DOES A DISCONTINUANCE DE-ACCELERATE LOAN DEBT

An excellent discussion of the who, what, whys, etc. of acceleration and de-acceleration.

CHRISTIANA TRUST v. BARUA, 2020 NY Slip Op 3095 - NY: Appellate Div., 2nd Dept. 2020:

"II. The Effect of De-acceleration Upon the Statute of Limitations

The parties do not dispute that the controlling statute of limitations for breach of contract actions is six years (see CPLR 213[4]; Milone v US Bank N.A., 164 AD3d 145, 151; Wells Fargo Bank, N.A. v Eitani, 148 AD3d 193, 197; Kashipour v Wilmington Sav. Fund Socy., FSB, 144 AD3d 985, 986), and that the first action had the stated effect of accelerating the balance of the debt owed on the defendant's note, which triggered the limitations period (see Kashipour v Wilmington Sav. Fund Socy., FSB, 144 AD3d at 986; EMC Mtge. Corp. v Patella, 279 AD2d 604, 605). The plaintiff and the defendant differ about whether the 2009 debt acceleration was thereafter extinguished by the affirmative discontinuance of the first action on October 15, 2013.

Two years ago, this Court addressed similar issues in Milone v US Bank N.A. (164 AD3d 145). In Milone, a lender commenced an action to foreclose a mortgage upon residential property on January 13, 2009, as a result of the borrower's default in making monthly installment payments on the note. The acceleration of the full mortgage debt in that action had the effect of commencing the six-year statute of limitations set forth in CPLR 213(4). In an order of the Supreme Court dated February 29, 2012, the action was dismissed after more than three years had run against the statute of limitations. On October 21, 2014, approximately three months before the statute of limitations was to expire, the lender's servicer transmitted a letter to the borrower advising that the note, which had previously been accelerated, was de-accelerated, that any prior demand for full payment on the note was withdrawn, and that the debt was reinstituted as an installment loan (see Milone v US Bank N.A., 164 AD3d at 149).

On March 10, 2015, after the six-year statute of limitations had expired as measured from the initial debt acceleration, the borrower in Milone commenced an action pursuant to RPAPL 1501 to cancel and discharge the mortgage and note, arguing that no new foreclosure action had been commenced on the note within six years from its acceleration. The lender moved to dismiss the complaint in the RPAPL 1501 action on the ground that since a de-acceleration of the loan balance had occurred within six years of the acceleration, there was no violation of the statute of limitations and a new six-year limitations period would only begin to run if the full balance of the same note were to be accelerated at some time in the future (see Milone v US Bank N.A., 164 AD3d at 149-150). The borrower cross-moved for summary judgment on the complaint. The Supreme Court granted the lender's motion to dismiss the complaint with prejudice and denied the borrower's cross motion for summary judgment on the complaint. On appeal, this Court modified the order, concluding that the Supreme Court should have denied the lender's motion to dismiss the complaint because there was a question of fact as to the lender's standing to de-accelerate the loan debt.

