servicer “will accelerate” absent cure serves to automatically accelerate the debt upon expiration of the letter [Deutsche Bank Natl. Trust Co. v. Royal Blue Realty Holdings, Inc., 148 A.D.3d 529 (1st Dept. 2017)]. This results in the six-year clock starting to run earlier than most expected. However, the Second Department (which includes Brooklyn, Queens, Staten Island, Long Island, and more) recently held that “will accelerate” language in a default notice is not “clear and unequivocal” notice of acceleration, “as future intentions may always be changed in the interim” [Milone v. US Bank Natl. Assn., 164 A.D.3d. 145 (2d. Dept. 2018)]. In U.S. Bank N.A. v. Gordon, 176 A.D.3d 1006 (2d Dept. 2019), the New York Appellate Division, Second Department, held that a notice of default stating that if the loan was not made current, the lender “will automatically accelerate [the] loan,” was “merely an expression of future intent” and therefore did not accelerate the borrowers’ debt. As such, the Second Department again held that the notice of default did not trigger the statute of limitations. Accordingly, the effect of “will accelerate” language depends on which county the property is located in.

Now, the Third Department (28 Counties covering the Capitol Region and Northern NY) has entered the mix.  U.S. Bank National Association v. Creative Encounters LLC, Supreme Court, Appellate Division, Third Department, New York, May 14, 2020, 183 A.D.3d 1086124 N.Y.S.3d 922020 N.Y. Slip Op. 02844.   The issue on appeal was whether the voluntary discontinuance, together with letters and notices from Nationstar Mortgage, LLC and its successor in interest, constituted affirmative acts that revoked the election to accelerate the debt.  In this case, After the second action was discontinued, plaintiff’s representative sent two letters to Tufano. The first letter, dated November 3, 2016, provided the 90–day notice required under RPAPL 1304 and demanded payment of $87,009.49 by November 30, 2016 to cure the default. The second letter, dated January 5, 2017 and captioned “Notice of Intent to Foreclose,” advised that Tufano had 30 days to cure a default dating back to May 1, 2011 in the amount of $89,518.61.   The Court found that these letters did not indicate a clear and unambiguous return to an installment payment plan and, did not actually evidence any real intent to de-accelerate the loan. Thus, in effect, “plaintiff simply put defendant[s] on notice of its obligation to cure a … default and then promptly embarked on the notices required to initiate a [third] foreclosure action” (Wells Fargo Bank, N.A. v. Portu, 179 A.D.3d 1204, 1207, 116 N.Y.S.3d 761 [2020] ).

Statute of limitations law in New York is forever evolving and remains an area of confusion and risk that can lead to total lien loss if navigated incorrectly. Lenders and servicers should continue to beware of this risk and work closely with their New York counsel at the loan level to understand the fact specific circumstances, the county of the property, and exposure with any given matter. For any questions regarding this article, please contact Deborah Gallo, Director of Operations, as [email protected]

The New York State Office of Court Administration issued guidance for housing court proceedings on Aug. 13. Governor Andrew Cuomo said he would extend the eviction moratorium until Sept. 5, but in a court memorandum, Chief Administrative Judge of the Courts Lawrence Marks further extended it until Oct. 1 for cases filed on or after March 17. The memorandum provides: ( 1) eviction proceedings filed on or after March 17, 2020 continue to be suspended; (2) cases filed before March 17 may proceed; (3) residential eviction cases filed before March 17 – including cases where a warrant of eviction has already issued but not been executed – must be conferenced before a judge before any further action is taken, and no outstanding or new residential warrants of eviction may be executed prior to October l, 2020; and (d) commercial evictions may proceed without a conference.

Housing advocacy groups  want three pieces of legislation to pass, including S8667. which would extend the eviction and foreclosure moratorium until the “end of the state of emergency in the state of New York plus one full year.” (Currently, in committee).

Advocates are also calling for passage of the Rent and Mortgage Cancellation Act of 2020, which would provide relief from housing payments for renters and small homeowners during the COVID-19 public state of emergency, and until 90 days after the state of emergency ends. The bill would also authorize financial assistance for residential co-ops, affordable-housing providers or landlords who can demonstrate COVID-19-related hardship.  (Referred to housing committee/no vote).

