One Year Rule Repeatedly Pounds Lenders

This is one arena where lenders really should not lose, because when they do, it is their own fault.  The system is tough enough without the foreclosing plaintiff shooting itself in the foot.

For good reason, we have reviewed this subject in the past, but three recent reported cases (it can be assumed there are plenty more unreported decisions) strongly suggest the subject is worthy of renewed enlightenment.

First, what is this thing we refer to here in shorthand as the one year rule?

It is a mandatory (scary right there) creature of the New York practice statute [CPLR 3215(c)] thus:

“[i]f the plaintiff fails to take proceedings for the entry of judgment within one year after the default, the court shall not enter judgment but shall dismiss the complaint as abandoned…upon its own initiative or on motion, unless sufficient cause is shown why the complaint should not be dismissed.           

Our usual message regarding the one year rule relates to the unusual nature of the foreclosure action where the appointment of a referee is typically a stage which precedes an application for a judgment.  The short analysis here, then, is that the one year applies to pursuing that order of reference (typically seeking default judgments against any parties who have not appeared) so that the obligation to obtain the judgment is satisfied by having pursued the order of reference.  But if that order of reference is not sought within one year, without the excuse that the statute provides – then the court must dismiss the foreclosure action.  That is precisely what happened in the three recent cases and the lenders there certainly lament the result.

So here are examples of how lenders stumbled, which offer some explanation of what is to be avoided.  In BAC Home Loans Servicing LP v. Bertram, 171 A.D.3d 994, 98 N.Y.S.3d 311 (2d Dept. 2019), the plaintiff presented only conclusory and unsubstantiated assertions that  certain unspecified periods of delay were attributable to compliance with a then newly adopted administrative order.  These were found insufficient to excuse a lengthy delay.  Moreover, the court observed, even accepting the plaintiff’s assertions that the action was also delayed for certain periods of time due to FEMA foreclosure holds after two major hurricanes, the plaintiff still provided no explanation for the period for approximately sixteen months from the time the FEMA holds were no longer in effect until the plaintiff filed a request for a mandatory judicial conference.

In IXIS Real Estate Capital, Inc. v. Herbst, 190 A.D.3d 691, 95 N.Y.S.3d 297 (2d Dept. 2019), it was found that the plaintiff failed to take any proceedings for entry of judgment within one year after the borrower defaulted.  While the plaintiff offered various excuses for its delay, all involved events which transpired after the one year statutory deadline had already passed and were therefore legally insufficient to justify the failure to take proceedings for a default judgment within one year after default.

In Deutsche Bank National Trust Company v. Iovino, 171 A.D.3d 1011, 98 N.Y.S.3d 604 (2d Dept. 2019), the foreclosing plaintiff argued that the case was stalled in the mandatory settlement conference part for an extended period of time.  However, that was held not to be a reasonable excuse for the plaintiff’s extensive delay because the records showed that at the conclusion of the settlement conference (March 2013), the plaintiff was empowered to proceed with the prosecution of the action – but that was more than two years before it actually initiated proceedings for the entry of a default judgment.  In sum, there was a two year delay, but without an excuse. Of yes, the plaintiff also argued that the borrower filed for bankruptcy which stayed the case; true enough, but in order had issued in April 2013 lifting the stay and the plaintiff still waited two years to seek the entry of a default judgment.

That a plaintiff must move to the default judgment/referee stage within one year after defendants have defaulted is hardly that burdensome.  If there are good reasons why a plaintiff is impeded from honoring the rule, then the excuse will serve to save the day.  But if the excuse is feigned, or otherwise lacking merit, then the case will be subject to dismissal.  Foreclosing plaintiffs certainly need to pay attention to this aspect of the foreclosure process in New York.

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.