This Court used the occasion in Milone to sort out the law and procedures governing the acceleration and de-acceleration of notes. We recognized well-established precedent that lenders may revoke the acceleration of full mortgage loan balances, so long as the revocation is accomplished by an affirmative act occurring within six years of the earlier acceleration (see id. at 154, citing Deutsche Bank Natl. Trust Co. v Adrian, 157 AD3d 934, 935, MSMJ Realty, LLC v DLJ Mtge. Capital, Inc., 157 AD3d 885, 887, NMNT Realty Corp. v Knoxville 2012 Trust, 151 AD3d 1068, 1069-1070, U.S. Bank N.A. v Barnett, 151 AD3d 791, 793, Kashipour v Wilmington Sav. Fund Socy., FSB, 144 AD3d at 987, UMLIC VP, LLC v Mellace, 19 AD3d 684, Clayton Natl. v Guldi, 307 AD2d 982, and EMC Mtge. Corp. v Patella, 279 AD2d at 606; see also HSBC Bank USA, N.A. v Gold, 171 AD3d 1029, 1030; Freedom Mtge. Corp. v Engel, 163 AD3d 631, 632, lv granted in part 33 NY3d 1039; Deutsche Bank Natl. Trust Co. v Adrian, 157 AD3d at 935). We then held for the first time that just as acceleration notices must be clear and unambiguous (see Nationstar Mtge., LLC v Weisblum, 143 AD3d 866, 867; Wells Fargo Bank, N.A. v Burke, 94 AD3d 980, 983; Sarva v Chakravorty, 34 AD3d 438, 439; see also J & JT Holding Corp. v Deutsche Bank Natl. Trust Co., 173 AD3d 704), the de-acceleration of note balances must also be clear and unambiguous to convey the fact that the previous demand for full payment of the note has been affirmatively revoked (see Milone v US Bank N.A., 164 AD3d at 153). We further held in Milone, for the first time, that just as standing is a prerequisite to a valid acceleration, a party must also have standing to effect a de-acceleration of the debt (see id. at 155). Moreover, recognizing that the foreclosure of mortgages encumbering residential properties involves elements of equity, we held in Milone that the declaration of a de-acceleration cannot be utilized as a mere pretext to avoid the onerous effect of the statute of limitations.

"[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" (id. at 154, citing Deutsche Bank Natl. Trust Co. Ams. v Bernal, 56 Misc 3d 915, 923-924 [Sup Ct, Westchester County, Scheinkman, J.]).

The Milone case involved a de-acceleration letter from a servicer that clearly and unambiguously demanded a resumption of monthly installment payments on the note. Here, by contrast, we are faced not with a letter of de-acceleration, but a discontinuance of the first action, which had sought full payment of the accelerated debt. Beyond Milone, this Court has repeatedly held that a lender's mere act of discontinuing an action, without more, does not constitute, in and of itself, an affirmative act revoking an earlier acceleration of the debt (see Bank of N.Y. Mellon v Yacoob, ___ AD3d ___, 2020 NY Slip Op 02451 [2d Dept]; HSBC Bank, N.A. v Vaswani, 174 AD3d 514, 515; Federal Natl. Mtge. Assn. v Schmitt, 172 AD3d 1324, 1326; Aquino v Ventures Trust 2013-I-H-R by MCM Capital Partners, 172 AD3d 663; Bank of N.Y. Mellon v Craig, 169 AD3d 627, 629; U.S. Bank Trust, N.A. v Aorta, 167 AD3d 807, 809; Freedom Mtge. Corp. v Engel, 163 AD3d at 633; Beneficial Homeowner Serv. Corp. v Tovar, 150 AD3d 657, 658)^[1]. Various reported trial level decisions and orders holding to the contrary should no longer be followed.

The reason for requiring that a valid de-acceleration requires more than a bare discontinuance of a foreclosure action is that the full balance of a mortgage debt cannot be sought without an acceleration, whereas the voluntary discontinuance of a foreclosure action may be occasioned for any number of different reasons, including those that have nothing to do with an intent to revoke the acceleration. A bare discontinuance does not disclose its underlying reasons nor say anything about the discontinuing party's intent to de-accelerate the full debt.

