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Since the housing crisis of 2007-2008, foreclosure law in New York has developed and evolved dramatically. The influx of foreclosure actions^[1] and the introduction of several consumer protection statutes in response to the housing crisis^[2] fueled this development, giving rise to new foreclosure defenses, arguments and legal issues. The issues have been diverse, ranging from the quantum of proof required for a mortgagee to demonstrate standing to foreclose^[3] and compliance with statutorily and contractually mandated pre-foreclosure notices,^[4] to whether failure to modify a mortgage contract warrants the imposition of sanctions against the mortgagee.^[5]

The latest contentious and hotly debated aspect of foreclosure law that arose from the housing crisis surrounds the six-year statute of limitations period.^[6] It has now been ten years since the height of the crisis during which defaults rose exponentially and courts became inundated with new foreclosure actions. For a variety of reasons, several of these actions were never finalized and were either dismissed, discontinued, or abandoned by the mortgagee. As a result, mortgagors and their assignees have begun aggressively pursuing statute of limitations defenses in newly recommenced actions, as well as initiating their own actions seeking to expunge mortgages they deem time-barred.^[7]

The recent flood of litigation surrounding the statute of limitations has left a litigant with more questions than answers. It is well-settled that the six-year statute of limitations to commence a foreclosure action is measured from the act of acceleration of the total debt by the mortgagee upon default.^[8] But what exactly is acceleration, and how is it measured? Can a mortgagee revoke acceleration, thereby halting the running of the statute of limitations period? And if so, what must be done to revoke acceleration? New York courts continue to wrestle with these fundamental questions and different judges in different jurisdictions are at odds with each other regarding these issues.

Traditionally, when a debt is accelerated by the mortgagee upon a default, the borrowers’ right and obligation to make monthly installments ceases and all sums became immediately due and payable.^[9] In the seminal and often cited Second Department decision of Wells v. Burke, the Court explained that:

“Where the acceleration of the maturity of a mortgage debt on default is made optional with the holder of the note and mortgage, some affirmative action must be taken evidencing the holder’s election to take advantage of the accelerating provision, and until such action has been taken the provision has no operation.”^[10]

The Burke Court went on to state that “(a)s with other contractual options, the holder of an option may be required to exercise an option to accelerate the maturity of a loan in accordance with the terms of the note and mortgage.”^[11] In essence, the Burke Court clarified that acceleration must be done pursuant to the contract provisions agreed to by the parties. It also confirmed that an acceleration must be “clear and unequivocal.”^[12] [13] Several Appellate Court decisions have interpreted the filing of a foreclosure action as “clear and unequivocal” evidence of acceleration of the debt that begins the running of the six-year statute of limitations period.^[14] But what happens if this supposed method of acceleration, in some instances, conflicts with, or is not “in accordance with the terms of note and mortgage”?^[15] A strict reading of the Burke decision would lead one to believe that this acceleration “has no operation” and the statute of limitations period has not started.^[16]

Suffolk County Supreme Court Judge Thomas Whelan was among the first to highlight this inconsistency and conflict in the law in Nationstar v. MacPherson.^[17] The mortgage terms in MacPherson explicitly allowed the borrower to reinstate his default up until judgment was obtained by the foreclosing mortgagee. Therefore, Judge Whelan concluded that the mortgagee was precluded from accelerating the debt and declaring the total amount owed with the mere filing of a foreclosure complaint because this would conflict with the acceleration provision of the mortgage.^[18] Other decisions have since extended this holding and adopted Judge Whelan’s reasoning that acceleration is governed by the terms of the mortgage and must be done in accordance therewith.^[19] However, some lower court judges have wholeheartedly disagreed with Judge Whelan’s rationale, believing that this principle could not be reconciled with the prior Appellate Division holdings that have firmly recognized that commencement of a foreclosure action will accelerate a debt.^[20]This unresolved issue is now before the Appellate Court and should be clarified soon.

