Deacceleration Letters Under The Foreclosure Abuse Prevention Act

• Posted on: Feb 12 2024

By Jonathan H. Freiberger

This BLOG has written numerous times on statutes of limitation issues in mortgage foreclosure actions.  See, e.g., [here], [here], [here], [here], [here], [here], [here] and [here].

Briefly stated, and as has been stated previously in this BLOG, an action to foreclose a mortgage is governed by a six-year statute of limitations.  CPLR 213(4).  See also, Fed. Nat. Mort. Assoc. v. Schmitt, 172 A.D.3d 1324, 1325 (2^nd Dep’t 2019).  When a mortgage is payable in installments, “separate causes of action accrue for each installment that is not paid and the statute of limitations begins to run on the date each installment becomes due.”  HSBC Bank USA, N.A. v. Gold, 171 A.D.3d 1029, 1030 (2^nd Dep’t 2019).  Most mortgages, however, provide that a mortgagee may accelerate the entire debt in the event of, inter alia, a payment or other default by a mortgagor. Thus, “the terms of the mortgage may contain an acceleration clause that gives the lender the option to demand due the entire balance of principal and interest upon the occurrence of certain events delineated in the mortgage.”  Bank of New York Mellon v. Dieudonne, 171 A.D.3d 34, 37 (2^nd Dep’t 2019) (citations and internal quotation marks omitted).  Once the mortgagee’s election to accelerate is properly made, “the borrower’s right and obligation to make monthly installments ceased and all sums became immediately due and payable.”  The statute of limitations begins to run anew on the entire debt upon acceleration.  HSBC, 171 A.D.3d at 1030 (citations omitted).

Because some lenders were employing a tactic of acceleration/deacceleration/reacceleration to extend the six-year statute of limitations to circumvent mistakes made in pending foreclosure actions, among other reasons, the Foreclosure Abuse Prevention Act (“FAPA”) was passed by the New York Legislature and signed into law by the Governor.  [Eds. Note: This BLOG addressed FAPA [here].]  FAPA, which went into effect on December 30, 2022, became the law in New York, amends certain provisions of the CPLR and other statutes to the extent they relate to mortgage foreclosure actions.  

For example, FAPA amended CPLR 213(4), which governs the six-year statute of limitations for actions on promissory notes, to include subparagraph (a), which provides that “[i]n any action on an instrument described under this subdivision, if the statute of limitations is raised as a defense, and if that defense is based on a claim that the instrument at issue was accelerated prior to, or by way of commencement of a prior action, a plaintiff shall be estopped from asserting that the instrument was not validly accelerated, unless the prior action was dismissed based on an expressed judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated.”  In Deutsche Bank Nat. Trust Co. v. Wong, 218 A.D.3d 742, 744 (2^nd Dep’t 2023), based on CPLR 213(4)(a), the lender was estopped from asserting a defense that, because the plaintiff in the earlier action lacked standing to commence same, the underlying debt was not validly accelerated by an earlier commenced action.

Similarly, FAPA amended CPLR 203 by adding subdivision (h), which provides that “[o]nce a cause of action upon an instrument described in subdivision four of section two hundred thirteen of this article has accrued, no party may, in form or effect, unilaterally waive, postpone, cancel, toll, revive, or reset the accrual thereof, or otherwise purport to effect a unilateral extension of the limitations period prescribed by law to commence an action and to interpose the claim, unless expressly prescribed by statute.”  

Issues related to FAPA, CPLR 203(h) in particular, were decided on February 8, 2024, by the First Department in HSBC Bank USA v. Gifford.  Lender in Gifford commenced a mortgage foreclosure action in 2019 after a prior action, commenced in 2013, was dismissed based on lender’s failure to comply with the notice requirements of RPAPL 1304.  The new action was commenced six years and four months after the commencement of the prior action, which operated to accelerate the obligations evidenced by the promissory note.  Borrower moved pursuant to, inter alia, CPLR 3211(a)(5) (statute of limitations) and CPLR 213(4).  Lender opposed borrower’s motion by arguing it deaccelerated the loan by letter in June of 2018 and, therefore, its action was timely.  The motion court, finding, inter alia, that the loan was validly deaccelerated, denied borrower’s motion.  Borrower appealed.

The First Department noted that following the determination of the motion to dismiss, the New York Legislature enacted FAPA, which included CPLR 203(h). The parties addressed the FAPA issues on the appeal.  The Court found that lender adequately demonstrated that the deacceleration letter was actually mailed.  In addressing the purported deacceleration and its relation to CPLR 203(h), the Court stated:

However, the added subdivision (h) to CPLR 203, provides that once a cause of action to foreclose a mortgage or for a money judgment under the note accrues, “no party may . . . unilaterally waive, postpone, cancel, toll, revive, or reset the accrual thereof, or otherwise purport to effect a unilateral extension of the limitations period prescribed by law to commence an action and to interpose the claim, unless expressly prescribed by statute.” Thus, if CPLR 203(h) applies to this previously commenced action, the 2018 letter purporting to restart the running of the statute of limitations on a loan is ineffective, regardless of whether or not the letter was pretextual.

The Court, however, remanded the matter for additional proceedings on constitutional issues raised by lender.  Thus, the Court stated:

Plaintiff challenges the constitutionality of CPLR 203(h) contending that retroactive application of FAPA would violate the Due Process and Takings Clauses of the United States Constitution, as well as the New York State Constitution. Because of the vitality of the constitutional issues, plaintiff is directed to serve notice on the Attorney General under CPLR 1012(b)(1) and file proof of service, and the matter is remanded for further proceedings on the constitutional question.

Footnotes

1. CPLR 213(4)(b), which contains similar language to RPAPL 1501(4), was also added and estops lenders that are defendants in actions brought under RPAPL 1501(4) to cancel or discharge a mortgage from asserting the invalidity of a prior acceleration.  [Eds. Note: This BLOG addressed RPAPL 1501(4) [here], [here], [here] and [here].
2. [Eds. Note: This BLOG has extensively addressed issues related to RPAPL 1304.  See, e.g., [here], [here], [here], [here], [here], [here], [here], [here], [here], [here], [here], [here], [here], [here], [here] and [here].
3. The court in U.S. Bank Trust v. Miele, 80 Misc. 3d 839 (Sup. Ct. Westchester Co. 2023), provided a thoughtful analysis of constitutional issues regarding the retroactivity of FAPA.

Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.