It remains remarkable how often lenders are defeated by a statute of limitations claim – the result of course being that the borrower retains the property and the lender is paid nothing. This suggests that the rules relating to the subject are truly critical and a recent appeals level ruling addressed three major areas of this subject, thus, this will be a refresher all in one place on the applicable aphorisms. [Federal National Mortgage Association v. Jeanty, 188 A.D.3d 827, 136 N.Y.S.3d 140 (2d Dept. 2020)]
The fact pattern is all too familiar. A mortgage foreclosure action was commenced on August 27, 2008 (the first foreclosure). This led, as it frequently can, to a Home Affordable Modification Trial Period whereby the borrower agreed to make trial payments at a reduced rate. The borrower made several payments but was never offered a permanent modification agreement.
Eventually the lender moved for a voluntary discontinuance of the 2008 action and an order to that affect was dated February 13, 2015.
In March 2015, the second foreclosure was initiated and when the plaintiff moved for summary judgment, the defendant-borrower cross-moved to dismiss the complaint asserting that the statute of limitations had expired.
The court observed that once a mortgage debt is accelerated, the entire amount is due and the statute of limitations begins to run. That acceleration was accomplished by the filing of the complaint in the first foreclosure which recited that the full amount of the mortgage was declared due.
Because the plaintiff did not commence the second foreclosure until more than six years after the first foreclosure had been begun (and of course it had been discontinued) the defendants sustained their initial burden of demonstrating prima facie that the action was time barred. (Caveat: a new Court of Appeals decision rules that discontinuance of an action does take with it the acceleration as well, so this case would have been decided differently had it been more recent.)
In opposition, the plaintiff tried two approaches. One was to argue that the statute of limitations was revived (pursuant to General Obligations Law §17-101) because a time barred claim can be resurrected by a writing which validly acknowledges the debt. However, as the court noted, to constitute a valid acknowledgment, a writing must be signed, must recognize an existing debt and must contain nothing inconsistent with intention on the part of the debtor to pay it.
Further, to demonstrate the renewal of the statute of limitations by a partial payment, it must be shown that the payment was accompanied by circumstances amounting to an absolute and unqualified acknowledgment by the debtor of more being due, from which a promise may be inferred to pay the remainder. The court found that such did not apply here because the HAMP plan and the trial payments did not constitute an unconditional or unqualified acknowledgment – there were conditions yet to be met and agreed upon.
Alternatively, the plaintiff turned to the savings provisions of statute in New York – CPLR 205(a) – which extends the time to commence an action after the termination of an earlier related action. While the statute provides for a six month grace period when the previous action had been dismissed, that applies only if dismissal was in any manner other than a voluntary discontinuance, a failure to obtain personal jurisdiction over the defendant, a dismissal of the complaint for neglect to prosecute the action or a final judgment upon the merits. Hence, because the 2008 action was terminated by voluntary discontinuance, the six month grace period cannot apply. In the end then, the lender lost on all counts, emphasizing why the multitude of principles applicable to this painful subject are all meaningful.
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.