New York Court of Appeals Raises Landmark Limitation Period for Mortgage Foreclosure Actions | McGlinchey Stafford
On February 18, 2021, the New York Court of Appeals issued a historic decision in four cases related to the application of the statute of limitations to exclude a mortgage in New York. Most notable is the long overdue decision Freedom Mortgage Corporation v. Engel (“Engel”), which overturned the earlier decision of the Appeal Division on the requirements for revocation of a previous acceleration of a mortgage loan. The Court of Appeal has now held that where a loan acceleration has occurred due to the filing of a lawsuit in a foreclosure action, the voluntary discontinuance of that action by the note holder constitutes an affirmative act of revocation of this acceleration in law, in the absence of an express and contemporaneous declaration to the contrary on the part of the holder of the notes.
The common problem in Engel and Ditech Financial, LLC v Naidu (“NaiduIs whether a valid election to expedite, made by the commencement of a prior foreclosure action, has been revoked as a result of the voluntary discontinuance of that action by the Noteholder. Determining if and when a noteholder has revoked their election to accelerate is critical to determining whether a foreclosure action brought more than six years after the acceleration is time-barred.
Applicants in Engel and Naidu both claimed their foreclosure actions were brought in a timely fashion because they affirmatively overturned previous elections to speed up the loan by voluntarily withdrawing those earlier foreclosure actions. At a time Engel and Naidu, the Supreme Court ruled that the respective accelerations had been overturned by a voluntary abandonment of the previous foreclosure action. However, the Appeal Division overturned the lower court rulings in each case, dismissing the actions for limitation.
Departments in the Appeals Division have always maintained that revocation of an acceleration can be accomplished by an “affirmative act” from the noteholder within six years of the election to accelerate.. However, more recently, as evidenced by the decisions of the Second Department in Engel and Naidu, a new norm has arisen: a motion or stipulation by a note holder to withdraw a foreclosure action, “in itself”, is do not an affirmative act of revocation of the acceleration made via the complaint.
The Court of Appeal rejected this approach and noted that it is both “analytically unfounded in contract law” and “practically impractical”. It would require courts to take a case-by-case approach to reviewing the course of the parties’ conduct and correspondence after the discontinuance to determine whether a noteholder intended to revoke acceleration when he abandoned the action. Under this approach, the revocation investigation turns into an exploration of the bank’s intent, accomplished through a comprehensive review of post-abandonment acts.
The Court of Appeal gave reasons for its decision, stating that the ex post facto case-by-case approach adopted by the Appeal Division is inconsistent with the policy underlying the limitation period, because the desirability of an action in foreclosure “cannot be confirmed with a certain degree of certainty”, a result that the Court of Appeal has repeatedly rejected. The ex post facto approach, on a case-by-case basis, also leaves the parties without concrete contemporary indications as to their current contractual obligations, leading to confusion between the parties. Further, if the effect of a voluntary abandonment of a mortgage foreclosure action depended solely on the importance of the actions of the noteholders that occur months or years later, the parties may not be clear. as to their contractual obligations after termination until the issue is resolved. in a subsequent foreclosure action (which is exactly what happened Engel and Naidu).
Instead, the Court of Appeal adopted a “clear rule” that when a loan acceleration has occurred due to the filing of a lawsuit in a foreclosure action, the discontinuance voluntary action by the Noteholder constitutes an affirmative act of revocation of such acceleration as a matter of law, absent an express and contemporaneous statement to the contrary by the Noteholder. However, a voluntary withdrawal withdraws the complaint and, when the complaint is the only expression of a demand for immediate payment of the entire debt, it is the functional equivalent of a declaration by the lender indicating that the acceleration is being revoked. The Court of Appeal noted that this clear rule is consistent with its precedent in favor of a consistent and direct application of the limitation period which serves the objectives of “finality, certainty and predictability”, to the benefit of borrowers and noteholders. .
Applying this clear rule, the Court of Appeal reversed the decisions of the Appeal Division in Engel and Naidu, holding that the plaintiffs validly revoked the previous accelerations by voluntarily withdrawing the previous foreclosure actions within the limitation period.
In Wells Fargo Bank v Ferrato (“Ferrato”) and Vargas v Deutsche Bank Natl. Trust Co., (“Vargas”) the Court considered whether certain actions on behalf of a lender were sufficient to constitute a “manifest and unequivocal act” so as to effect the acceleration of a mortgage debt, thus beginning the limitation period of six years. In each of these cases, the Court held that the “acts” complained of did not constitute a valid acceleration of the loan which would begin the limitation period of six years.
