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Mortgage Foreclosure Complaint Dismissed, and Mortgage Discharged, As Time-Barred

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  • Posted on: Jun 11 2021

This BLOG has written extensively on issues related to residential mortgage foreclosure including, but not limited to: the notice requirements of RPAPL 1304 [HERE], [HERE], [HERE], [HERE], [HERE], [HERE] and [HERE]; the acceleration and deacceleration of mortgage debt [HERE] and [HERE]; and, Article 15 of the RPAPL [HERE] and [HERE].  All of these issues are relevant to the Second Department’s decision in Everhome Mortgage Company v. Aber, decided on June 9, 2021.

The facts in Everhome are straightforward (and some were obtained by reviewing the underlying electronically filed court records).  Defendant Aber borrowed funds from plaintiff’s assignor and secured the repayment obligation with a mortgage on residential property.  Aber defaulted in May 2008 by failing to make the mortgage payment due on May 1, 2008, and each month thereafter.  Plaintiff’s assignor assigned the underlying note and mortgage to plaintiff on April 13, 2009, and a foreclosure action was commenced by plaintiff on April 30, 2009 (“Action No. 1”).  Eight months later, “the subject property was transferred to [defendant] Equity [Recovery Corporation].”  In October of 2013, Action No. 1 was dismissed, without prejudice, after plaintiff failed to appear at a court conference.  

A second foreclosure action against Aber and Equity was commenced on June 24, 2015 (“Action No. 2”).  In their answer to the complaint in Action No. 2, Aber and Equity, inter alia, asserted a statute of limitations defense and asserted a counterclaim seeking to discharge the mortgage pursuant to Article 15 of the RPAPL.  Supreme court granted Equity’s motion to dismiss the complaint pursuant to CPLR 3211(5) (statute of limitations) and for summary judgment on the counterclaim to discharge the mortgage and denied plaintiff’s motion for summary judgment on its complaint and to strike defendants’ answer.

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 (2nd 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 (2nd Dep’t 2019).  Most mortgages, however, provide that a mortgagee may accelerate the entire debt in the event of, inter alia, a payment 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 (2nd 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).  In situations where a mortgage appears as a lien of record on real property, but the statute of limitations has expired for the mortgagee to commence an action to foreclose the mortgage, RPAPL 1501(4) permits the mortgagor (or any other “person having an estate or interest in the real property”) to commence an action to have the encumbrance removed of record.  

Since the mortgage debt was accelerated on April 30, 2009, when Action No 1 was commenced, and Action No 2 was commenced on June 24, 2015, more than 6 years later, the Second Department agreed that Equity established its “initial burden” that Action No. 2 was time-barred.  Accordingly, the “burden then shifted to the plaintiff to present admissible evidence to raise a question of fact as to whether the statute of limitations was tolled or otherwise inapplicable, or whether the plaintiff actually commenced this action within the applicable limitations period.”  Everhome, at 3 (citations omitted).  In an effort to meet its burden, Everhome argued, inter alia, that: RPAPL 1304 constitutes a “statutory prohibition” within the meaning of CPLR 204, and therefore, the statute of limitations was tolled by its service of 90-day notices under RPAPL 1304; and, “its commencement of the first action did not accelerate the mortgage debt because questions of fact may exist as to whether it properly accelerated the mortgage debt in accordance with paragraph 22(b) of the mortgage, and therefore, any determination on the issue of whether this action is time-barred is premature.”  Everhome, at 3.  The Court rejected plaintiff’s arguments.

CPLR 204

Simply stated, RPAPL 1304 requires that, inter alia: at least ninety days prior to commencing legal action against a borrower with respect to a “home loan” (as defined in the relevant statutes), a lender must: send written notice to the borrower by certified and regular mail that the loan is in default; and, advise that legal action may be commenced after ninety days if no action is taken to resolve the matter.  “Strict compliance with RPAPL 1304 notice to the borrower … is a condition precedent to the commencement of a foreclosure action.”  Everhome, at 3 (citations and internal quotation marks omitted, emphasis in original).  In an effort to tack an extra ninety days to the time it had to commence Action No. 2, Everhome unsuccessfully argued that the 90 day notice requirement of RPAPL 1304 is a “statutory prohibition” under CPLR 204(a), which provides that that “[w]here the commencement of an action has been stayed by a court or by statutory prohibition, the duration of the stay is not a part of the time within which the action must be commenced.”  If plaintiff’s argument was successful, it would have had until July of 2015 to commence Action No. 2.  The Court disagreed, recognizing that a “statutory prohibition and a condition precedent are separate concepts.”  Everhome, at 3 (citations and internal quotation marks omitted).  The Court reasoned that “[t]he salient feature of a ‘statutory prohibition’ is the plaintiff’s lack of control” and because a “plaintiff has complete control over the acts necessary to effectuate compliance with a condition precedent, a condition precedent is not a statutory prohibition.”  Everhome, at 3 (citations and internal quotation marks omitted).  Because plaintiff had control over if and when it sent required notices under RPAPL 1304, “and could have done so at least 90 days prior to the expiration of the statute of limitations, RPAPL 1304 is not a statutory prohibition within the meaning of CPLR 204(a)” and the service of the 90-day notices “did not toll the statute of limitations”.  Everhome, at 3 (citations and internal quotation marks omitted).  

Paragraph 22(b) of the Mortgage

Among other things, paragraph 22 of the mortgage required lender to send borrower a notice of default and provide an opportunity to cure before the debt could be accelerated.  Plaintiff argued that questions of fact existed as to whether it complied with paragraph 22(b) of the mortgage, “which is a contractual condition precedent to a valid acceleration.”  Everhome, at 3.  Equity urged that, because Action No. 1 was dismissed due to plaintiff’s failure to appear at a conference, “plaintiff’s election to accelerate the mortgage debt in its complaint [in Action No. 1] was never invalidated by the Supreme Court … and, therefore, the mortgage debt remained in an accelerated posture for more than six years, rendering [Action No. 2] time-barred.”  Everhome, at 4.  In rejecting plaintiff’s argument, the Court held that “[t]he requirement in paragraph 22(b) of the mortgage that the lender first send the borrower written notice of default, with at least 30 days’ notice of acceleration, is a contractual condition precedent (see CPLR 3015[a]) inserted in the contract solely for the benefit of the borrower, as it gives the borrower additional time to make installment payments before the lender may accelerate the mortgage debt” and, accordingly, “compliance with paragraph 22(b) is enforceable and waivable by the borrower.”  Everhome, at 4 (some citations omitted).  Thus, the Court refused to “condone[]” “plaintiff’s belated attempt to take advantage of its own potential breach of paragraph 22(b) to the prejudice of Equity, whose rights under RPAPL 1501(4) to discharge and cancellation of the mortgage have vested”.

The Court also recognized that notwithstanding Equity’s assertion of a defense based on noncompliance with paragraph 22(b), supreme court “ultimately did not invalidate the plaintiff’s election to accelerate the mortgage on that basis since it directed dismissal of the complaint based upon plaintiff’s failure to appear at a court conference.”  Everhome, at 4 (citations omitted).  In addition, the Court also agreed with supreme court that plaintiff’s submissions were insufficient to create triable issues of fact relating to the sufficiency and timing of the required notices.

It should be noted that there was a lengthy dissent in which it was concluded that the motion and cross-motion should have been denied by supreme court. 

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