FIRST DEPARTMENT HOLDS THAT LISTING A MORTGAGE DEBT ON A BANKRUPTCY SCHEDULE IS NOT AN ACKNOWLEDGMENT SUFFICIENT TO RESTART AN OTHERWISE EXPIRED STATUTE OF LIMITATIONS UNDER GOL 17-101 OR 17-105(1)

• Posted on: Nov 13 2020

This BLOG has previously addressed issues related to Statutes of Limitations. See, among many others, [HERE], [HERE], [HERE], and  [HERE].  Earlier this year, this BLOG posted “Revive A Time-Barred Claim Using § 17-101 of New York’s General Obligations Law”, in which, in addition tothe renewal of expired Statutes of Limitation under GOL § 17–101, the purpose and history of Statutes of Limitation was addressed.  

Statutes of limitation govern the time in which a cause of action must be interposed after accrual.  “As a general principle, the statute of limitations begins to run when a cause of action accrues (see CPLR 203[a]), that is, when all of the facts necessary to the cause of action have occurred so that the party would be entitled to obtain relief in court.”  Hahn Automotive Warehouse, Inc. v. American Zurich Ins. Co., 18 N.Y.3d 765, 770 (some citations omitted).)  “Statutes of limitation, like the equitable doctrine of laches, in their conclusive effects are designed to promote justice by preventing surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared.”  Order of Railroad Telegraphers v. Railway Express Agency, Inc., 321 U.S. 342, 348-349 (1944).  

The policy concerns prompting the enactment of Statutes of Limitation are greatly attenuated if an otherwise “stale” claim is acknowledged by the responsible party.  As stated in prior Blog [HERE]:

If, however, a debtor, inter alia, acknowledges a debt under certain circumstances, a “stale” claim relating to such debt may be revived.  “There are two ways in which the statute of limitations may be tolled.  One involves part payment of the debt and the other a signed acknowledgment.  Erdheim v. Gelfman, 303 A.D.2d 714, 714 – 15 (2^nd Dep’t 2003).  As to the former, the Erdheim Court, quoting Lew Morris Demolition Co. v. Board of Educ., 40 N.Y.2d 516, 521 (1976), stated that tolling may occur if “payment of a portion of an admitted debt, made and accepted as such, accompanied by circumstances amounting to an absolute and unqualified acknowledgment by the debtor of more being due, from which a promise may be inferred to pay the remainder.”  Erdheim, 303 A.D.2d at 715.  As to the latter, the Erdheim Court, again quoting Lew Morris, stated that “[a]s to a written acknowledgment, pursuant to General Obligations Law § 17-101, the statute of limitations will be tolled by a signed written acknowledgment of an existing debt which contains nothing inconsistent with an intention on the part of the debtor to pay it.”  Erdheim, 303 A.D.2d at 715.  

Section 17-101 of New York’s General Obligations Law permits the renewal of a Statute of Limitations when “the party to be charged” acknowledges the contractual obligation in writing.  GOL § 17-101 “applies to contract debt generally” (see U.S. Bank National Association v. Caruna (1^st Dep’t November 12, 2020)), but, by its terms, does not apply to “action[s] for the recovery of real property” (see GOL § 17-101).  With respect to mortgage foreclosure actions, GOL § 17-105 applies.  GOL § 17-105(1), which requires a “promise to pay the mortgage debt” to renew a statute of limitations, provides:

A waiver of the expiration of the time limited for commencement of an action to foreclose a mortgage of real property or a mortgage of a lease of real property, or a waiver of the time that has expired, or a promise not to plead the expiration of the time limited, or not to plead the time that has expired, or a promise to pay the mortgage debt, if made after the accrual of a right of action to foreclose the mortgage and made, either with or without consideration, by the express terms of a writing signed by the party to be charged is effective, subject to any conditions expressed in the writing, to make the time limited for commencement of the action run from the date of the waiver or promise.  If the waiver or promise specifies a shorter period of limitation than that otherwise applicable, the time limited shall be the period specified.

In U.S. Bank, amortgage foreclosure action, the First Department affirmed the dismissal of the action due to time-bar.  An extremely abridged statement of the facts as gathered from the motion court’s decision and order (the “Motion Court Decision”) follow.  The defendants defaulted in the repayment of the mortgage note they executed.  A mortgage foreclosure action was commenced in 2009 and was dismissed in 2016 for failure to appear at a scheduled conference and to diligently prosecute the action.  A subsequent motion to restore was also denied.  Borrowers also filed a Chapter 7 Bankruptcy petition in May of 2011.  As to the bankruptcy, the motion court stated:

In Schedule D of his bankruptcy petition, [borrower] acknowledged the debt under the Note and Mortgage as a secured claim.  [Borrower] also executed a document entitled “Chapter 7 Debtor’s Individual Statement of Intention” (Statement of Intention) wherein he declared that he intended to “retain” and “keep current” the debt.  [Borrower] obtained a bankruptcy discharge on September 9, 2011. An order of the bankruptcy court dated September 27, 2011 closed his bankruptcy case.

