Editor's Note: This feature originally appeared in the January issue  of DS News.
It’s hard to believe that in 2019, the statute of limitation (SOL) to enforce a mortgage is still an unsettled and dangerous issue in New York. While evolutions in case law have largely settled concerns in other states such as Florida, numerous SOL court decisions in New York have left servicers and their attorneys with more questions than answers. The ever-changing law is exacerbated by the fact that New York has four Appellate Divisions, each with jurisdiction over different counties. This causes splits in the law, and the same facts can lead to opposite legal results in properties that are located just miles apart within the same state.
What we know for sure (we think) is that the limitation period is six years from acceleration. Once the mortgage debt is accelerated, “‘the borrowers’ right and obligation to make monthly installments cease[s] and all sums [become] immediately due and payable,’ and the six-year Statute of Limitations begins to run on the entire mortgage debt” [EMC Mortgage Corp. v. Patella, 279 A.D.2d 604, 605 (2d Dept. 2001)]. However, case law continues to develop across the state, including how and when acceleration occurs and whether and how a loan can be deaccelerated.
As to when the six-year period starts running, it is “well settled that with respect to a mortgage payable in installments, there are ‘separate causes of action for each installment accrued, and the Statute of Limitations [begins] to run, on the date each installment [becomes] due’ unless the mortgage debt is accelerated” [Loiacono v. Goldberg, 240 A.D.2d 476, 477 (2d Dept. 1997)]. Restated simply, the statute of limitations does not begin to run on the entire mortgage debt unless and until there has been an acceleration of the mortgage debt. [See, e.g., Nationstar Mortgage, LLC v. Weisblum, 143 A.D.3d 866 (2d Dept. 2016).]
In the First Department (Bronx and Manhattan), a default notice that says the servicer “will accelerate” absent cure serves to automatically accelerate the debt upon expiration of the letter [Deutsche Bank Natl. Trust Co. v. Royal Blue Realty Holdings, Inc., 148 A.D.3d 529 (1st Dept. 2017)]. This results in the six-year clock starting to run earlier than most anticipated, an issue compounded by most servicers not tracking or reporting the dates such letters are sent. However, the Second Department (which includes Brooklyn, Queens, Staten Island, Long Island, and more) recently held that “will accelerate” language in a default notice is not “clear and unequivocal” notice of acceleration, “as future intentions may always be changed in the interim” [Milone v. US Bank Natl. Assn., 164 A.D.3d. 145 (2d. Dept. 2018)]. Accordingly, the effect of “will accelerate” language depends on which county the property is in.
In most instances, it is the filing of a foreclosure complaint that serves as the act of acceleration. However, the Second Department has carved out a specific circumstance where the initiation of foreclosure does not serve to accelerate the debt—where the foreclosing plaintiff lacks standing to commence the action. In 21st Mortg. Corp. v. Adames, 153 A.D.3d 474, 475 (2d. Dept. 2017), the court held that the commencement of foreclosure “was ineffective to constitute a valid exercise of the option to accelerate the debt since the plaintiff in that action did not have the authority to accelerate the debt or to sue to foreclose at that time.” Another carve-out recognized by a trial court in Suffolk County is where the complaint is unverified. In HSBC Bank USA, NA v. Margineanu, 2018 N.Y. Misc. LEXIS 4483 (Sup. Ct. Suffolk County, October 9, 2018), Justice Thomas F. Whelan held that only a verified complaint—but not an unverified complaint—can serve to accelerate a mortgage debt.
In Nationstar Mortgage LLC v. MacPherson, 2017 WL 1369877 (Sup. Ct. Suffolk Cty. April 3, 2017), another decision by Justice Whelan, the court found that language in the mortgage that allows the borrower to reinstate any time until a final judgment of foreclosure is entered means that the “the lender bargained away its right to demand payment in full simply upon a default in an installment payment or the commencement of an action.” The court concluded that, because the lender “has no right to reject the borrower’s payment of arrears in order to reinstate the mortgage until a judgment is entered,” and the lender “does not have a legal right to require payment in full with the simple filing of a foreclosure action,” acceleration could not occur until the judgment was entered. Where this language is present in the mortgage, only a foreclosure judgment—and no other act—can “trigger the acceleration in full of the mortgage debt.” While few trial courts have followed MacPherson, there are many that have rejected its logic and declined to follow.
With respect to de-acceleration, the Second Department has consistently held, “[a] lender may revoke its election to accelerate the mortgage ... [through] an affirmative act of revocation occurring during the six-year statute of limitations period subsequent to the initiation of the prior foreclosure action” [see, e.g., NMNT Realty Corp. v. Knoxville 2012 Trust, 151 A.D.3d 1068, 1069-1070 (2d Dept. 2017)]. Courts have generally agreed that sending a de-acceleration notice serves to de-accelerate the maturity of the loan, though the specific language needed to accomplish that purpose remains unsettled [see, e.g., Milone v. US Bank Natl. Assn., 164 A.D.3d. 145 (2d. Dept. 2018)]. In a recent case about whether dismissal of a prior foreclosure itself serves to de-accelerate (without a separate de-acceleration notice), the Second Department held that the execution of a stipulation does not constitute an affirmative act to revoke the election to accelerate where the stipulation itself is silent as to revocation of acceleration [Freedom Mortg. Corp. v. Engel, 163 A.D.3d 631 (2d Dept. 2018)]. The decision implies, however, that a stipulation to discontinue that specifically states that the debt is de-accelerated, could serve as a valid de-acceleration without a separate notice.
In sum, SOL law in New York is everchanging and remains an area of confusion and risk that can lead to total lien loss if navigated incorrectly. Servicers should continue to beware of this risk and work closely with their New York counsel at the loan level to understand the circumstances and exposure with any given matter.