In Ferrato, the Court considered whether the filing of complaints in two earlier dismissed foreclosure actions was sufficient to accelerate indebtedness, which had an impact on the timeliness of the pending pending action started in December. 2017. There, two previous foreclosure actions were brought in 2009 and 2011, respectively. Despite the fact that the loan was amended in 2008, neither the 2009 nor 2011 complaints made reference to the loan modification, instead relying on the original amount of the note and mortgage and attaching the documents of the loan. original loan to the respective complaints. In each of these actions, Ferrato succeeded in dismissing the complaint due to this loophole. In the 2017 action, Ferrato sought the dismissal of the lawsuit on the grounds that the debt had been accelerated in September 2009 by the start of the 2009 foreclosure action and the statute of limitations expired in 2015.
The Supreme Court rejected this argument on the grounds that neither the 2009 nor 2011 actions served to accelerate the debt because the complaints therein sought to seize the original note and mortgage, not the modified loan. Ferrato appealed, and the Appeal Division reversed and allowed the motion to dismiss on the basis that the 2009 action had effected a valid acceleration of the amended loan, even though the amended loan documents were not included. On appeal, the Court of Appeal reversed the decision of the Court of Appeal insofar as it allowed Ferrato’s motion to dismiss. In doing so, the Court of Appeal held that the earlier foreclosure action had not served to expedite the amended loan because Wells Fargo had not made reference to the loan modification nor attached the amended loan agreements that had materially distinct conditions, stating that “in these circumstances – where the shortcomings of the complaints were not merely technical or de minimis and did not make it possible to know which debt was accelerated – the beginning of these actions had not validly accelerated the modified loan. “
Vargas involves an action brought in July 2016 by borrower Juan Vargas under RPAPL 1501 (4) against Deutsche Bank, seeking to discharge a mortgage on real estate on the basis of the expiration of the limitation period. Vargas alleged that the issuance of a letter of default in August 2008 by the bank’s predecessor in interest accelerated the debt so that the statute of limitations expired before the covert title action began. The Supreme Court initially ruled that the default letter was insufficient to expedite the loan, but upon renewal it dismissed the bank’s dismissal petition and granted summary judgment in favor of Vargas to cancel the mortgage. The Appeal Division confirmed. The Court of Appeal overturned, finding that the letter by default did not effect an unequivocal acceleration of the debt because it did not seek immediate payment of the entire outstanding loan balance, but rather “evoked the acceleration. only as a future event, indicating the debt has not been accelerated at the time the letter was written. The Court further concluded that despite the wording of the letter indicating that the debt “shall” be accelerated, the letter indicated that failure to remedy the default “may” result in the commencement of a foreclosure action, which not only was not an automatic action. acceleration, but that such automatic acceleration at the end of the cure period could be considered incompatible with the terms of the loan agreement.
These decisions each present a significant change in jurisprudence and have a profound effect on the application of the limitation period to exclude a mortgage in New York. The adoption of this clear rule serves the objectives of “finality, certainty and predictability”. New York Civil Practice Law and Rules § 213 (4) sets the limitation period for mortgage foreclosure actions at six years. What is certain now is that when an acceleration of the loan has occurred due to the filing of a complaint in a foreclosure action, a voluntary abandonment indicates a revocation of this acceleration in the absence of a contemporaneous declaration by the note holder to the contrary. Navigating the wide range of possible applications of these decisions requires careful consideration by a competent lawyer to guide litigants towards successful resolution of their claims.
 NMNT Realty Corp. v Knoxville 2012 Trust, 151 AD3d 1068, 1069 (2nd department 2017); Lavin vs. Elmakiss, 302 AD2d 638, 639; Federal Natl. Mtge. Assn. against Rosenberg, 180 AD3d 401, 402 (1st department 2020).
 Freedom Mortgage Corporation v. Engel, 163 AD3d 631, 633 (2nd department 2018); Ditech Financial, LLC v Naidu, 175 AD3d 1387, 1389 (2nd department 2018); Wells Fargo Bank, NA v Liburd, 176 AD3d 464, 464-465 (1st department 2019).
 Albertina Realty Co. v Rosbro Realty Corp., 258 NY 472-476 (1932)
 CPLR § 213 (4)