Editor’s Note: This story originally appeared in the January issue of DS News.
New York’s statute of limitations on initiating foreclosure has been an ongoing and persistent problem facing the mortgage servicing industry. The courts have shown a disturbing level of comfort in finding mortgages unenforceable on this basis, a problem exacerbated by the necessary foreclosure. “reboots” that are aggressively litigated by homeowners.
Added to the headache is the large volume of decisions that are dictated, often inconsistent between the branches of the a.appeal Dview—who constantly move the goal posts.
Despite a vigorous challenge from industry seeking a contrary decision,one It is generally accepted that filing a foreclosure lawsuit accelerates mortgage debt and starts the 6-year statute of limitations. e.g, milone v US Bank NA164 AD3d 145, 151 (2d Dept. 2018).
Can a loan be decelerated thereafter? If so, what is required to slow down? Right now, that depends. One case currently before the Court of Appeals (the highest court in New York), Liberty mortgage. Corp vs. Engel163 AD3d 631, 633 (2d Dept. 2018), lv for appeal granted103 NY3d 12 (2019),two should go a long way to resolve that query.
In Engel, the trial court of appeals found that voluntary termination of a foreclosure does not, by itself, slow mortgage debt, even when the foreclosure lawsuit itself was the act of acceleration. The ruling ran contrary to the long-standing and widespread view that voluntarily stopping a foreclosure slows down. By doubling your Engel decision, the same trial court of appeals offered several factors that could be considered when evaluating a slowdown:
- I) a demand for resumption of monthly payments
- me) an invoice to the borrower demanding late payments
iii) the “voluntary vacatur from a lender filed lys hang”
- iv) the existence of a leniency agreement that allows the borrower to repay
- i)“any other evidence showing that [the lender] it was really looking to slow down the debt in addition to the interruption of the action.”trust vs. Barua184 AD3d 140 (2d Dept. 2020).
Proving this is not as simple as it seems. Necessary evidence is often lacking, and what may be considered strong evidence may prove insufficient at later sentencing. For example, many servicers have tried to argue that a communication to the borrower seeking only the amount due rather than the full loan balance, such as a monthly mortgage statement, constitutes a demand for resumption of monthly payments. But in a very recent decision, Wells Fargo Bank, NA vs. Maddaloni186 AD3d 1587, 1589 (2d Dept. 2020), Appellate Division disagreed.
Perhaps the easiest way to prove the slowdown is through a notice telling the borrower that the previous acceleration is revoked and the loan is repayable in installments. But even there, the Appellate Division has cautioned that notice should not be “pretext in any road[, …... meaning] the lender was really looking to slow down and was not trying to achieve another purpose under the guise of slowing down . . .… [such as] avoid[ing] the prescription”. milone164 AD3d at 154.
Recent decisions support that both the wording of the letter and proof that it was sent correctly are equally important to prevail. See Softer v. US Bank, NA186 AD3d 1443, 1444 (2d Dept. 2020) (asserting ownership of language used in slowdown notice); Assyag v. Wells Fargo Bank, NA186 AD3d 1303 (2d Dept. 2020) (analyzing slowdown notice mail component).
These lower appellate rulings may finally receive some much-deserved clarity once Engel and its ancillary cases are decided by the New York Supreme Court. Until then, prudence suggests advancing as many arguments as possible and hoping one sticks around..