Motion Court Decision at p. 3.  

Borrower defaulted in making required payments under the loan in January 2012 and, thereafter, borrower and lender communicated about settlements, short sales and short payoff’s of the loan (the “Letters”).  Lender commenced another mortgage foreclosure action in May of 2017, which borrower moved to dismiss on, inter alia, Statute of Limitation grounds. 

The motion court determined that the Statute of Limitations began to run when the 2009 foreclosure action was commenced and expired 6 years later (factoring in tolling occasioned by the bankruptcy filing), which time-period expired prior to the commencement of the second foreclosure action.  The lender argued, among other things, that the bankruptcy forms completed by the borrower renewed the Statute of Limitations.  According to the Motion Court Decision:

[Lender] contends that the “Statement of Intention” filed by [borrower] under section 521(1) of the Bankruptcy Code, in conjunction with his Chapter 7 bankruptcy petition, restarted the running of the statute of limitations.  In particular, [lender] contends that because, in the Statement of Intention, “[borrower] specifically referred to the Chase Home Mortgage and the Property, and expressly wrote that his intention with regard to the Loan was to ‘retain and keep current’ the Mortgage debt,” the Statement of Intention “was an acknowledgment of the Mortgage debt under GOL § 17-101,” and renewed the limitations period.

Motion Court Decision at p. 9 (citations and brackets omitted, remaining brackets added).  The motion court found lender’s arguments in this regard “unpersuasive” and stated:

In a Statement of Intention, a debtor must indicate whether he intends to “surrender” or “retain” property by checking off the appropriate box, and if he intends to retain property, he must then indicate whether he intends to “redeem the property,” “reaffirm the debt,” or “other” with an explanation. Here, [borrower] checked off the “retain” box, and then explained in the “other” box that he would “retain, keep current.” Significantly, he did not check off the box for “reaffirm the debt.” Had he done so, his creditor (i.e. the [lender]) and the bankruptcy court would have had to undertake the highly detailed procedures in section 524 of the Bankruptcy Code. This section sets forth specific methods to reaffirm the debt that would otherwise be dischargeable under section 727 of the Bankruptcy Code, by means of a court-approved reaffirmation agreement between the debtor and the creditor. [Borrower] did not enter into any reaffirmation agreement with the [lender]. Instead, the debt under the Note was eventually discharged by order of the bankruptcy court. To equate the simple act of indicating “retain, keep current” in the Statement of Intention with the elaborate provisions and procedures to “reaffirm the debt,” as [lender] urges, is without merit.

Motion court order at 10.  The motion court also found that the Letters “[did] not amount to [borrower’s] ‘absolute and unqualified acknowledgement’ to pay the Mortgage debt” as required by GOL § 17-101.  

In affirming the trial court, the First Department stated:

The motion court correctly dismissed the complaint as time-barred on the ground that the statement of intention filed by [borrower] in connection with his bankruptcy petition, in which he indicated, by checking a box, that the condominium would be retained and kept current, did not constitute the acknowledgment of the debt that is required to restart the expired statute of limitations under General Obligations Law (GOL) § 17-101, as plaintiff urged.  

Initially, we note that, while GOL § 17-101 applies to contractual debts generally, the provision applicable to mortgage foreclosures in particular, and therefore controlling in this case, is § 17-105(1). 

GOL § 17-101 requires an acknowledgment of the debt or a promise to pay it; GOL § 17-105(1) requires a promise to pay the debt. [borrower]’s bankruptcy petition did not satisfy either provision, because it merely listed the mortgage debt at issue, neither expressly acknowledging the debt nor promising to pay it.

U.S. Bank at pp. 2-3 (citations omitted).

The borrower in U.S. Bank filed a petition under Chapter 7 of the Bankruptcy Code.  The borrower in PSP-NC, LLC v. Raudkivi, 138 A.D.3d 709 (2^nd Dep’t 2016), filed a petition under Chapter 13.  In Raudkivi, the lender’s foreclosure action was not deemed to be time-barred because the debtor’s “bankruptcy plan, in which he acknowledged the mortgage debt and promised to repay it, renewed the limitations period.”  Raudkivi, 138 A.D.3d at 711 (citations omitted).

TAKEAWAY

The representations and acknowledgments made in the context of bankruptcy proceedings could have a meaningful impact on whether an expired statute of limitations will be renewed under Article 17 of the General Obligations Law.