THE SECOND DEPARTMENT HOLDS THAT LENDER IS JUDICIALLY ESTOPPED FROM ASSERTING A STATUTE OF LIMITATIONS DEFENSE
Print Article- Posted on: Aug 30 2024
On August 28, 2024, the Appellate Division, Second Department, decided U.S. Bank National Association v. Unger, a mortgage foreclosure action in which issues regarding statutes of limitation and judicial estoppel were addressed.
Legal Principles
By way of background, we have noted in numerous prior BLOG Articles (see, e.g., [here], [here], [here]. [here], [here], [here], [here] and [here]), 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). Typically, however, mortgages 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).
Judicial estoppel is a doctrine that “prevents a party who assumed a certain position in a prior proceeding and secured a ruling in his or her favor from advancing a contrary position in another action simply because his or her interests have changed.” Becerril v. City of New York Dep’t of Health and Mental Hygiene, 110 A.D.3d 517, 519 (1st Dep’t 2013) (citations omitted); see also H&R Block Bank v. Page, 199 A.D.3d 780, 782-83 (2nd Dep’t 2021). [T]he doctrine rests upon the principal that a litigant should not be permitted to lead a court to find a fact one way and then contend in another judicial proceeding that the same fact should be found otherwise.” Environmental Concern, Inc. v. Larchwood Construction Corp., 101 A.D.2d 591, 593 (2nd Dep’t 1984) (citation, internal quotation marks and ellipses omitted).
Facts of Unger1
In 2007, the borrower delivered a promissory note in excess of $200,000 to National City Mortgage (“NCM”), a subsidiary of National City Bank (“NCB”). The loan was secured by a mortgage on residential property. In 2009, after the borrower’s default, NCM commenced an action to foreclose the mortgage (the “First Action”). The following year a judgment of foreclosure and sale was entered in the First Action, but an auction sale never occurred. In 2018 NCM moved to discontinue the First Action. The motion was granted and the judgment of foreclosure and sale was vacated. For reasons immaterial to this article, NCM again moved to discontinue the First Action and to vacate the judgment of foreclosure and sale and the motion was granted.
The underlying note and mortgage were assigned to U.S. Bank, which commenced the subject action in 2019 (the “Second Action”). The motion court granted the borrower’s motion to dismiss the Second Action as time-barred. The lender appealed.
The Court’s Holdings
For the reasons along the lines discussed previously in this article, the Second Department agreed with the borrower that the action was time-barred. The Court noted that the six-year limitations period began to run in 2009 when the First Action was commenced (and the loan was accelerated) by NCM, U.S. Bank’s predecessor in interest. The commencement of the Second Action in 2019, which occurred more than six years later was, accordingly, time-barred.
The lender attempted to sidestep the statute of limitations issue by arguing that NCM lacked standing2 to accelerate the debt and, therefore, the action was not time-barred. For a variety of reasons, the Court rejected the lender’s position and held that the lender was estopped from raising such an argument and stated:
The plaintiff argued that [NCM] lacked standing to commence the prior action because, at that time, it “was a defunct entity,” having merged on October 1, 2008, into [NCB]. However, since National City, as the plaintiff’s predecessor in interest with respect to the mortgage loan, secured a judgment of foreclosure and sale in its favor, the plaintiff was judicially estopped from contesting standing (see Matter of State Farm Mut. Auto. Ins. Co. v Allston, 300 AD2d 669, 670 [(2nd Dep’t 2002)]). Further, CPLR 213(4)(a) provides that “[i]n any action on an instrument described under this subdivision, if the statute of limitations is raised as a defense, and if that defense is based on a claim that the instrument at issue was accelerated prior to, or by way of commencement of a prior action, a plaintiff shall be estopped from asserting that the instrument was not validly accelerated, unless the prior action was dismissed based on an expressed judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated” (see GMAT Legal Title Trust 2014-1 v Kator, 213 AD3d at 916-917 [(2nd Dep’t 2023)]. Therefore, the plaintiff is estopped from contesting that the mortgage debt was not validly accelerated.
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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.
