The State of New York Court of Appeals on Thursday released a decision impacting several cases related to the statute of limitations (SOL) timelines for foreclosures within the Empire State. The Court of Appeals weighed in on the case of Freedom Mortgage Corp. v. Engel, which centered around whether lenders who opt to accelerate through foreclosure may then voluntarily discontinue that action later on, and if so, how that impacts the SOL timeline.
You can read the court's opinion in full by clicking here.
DS News spoke with Rich Haber, Managing Partner, New York and New Jersey, McCalla Raymer Leibert Pierce, to get his thoughts on why this case is important and what it means for the industry going forward.
Could you give us a high-level view of why this case is important?
Statute of limitations has been a challenge for servicers trying to foreclose in New York for a long time. The statute of limitations period starts when the loan is accelerated, and that typically happens when the foreclosure complaint is filed. What this ruling now says is that if you voluntarily dismiss your case, that deaccelerates the loan and revokes the acceleration.
The reason that’s important is because servicers have many cases out there that are second or third filings, with earlier complaints having been filed several years ago. The defense bar has continually argued that the statute of limitations period started when the first complaint was filed and continued to run uninterrupted, meaning if the current case was filed more than six years after the first case, its time-barred and the servicer can’t foreclose.
What this says is, no, you get a reprieve—you can start over. If you voluntarily dismiss the case, it stops the acceleration and revokes it, and you can then bring another foreclosure suit later. So, what this now puts back in play is a whole population of loans where servicers were facing a potential statute of limitations bar and total lien loss. They now have a path to foreclosure based on this ruling.
This will likely create a new round of litigation in the lower courts because borrowers’ counsel are going to seek to limit this ruling any way they can, by claiming different facts or seeking to carve out exceptions. And you’re going to have lenders and servicers that have cases that have maybe been recently dismissed or that are on appeal where they can now run back into court and file a new motion or supplement their briefing.
What should the next steps be for servicers and attorneys who may have cases impacted by this decision?
It’s twofold. It’s examining the cases you currently have pending that may be impacted by this ruling. And really, the impact can only be positive from a servicer perspective.
A second action item for servicers is to look at your population that doesn’t have a foreclosure case pending, looking for loans that you may have either written off or did not feel like you had a good-faith basis to file a complaint, because it was arguably barred by the statute of limitations. There’s probably a whole bucket of loans that aren’t pending that you can now potentially move forward on.
Editor’s note: McCalla Raymer Leibert Pierce’s Brian Scibetta and Victoria Arute previously wrote about this topic in our January 2021 issue of DS News. You can read that original piece by clicking here.