The Second Department Addresses Statutes of Limitation Issues in Mortgage Foreclosure Actions in Light of FAPA

• Posted on: Feb 23 2024

By Jonathan H. Freiberger

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

As previously described 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.  Gold, 171 A.D.3d at 1030 (citations omitted).

A defendant moving to dismiss a complaint pursuant to CPLR 3211(a)(5) on statute of limitations grounds has the burden of establishing “prima facie, that the time in which to commence the action has expired.”  Wells Fargo Bank, N.A. v. Islam, 193 A.D.3d 1016, 1017 (2^nd Dep’t 2021) (citations and internal quotation marks omitted).  If the defendant satisfies the burden “the burden shifts to the plaintiff to raise a question of fact as to whether the statute of limitations was tolled or otherwise inapplicable, or whether the plaintiff actually commenced the action within the applicable limitations period.”  Id. at 2017 – 18 (citations and internal quotation marks omitted).

The Foreclosure Abuse Prevention Act (“FAPA”), which went into effect on December 30, 2022, was enacted to, inter alia,  curtail certain practices of lenders designed to avoid statute of limitations issues by accelerating and deaccelerating loans to start the running of statutes of limitations anew.  [Eds. Note: This BLOG addressed FAPA [here] and [here].]  Indeed, FAPA amended CPLR 3217 to include a new subdivision (e)¹, which provides:

In any action on an instrument described under subdivision four of section two hundred thirteen of this chapter, the voluntary discontinuance of such action, whether on motion, order, stipulation or by notice, shall not, in form or effect, waive, postpone, cancel, toll, extend, revive or reset the limitations period to commence an action and to interpose a claim, unless expressly prescribed by statute.

It is CPLR 3217(e) that was at issue in HSBC Bank USA, N.A. v. Corrales, decided by the Appellate Division, Second Department, on February 21, 2024.  The borrower in Corrales delivered a mortgage on real property to secure a $600,000.00 loan.  In 2009, the lender commenced an action to foreclose the loan, which action was voluntarily discontinued in 2014.  The lender commenced a new action in 2016.  The borrower moved to dismiss the new action, as time-barred, pursuant to CPLR 3211(a)(5).  The lender cross-moved for summary judgment.  The borrower appealed from the motion court’s denial of the borrower’s motion and the granting of the lender’s cross-motion.

The Second Department reversed, granted the borrower’s motion and dismissed the complaint as time-barred.  The Court found that the borrower “demonstrated that the six-year statute of limitations began to run on the entire debt in May 2009, when the [first foreclosure] action was commenced and the [lender] elected to call due the entire amount secured by the mortgage [and she also] demonstrated that the instant action was commenced in April 2016, more than six years later.”  (Citations omitted.)  Finally, evidence that the prior foreclosure action was voluntarily discontinued in 2014 was also submitted.

In response, the lender, relying on Freedom Mortgage Corp. v. Engel, 37 N.Y.3d 1 (2021),² argued that the voluntary discontinuance of the prior action deaccelerated the loan and, accordingly, the new action was timely.  Relying on FAPA, which added CPLR 3217(e), the Court rejected the lender’s argument.  Thus, the Court held that “the voluntary discontinuance of the 2009 action did not in form or effect, waive, postpone, cancel, toll, extend, revive or reset the limitations period to commence an action and to interpose a claim.”  (Citations and internal quotation marks omitted.)

The Court also rejected another argument made by the lender regarding deacceleration, and stated:

Moreover, any claim by the [lender] that by mailing certain mortgage statements to the [borrower] subsequent to the discontinuance of the [prior] action, the mortgage debt was de-accelerated, is without merit. Pursuant to CPLR 203(h), part of the recently enacted Foreclosure Abuse Prevention Act, “[o]nce a cause of action upon an instrument described in [CPLR 213(4)] 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.”  (Hyperlinks added.)

Footnotes

1. [Eds. Note: This BLOG addressed other aspects of CPLR 3217 [here], [here] and [here].]
2. [Eds. Note: this BLOG discussed Engel [here], [here] and [here].]  It should be noted that Engel was “legislatively overruled” by certain provisions of FAPA.  Bank of America v. Kessler, 39 N.Y.3d 317, n. 3 (2023).

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.