Acceleration (And Statute Of Limitations) – Stronger Than Death

A recent case is unusual, but highlights the continuing, ever-present danger foreclosing lenders face with the statute of limitations, even under what surely must be seen as counterintuitive circumstances [See Wilson 3 Corp. v. Deutsche Bank National Trust Company, 219 A.D.3d 870, 195 N.Y.S.3d 497 (2d Dept. 2023)].[1]

Mentioning the facts of this case, followed then by the legal principles applied will best serve to make sense of what lenders and servicers just might find perplexing.

Borrower signed a note and mortgage in November 2006 and thereafter died.  In June 2008 lender commenced a foreclosure action naming that borrower who, presumably unbeknownst to the foreclosing plaintiff, was deceased.  As part of the complaint the plaintiff pleaded that it thereby declared the full balance of the mortgage due.  This is typical and recommended so that the filing of the complaint serves to accelerate the mortgage balance; without such a declaration in the complaint there would be no required acceleration.

Why the plaintiff took no further action after beginning the case is unstated but more than six years after initiation of the action, (in August 2014) the court dismissed the foreclosure for failure to prosecute.  On appeal the court vacated the dismissal on one of the central principles here which was that because the borrower died prior to commencement of action, that foreclosure was a legal nullity from its inception.  (Thus, there is no need to vacate an action which in essence never existed.)

Meanwhile in 2016 (which would be eight years after the foreclosure had been begun) the property owner moved to cancel the mortgage of record.

The case now arrives at the startling conclusion. Mindful that for the statue of limitations to run one needs the balance to have become due, as via acceleration, the foreclosing party argued that because the action was a nullity, so too was the acceleration expressed in that action.  The court disagreed.  It held that even though the foreclosure was indeed a nullity, that did not revoke, invalidate or otherwise destroy the express invocation of the contractual election to accelerate the debt.  Therefore, any new foreclosure which would be brought would be barred by the six year statute of limitations.

The remarkable resilience of the declaration of acceleration of a mortgage is herewith strongly underscored.

[1] As an aside, the Foreclosure Abuse Prevention Act (“FAPA”)was designed in significant part to strengthen the position of borrowers when asserting a statue of limitations defense.  The recent case discussed here confirms yet again how often foreclosing parties loose on the statute of limitations issue, calling into question the needs for the remedies of FAPA.

Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2022), 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.