MORTGAGE FORECLOSURE - STATUTE OF LIMITATIONS AND ACCELERATION ISSUES

In this recent case, the court provides a survey of many of the most recent Second Department cases on the issues of acceleration and de-acceleration follows.

Sharova v. Wells Fargo Bank, NYLJ 1/10/19, Date filed: 2018-10-25, Court: Supreme Court, Kings County,Judge: Justice Debra Silber, Case Number: 5002846/2018:

"It is now, in the Second Department, unequivocal that unless the terms of the mortgage provide otherwise, the filing of the summons and complaint in a foreclosure action is sufficient to accelerate the mortgage (MSMJ Realty, LLC v. DLJ Mtge. Capital, Inc., 157 AD3d 885, 887 [2d Dept 2018].) This is true even if the borrower is never served with the summons and complaint and the action is dismissed after a traverse hearing on the issue of service, where the terms of the mortgage state that the borrower is entitled to a notice of default but not to notice of the acceleration of the debt. (see MSMJ Realty, LLC v. DLJ Mtge. Capital, Inc., 157 AD3d 885, 887 [2d Dept 2018], citing Beneficial Homeowner Serv. Corp. v. Tovar, 150 AD3d 657, 658 [2d Dept 2017]).

To be clear, the terms of the mortgage and note may alter the lender’s obligations if they deviate from applicable statutory requirements and impose additional obligations on the lender than are required by New York law. For example, in one case, where the defendant borrower “raised the issue of compliance with paragraph 7, subsection C, of the note in her affirmative defenses and counterclaim,” the plaintiff’s submission for the first time of a copy of the requisite default notice as an exhibit in its reply to the defendant’s opposition to the summary judgment motion was not sufficient to establish its prima facie compliance with the requirements in the note, which had to be in the motion papers. (Wells Fargo Bank, N.A. v. Osias, 156 AD3d 942, 944 [2d Dept 2017].)

The court declines to follow the MacPherson case4, which counsel for defendants urges the court to follow. This court is bound to follow the precedents issued by the Appellate Division, Second Department, but is not bound to follow decisions issued by justices of the State Supreme Court in other counties of the Second Department. Not only has that decision not been cited by any decision issued by the Second Department, it has been specifically mentioned and not followed by two Federal District Court Judges.5

A survey of many of the most recent Second Department cases on the issues of acceleration and de-acceleration follows. In chronological order, excluding those discussed elsewhere herein, they hold:

1. An action to foreclose a mortgage is subject to a six-year statute of limitations pursuant to CPLR §213[4]. Even if a mortgage is payable in installments, once a mortgage debt is accelerated, the entire amount becomes due and the statute of limitations begins to run on the entire debt. (NMNT Realty Corp. v. Knoxville 2012 Trust, 151 AD3d 1068 [2d Dept 2017].)

2. The “savings” provision of CPLR §205(a) is applicable in a second foreclosure action if the first action was timely commenced and then dismissed, for example, for abandonment, without prejudice, as this is a dismissal based on grounds other than a voluntary discontinuance, lack of personal jurisdiction, neglect to prosecute, or a final judgment on the merits. Therefore, the lender has six months after the dismissal to commence the second action, even if the statute of limitations has run, and this provision is applicable even where the second action is brought by an assignee of the mortgage and not the same plaintiff, as it is a successor in interest and has the same rights as the assignor. (Wells Fargo Bank, N.A. v. Eitani, 148 AD3d 193, 195 [2d Dept 2017].)

3. The fact that the action was dismissed as against the defendant homeowner for failure to effectuate personal service does not invalidate the plaintiff’s election to exercise its right to accelerate the maturity of the debt. The fact of plaintiff’s election to accelerate should not be confused with the notice or manifestation of such election where nothing in the parties’ [mortgage] agreement provides that the plaintiff’s election is not valid until the defendant homeowner receives notice thereof. Thus, the failure to properly serve the summons and complaint upon the defendant homeowner did not, as a matter of law, destroy the effect of the sworn statement [in the complaint] that the plaintiff had elected to accelerate the maturity of the debt. (Beneficial Homeowner Serv. Corp. v. Tovar, 150 AD3d 657, 658 [2d Dept 2017].)

