The Appellate Division, Second Department Addresses Two Interesting and Recurring Issues In Residential Mortgage Foreclosure Actions
Print Article- Posted on: Mar 22 2019
Statute of limitations issues frequently arise in residential mortgage foreclosure actions. Mortgage foreclosure actions are governed by a six-year statute of limitations. See CPLR 213(4). Generally, the statute of limitations for each missed payment runs from the date of the missed payment. Bank of New York Mellon v. Celestin, 164 A.D.3d 733 (2nd Dep’t 2018). In order to avoid having to sue on each missed payment or groups of missed payments, mortgages usually contain language permitting a mortgagee to accelerate the entire mortgage debt upon the occurrence of certain defaults, including, but not limited to, payment defaults. “[O]nce a mortgage debt is accelerated, the borrowers’ right and obligation to make monthly installments cease[s] and all sums become immediately due and payable, and the six-year Statute of Limitations begins to run on the entire mortgage debt.” EMC Mortgage Corp. v. Patella, 279 A.D.2d 604, 605 (2nd Dep’t 2001) (citations, internal quotation marks and brackets omitted).
The New York State Appellate Division, Second Department, addressed, inter alia, residential mortgage statute of limitations issue in MLB Sub I, LLC v. Grimes (March 20, 2019). The facts of Grimes are convoluted. In 2006, Grimes borrowed $464,000 from BNC Mortgage and delivered to it, a note and mortgage in that amount. Within a year, Grimes defaulted in his payment obligations.
In March of 2017, U.S. Bank National Association (“US Bank”) commenced an action to foreclose the Grimes mortgage (the “First Foreclosure Action”), although the Grimes mortgage was assigned to US Bank by assignment dated April of 2017. In January of 2018, a default judgment was entered against Grimes. Thereafter, Grimes moved to vacate the default because US Bank had no standing to bring the First Foreclosure Action at the time it was commenced. In his motion, Grimes argued that the assignment of the underlying loan documents did not occur until one month after the action was commenced. “A plaintiff has standing in a mortgage foreclosure action when it is the holder or assignee of the underlying note, either by physical delivery or execution of a physical assignment prior to the commencement of the action with the filing of the complaint.” U.S. Bank National Assoc. v. Clement (2nd Dep’t 2018) (citation omitted). Grimes’ motion was granted and the First Foreclosure Action was dismissed.
In March of 2009, US Bank commenced another foreclosure action (the “Second Foreclosure Action”). In September of 2013, MLB Sub I, LLC obtained physical possession of the original Grimes note and, by assignment of mortgage dated March of 2014, the Grimes mortgage was assigned to MLB. US Bank moved to discontinue the Second Foreclosure Action on September 17, 2014, which motion was granted on November 19, 2014.
On October 3, 2014, MLB commenced a foreclosure action against Perfect Home Repairs, Inc. (“Perfect”) (an entity that acquired ownership to the subject property in January of 2014) (the “Third Foreclosure Action”). Thereafter, MLB moved for summary judgment and for an order of reference. Perfect opposed MLB’s summary judgment motion and cross-moved to dismiss the complaint pursuant to CPLR 3211(a)(5) on statute of limitations grounds and pursuant to CPLR 3211(a)(4) and RPAPL 1301(3) due to the pendency of the Second Foreclosure Action at the time the Third Foreclosure Action was commenced. The motion court granted MLB’s motion and denied Perfect’s cross-motion.
The Second Department affirmed. The Court recognized that while the “[c]ommencement of a foreclosure action may be sufficient to put the borrower on notice that the option to accelerate the debt has been exercised,” such is not the case where the plaintiff “does not have the authority to accelerate the debt or to sue to foreclose at that time (citations and internal quotation marks omitted). Thus, the Court found that the commencement of the Second Foreclosure Action did not cause the statute of limitations to run on the underlying debt because it was determined that US Bank did not have standing to prosecute that action. Therefore, the service of the complaint in that Action was not a valid exercise of the option to accelerate the debt triggering the statute of limitations countdown.
The Court also affirmed the rejection of Perfect’s argued that the complaint should have been dismissed pursuant to CPLR 3211(a)(4) and RPAPL 1301(3). CPLR 3211(a)(4) provides that an action may be dismissed if “there is another action pending between the same parties for the same cause of action in a court of any state or the United States; the court need not dismiss upon this ground but may make such order as justice requires.” RPAPL 1301(3) provides that “[w]hile the action is pending or after final judgment for the plaintiff therein, no other action shall be commenced or maintained to recover any part of the mortgage debt, without leave of the court in which the former action was brought.”
Perfect argued that at the time that the Third Foreclosure Action was commenced, the Second Foreclosure was still pending (although US Bank had moved to discontinue, but the motion had not yet been granted) and, therefore, the commencement of the Third Foreclosure Action violated RPAPL 1301(3). In rejecting Perfect’s argument, the Court held that “where a prior foreclosure action is not formally discontinued, the effective abandonment of that action is a de facto discontinuance which militates against dismissal of the present action pursuant to RPAPL 1301(3).” (Citations and internal quotation marks omitted.) In Grimes, the Second Foreclosure Action was not dismissed prior to the commencement of the Third Foreclosure Action, the Court found that the Second Foreclosure Action “was effectively abandoned” when the motion to dismiss that Action was filed several weeks earlier when the motion to dismiss that action was filed.
Tagged with: Commercial Litigation, Other Action Pending, Real Estate Litigation, Residential Mortgage Foreclosure, Statute of Limitations
