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  ).
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]