Because New York residential foreclosures can take several years and several attempts to complete, it is essential for a statute of limitations analysis to be completed during all phases of the foreclosure proceedings. The discussion that follows includes some of the considerations that should be made during a statute of limitations analysis.
Mortgage debt accrues as each installment becomes due, with a six-year statute of limitations running accordingly. CPLR 213(4); Koeppel v. Carlandia Corp., 21 A.D.3d 884, 800 N.Y.S.2d 607 (2d Dept. 2005). Where there is an acceleration clause giving the creditor the right to declare the whole amount due, the six-year statute of limitations begins to run on the full amount of the debt at the time of acceleration. Zinker v. Makler, 298 A.D.2d 516, 748 N.Y.S.2d 780 (2d Dept. 2002); EMC Mortgage Corp. v. Patella, 279 A.D.2d 604, 720 N.Y.S.2d 161 (2d Dept. 2001). While acceleration clauses can be categorized as automatic or optional, most clauses are not considered truly self-operative in nature. Seligman v. Burg, 233 A.D. 221, 251 N.Y.S. 689 (2d Dept. 1931). In most residential foreclosure actions, acceleration occurs at commencement of the action, which would include a provision explicitly calling the entire amount due. See, e.g., Walsh v. Henel, 226 A.D. 198, 235 N.Y.S. 34 (4th Dept. 1929).
Contractual Restrictions to Acceleration
Notwithstanding the foregoing, Nationstar v. McPherson, 56 Misc3d 339 (Sup. Ct. Suffolk Co. 2017), makes clear that the commencement of a foreclosure action does not trigger the statute of limitations if the mortgage agreement provides to the contrary. In Nationstar, the loan was found not to have been accelerated because the mortgage agreement provided the borrower the right to have enforcement of the security instrument stopped at any point before entry of judgment if the borrower rectified the default. Specifically, if the conditions in the agreement were fulfilled in curing the default, the agreement would “remain in full effect as if Immediate Payment in Full had never been required.” Nationstar v. McPherson, 56 Misc3d 339 (Sup. Ct. Suffolk Co. 2017); see also Wells Fargo Bank, N.A. v. Fetonti, 2018 WL 823782 (Sup. Ct. N.Y. Co. 2018); U.S. Bank Trust, N.A. v. Monsalve, 2017 WL 6994224 (Sup. Ct. N.Y. Co. 2017).
Revocation of Acceleration
Meanwhile, after acceleration, a lender may revoke its election to accelerate all sums due under an acceleration clause if there is no change in the borrower’s position in reliance thereon. Fed. Nat’l Mortgage Ass’n v. Mebane, 208 A.D.2d 892 (2d Dept. 1994) (citing Golden v. Ramapo Improvement Corp., 78 A.D.2d 648, 650 (2d Dept. 1980)). Revocation must be by an affirmative act and can include a voluntary discontinuance; however, mere dismissal of the case usually will not suffice. EMC Mortgage Corp. v. Patella, 279 A.D.2d 604 (2d Dept. 2001); see also Wells Fargo Bank, N.A. v. Burke, 2010 NY Slip Op 50113(U), #25077/09, (Feb. 1, 2010 Sup. Ct. Kings County) (J. Silber). Such revocation will effectively reset the limitations period, as the acceleration is effectively mooted. Revocation, however, is unlikely to be valid if made after dismissal of an action in which acceleration was triggered by filing of the summons and complaint, because the act of dismissal effectively moots the demand for full payment within the Complaint. It is also important to differentiate the voluntary discontinuance as revoking the acceleration versus its inapplicability to CPLR 205(a), as discussed below.
An installment payment made by the borrower after acceleration, however, will toll the statute of limitations and cause the limitations period to restart from the date of the payment, unless such effect is specifically disclaimed in a writing accompanying the payment. National Heritage Life Ins. Co. in Liquidation v. Hill St. Assoc., 262 A.D.2d 378, 691 N.Y.S.2d 186 (2d Dept. 1999); see also Lavin v. Elmakiss, 302 A.D.2d 638, 754 N.Y.S.2d 741 (3d Dept. 2003) (holding that additional payments to mortgagee following mortgagee’s notice of acceleration and mortgagee’s acceptance of such payments tolled six-year statute of limitations for mortgage foreclosure action and the limitations period began to run from the date of the last payment tendered by mortgagor).
Likewise, a borrower’s promise in a bankruptcy plan to repay a mortgage can have the effect of extending the statute of limitations. Nat. Loan Investors, L.P. v. Piscitello, 21 A.D.3d 537 (2d Dept. 2005); General Obligations Law § 17–105(1). Said promise must be express and in a writing signed by the borrower. Albin v. Dallacqua, 254 A.D.2d 444 (2d Dept. 1998).
Standing to Accelerate
Acceleration can also be deemed ineffective where a party lacks the requisite standing to commence or maintain a foreclosure action and, therefore, the party would have also lacked the authority to accelerate the debt in the first place. EMC Mortgage Corp. v. Suarez, 49 A.D.3d 592 (2d Dept. 2008) (lack of standing, no acceleration); Wells Fargo Bank, N.A. v. Burke, 94 A.D.3d 980, 983 (2d Dept. 2012).
Additionally, there is a six-month savings statute in New York that can extend the limitations period under certain circumstances. Where an action is brought within the applicable period and is terminated not on the merits, but on a basis that keeps the claim alive and enables a later suit to be brought on it, CPLR 205(a) permits the plaintiff six months from said termination in which to recommence even where the original statute of limitations has expired. This grace period will not apply to actions terminated by voluntary discontinuance, failure to obtain personal jurisdiction, neglect to prosecute, or a final judgment on the merits. CPLR 205(a). It is important to note that an action dismissed due to neglect to prosecute may still take advantage of the six-month grace period where the record in the dismissed case fails to manifest “specific conduct” evincing “a general pattern of delay.” See EMC Mortgage Corp. v. Smith, 18 A.D.3d 602 (2d Dept. 2005) (“Although that foreclosure action was dismissed, a dismissal under CPLR 3215(c) is a dismissal for a failure to prosecute and consequently was not a dismissal on the merits or with prejudice”); see also Lopez v. State of New York, 21 Misc.3d 563 (Ct. Cl. 2008) (setting forth the required delay “pattern”). Further, because there is a specific statute in place for want of prosecution, if that statute is specifically not cited as the basis for dismissal, the plaintiff should be afforded the protections of the six months savings clause under CPLR 205(a). Contra Shepard v. St. Agnes Hospital, 86 A.D.2d 628, 446 N.Y.S.2d 350 (2d Dept. 1982) (case was dismissed after a defendant moved the Court for the same relief based on the plaintiff’s failure to move for default judgment within one year).
There are countless scenarios in which one or more of the above considerations must be made. For example, a borrower may seek to vacate his or her default and to dismiss the foreclosure based on ineffective service of process more than six years after the commencement of foreclosure. Under this scenario, and after a statute of limitations analysis is made, it would be prudent to file a cross-motion for an extension of time to serve the complaint pursuant to CPLR 306-b. The alternative would be to risk dismissal of the foreclosure with prejudice, because the six-month savings statute does not apply to dismissals based on ineffective service.
For the foregoing reasons, it is essential for a statute of limitations analysis to be completed during all phases of the foreclosure proceedings, and it is important to understand which events moot or revoke acceleration versus those that toll or provide a grace period for recommencement.