For several years now, New York courts have grappled with the issue of what constitutes revocation of the acceleration of mortgage debt. Because the Appellate Division of New York has four Departments that preside over different counties within the state, the same set of facts has resulted in different outcomes. That may change, however, when the New York Court of Appeals reviews the Second Department’s decision in Freedom Mtge. Corp. v. Engel, 63 A.D.3d 631 (2d Dept. 2018).
One aspect of New York statute of limitations case law is clear: lenders may revoke their election to accelerate a mortgage debt by an affirmative act occurring during the six-year statute of limitations period. See, e.g., NMNT Realty Corp. v. Knoxville 2012 Trust, 151 A.D.3d 1068, 1069-1070 (2d Dept. 2017); Lavin v. Elmakiss, 302 A.D.3d 637 (3d Dept. 2003)).
What exactly constitutes revocation has remained an area of confusion and risk for lenders and servicers. In Knoxville 2012 Trust, the Second Department held that a voluntary discontinuance created a question of fact as to whether the lender decelerated the mortgage debt.
In Engel, though, the Second Department walked back its decision in Knoxville 2012 Trust when it found that a lender’s stipulation of discontinuance signed by both parties did not revoke the lender’s election to accelerate the entire mortgage debt because the order was silent on the issue of revocation. The defendant appealed from an order of the Supreme Court, Orange County (Judge Sandra B. Sciortino), denying his motion for summary judgment and granting the plaintiff’s cross-motion dismissing the defendant’s answer with prejudice.
The defendant argued that the lender’s foreclosure action filed in July 2008 accelerated the debt and that the refiled foreclosure in February 2015 was time-barred under New York’s six-year statute of limitations to enforce mortgage debts. See CPLR 213(4). The lender claimed that it rescinded its election to accelerate the debt when it entered into a stipulation of discontinuance in January 2013 with the defendant in the 2008 foreclosure action, before the expiration of the statute of limitations. The trial court agreed and granted summary judgment to the lender.
On appeal, the Second Department held that, because the stipulation did not address revocation and did not otherwise indicate that the lender would accept payments from the borrower, the lender did not properly revoke its election to accelerate the mortgage debt. The lender sought leave to appeal to the New York Court of Appeals, which was granted, and a decision is expected in the spring of 2020.
Other states have settled this point of contention. In Bartram v. U.S. Bank National Association, SC14-1265 (Fla. Nov. 3, 2016), the Florida Supreme Court held that a subsequent foreclosure case is not barred as long as the newly alleged default date post-dates the dismissal of the first action and the subsequent lawsuit is filed within five years of the recently claimed default date.
As the Florida Supreme Court did in its decision in Bartram, the New York Court of Appealsmay finally provide clarity to lenders and loan servicers not only on what establishes revocation under New York law, but also on the statute of limitations issues that have been so prevalent in New York over the past decade.