When does the Foreclosure Clock Begin to Run?

August 20, 2019 at 8:47 am Leave a comment

Good morning, people. On Friday, I promised you all a blog on what I, and many others, consider to be one of the most important cases to be decided by New York’s Court of Appeals in quite some time. In addition, although the Court’s decision will only be legally binding within New York, with similar litigation taking place around the country anyone who provides mortgage loans should be pay attention to the outcome. Besides, the case involves the interpretation of standard mortgage loan documents provided and used by Fannie Mae and Freddie Mac.

Everyone would, I hope, agree that New York has a six year statute of limitations for commencing foreclosure actions. Everyone would further agree that the six year statute of limitations doesn’t start to run until there is a default on the mortgage loan and the lender affirmatively decides to accelerate the entire mortgage debt. Finally, when a homeowner defaults on a mortgage payment, the lender has the option of demanding payment simply for the unpaid installment or, provided procedural provisions are satisfied, demanding payment on the entire note. But what’s conceptually quite easy to understand is proving quite vexing to implement in an era when it is not uncommon for financial institutions and members to be in discussions over delinquent mortgages for several years.

In Bank of N.Y. Mellon v. Dieudonne, 2019 NY Slip Op 01732 (March 13, 2019, 2nd Dept), the foreclosure action at issue in this case has its roots in 2009. A previous foreclosure action was commenced but, for reasons not made clear in the decision, it was halted. As a result, when the bank once again decided to foreclose on the property in 2016, the defendant argued that the action was time-barred. This is where the case gets real interesting.

Look at your standard Fannie Mae NY mortgage document. Paragraphs 19 gives a delinquent borrower the right to pay arrears on a mortgage until five days before a foreclosure sale . In contrast, paragraph 22 gives the lender the option of demanding payment on the entire note upon delinquency. Bank of N.Y. Mellon argued that even though it decided to commence a foreclosure action in 2010, since that previous foreclosure was halted prior to the time the homeowner could have paid off the amount then owing, the bank could not have made an unequivocal demand for full payment. In other words, the statute of limitations on a foreclosure action under the standard Fannie form does not begin to run until the point at which a foreclosure action is executed because, notwithstanding the bank’s demand for full payment, the borrower still has the contractual right to make payments against their arrears.

Needless to say, there’s a lot of potential foreclosures out there riding on the outcome of this case. The Second Department, which covers Long Island, Queens, Brooklyn, Staten Island, and the lower Hudson Valley, sided with the homeowners. It acknowledged that the mortgage gave defendant the right to de-accelerate the debt that was due to the bank. It held, however, that this does not change the fact that the bank also had the right to demand full payment under the mortgage and that it exercised this right. Other courts have reached different conclusions within the State and now we await arguments and a decision before New York’s highest court.

Entry filed under: Legal Watch, New York State. Tags: .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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