STATUTE OF LIMITATIONS IN THE TIME OF COVID – THE SECOND DEPARTMENT DECIDES AN ISSUE OF FIRST IMPRESSION FOR NEW YORK APPELLATE COURTS RELATED TO MORTGAGE FORECLOSURE ACTIONS AND COVID-19 TOLLS

• Posted on: Jun 14 2024

By Jonathan H. Freiberger

In today’s BLOG we discuss Trento 67, LLC v. One West Bank, N.A., a case decided on June 12, 2024, by the Appellate Division, Second Department, that involves, inter alia, the statute of limitations/acceleration in mortgage foreclosure actions¹ and Real Property Actions and Proceedings Law (“RPAPL”) 1501(4).²

The Court in Trento recognized that the appeal it was deciding is “an issue of apparent first impression for an appellate court in this State, namely, whether the statute of limitations for commencing a foreclosure action may be tolled by virtue of the FHA COVID-19 moratorium.” In resolving the issue, the Court held that “the FHA COVID-19 moratorium, which constituted a stay of foreclosures of federally backed mortgages, may indeed toll the statute of limitations for commencing a foreclosure action, and, on the facts of this case, the FHA COVID-19 moratorium did toll the applicable limitations period.” 

The Facts of Trento

In 2007, non-party Miller borrowed $550,000 from a non-party lender and secured her repayment obligations with a reverse mortgage (the “Mortgage”) on real property in Brooklyn, New York, improved with a two-family dwelling (the “Property”). According to the Mortgage, the lender could accelerate the loan if, inter alia, the borrower died and “the Property is not the principal residence of at least one surviving borrower.” Also, pursuant to the Mortgage, “which bears an FHA case number, the borrower executed a second mortgage on the [P]roperty in favor of the Secretary of HUD.”

The borrower died on February 28, 2013. On or before April 4, 2014, the note and Mortgage were assigned to defendant OneWest Bank. OneWest commenced a foreclosure action on April 4, 2014, which was dismissed in April of 2019, because, at the time of commencement, the defendant borrower was deceased. The statute of limitations began to run when the action was commenced. Significantly, the Court noted that “the death of a defendant prior to commencement of a foreclosure action, although rendering such action a legal nullity from its inception, does not revoke or invalidate, or otherwise destroy, the lender’s express invocation of the contractual election to accelerate the debt.” (Citations, internal quotation marks and brackets omitted.)

On March 18, 2020, “HUD instituted a 60-day moratorium on the ‘initiation of foreclosures’ and the ‘completion of foreclosures in process’” with respect to FHA insured mortgages. Shortly thereafter, the United States Congress passed the CARES Act, which required “certain forbearances” regarding federally backed mortgages and prohibited servicers of federally backed mortgage loans from availing themselves of certain mortgage foreclosure procedures. HUD extended the FHA COVID-19 foreclosure moratorium to July 31, 2021.

On January 20, 2021, one of the borrower’s “heirs-at-law,” conveyed the Property to plaintiff, Trento 67, LLC., who commenced an action pursuant to RPAPL 1501(4) to discharge the Mortgage due to the expiration of the state of limitations. On August 1, 2021, a new action was commenced by the lender to foreclose the Mortgage (the “New Foreclosure Action”). The defendants in the RPAPL 1501(4) action moved to dismiss on the ground that the statute of limitations was “tolled by the FHA COVID-19 moratorium in effect from March 18, 2020, through July 31, 2021, and, thus, the [New Foreclosure Action] was timely commenced….” Trento 67, the plaintiff in the RPAPL 1501(4) action, cross-moved to consolidate the RPAPL 1501(4) action and the New Foreclosure Action and, upon such consolidation, to compel the acceptance of a late answer in the New Foreclosure Action. The motion court granted the lender’s motion to dismiss the RPAPL 1501(4) action, finding that “the statute of limitations was tolled by the FHA COVID-19 moratorium” and, therefore, the lender timely commenced the New Foreclosure Action. Trento 67’s cross-motion was denied as moot. 

The Second Department’s Decision

On Trento 67’s appeal, the Second Department affirmed. In so doing, the Court rejected the argument that the moratorium did not apply to reverse mortgages. The Court recognized that, according to RPAPL 1501(4), a party with ‘’an estate or interest” in real property can commence an action to discharge a mortgage upon the expiration of the applicable statute of limitations to foreclose same. The Court further noted that the “expiration of the statute of limitations is an essential element of an action pursuant to RPAPL 1501(4).” (Citation omitted.)

The six-year statute of limitations began to run on the accelerated balance upon the commencement of the First Foreclosure Action on April 4, 2014. As to tolling, the Court stated that:

[a]s a general matter, “[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” (CPLR 204[a]). By this language, CPLR 204(a) provides for a “toll” (Lubonty v U.S. Bank N.A., 34 NY3d 250, 255). A toll suspends the running of the applicable statute of limitations for a finite time period, and the period of the toll is excluded from the calculation of the time in which a plaintiff may commence an action (see Chavez v Occidental Chem. Corp., 35 NY3d 492, 505 n 8; Brash v Richards, 195 AD3d 582, 582).

On March 20, 2020, then-Governor Andrew Cuomo issued Executive Order (A. Cuomo) No. 202.8 (9 NYCRR 8.202.8), which tolled the statute of limitations for many lawsuits and proceedings in New York due to the COVID-19 pandemic. This toll applied to foreclosures and it was extended through November 3, 2020. This Court has held that Executive Order 202.8 and seven subsequent executive orders constituted a “toll” (Brash v Richards, 195 AD3d [582] at 582; see Espinal v Port Auth. of N.Y. & N.J., 213 AD3d [101], at 102). The other three Departments of the Appellate Division have followed this Court’s holding in Brash v Richards (see Harden v Weinraub, 221 AD3d 1460, 1462 [4th Dept]; Gabin v Greenwich House, Inc., 210 AD3d 497, 498 [1st Dept]; Matter of Roach v Cornell Univ., 207 AD3d 931, 933 [3d Dept]). [Some hyperlinks added.]

The Court noted that courts “have recognized the FHA COVID-19 moratorium as a moratorium on foreclosures of federally backed, or FHA-insured, mortgages from March 18, 2020, to July 31, 2021” (citations, internal quotation marks and brackets omitted) and that courts have held that “FHA COVID-19 moratorium constituted a stay applicable to foreclosures of federally backed mortgages.” Accordingly, the Second Department stated: 

We agree that the FHA COVID-19 moratorium constituted a stay. Further, consistent with the law in this State that Executive Order 202.8 constitutes a toll (see Brash v Richards, 195 AD3d at 585), we hold that this stay, in effect from March 18, 2020, to July 31, 2021, tolled the statute of limitations for actions to foreclose federally backed mortgages, including the reverse mortgage at issue herein.

The Court also found that it was immaterial that the Property is a two-family dwelling or whether the foreclosure defendants “may be borrowers, heirs, or others.”

Footnotes

1. This BLOG has frequently addressed issues related to statute of limitations/acceleration in mortgage foreclosure actions. See, e.g., [here], [here], [here], [here], [here], [here] and [here].
2. This BLOG has frequently written about RPAPL 1501(4). See, e.g., [here], [here], [here], [here], [here], [here] and [here].

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.