4. If the plaintiff in a prior foreclosure action lacked standing to commence it, there was no acceleration, as the commencement of that action did not constitute an affirmative action evidencing the exercise of the option to accelerate the maturity of the loan. (DLJ Mtge. Capital, Inc. v. Pittman, 150 AD3d 818, 819 [2d Dept 2017].) 5. A lender may revoke its election to accelerate the mortgage by an affirmative act of revocation occurring during the six-year limitations period subsequent to the initiation of the foreclosure action. (U.S. Bank N.A. v. Barnett, 151 AD3d 791, 793 [2d Dept 2017].)

6. Where the lender makes a motion to discontinue a foreclosure action and obtains an order granting the motion, this is distinguishable from the cases in which the foreclosure action was never discontinued by the lender, but rather, was dismissed by the court. Making such a motion is an affirmative act to revoke the lender’s election to accelerate, while the dismissal by the court does not constitute an affirmative act by the lender to revoke its election to accelerate. (NMNT Realty Corp. v. Knoxville 2012 Trust, 151 AD3d 1068, 1070 [2d Dept 2017].)

7. Where a plaintiff’s standing has been placed in issue by a defendant’s answer, the plaintiff must prove its standing as part of its prima facie showing on a motion for summary judgment. (21st Mtge. Corp. v. Adames, 153 AD3d 474, 474 [2d Dept 2017].)

8. Where the foreclosure action was administratively dismissed, and the lender did not challenge the propriety of the dismissal or seek to restore the action to the court’s calendar, the acceleration of the debt is not revoked. (Deutsche Bank Natl. Trust Co. v. Gambino, 153 AD3d 1232, 1234 [2d Dept 2017].)

9. Where the complaint states that it had given the borrower the required notice of default, that the period to cure “has elapsed,” and that the lender “has elected and hereby elects to declare immediately due and payable the entire unpaid balance of principal,” the lender accelerated the mortgage in the complaint, and not earlier than the date, of the commencement of the foreclosure action. (Stewart Tit. Ins. Co. v. Bank of NY Mellon, 154 AD3d 656, 660 [2d Dept 2017].)

10. The filing of the summons and complaint seeking the entire unpaid balance in the prior foreclosure action constituted a valid election by the plaintiff lender to accelerate the maturity of the debt. This established that the mortgage debt was accelerated on April 11, 2008, and that the applicable six-year statute of limitations had expired by the time the plaintiff commenced the second foreclosure action on July 8, 2014. The plaintiff had voluntarily discontinued the prior foreclosure action on April 23, 2014, after the statute of limitations had expired, and its April 8, 2014, 90-day notice pursuant to RPAPL §1304 did not, as a matter of law, “destroy the effect of the sworn statement in the first complaint that the plaintiff had elected to accelerate the maturity of the debt.” (Deutsche Bank Natl. Trust Co. v. Adrian, 157 AD3d 934, 935-936 [2d Dept 2018].)

11. The court dismissed the prior foreclosure action, finding that the plaintiff did not have standing to commence that action, because it was not the holder of the note and mortgage at the time that the action was commenced. Accordingly, the complaint in the first action was ineffective to constitute a valid exercise of the option to accelerate the debt, since the prior plaintiff did not have the authority to accelerate the debt or to sue to foreclose at that time. Thus, the mortgage was not accelerated by the prior foreclosure action. (U.S. Bank N.A. v. Gordon, 158 AD3d 832, 836 [2d Dept 2018]. See also DLJ Mtge. Capital, Inc. v. Hirsh, 161 AD3d 944 [2d Dept 2018].)

