The New York State Court of Appeals recently provided much-needed guidance to mortgage creditors on the issue of acceleration and determining the start date of the statute of limitations after the acceleration in decision. Freedom Mortgage Corp. v. Engel, et al.. on February 18, 2021. Prior to the decision, which resolved similar issues raised in four separate cases, the jurisprudence was, at best, unclear. The fundamental issue in each case involved the timeliness of the commencement of a foreclosure and acceleration.
The Court of Appeals determined that a holder of the promissory notes must perform an “unequivocal manifest act” to expedite payment under the promissory note, and in two of the cases, it considered whether the language contained in the respective letters of default constituted such a manifest act. unequivocal to accelerate the respective loans. . The other two cases addressed the question of whether the voluntary discontinuation of a previous foreclosure action reversed the acceleration contained in the foreclosure action, thus reestablishing the borrower’s right to repay the loan over time until maturity.
When considering what constitutes a manifest act, the Court pointed out that the acceleration is “a significant event for the purposes of prescription and, in two of these remedies, the dispute over the opportunity revolves around whether certain acts … carried out an acceleration of indebtedness, starting the clock on the claims of bondholders. “This requirement is based on the recognition that through acceleration the rights of the contracting parties are modified.
Importantly, the acceleration issue raises the concomitant statute of limitations problem because debt acceleration triggers the six (6) year statute of limitations within which the mortgagee must initiate a foreclosure action. The Court addressed the question of whether a letter of default issued by a lender was a valid acceleration notifying the borrower that the loan was in default. The letters warned borrowers that “[failure] curing your default may result in foreclosure and the sale of your property. ”The Court concluded that the demand letter did not accelerate the debt because it did not seek immediate payment of the entire outstanding loan, but rather offered an opportunity to remedy the debt. In addition, while the lender stated that the debt will accelerate if the default is not resolved, it also used qualifying language that failure to cure “may result in foreclosure of the property.” It was determined that this was not an unequivocal manifest act.
The Court also considered whether the voluntary stay of a pending foreclosure action reversed the acceleration. It was recognized that the intention to revoke the acceleration was to return the contracting parties to the position prior to the acceleration. As with demand letters, “Revocation may be accomplished by an ‘affirmative act’ of the note holder within six (6) years of the expedited election.”
The Court considered the question of “whether the voluntary motion or stipulation of a note holder to stay a foreclosure action, which does not expressly mention the slowdown or willingness to accept installment payments, constitutes a sufficient ‘affirmative act'” . By rejecting several previous decisions that revolved around the assessment of the bank’s intent that took place after the stay was filed, the Tribunal concluded that the approach was “both analytically incorrect as a matter of contract law, and unfeasible. from a practical point of view “. In fact, the Court pointed out that “a rule that requires post hoc evaluation of the events that occur after the voluntary interruption of the correspondence between the parties, payment practices and the like in order to determine whether a revocation occurred previously, leaves the parties without concrete contemporary guidance as to their current contractual obligations , resulting in confusion that is likely to lead (perhaps inadvertently) to default, either because the borrower does not know that the obligation to make installment payments has been resumed, or because the holder of the note does not know that he must accept a payment on time if filed. “Therefore, the Court held that” a voluntary stay withdraws the claim and, when the claim is the only expression of a demand for immediate payment of the entire debt, this is the functional equivalent of a statement by the lender that the acceleration is revoked. The Court determined that “when the maturity of the debt has been validly accelerated half Before the commencement of a foreclosure action, the voluntary withdrawal of that action by the holder of the note revokes the election to expedite, without the contemporary declaration of the holder of the note to the contrary. ” Notably, however, the Court clarified that “when the acceleration occurred by virtue of the filing of a complaint in a foreclosure action, the voluntary suspension of that action by the holder of the promissory notes constitutes an affirmative act of revocation of that acceleration. as a matter of law, in the absence of a contemporaneous statement to the contrary by the holder of the note.
However, the question remains whether an acceleration made through prior communication with the borrower would necessarily be revoked by filing a discontinuation. From a practical point of view, and as partially noted in Judge Rivera’s dissent, it is recommended to provide a copy of the discontinuation stipulation or a letter to the borrower confirming that the stipulation was filed and that the withdrawal constitutes a revocation of the stipulation. acceleration.