Commencement of a foreclosure action is not the only “clear and unequivocal” means by which a mortgagee may accelerate the debt. Acceleration may also be effectuated in a letter sent to the mortgagor.^[21] Unfortunately, there is no consensus in the respective Appellate Divisions as to what language in a letter constitutes a “clear and unequivocal” acceleration. The First Department has taken a more mortgagor-friendly stance on this issue, finding that a pre-foreclosure letter sent to the mortgagor was sufficient to accelerate the debt even though it discussed acceleration as being conditional on a future event of non-payment by the mortgagor.^[22] This stance seems to be at odds with the Second and Third Department that have ruled that these same letters are insufficient to accelerate the debt because discussion of a possible future event triggering acceleration is insufficient to actually accelerate the debt.^[23] This split in the jurisdictions makes this issue ripe for clarification by the Court of Appeals.[24]

Just as acceleration has come into question, so too has the question of what constitutes a proper revocation of an acceleration. It has long been held that a mortgagee may revoke its election to accelerate, “thereby halting the running of the statute of limitations.”^[25] However, what exactly constitutes a valid de-acceleration or revoking of acceleration of the debt remains unresolved. If, as the Appellate Division has held, a lender can accelerate with the simple act of commencing an action,[26] then logic would dictate that it can de-accelerate by voluntarily discontinuing that action. The answer to this inquiry depends largely on the specific lower court you are litigating in as well as the judge assigned to your case. A mortgagee arguing that a voluntary discontinuance revoked a prior acceleration will likely find success if litigating this issue in Queens County Supreme Court.^[27] Other counties in New York State have begun trending in the same direction,^[28] with Kings County being a notable dissenter.^[29]There are of course exceptions to the general trends, and unfortunately for the practitioner, the results are still largely dependent on the specific judge assigned to one’s case.^[30]

When given its first opportunity to opine on and clarify this subject, the Second Department in NMNT Realty Corp. v. Knoxville 2012 Trust acknowledged that a voluntary discontinuance could revoke a prior acceleration and halt the running of the statute of limitations. In Knoxville, the court held that a voluntary discontinuance by a mortgagee within the six-year statute of limitations was enough to create a triable issue necessary to defeat mortgagor’s summary judgment motion on the issue of statute of limitations.^[31] However, the Knoxville Court would not go so far as to completely ratify this argument and instead elected to kick the proverbial can down the road. In 2018, the Second Department gave further credence to this argument in Deutsche Bank v. Adrian. Although the Adrian Court ruled that plaintiff’s loan was time-barred, it went out of its way to highlight that it did so in part because the plaintiff had voluntarily discontinued the action after the statute of limitations had expired.^[32] Once again, the Second Department chose not to expressly resolve this debate. However, in relying on the Knoxville decision, some state court judges have reversed their prior decisions that ruled against the mortgagees on this issue of voluntary discontinuances.^[33] Still, until the Appellate Division expressly rules on this issue, litigants remain at the mercy of the lower court judge to whom they are assigned.

Not surprisingly, there is also substantial inconsistency in the lower courts with respect to the validity of a letter seeking to de-accelerate or revoke acceleration of the debt. Some judges have firmly recognized that a mortgagee may de-accelerate by a letter sent to the mortgagor prior to the expiration of the statute of limitations period.[34] However, other courts have been unwilling to acknowledge this principle finding that these letters are incapable of revoking acceleration or halting the statute of limitations period.[35]

As is evident, this subset of foreclosure law is still evolving and there is ample room for creative litigation.[36][37] With mortgagees facing a total loss on their lien stemming from a successful statute of limitations defense, they will have no choice but to appeal any unfavorable decisions and litigate these unsettled issues to their fullest extent. Thus, it is anticipated that several of these unresolved issues will be clarified shortly. Until that time, the area of statute of limitations remains a highly contentious and unsettled aspect of foreclosure law.