12. The court held that a “purported loan modification application submitted by the plaintiff in opposition to the motion was not an acknowledgment of the debt and an unconditional promise to repay the debt sufficient to reset the running of the statute of limitations.” (U.S. Bank, N.A. v. Kess, 159 AD3d 767, 768-769 [2d Dept 2018].) 13. Pursuant to CPLR §204(a), the Bankruptcy Code’s automatic stay of 11 U.S.C.S. §362(c) tolls the limitations period for foreclosure actions. (Lubonty v. U.S. Bank N.A., 159 AD3d 962, 962 [2d Dept 2018].)

14. The Supreme Court dismissed a foreclosure action commenced on March 17, 2009 for lack of personal jurisdiction. In June 2015, the plaintiff borrower commenced an action pursuant to RPAPL §1501(4) to cancel and discharge the subject mortgage, alleging that the applicable six-year statute of limitations to foreclose the mortgage had expired on March 17, 2015. Lender moved pre-answer to dismiss, and submitted a letter dated March 13, 2015, addressed to the borrower, stating that “[t]he maturity of the Loan is hereby de-accelerated, immediate payment of all sums owed is hereby withdrawn, and the Loan is re-instituted as an installment loan.” The court found this to be insufficient to support the motion to dismiss, stating “the Supreme Court should have denied [lender's] motion pursuant to CPLR §3211(a)(1) to dismiss the complaint insofar as asserted against it, on the ground that the evidence it submitted did not constitute documentary evidence within the meaning of CPLR §3211(a)(1) and did not utterly refute the factual allegations of the complaint and conclusively establish a defense to the claims as a matter of law… nothing on the face of the letter establishes when it was actually mailed, and no independent evidence of the mailing date was submitted. Accordingly, for the purposes of this CPLR §3211(a) motion, the letter does not demonstrate that [lender's] claimed affirmative act of revocation was timely interposed, and thus does not conclusively establish a defense to the plaintiff’s claims under RPAPL §1501(4) as a matter of law. (Soroush v. Citimortgage, Inc., 161 AD3d 1124, 1127 [2d Dept 2018].)

15. A 2008 foreclosure action was discontinued by a stipulation dated January 23, 2013, which was so-ordered by the Supreme Court, wherein the parties agreed, inter alia, that: (1) the defendant was served with a copy of the summons and complaint; (2) the defendant would withdraw his motion; (3) the action would be discontinued without prejudice and the notice of pendency would be cancelled; and (4) they “desire to amicably resolve this dispute and the issues raised in the [defendant's motion] without further delay, expense or uncertainty.” In 2015, the lender commenced a second foreclosure action, which borrower moved to dismiss, claiming the action was time-barred, as the loan was accelerated in 2008. The lender claimed the stipulation revoked the acceleration. The Appellate Division disagreed, stating “the stipulation did not, in itself, constitute an affirmative act to revoke its election to accelerate, since, inter alia, the stipulation was silent on the issue of the revocation of the election to accelerate, and did not otherwise indicate that the plaintiff would accept installment payments from the defendant.” (Freedom Mtge. Corp. v. Engel, 163 AD3d 631, 633 [2d Dept 2018].)