There are sound legal and public policy reasons in requiring that a lender or servicer, upon de-accelerating a loan balance, demonstrate its good-faith and bona fide intentions in rescinding its demand for the full loan balance and in seeking a resumption of monthly installment payments. Once a mortgage debt is accelerated, the borrower's right and obligation to make monthly installments ceases and all sums and penalties become immediately due and payable (see Federal Natl. Mtge. Assn. v Mebane, 208 AD2d 892, 894). A borrower so circumstanced may typically, necessarily, and detrimentally rely upon the acceleration for not tendering further monthly payments on the note, knowing that monthly installments will no longer be accepted (see Deutsche Bank Natl. Trust Co. Ams. v Bernal, 56 Misc 3d at 923). While the borrower might have defaulted in the first instance as a result of a financial inability to pay monthly installments, it is entirely possible in some cases that a borrower may acquire, after the loan balance is accelerated, the ability to pay arrears and maintain current payments, though lacking the ability to pay off the entire accelerated debt (see id.). A de-acceleration of the full debt revives the borrower's right to make the monthly payments that became due between the time the loan was accelerated and the time the acceleration was revoked, together with the right to make future monthly installment payments. Since the borrower may continue to assume that its lender or servicer will not accept post-acceleration monthly payments, the lender, in order to effectively rescind the acceleration, should be required to notify the borrower that the right to make monthly payments is restored and that the lender will accept the tender of such payments (see id.). Indeed, for residential mortgage loans subject to the federal Real Estate Settlement Procedures Act (hereinafter RESPA), the rules promulgated by the Consumer Financial Protection Board pursuant to RESPA require the issuance of statements for each periodic billing period (see 12 USC § 2617; 12 CFR 1026.41[a][2]; [b], [d]).

Here, the plaintiff did not submit to the Supreme Court, and hence could not include in the appellate record (see CPLR 5526; Matter of Dondi, 63 NY2d 331, 339; Yauchler v Serth, 114 AD3d 1069; Singer v Board of Educ. of City of N.Y., 97 AD2d 507; Renelique v American Tr. Ins. Co., 47 Misc 3d 134[A], 2015 NY Slip Op 50482[U], * 1 [App Term, 2d Dept, 2d, 11th & 13th Jud Dists]), a copy of the earlier motion papers that sought to discontinue the first action. The plaintiff also did not provide to the court, and could not include in the appellate record, the order dated October 15, 2013, that granted the motion to discontinue the first action, as it instead relied at all times upon a mere eCourts printout of the motion history of the first action. As a result, the plaintiff failed to demonstrate any language in the motion to discontinue, or in the order rendered thereon, that clearly and unambiguously repudiated the statement in Chase's verified complaint that Chase had elected to accelerate the full amount of the outstanding loan debt (see Bank of New York Mellon v Yacoob, ___ AD3d ___, 2020 NY Slip Op 02451; HSBC Bank, N.A. v Vaswani, 174 AD3d at 515; Federal Natl. Mtge. Assn. v Schmitt, 172 AD3d at 1326; Aquino v Ventures Trust 2013-I-H-R by MCM Capital Partners, 172 AD3d at 663; Bank of N.Y. Mellon v Craig, 169 AD3d at 629; U.S. Bank Trust, N.A. v Aorta, 167 AD3d at 809; Freedom Mtge. Corp. v Engel, 163 AD3d at 633; Deutsche Bank Natl. Trust Co. v Adrian, 157 AD3d at 935-936; cf. Beneficial Homeowner Serv. Corp. v Tovar, 150 AD3d at 658). The plaintiff also failed to establish that it ever demanded a resumption of monthly mortgage installment payments, invoiced the defendant for such payments, or offered any other evidence demonstrating that it was truly seeking to de-accelerate the debt in addition to its discontinuance of the action (see Milone v US Bank N.A., 164 AD3d at 155). Other evidence of a valid de-acceleration may include, but is not limited to, the voluntary vacatur of a lender's filed lis pendens (see CPLR 6514[d]), and a forbearance agreement evincing a clear intent to revoke a prior acceleration and reinstate the homeowner's right to repay the underlying debt in monthly installments (see U.S. Bank Trust, N.A. v Rudick, 172 AD3d 1430, 1431), but the record is devoid of evidence of those activities as well.

