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. Engel, Ditech Financial, LLC v. Naidu, Vargas v. Deutsche Bank National Trust Company, and Wells Fargo Bank, N.A. v. Ferrato. Specifically, the Court of Appeals held, inter alia, that:
- a default letter stating that the lender “will” accelerate the debt referred to a future event and therefore did not accelerate the debt;
- 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;
- 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
- 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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