By: Zachary Gold, Esq.
Senior Associate at Friedman Vartolo LLP

^[1] See Les Christie, CNNMoney.com, Foreclosures up a record 81% in 2008 (Jan. 15, 2009), available at http://money.cnn.com/2009/01/15/real_estate/millions_in_foreclosure

^[2] See Mark C. Dillon The Newly-Enacted CPLR 3408 for Easing the Mortgage Foreclosure Crisis: Very Good Steps, but not Legislatively Perfect, Pace Law Review, Volume 30, Issue 3 Spring 2010 (“The New York State Legislature attempted to cope with the formidable increase in mortgage foreclosures by enacting a number of statutes that are known, in omnibus form, as the Subprime Residential Loan and Foreclosure Laws. The statutes included in the omnibus legislation are RPL 265-b, RPAPL 1302, 1303 and 1304, Banking Law 6-l, 6-m, 590-b and 595-599, GOL 5-301(3), and, relevant to this decision, CPLR 3408 (see 2008 NY Laws ch 472)”).

^[3] See, e.g., Bank of N.Y. v. Silverberg, 86 A.D.3d 274, 280 (2d Dept. 2011); Aurora Loan Servs., LLC v. Taylor, 25 N.Y.3d 355, 361 (2015).

^[4] See, e.g CitiMortgage, Inc. v Pappas, 147 A.D.3d 900 (2d Dept. 2017); RPAPL 1304.

^[5] See, e.g., Wells Fargo Bank, N.A. v. Van Dyke, 101 A.D.3d 638 (1^st Dept. 2012); Wells Fargo Bank, N.A. v. Meyers, 108 A.D.3d 9 (2d Dept. 2013).

^[6] See CPLR 213(4).

^[7] See RPAPL 1501(4).

^[8] See Lavin v. Elmakiss, 302 A.D.2d 638, 639 (3d Dept. 2003)(noting that “the six-year statute of limitations in a mortgage foreclosure action begins to run from the due date for each unpaid installment unless the debt has been accelerated”); Loiacono v. Goldberg, 240 A.D.2d 476 (2d Dept. 1997); Wells Fargo Bank, N.A. v Cohen, 80 A.D.3d 753 (2d Dept. 2010); Wells Fargo Bank, N.A. v. Burke, 94 A.D.3d 980 (2d Dept. 2012); EMC Mtge. Corp. v. Patella, 279 A.D.2d 604 (2d Dept. 2001).

^[9] See Fed. Nat’l Mortgage Ass’n v. Mebane, 208 A.D.2d 892 (2d Dept. 1994).

^[10] Burke, 94 A.D.3d at 982-983.

^[11] Id. (citing Serapilio v Staszak, 255 A.D.2d 824 [3d Dept. 1998]; Loiacono, 240 A.D.2d at 477).

^[12] Id. (citing Sarva v. Chakravoty, 34 A.D.3d 438, 439 [2d Dept. 2006]).

[13] The Burke decision is also notable because of its holding that a plaintiff without standing to foreclose cannot accelerate the debt with the filing of a summons and complaint.

^[14] See, e.g., Beneficial Homeowner Service Corp. v Tovar, 150 A.D.3d 657 (2d Dept. 2017); EMC Mtge. Corp. v. Smith, 18 A.D.3d 602, 603 (2d Dept. 2005); Clayton Natl. v. Guldi, 307 A.D.2d 982 (2d Dept. 2003); Arbisser v. Gelbelman, 286 A.D.2d 693, 694 (2d Dept. 2001).

^[15] Burke, 94 A.D.3d at 982.

^[16] See id.

^[17] See Nationstar Mtge., LLC v. MacPherson, 2017 WL 1369877 (Sup. Ct. Nassau Co. 2017) (holding that “under the express wording of the mortgage document, plaintiff has no right to reject the borrower’s payment of arrears in order to reinstate the mortgage.” Therefore, “plaintiff does not have a legal right to require payment in full with the simple filing of a foreclosure action”).

^[18] See id.

^[19] See U.S. Bank v. Monsalve, 2017 NY Slip Op 32764(U) (Sup. Ct. Queens Co., 2017) (holding that “here, it is a judgment that triggers the acceleration in full of the entire mortgage debt, because under the express wording of the mortgage document, Plaintiff has no right to reject the borrower’s payment of arrears in order to reinstate the mortgage, until a judgment is entered.”); see also Wilmington Sav. Fund Society v. DeCanio, 55 Misc.3d 1215(A) (Sup. Ct., Suffolk Co., 2017); Wells Fargo Bank v. Fetonti, 2018 N.Y. Slip Op. 30193(U) (Sup. Ct. Westchester Co. 2018).

