Department 2 clarifies law regarding lender’s revocation of foreclosure acceleration and confirms sanctity of settlement

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On January 20, 2021, the Appeal Division, Department Two, addressed the often puzzling question of what evidence shows that a garnishee lender must defeat a defendant’s motion to dismiss for limitation. The court concluded, as many suspected, that a lender’s presentation of a loan modification agreement coupled with proof of its voluntary discontinuance of a foreclosure action and the rescinding of the notice of expectation suffices to raise a question of fact. The ruling provides the necessary clarity to Department II’s case law on the limitation period and, perhaps more importantly, confirms the sanctity of the regulations.

The facts in Bank of New York v. Hutchinson, 2021 NY Slip Op 00284 (2d Dep’t Jan 20, 2021) are straightforward. The defendant / mortgagor filed a motion for summary judgment requesting, among other things, the dismissal of the complaint on the basis of the expiration of the six-year limitation period. In support of the motion, the defendant presented evidence demonstrating that the mortgage debt was accelerated under an earlier foreclosure action brought on February 15, 2006 (the 2006 action) and that the 2006 action was voluntarily abandoned on April 2, 2007. In opposition, the plaintiff argued that he had revoked his choice to accelerate the mortgage debt within the statute of limitations. The plaintiff submitted a loan modification agreement dated November 6, 2006 and a consent to quash the lis pendens filed on March 29, 2007. The Supreme Court dismissed the petition, finding that although the defendant discharged its prima facie burden of showing that the action was timely. prescribed, the Applicant has raised a question of fact which is subject to trial in opposition. The defendant appealed.

The Appeal Division began its analysis by citing the well-established law that an action for mortgage foreclosure is subject to a six-year limitation period under CPLR 213 (4). The court noted that when a mortgage is payable in installments, separate causes of action accumulate for each unpaid installment and the limitation period begins to run on the date each installment becomes due. However, once a mortgage payable in installments is accelerated, the entire balance is due and the limitation period begins to run on the entire debt.

This is not the end of the story, however. The second department has created a new set of laws in recent years regarding the removal of a lender of his choice to accelerate mortgage debt. Under this case law, a lender can revoke its choice to accelerate the mortgage, but it must do so by an “affirmative act of revocation occurring during the period of limitation of six years following the commencement of the action in prior foreclosure ”.

After setting out these principles, the Appeal Division applied them to the facts of the case, concluding, in agreement with the lower court, that the respondent had discharged its initial burden of demonstrating a prima facie case that the case was prescribed. The court also agreed with the Supreme Court’s ruling that the plaintiff raised a point of fact that could be adjudicated in opposition, concluding that:

the presentation of the loan modification agreement, which clearly and unambiguously required a resumption of the monthly payments on the note, and consent to the cancellation of the lis pendens were sufficient to raise a judgmental question of fact as to whether if the applicant had revoked his choice to accelerate the full balance of the mortgage debt within six years from February 15, 2006….

Therefore, the Appeal Division upheld the lower court’s decision dismissing the defendant’s motion.

In rendering its decision, the Appeal Division rejected the Respondent’s argument that the Applicant was required to show that the payments had been made under the Loan Modification Agreement, finding, on the basis of the facts of this case, that such a demonstration was not necessary. The court also rejected the defendant’s claim of prejudice, finding that such prejudice was not sufficient to defeat the revocation.

The Appeal Division’s decision is a welcome relief for the mortgage services industry. Lenders no longer have to worry that the settlement of a foreclosure modification action will be used against them years later, after the statute of limitations has expired, as grounds for termination. Notwithstanding the above, we recommend that foreclosure lenders make it clear when they terminate actions that they are revoking mortgage debt acceleration.

Morgan R. McCord is a member of Eckert Seamans Cherin & Mellott.

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