In CitiMortgage, Inc. v. Ramirez, 2020 WL 7647749, at *3 (3d Dept. Dec. 24, 2020), the Appellate Division, Third Department, held that CitiMortgage, Inc.’s action to recover under a note (i) was not precluded because of CitiMortgage, Inc.’s right to an election of remedies; and (ii) was timely because the statute of limitations was tolled during the pendency of the prior foreclosure action.
Summary of Facts & Background
In May 2010, plaintiff, CitiMortgage, Inc. (“Plaintiff”), commenced an action to foreclose against borrower, Jose Ramirez (“Borrower”) (the “First Foreclosure Action”). The foreclosure action was dismissed in October 2013 for failure to prosecute. Plaintiff moved to vacate the dismissal, which was denied in April 2015. In 2017, plaintiff commenced a second foreclosure action (the “Second Foreclosure Action”), which was ultimately dismissed on the grounds that the statute of limitations to foreclose had expired in May 2016. The Court also discharged the mortgage.
In May 2019, Plaintiff commenced another action against Borrower seeking a money judgment in the amount of the unpaid balance of the note. Borrower moved to dismiss on the grounds that the (i) action was time-barred and (ii) barred by res judicata. The Schenectady County Supreme Court (“Lower Court”) granted Borrower’s motion holding that Plaintiff was collaterally estopped from relitigating the issue of whether the statute of limitations period was tolled. Plaintiff appealed.
The Third Department’s Decision
The Third Department reversed the Lower Court’s decision and held that collateral estoppel and res judicata did not bar the action to recover on the note. In reaching its decision, the Third Department held that collateral estoppel does not apply to bar the relitigation of a pure question of law, such as whether the statute of limitations was tolled during the pendency of the First Foreclosure Action.
Further, the Third Department held that Plaintiff’s current action was not barred by res judicata because of Plaintiff’s right to an election of remedies. The Third Department explained that because the holder of a note and mortgage may elect only one remedy by which to proceed—either by recovering on the note or by commencing an action to foreclose—“Plaintiff could not have raised a cause of action to recover on the note in the context of the [S]econd [F]oreclosure [Action].” Thus, the outcome of the Second Foreclosure Action, which discharged Plaintiff’s mortgage, did not bar Plaintiff’s current action to recover on the note.
Finally, the Third Department held that the statute of limitations to commence an action to collect under the note was tolled during the pendency of the First Foreclosure Action, citing CPLR 204(a) and RPAPL § 1301. Specifically, RPAPL § 1301(3) prohibits another action from being commenced or maintained, without leave of court, while an action to enforce a mortgage debt is pending. Thus, similar to the tolling of the statute of limitations due to the automatic bankruptcy stay, the statute of limitations is tolled under CPLR 204(a) due to the statutory prohibition under RPAPL § 1301. Accordingly, Plaintiff’s commencement of the current action in May 2019 was timely.
This decision is significant because New York courts have been limiting servicers’, lenders’, and other financial institutions’ ability to revive time-barred debts by rejecting various revocation of acceleration and acknowledgment of debt arguments. Ramirez provides a potential alternative means to collect on the debt under certain circumstances even after a court has discharged the mortgage as time-barred. As such, Ramirez is a significant win for servicers, lenders, and other financial institutions, at least in the Third Department. Whether the other New York Appellate Divisions follow suit is another question.
 For instance, one could not pursue this alternative remedy if a borrower obtained a bankruptcy discharge of the debt.