^[20] See, e.g. HSBC v. Sahakyan, 2017 WL 6988726 (Sup. Ct. Kings Co 2017).

^[21] See, e.g., Deutsche Bank Natl. Trust Co. v. Royal Blue Realty Holdings, Inc., 148 A.D.3d 529 (1st Dept. 2017).

^[22] See id. (“The letters from plaintiff’s predecessor-in-interest provided clear and unequivocal notice that it “will” accelerate the loan balance and proceed with a foreclosure sale, unless the borrower cured his defaults within 30 days of the letter. When the borrower did not cure his defaults within 30 days, all sums became immediately due and payable and plaintiff had the right to foreclose on the mortgages pursuant to the letters. At that point, the statute of limitations began to run on the entire mortgage debt”).

^[23] See 21 Mortg. Corp. v Adames 153 A.D.3d 474 (2d Dept. 2017)( holding that a letter sent to the mortgagors prior to the commencement of the foreclosure action “was nothing more than a letter discussing acceleration as a possible future event, which does not constitute an exercise of the mortgage’s optional acceleration clause”); see also Bank of America v Luma, 2018 N.Y. Slip Op. 00214 (3d Dept. 2018); Goldman Sachs Mortgage Co. v. Mares, 135 A.D.3d 1121, 1122–23 (3d Dept. 2016); Pidwell v. Duvall, 28 A.D.3d 829 (3d Dept. 2006).

[24] A recent federal decision attempted to reconcile the conflict in the different Appellate Divisions. See Costa v. Deutsche Bank Nat’l Trust Co. for GSR Mortg. Loan Trust 2006-OA1, No. 15 CV 2674, 2017 WL 1194698, at *10 (S.D.N.Y. Mar. 30, 2017). The Costa Court tried to analyze the language in the letters involved in the different Appellate Divisions to illustrate that these decisions did not conflict. See id.

^[25]UMLIC VP, LLC v Mellace, 19 A.D.3d 684, 684 (2d Dept. 2005)(citing Lavin, 302 A.D.2d 638).

[26] See, e.g., Beneficial Homeowner Service Corp. v Tovar, 150 A.D.3d 657 (2d Dept. 2017).

^[27] See U.S. Bank Natl. Assn. v Wongsonadi, 55 Misc. 3d 1207(A) (Sup Ct, Queens Co. 2017); U.S. Bank Nat. Ass’n v Deochand, 2017 NY Slip Op 30472[U] (Sup. Ct. Queens Co. 2017); Ditech Financial LLC v. Naidu, 2016 WL 6432721 (Sup. Ct. Queens Co. 2016); Boodram v. Wells Fargo Bank, N.A., 2017 WL 4102191 (Sup. Ct. Queens Co. 2017).

^[28] See 4 Cosgrove 950 Corp. v. Deutsche Bank Nat. Trust Co., 2016 WL 2839341 (Sup Ct, NY Co. 2016); Bank of New York Mellon v. Kantrow, 57 Misc.3d 1204(A) (Sup. Ct. Suffolk Co. 2017); Nationstar Mtge., LLC v. MacPherson, 2017 WL 1369877 (Sup. Ct. Nassau Co. 2017); Wilmington Sav. Fund Socy. v Brophy, 2017 NY Slip Op 31811(U)(Sup Ct. Suffolk Co. 2017); HSBC Bank USA v Sandoval, 2017 NY Slip Op 32443(U) (Sup. Ct. Rockland Co. 2017); Deutsche Bank National Trust Company v. Lee, 2018 WL 794948 (Sup. Ct. Westchester Co 2018).

^[29] See BSD 265, LLC v. HSBC Bank USA N.A. 2017 WL 2778454 (Sup. Ct. Kings Co.2017); Lall v. Citibank NA., 2017 WL 2210489 (Sup. Ct. Kings Co. 2017).

