As lenders and servicers will be well schooled in by now, the critical statute of limitations begins to run on the full mortgage obligation upon acceleration of the mortgage balance (or, but not relevant to the point here, on the balance as matured at the end of the term). Six years, thereafter, expiration of the statute of limitations is a bar to enforcement of the mortgage. That vital acceleration is accomplished either by the sending of a letter declaring the acceleration or the filing of the complaint in the foreclosure action.
Assuming the lender or servicer elects to first accomplish acceleration by letter, what must it say? The opposite question – the subject of a new case [Bank of America v. LUMA II, 157 A.D.3d 1106, 69 N.Y.S. 3d 170 (3d Dept. 2018] and this alert is, what might a correspondence not intending to accelerate need to avoid?
Actually, the law is well established on this point [for a detailed review see 1 Bergman on New York Mortgage Foreclosures § 4.05, LexisNexis Matthew Bender (rev. 2018)]. The primary concept, confirmed by the new case is that to declare an acceleration (and thus start the statute of limitations running) the correspondence must be overt, clear and unequivocal. In a real sense it is quite effortless. The letter in essence says that it declares the entire mortgage balance immediately due.
In the case under review, a letter had been sent and the borrower wanted that to be an acceleration because if it was, the six year statute of limitations would have run and the mortgage would have been unenforceable.
But the letter merely advised the borrower that he had violated the terms of the note and mortgage by failing to make monthly payments and that counsel had been retained “to exercise all of [the loan servicer’s] rights and remedies at law, and in equity, including, but not limited to the right to sell the…premises at a public sale”. While the letter left legal or equitable avenues open, it did not state that immediate payment was demanded and, as the court emphasized, went on to state that the debt’s validity would not be assumed unless there was an absence of timely written objection to some or all of it. Indeed, there was no explicit demand for payment in the letter, nor was the word accelerate even used. In sum, the letter failed to meet the test of an acceleration so that the statute of limitations could not have begun have to run.
It is assumed that lenders and servicers have long had a form of acceleration letter which readily accomplishes the task. As to any other correspondence, this case highlights the point that if acceleration is not sought, the lender or servicer must avoid any declaration that the full sum is due. This ought to be easy although, as this case indicates, it doesn’t mean borrowers will not try to make an issue of it nonetheless.
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.