New York’s Highest Court Makes Key Rulings in Favor of Lenders Clarifying What Accelerates and De-Accelerates a Mortgage Debt for Statute of Limitations Purposes

Wayne Streibich, Diana M. Eng, and Chenxi Jiao

On February 18, 2021, the New York Court of Appeals issued a decision reversing the Appellate Division, First Department (“First Department”) and Appellate Division, Second Department’s (“Second Department”) decisions in Freedom Mortgage Corp. v. EngelDitech Financial, LLC v. NaiduVargas v. Deutsche Bank National Trust Company, and Wells Fargo Bank, N.A. v. Ferrato. Specifically, the Court of Appeals held, inter alia, that:

  1. a default letter stating that the lender “will” accelerate the debt referred to a future event and therefore did not accelerate the debt;
  2. the voluntary discontinuance of a foreclosure action (whether by motion or stipulation) within six years of acceleration, alone, revokes acceleration as a matter of law, unless the noteholder expressly states otherwise;
  3. the reason for a noteholder’s revocation is irrelevant, thereby expressly rejecting the concept that a noteholder’s revocation of acceleration cannot be “pretextual” to merely avoid the expiration of the statute of limitations; and
  4. a verified foreclosure complaint that accelerates the mortgage debt must clearly and accurately refer to the loan documents and debt at issue.

The Court of Appeals’ decision resolves a split between the First and Second Departments regarding whether a default letter clearly and unequivocally affirmatively accelerates a mortgage debt and provides much needed clarity on what conduct sufficiently accelerates a mortgage debt and revokes acceleration.

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NY’s Third Department Holds Action Enforcing Note Is Neither Barred by Estoppel Doctrines Nor the Applicable Statute of Limitations

Andrea M. Roberts and Diana M. Eng

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.

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U.S. Supreme Court Rules Statute of Limitations for FDCPA Claim Runs One Year from Alleged Violation, Not Discovery

Wayne Streibich, Diana M. Eng, Jonathan M. Robbin, Scott E. Wortman, and William L. Purtell

The Supreme Court of the United States (“Supreme Court”) recently affirmed the Third Circuit’s decision holding Fair Debt Collection Practices Act (“FDCPA”) claims are subject to a one-year statute of limitations from the date of an alleged violation and rejecting the Fourth and Ninth Circuit’s adoption of a broad “discovery rule.” However, debt collectors should take note that equitable tolling principles may still apply in certain circumstances. 

On December 10, 2019, in Rotkiske v. Klemm, — S. Ct. — (2019), the Supreme Court issued an opinion holding that the one-year statute of limitations under the FDCPA accrues when a violation of the FDCPA occurs, not when that violation is discovered by the consumer. The Justices ruled 8-1 in the case, with Justice Thomas writing the opinion and Justice Sotomayor concurring. Justice Ginsburg filed a dissent, which would have remanded the case back to the district court to re-review the consumer’s separate allegations of equitable tolling of the statute of limitations.

Summary of Facts

In 2009, respondent Klemm & Associates (“Klemm”) sued petitioner Kevin Rotkiske (“Rotkiske”) in state court to enforce a credit card debt, which was allegedly beyond Pennsylvania’s statute of limitations for enforcement (“2009 Action”). Klemm issued service of process to an address where Rotkiske did not live, which Klemm allegedly had reason to know was inaccurate. An unknown individual accepted service on behalf of Rotkiske. Ultimately, Klemm obtained a default judgment against Rotkiske based on this return of service. Rotkiske was unaware of the default judgment against him until 2014, when his mortgage loan application was denied based on this default judgment.

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NY Appellate Court Holds Default Letter Stating Lender “Will Proceed to Automatically Accelerate” Did Not Accelerate the Debt and Thus Did Not Trigger the Statute of Limitations

Diana M. Eng and Alina Levi

In U.S. Bank N.A. v. Gordon, 176 A.D.3d 1006 (2d Dept. 2019), the New York Appellate Division, Second Department, held that a notice of default stating that if the loan was not made current, the lender “will automatically accelerate [the] loan,” was “merely an expression of future intent” and therefore did not accelerate the borrowers’ debt. As such, the Second Department held that the notice of default did not trigger the statute of limitations.

Summary of Facts and Background

On or about November 3, 2005, Steve and Ashia Gordon (“Defendants”) executed a note (“Note”), which was secured by a mortgage (“Mortgage”) against a property in Queens, New York. On or about July 1, 2011, Defendants defaulted on the loan. As a result, America’s Servicing Co. (“ASC”) sent a letter to Defendants, dated September 21, 2008 (“Notice of Default”), advising them that the loan was in default, and that, “[u]nless the payments on your loan can be brought current by October 21, 2008, it will become necessary to accelerate your Mortgage Note and pursue the remedies provided for in your Mortgage or Deed of Trust.” Moreover, the Notice of Default warned that “failure to pay this delinquency, plus additional payments and fees that may become due, will result in the acceleration of your Mortgage Note. Once acceleration has occurred, a foreclosure action . . . may be initiated.” In addition, the Notice of Default stated that “[t]o avoid the possibility of acceleration,” Defendants were required to make certain payments by a specific time, or ASC “will proceed to automatically accelerate your loan.” (Emphasis added).

On June 29, 2017, plaintiff U.S. Bank N.A. (“U.S. Bank”) commenced a foreclosure action to enforce the Defendants’ Mortgage in the Queens County Supreme (the “Lower Court”). Defendants moved to dismiss the action pursuant to CPLR 3211(a)(5) alleging that the statute of limitations to foreclose had expired. Specifically, Defendants argued that the entire debt was accelerated on September 21, 2008, based on the Notice of Default. Continue reading

New York Appellate Court Rejects Usage of a Mortgage’s Reinstatement Provision as a Defense to the Expiration of the Statute of Limitations

By: Wayne Streibich, Diana M. Eng, Jonathan M. Robbin, and Diana M. Eng

On March 13, 2019, in a case of first impression, New York’s Appellate Division, Second Department (“Second Department”) issued a decision holding the reinstatement provision of a mortgage does not prevent the acceleration of the loan prior to entry of a foreclosure judgment. In Bank of New York Mellon v. Dieudonne, 2019 WL 1141973 (2d Dept. Mar. 13, 2019), the Second Department affirmed the Kings County Supreme Court’s decision granting defendant Dieudonne’s (“Defendant”) motion to dismiss the complaint pursuant to CPLR 3211(a)(5) because the foreclosure action was barred by the expiration of the statute of limitations. Specifically, the Second Department held that “the extinguishment of the defendant’s contractual right to de-accelerate the maturity of the debt pursuant to the reinstatement provision of paragraph 19 of the mortgage was not a condition precedent to the plaintiff’s acceleration of the mortgage” and, therefore, acceleration occurred upon commencement of the prior foreclosure action.

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