Our developed law that the discontinuance of residential mortgage foreclosure actions is not tantamount to an automatic de-acceleration of the full loan debt is further buttressed by the fact that these actions are not only creatures of contract law. Mortgage foreclosure actions are not purely contractual, but are a unique hybrid of contract (the note) and equity (foreclosure on the premises and eviction of the homeowner). "A foreclosure action is equitable in nature and triggers the equitable powers of the court'" (Onewest Bank, FSB v Kaur, 172 AD3d 1392, 1393-1394, quoting Rajic v Faust, 165 AD3d 716, 717). We are therefore not persuaded by our dissenting colleague that courts cannot examine the subjective intent of the discontinuing party in these instances. If residential mortgage foreclosure actions are flavored with a twist of equity, as they are, then the decisional authority that has developed in Milone and its progeny, and in Bernal, has a valid equitable basis, without representing any judicial drift on the part of our Court.

Moreover, the acceleration of a debt in a residential mortgage foreclosure action survives a simple discontinuance of the action, because the right to exercise an acceleration independently arises from the provisions of the note between the parties, and not from the existence of the potential judicial remedies of the court. In other words, the mere discontinuance of an action is not tantamount to a withdrawal of the acceleration itself, but merely withdraws the prayer that the court assist the lender in collecting the accelerated amount. The right to collect the full debt, once accelerated, exists under paragraph 7(c) of the parties' note independent of the lawsuit unless, as we have previously held, a de-acceleration is clearly and unambiguously communicated to the borrower as such. To the extent our dissenting colleague suggests that the discontinuance of an action withdraws all requests for relief, including any demand for recovering the accelerated debt, citing Loeb v Willis (100 NY 231) and Mahon v Remington (256 App Div 889), those cases are inapplicable, as an acceleration springs from the parties' note, and not from the collateral right to commence an action upon it.

Indeed, as noted by the Court of Appeals, "[t]he fact of election [to accelerate a mortgage debt] should not be confused with the notice or manifestation of such election" (Albertina Realty Co. v Rosbro Realty Corp., 258 NY 472, 476). An acceleration may be communicated in different forms—by a letter to the borrower clearly and unambiguously advising that because of a default in payment the full loan balance was being called due (see Nationstar Mtge., LLC v Weisblum, 143 AD3d at 867; Wells Fargo Bank, N.A. v Burke, 94 AD3d at 982-983; Sarva v Chakravorty, 34 AD3d at 439), by a self-executing balloon payment due at the end of the payback period (see Trustco Bank N.Y. v 37 Clark St., 157 Misc 2d 843, 844 [Sup Ct, Saratoga County]), or, as relevant here, by commencing an action where the complaint seeks to recover the full amount of the loan balance (see Albertina Realty Co. v Rosbro Realty Corp., 258 NY at 476; Wells Fargo Bank, N.A. v Lefkowitz, 171 AD3d 843, 844; Clayton Natl. v Guldi, 307 AD2d 982; City Sts. Realty Corp. v Jan Jay Constr. Enters. Corp., 88 AD2d 558, 559). Those activities are unilaterally initiated by the lender or servicer as a matter of right or, as in the case of a final balloon payment, by prior contractual agreement of the parties. A bare discontinuance of litigation does not nullify the fact that a contractual right to accelerate has been unilaterally exercised pursuant to the terms of a note. An acceleration of loan debt by the transmittal of a letter or by the commencement of an action in a court of law has legal implications, such as the financial penalties authorized under the note, the potential negative effect upon the borrower's credit rating, and reliance by the borrower that monthly payments will no longer be expected or accepted and thereby prevent any pay-down of the balance owed. To occur, none of these or other consequences of an acceleration require any permission, ruling, stipulation, decision, or order of a court, as they are independent of the litigation.

