We always mention this point with incredulity in our alerts dealing with the statute of limitations, and we are reminded of this yet again by a new case which voided a foreclosure – forever – because the statute of limitations had expired. [Solomon Holding Corp. v. Golia, 55 A.D. 3d 507, 868 N.Y.S. 2d. 612 (1st Dept. 2008)] Because the statute of limitations to sue on a mortgage or the note (in New York) is six years, how often would a lender wait that long to enforce its rights? One would think not often.
But there is a hidden threat. Once a foreclosure action is begun, even if it takes ten years to litigate (which does happen sometimes in New York) the statute of limitations is not an issue. It stopped running when the action began. If, however, after years of litigation or delay the foreclosure action is dismissed (for example via ruling years later – on the eve of sale – that service of process was deficient), even though the action itself disappeared, the acceleration survived. So if the mortgage balance had been accelerated more than six years ago, the statute of limitations has expired. (The lender could start the foreclosure anew but if the borrower asserted the statute of limitations the borrower would win; the foreclosure would be dismissed.)
We have discussed this lurking peril in alerts over the years because it occurs with surprising frequency, relatively speaking. The new case, though, was the garden variety (which should never happen but does): the lender just waited too long, more than six years!
Here, the lender began a foreclosure and although the borrower answered, he did not raise the statute of limitations as a defense. Interestingly, the statute of limitations as a defense can be waived, so if the borrower’s lawyer doesn’t notice it, the tardy lender may yet succeed.
Here, the borrower initially missed the defense but awakened nineteen months after he served his answer and sought to amend to add the statute of limitations defense. In response, the lender did not argue that the statute of limitations had not run (obviously it had), but rather that it was too late for the borrower to now change the answer. That was the right approach to take, but unable to show prejudice or surprise (necessary elements to bar amendment of a pleading) the plaintiff’s riposte was rejected.
Not only was the answer amended, based upon the statute of limitations, the complaint was dismissed. The lender lost all.
The lesson of all this is too apparent. Lenders cannot sit on their rights. And yet, it happens from time to time.
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.