If a lender is prosecuting a foreclosure action but decides that it is pointless (for example the value is not in the property) can it just then begin an action on the debt against the borrowers and guarantors? In the absence of “special circumstances” (a whole other subject) generally the answer is no. But a new case offers a different, helpful and unusual view. [Old Republic Nat’l Title Ins. Company v. Conlin, 129 A.D.3d 804, 13 N.Y.S.3d 99 (2d Dept.2015).]
Election of remedies (known also in other states as the one action rule) is an obscure and difficult concept to explain. But it is quite important because it is the doctrine (a matter of statute: RPAPL §1301) which essentially bars simultaneous actions on the mortgage and the note.
But here is what happened in the cited case which creates a new wrinkle – actually it carves out a special exception.
Here, the holder of a junior mortgage had initiated a mortgage foreclosure action. But then the case was not pursued for four years and the mortgage was assigned to the plaintiff in the new action which elicits this alert. The assignee-plaintiff began an action on the note and the borrower moved to dismiss that action on two grounds; (1) that it violated the election of remedies mandates [RPAPL §1301(3)], and (2) there was an action pending and so the new case should be dismissed [CPLR §3211(a)(4)].
As to the latter claim, which is really secondary to the purpose of this alert, the prior action was not pending between the same parties and so that section could not be used to dismiss the new action.
As to the election of remedies, however, the court found that the plaintiff’s assignor effectively had abandoned its prior action to foreclose the mortgage because its position as a junior mortgagee made it improbable that foreclosure would satisfy the underlying debt. Even though that prior foreclosure action had not been formally discontinued, the court found that the effective abandonment of that action was a “de facto discontinuance”, which argues against dismissal of the current action on the debt. The court therefore concluded that allowing the plaintiff to pursue this action on the note, after all commenced more than four years after the mortgage foreclosure action was effectively abandoned, was not inconsistent with the purpose of the election of remedies statute.
Whether this scenario will be oft-encountered is problematic, but it may not be all that odd. Especially mindful that the election of remedies statute is to be strictly construed because in derogation of the common law – as this court specifically noted – it is perhaps surprising that it chose to carve out this unusual exception, but here it is for future consideration.
Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2017), is a partner with Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. in Garden City, New York. He is also a member of the USFN, The American College of Real Estate Lawyers, The American College of Mortgage Attorneys, an adviser to the New York Times on foreclosure issues and writes a regular servicing column for the New York Law Journal. He is AV rated by Martindale-Hubbell, his biography appears in Who’s Who In American Law and he has been for years listed in Best Lawyers In America and New York Super Lawyers.