In a case of appellate first impression in New York, the Appellate Division, Second Department held that a mortgage is accelerated upon a lender’s election to do so, notwithstanding an optional reinstatement clause in a mortgage. In the Dieudonne matter, the Second Department rejected the “MacPherson Argument,” first pronounced by the Supreme Court, Suffolk County and affirmed the dismissal of the lender’s foreclosure complaint as time-barred. The MacPherson Argument reasons that a mortgage with an optional reinstatement clause is not accelerated until judgment enters, as the borrower has an continuous right to reinstate until that point.
The Dieudonne decision will have significant impact on whether certain residential foreclosure actions are deemed timely commenced. In New York, the statute of limitations to foreclose a mortgage is six years. See CPLR 213(4). The commencement of a foreclosure action is the most common way that lenders take an affirmative act to accelerate the loan and begin the statute of limitations clock.
The MacPherson Argument, however, reasoned that lenders cannot truly accelerate a mortgage upon commencement of a foreclosure action because, per the mortgage contract itself, a borrower may still reinstate the loan during the foreclosure process. Under this theory, a mortgage was not accelerated, and the statute of limitations did not begin to run, until the borrower’s right to reinstate was extinguished upon entry of judgment of foreclosure.
The Second Department, in rejecting the MacPherson Argument, noted that the mortgage contract did not explicitly require that a borrower’s right to reinstate be extinguished for a lender to be able to accelerate a mortgage. Rather, to the contrary, the mortgage contract enumerated several conditions precedent to acceleration, none of which were extinguishment of the right to reinstate.
The Second Department thus concluded “that decisional law interpreting the same contractual language [in accordance with the MacPherson Argument] … should not be followed.”