When first this happened more than a few years ago, it was shocking. That lesson, however, has not been well enough learned – as a new case confirms. [U.S. Bank National Association v. Barnett, 151 A.D.l791, 56 N.Y.S.3d 255 (2d Dept. 2017)]. The result was that the borrower kept some $400,000. The lender received nothing.
What was most frightening the initial time this scenario was encountered were the facts. Recall first that the statute of limitations to foreclose a mortgage in New York is six years, that it begins to run upon acceleration of the debt, and that filing a complaint, that is, starting a foreclosure, is an acceleration. In the earlier case, the foreclosure was begun, was bogged down for about six years and only then did a court dismiss the action for want of jurisdiction over the borrower; service of process was invalid. While the foreclosure disappeared, the acceleration did not – it survived nevertheless. Because foreclosures can be so delayed in New York, dismissals in the vicinity of six years present a particular peril.
While the facts in the new case were not as threatening, the lender still failed.
On May 15, 2007 the Plaintiff mortgage holder began its foreclosure. By September, 2010, by which time a foreclosure judgment had been obtained, the court nonetheless dismissed the action on the ground of lack of personal jurisdiction. At this point of course, only somewhat more than three years of the statute of limitations had expired. Inexplicably, though, the mortgage holder waited until July 9, 2013 to begin its new foreclosure action, all based upon the much earlier payment default.
Since acceleration had occurred when the first action was begun – May 15, 2007 (and remained in place even though that action had been dismissed) – the six year Statute of Limitations expired before the beginning of the new action on July 9, 2013.
While a lender is free to volitionally revoke an acceleration, no such revocation took place in this case.
Applying the now well accepted principles (previously mentioned) the new foreclosure was dismissed. The borrower pays nothing and the lender receives nothing.
Diligence in prosecuting foreclosure actions is essential and time frames are particularly meaningful.
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.