Lenders lose statute of limitations cases virtually every day. This may not be widely recognized, but a reading of reported cases confirms it as a fact. That this is not recognized by the New York State legislature is apparent though, because those bodies are entertaining a new statute which will essentially eliminate every opportunity a lender might have to avoid a statute of limitations bar to prosecution, while at the same time helping to assure that many a mortgage will be unenforceable because the statute of limitations will have expired.
Mindful that one of the provisions of the bill under consideration is that a foreclosing lender will be denied any opportunity to revoke an acceleration, a recent case highlights the genuine peril to lenders. [HSBC Bank USA, National Association v. Michael, 191 A.D.3d 850, 143 N.Y.S.3d 64 (2d Dept. 2021)]
In this case the plaintiff as mortgage holder commenced a foreclosure action on May 13, 2009 – and that act served to accelerate the full balance of the mortgage.
That action, however, was later dismissed. (This is not so uncommon an event.)
Aware that the statute of limitations would soon bar the bringing of a second foreclosure action, the plaintiff, also aware of the long accepted ability to revoke an acceleration by affirmative act before the statute of limitations has expired, sent a certified letter to the defendant revoking any prior acceleration of the loan. Thus, when the plaintiff initiated its second foreclosure on February 17, 2016, even though the six year statute of limitations would have otherwise expired, it presumed that the revocation of the acceleration cancelled the acceleration created by initiation of the action back in 2009, therefore eliminating any problem.
Upon summary judgment the plaintiff diligently submitted an affidavit of its vice president of loan documentation showing that it sent the defendant a de-acceleration letter within six years of the commencement of the initial foreclosure action, showing as well that the letter was sent by certified mail. It also submitted a screenshot of the business record relied upon and those were annexed during the motion practice that all this generated.
Nonetheless, triable issues of fact were found to have been raised regarding delivery of the de-acceleration letter sent by certified mail. The mortgage provided that any notice was to be sent by first class mail. The plaintiff failed to provide proof of delivery of the de-acceleration letter or that the delivery method was used was in accordance with the provisions of the mortgage, i.e. first class mail. Therefore, a question of fact was raised and there certainly was a danger to the plaintiff that it might not be able to prove the de-acceleration. In that event, the statute of limitations would indeed void the second action.
One lesson of this case certainly is that the lender, in the event it de-accelerates, must be very careful in sending the letter via the method required by the mortgage and it must in a position to prove that. A second concern, of course, is that if the legislature removes the ability to revoke an acceleration, then once a foreclosure is begun, if it is ever discontinued or dismissed, the statute of limitations will nonetheless continue to run.
Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2019), 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.