New York Appellate Court Affirms that Default Letter Did Not Accelerate Mortgage Debt

By:      Alexander J. Franchilli

The New York Supreme Court, Appellate Division, Third Department, recently held that a 2007 default letter demanding payment of all past due amounts under a mortgage did not accelerate borrowers’ mortgage debt and therefore did not trigger the six-year statute of limitations to bring a foreclosure action. Goldman Sachs Mortg. Co. v. Mares, 23 N.Y.3d 444, 445 (3d Dep’t 2016). Consequently, the Third Department held that the plaintiff’s action, which was commenced in 2014, was not time-barred. Id.

In Mares, the foreclosing plaintiff moved for summary judgment striking defendants’ answer, and the defendants, two borrowers under the mortgage, cross-moved for summary judgment alleging that the action was time-barred. Id. When the lower court denied borrower’s cross-motion, the borrowers appealed. Id.

On appeal, the borrowers argued that plaintiff’s action was untimely because the debt was accelerated by a demand letter, triggering the six-year statute of limitations to foreclose. Id., see also CPLR 213(4). The Third Department rejected borrowers’ argument, explaining that “[w]here, as here it is alleged that the debt was accelerated by demand, that fact must be communicated to the mortgagor in a clear and unequivocal manner.” Id. Notably, the Third Department held that the following language “falls far short of providing clear and unequivocal notice” to borrowers that the entire mortgage debt was being accelerated:

Failure to pay the total amount past due, plus all other installments and other amounts becoming due hereafter . . . on or before the [30th] day after the date of this letter may result in acceleration of the sums secured by the mortgage.

Id. (emphasis added in original). Instead, the Third Department found that the demand letter was “nothing more than a letter discussing a possible future event.” Id. (citing Pidwell v. Duvall, 28 A.D3d 829, 831, 815 N.Y.S.2d 754 (3d Dep’t 2006)).

This decision highlights the importance of the language of default letters, while clarifying the legal standard for assessing the statute of limitations in mortgage foreclosure actions. Mare is also significant because it defeats the borrowers’ bars’ recent attempts to argue that the statute of limitations has expired based on default letters sent to borrowers.

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