^[30] See, e.g., Soffer v. U.S. Bank, 2016 N.Y. Slip Op. 32697(U) (Sup. Ct. Kings Co. 2016); HSBC Bank v. Clarke, 2016 WL 7240678 (Sup. Ct. Suffolk Co. 2016).

^[31] See NMNT Realty Corp. v. Knoxville 2012 Trust, 151 A.D.3d 1068 (2d Dept. 2017).

^[32] See Deutsche Bank Natl. Trust Co. v Adrian 157 A.D.3d 934 (2d Dept.2018) (noting that “The plaintiff voluntarily discontinued the prior foreclosure action on April 23, 2014, after the statute of limitations had expired”).

^[33] See US. Bank N.A. v. Crockett, 55 2017 WL 6398903, 2017 N.Y. Slip Op. 32572(U) (Sup. Ct. Kings Co. 2017);

[34] See Martinez v. Federal National Mortgage Association, 2017 WL 7052060, 2017 N.Y. Slip Op. 32770(U) (Sup. Ct. Nassau Co. 2017)(noting that “the documentary evidence in the form of the De-Acceleration Notice conclusively establishes a defense to the asserted claims”); Bank of Am., N.A. v Fachlaev, 55 Misc.3d 1206(A), 2016 N.Y. Slip Op. 51877(U)(Sup Ct. Queens Co. 2016); Soffer v. U.S. Bank, 2016 N.Y. Slip Op. 32697(U) (Sup. Ct. Kings Co. 2016); U.S. Bank v. Cox, 2018 WL 660624, 2018 N.Y. Slip Op. 30155(U)(Sup. Ct. Westchester Co. 2018)(stating that “plaintiff has produced competent evidence that it revoked this acceleration by serving a de-acceleration letter on defendant”).

[35] See Reiss v. Deutsche Bank Nat. Trust Co., 53 Misc.3d 752, 37 N.Y.S.3d 653, 656 (Sup. Ct. Westchester Co. 2016); Souroush v. Citimortgage, 2016 WL 676288 (Sup. Ct., Queens Co. 2016)(“[mortgagee] may not insulate itself from the provisions of RPAPL § 1501 by simply sending [mortgagor] a letter indicating it no longer wished to exercise the acceleration option contained in the promissory note and mortgage”).

[36] See, e.g., Wells Fargo Bank, N.A. v Burke, 155 A.D.3d 668 (2d Dept. 2017)(plaintiff’s counsel attempted to argue, although unsuccessfully, that despite the mortgage being time-barred, their client was entitled to an equitable lien for advances of taxes and insurance payments made by the mortgagee towards the subject property); see also US Bank National Association v. Martinez, 54 Misc.3d 1209(A), 2016 WL 7973961 (Sup. Ct. Kings Co. 2016)(holding that execution of the 2009 HAMP Trial was not an acknowledgment of the debt sufficient to toll and renew the Statute of Limitations under General Obligations Law § 17–101).

[37] At the present time, my firm, Friedman Vartolo, LLP is attempting to present one of those creative arguments to overcome the statute of limitations on many of our cases where the mortgagee is an assignee of Housing and Urban Development (“HUD”). We are attempting to convince the court to apply the longstanding principle that “State statutes of limitation do not apply to Federal agencies or their assignees.” Salomon Brothers Realty Corp. v. Mcfarland, 7 Misc.3d 1003(A) (Sur. Ct. Nassau Co. 2005)(citing United States v Summerlin, 310 U.S. 414 [1940]; RCR Services, Inc. v Herbil Holding Co., 229 A.D.2d 379 [2d Dept. 1996]); see also Long Is. Realty Group VII v. United States Dept. of Hous. & Urban Dev., 2005 WL 2179687 [S.D.N.Y. 2005])(holding that “[Plaintiff] as assignee of HUD, stood in the shoes of HUD and was thus subject to the federal rule that there is no statute of limitations in foreclosure actions”); Fleet National Bank v. D’Orsi, 26 A.D.3d 8989 (4^th Dept. 2006) (holding, that “[this] rule applies equally to an assignee of a federal agency, including a commercial lender, and includes the benefit of immunity from a state limitations period”).

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