Here, since Chase accelerated the loan balance by commencing the first action on November 6, 2009, and the second action was not commenced until November 10, 2015, the defendant met his initial burden of demonstrating, prima facie, that the second action is time-barred by operation of CPLR 213(4) and 3211(a)(5) by four days (see HSBC Bank USA, N.A. v Gold, 171 AD3d at 1030; Bank of N.Y. Mellon v Dieudonne, 171 AD3d 34, 36; U.S. Bank N.A. v Joseph, 159 AD3d 968, 969; U.S. Bank N.A. v Gordon, 158 AD3d 832, 834; Campone v Panos, 142 AD3d 1126, 1127; Stewart v GDC Tower at Greystone, 138 AD3d 729, 730). In opposition, where the burden of going forward shifted, the plaintiff failed to raise a question of fact as to whether the statute of limitations was tolled or otherwise inapplicable, or whether it actually commenced the second action within the applicable limitations period (see HSBC Bank USA, N.A. v Gold, 171 AD3d at 1030; U.S. Bank N.A. v Joseph, 159 AD3d at 969; U.S. Bank N.A. v Gordon, 158 AD3d at 834; Stewart v GDC Tower at Greystone, 138 AD3d at 730; Barry v Cadman Towers, Inc., 136 AD3d 951, 952), as there is no evidence in the record that Chase or the plaintiff ever communicated a de-acceleration of the demand for payment of the full debt. Therefore, the Supreme Court should have granted that branch of the defendant's motion which was pursuant to CPLR 3211(a)(5) to dismiss the complaint in the second action insofar as asserted against him as time-barred.

III. The Interplay of CPLR 204(a) and RPAPL 1304

The plaintiff argues that the second action is timely pursuant to CPLR 204(a) because the 90-day period required for mailing a statutory notice of default under RPAPL 1304 operates as a toll of the statute of limitations for that same period of time. Although the plaintiff's argument is raised for the first time on appeal, we are able to reach it since it is an issue of law which appears on the face of the record and could not have been avoided had it been raised before the Supreme Court (see Countrywide Bank, FSB v Singh, 173 AD3d 673, 675).


The notice period of RPAPL 1304 does not operate to toll the statute of limitations. CPLR 204(a) authorizes the tolling of a statute of limitations where the commencement of an action is stayed by a court order or by a statutory prohibition (see Torsoe Bros. Constr. Corp. v McKenzie, 271 AD2d 682, 682-683). There is a difference between a "statutory prohibition," on the one hand, which tolls the statute of limitations, and a "condition precedent" to suit, on the other, which does not generate a toll (see Barchet v New York City Tr. Auth., 20 NY2d 1, 6; HSBC Bank USA v Kirschenbaum, 159 AD3d 506, 506-507). RPAPL 1304 is not a statutory prohibition within the scope of CPLR 204(a), but is instead a condition precedent to the commencement of mortgage foreclosure actions (see Citibank, N.A. v Conti-Scheurer, 172 AD3d 17; Marchai Props., L.P. v Fu, 171 AD3d 722, 724-725; Wells Fargo Bank, N.A. v Trupia, 150 AD3d 1049, 1050; Aurora Loan Servs., LLC v Weisblum, 85 AD3d 95, 106). As such, RPAPL 1304 does not trigger a toll of the applicable statute of limitations under CPLR 204(a) (see HSBC Bank USA v Kirschenbaum, 159 AD3d at 507; cf. Singh v New York City Health & Hosps. Corp. [Bellevue Hosp. Ctr. & Queens Hosp. Ctr.], 107 AD3d 780, 782; Pilgrim v New York City Tr. Auth., 235 AD2d 527, 527-528; Costa v Deutsche Bank Natl. Trust Co. for GSR Mtge. Loan Trust 2006-OA1, 247 F Supp 3d 329, 344-348 [SD NY]). CPLR 201 cautions that "[n]o court shall extend the time limited by law for the commencement of an action." Here, were it relevant, the plaintiff does not even detail how or in what manner its compliance with RPAPL 1304 caused its commencement of the second action to occur four days beyond the expiration of the six-year statute of limitations (see HSBC Bank USA v Kirschenbaum, 159 AD3d at 506-507; cf. Capital One, N.A. v Saglimbeni, 170 AD3d 508, 509)."