Lenders and servicers will always find it to be an excruciating incongruity that a loan can be made to borrower, who is then allowed to keep all of the money – with no necessity to repay a cent – because of procedural miscues which cause the statute of limitations to expire. Well, it has happened yet again [Beneficial Homeowner Serv. Corp. v. Tovar, 2017 N.Y. App. Div. LEXIS 3410] and a review of the hidden danger can be salutary.
As a quick aside, this lender dilemma may appear to be a creature of only some recent years. Actually, it is not at all new, but the much greater volume of foreclosures, and the resultant increased invocation of the statute of limitations brings the threat to greater prominence. Nonetheless, the lesson seems not to be ingrained on the lender side – and so this review engendered by the new case.
Why the underlying problem can silently arise is emphasized by the facts in the new case and the applicable law. Here, a foreclosure action had been begun by the lender plaintiff in October 2007. Because the borrower was able to demonstrate that personal service upon her was not made, her motion to dismiss the complaint in that foreclosure was granted – in 2010. Plaintiff recommenced foreclosure in February 2014 and it was that foreclosure which was dismissed, founded upon the running of the statute of limitations. So how did that happen?
One applicable basic principle is that although a mortgage is payable in installments, once the debt is declared due – that is, accelerated – the statute of limitations begins to run on the entire debt. (This is not as obscure a concept as it may once have appeared to be.)
While acceleration is often accomplished by sending a letter declaring the balance due, as a matter of law in New York the filing of the summons and complaint (and here the notice of pendency as well) constitutes a valid election to accelerate the maturity of the debt. Thus, the lender had accelerated back in 2007. The hidden peril is revealed by the concept, emphasized by the court, that even though the earlier action, from 2007, was dismissed as against the borrower for lack of service, that did not invalidate the election to accelerate the maturity of the debt. That is to say, the acceleration survived dismissal of the action.
Looking at the numbers, then, the debt was accelerated in 2007, that action went away in 2010, but the acceleration didn’t, the new action was begun in 2014 but the statute of limitations had expired in 2013. The lender loses; there is nothing left to enforce.
The only perhaps novel argument in the case was that the lender tried to say that since the summons and complaint were never served on the borrower in the 2007 case (as the earlier court had ruled), that borrower never had notice of the acceleration and therefore this was the equivalent of acceleration never having existed. The court, however, observed that the fact of acceleration cannot be confused with the notice of the election to accelerate. Thus, failure to serve the summons and complaint did not vitiate the acceleration via filing the summons and complaint.
Given these accepted maxims, that the lender lost is not surprising, even though from the lender’s point of view it would be quite dismaying. But it all strongly underscores the need for attention to prosecuting mortgage enforcement. If a foreclosure is dismissed, starting it anew with some dispatch is obviously worthy of consideration; waiting years to start it again can too often create a problem.
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.