The third bill, S7628A, would provide housing vouchers for eligible individuals and families who are homeless, or who face an imminent loss of housing. The state’s Housing Trust Fund Corporation would oversee the program, which would begin October 1, and state and local public housing agencies would administer it. This bill is currently in the Senate Housing, Construction and Community Development Committee. (Currently, in committee)

It remains to be seen, when and if, the legislature will act and further clarify how evictions will proceed on the go forward. For any questions regarding this article, please contact Deborah Gallo, Director of Operations, as [email protected]

The Bill S4408 has passed the House and Senate in NY and is now being presented to the Governor.  The Bill requires a lender which seeks to foreclose on a reverse mortgage issued under the federal Home equity conversion mortgage program to provide notice to the Department of Financial Services and to the mortgagor; directs the Department of Financial service to provide notice to the Mortgagor of legal service organizations which may assist them with the default or foreclosure; and prohibits lenders from making advance payment of debts upon the mortgage real property.

The goal of protecting senior homeowners and creating greater support and access to legal services being paramount. Lenders would also be required to engage in loss mitigation, as outlined by the Department of Financial Services before foreclosing.  The new requirements would be a condition precedent to bringing a foreclosure action against a HUD reverse mortgage and may result in treble damages and attorney’s fees for non-compliance.  

We will be watching this legislation closely and provide more information if the Governor signs and implements same.  Should you have any questions, please contact Deborah Gallo, Director of Operations, at [email protected]

The NYS Court Administration has issued an Administrative Order (AO 157/20)  which lifts the general stay on residential foreclosures as of today, 7/27/20. It sets forth new protocols for pending cases while expanding on previously issued protocols for commencing cases. While AO 157/20 provides more details than previously issued Administrative Orders, we will be seeking additional clarity on a few issues.

In short, in accordance with the Executive Orders easing restrictions in NYS, the court is permitting residential foreclosures to proceed (with additional provisions to follow for auctions), the timeframe for advancement of each action to be controlled by the Court with the requirement that all cases be conferenced before any other activity is undertaken:

• “prior to conducting any further proceedings”, the court must initiate a status or settlement conference (including a CPLR 3408 conference where applicable)
• a failure to appear at a conference will result in a rescheduling of the conference before permitting the furtherance of the action;
• following the conference, the court may direct further briefing of motions as needed and issue decisions on motions (
• no auction shall be rescheduled to occur prior to October 15, 2020;
• the court may entertain “other” foreclosure applications, and, where necessary, conduct hearings, inclusive of CPLR 3408(f) good-faith hearings
• All foreclosure proceedings, shall be conducted remotely to the fullest extent possible
• In accordance with the relevant Executive Orders, all commercial foreclosure for non-payment remain stayed through 8/19/20 where the borrowers are eligible for unemployment insurance or federal/state benefits or are otherwise facing financial hardship due to COVID-19

The specific reference to potential CPLR 3408(f) good faith hearings is of import as it at least implies the court’s focus on the parties pursuing loss mitigation resolutions. It is likely intended to ensure that lenders and servicers have provided any and all relief required by law/regulation to borrowers, as well as to “encourage” plaintiffs to make every effort to pursue a loss mitigation resolution in light of the economic toll COVID-19 has exacted on borrowers and the state’s overall fear that a tidal wave of foreclosures will soon be filed. These are the same concerns previously raised when assessing the application of Banking Law 9-x and explaining the need for affidavits to demonstrate compliance with same.

Additional information will be provided as same becomes available.  For any questions, please contact Deborah Gallo, Director of Operations, at [email protected]

The Cares Act seeks to create economic stabilization in numerous ways both for individuals and businesses.  This includes some temporary changes in the bankruptcy code.  

The Act amends the Small Business Reorganization Act to increase the eligibility threshold to file
under subchapter V of chapter 11 of the U.S. Bankruptcy Code to businesses with less
than $7,500,000 of debt. The increase sunsets after one year and the eligibility threshold
returns to $2,725,625.
Amends the definition of income in the Bankruptcy Code for chapters 7 and 13 to
exclude coronavirus-related payments from the federal government from being treated as
“income” for purposes of filing bankruptcy. Sunsets after one year.
Clarifies that the calculation of disposable income for purposes of confirming a chapter
13 plan shall not include coronavirus-related payments. Sunsets after one year.
Explicitly permits individuals and families currently in chapter 13 to seek payment plan
modifications if they are experiencing a material financial hardship due to the
coronavirus pandemic, including extending their payments for up to seven years after
their initial plan payment was due. Sunsets after one year.

For more information on the bankruptcy and other changes that the servicing industry must be aware of contact Director of Operations, Deborah Gallo, at [email protected]