16. Determining precisely when a mortgage is accelerated is a key aspect in any action or proceeding commenced pursuant to RPAPL §1501(4). Where the plain language setting forth the contractual right of the lender to accelerate the entire debt is discretionary rather than mandatory, the lender maintains the right to later revoke the acceleration. Just as standing, when raised, is a necessary element to a valid acceleration, it is a necessary element, when raised, to a valid de-acceleration. To the extent the cases have held that acceleration notices must be clear and unambiguous to be valid and enforceable, de-acceleration notices must also be clear and unambiguous to be valid and enforceable. “Courts must, of course, be mindful of the circumstance where a bank may issue a de-acceleration letter as a pretext to avoid the onerous effect of an approaching statute of limitations and to defeat the property owner’s right pursuant to RPAPL §1501 to cancel and discharge a mortgage and note. A de-acceleration letter is not pretextual if it contains an express demand for monthly payments on the note, or, in the absence of such express demand, it is accompanied by copies of monthly invoices transmitted to the homeowner for installment payments, or is supported by other forms of evidence demonstrating that the lender was truly seeking to de-accelerate and not attempting to achieve another purpose under the guise of de-acceleration. In contrast, a bare and conclusory de-acceleration letter, without a demand for monthly payments toward the note, or copies of invoices, or other evidence, may raise legitimate questions about whether or not the letter was sent as a mere pretext to avoid the statute of limitations.” In this case, the court found that a letter that stated that borrower’s failure to cure her delinquency within 30 days “will result in the acceleration” of the note, was merely an expression of future intent that fell short of an actual acceleration, as it was not clear and unequivocal, as future intentions may always be changed in the interim.6 (Milone v. US Bank N.A., 164 AD3d 145, 148 [2d Dept 2018].) 17. General Obligations Law §17-101 effectively revives a time-barred claim when the debtor has signed a writing which validly acknowledges the debt. To constitute a valid acknowledgment, a writing must be signed, must recognize an existing debt and must contain nothing inconsistent with an intention on the part of the debtor to pay it. In this case, a letter written by the borrower that accompanied his second short sale package submitted to lender’s loan servicer did not constitute an unqualified acknowledgment of the debt or manifest a promise to repay the debt sufficient to reset the running of the statute of limitations. (Karpa Realty Group, LLC v. Deutsche Bank Natl. Trust Co., 164 AD3d 886, 888 [2d Dept 2018].)

18. The notice of default “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.” (Fbp 250, LLC v. Wells Fargo Bank, N.A., 164 AD3d 1307, 1309 [2d Dept 2018].)

19. The plaintiff’s letter accompanying her request for the defendant to authorize a short sale of the property, and the other documents relied on by the defendant, did not constitute an unqualified acknowledgment of the debt sufficient to reset the statute of limitations (Yadegar v. Deutsche Bank Natl. Trust Co., 164 AD3d 945, 947 [2d Dept 2018].)

20. The defense of statute of limitations is waivable. Where a borrower in a foreclosure action defaulted and did not appear or answer the complaint, then opposed the lender’s motion for a default judgment by alleging that the statute of limitations had run, but did not seek to vacate his default and interpose an answer to the complaint, the court held that the borrower had waived the defense. The decision states “borrower waived a statute of limitations defense by failing to raise it in an answer or in a timely pre-answer motion to dismiss.” (21st Mtge. Corp. v. Palazzotto, 164 AD3d 1293, 1294 [2d Dept 2018].)

21. Where the lender had brought a motion to discontinue the prior foreclosure action, the court found this was still insufficient to constitute a de-acceleration, as “[c]ontrary to the plaintiff’s contention, the order dated December 12, 2013, which discontinued the 2008 action upon its motion, was insufficient to evidence an affirmative act to revoke the election to accelerate the mortgage debt. In this case, the plaintiff failed to demonstrate the basis for that motion, since it did not submit the motion papers in opposition to the defendant’s cross motion, and nothing in the order itself served to “destroy the effect of the sworn statement that the [plaintiff's predecessor in interest] had elected to accelerate the maturity of the debt….[t]he plaintiff’s further contention that it affirmatively revoked the election to accelerate the mortgage debt by serving the defendant with various notices, including the 90-day notice pursuant to RPAPL §1304, is also without merit.” (U.S. Bank Trust, N.A. v. Aorta, ___AD3d___, 2018 NY Slip Op 08528 [2d Dept 2018].)

It is clear from the above Second Department decisions that plaintiff herein has made a prima facie case for summary judgment. In support of her motion for summary judgment, the plaintiff has submitted, inter alia, a copy of the verified complaint that commenced the foreclosure action against the mortgagors [e-file doc. No. 80], in which lender and plaintiff Aurora specifically states in Paragraph Fifth that it “elects to call due the entire amount secured by the mortgage.” This establishes that the mortgage debt was accelerated on or about April 16, 2009, the date on which the foreclosure action was commenced, and thus, that the applicable six-year statute of limitations had expired by the time the plaintiff commenced the instant action on February 10, 2018. (NMNT Realty Corp. v. Knoxville 2012 Trust, 151 AD3d 1068, 1070 [2d Dept 2017].)"