Statute of Limitations
Freedom Mortgage Corp. vs. Engel
Last year (2021), New York’s highest court, the Court of Appeals, issued and important decision related to statute of limitations in mortgage foreclosure cases. The case was Freedom Mtge. Corp. v Engel 2021 NY Slip Op 01090 Decided on February 18, 2021 Court of Appeals.
Mortgage foreclosure claims are governed by a six-year statute of limitations. In any statute of limitations’ analysis, the first important date is when the claim accrued–meaning when the plaintiff first had a claim against the defendant for the particular act. For example, if a potential-plaintiff slips and injures themself, the date they slipped and fell is the date the claim accrued. The statute of limitations for the particular act sought to be redressed by a Court then determines how far from the claim accrual date the lawsuit must be commenced. A claim brought after that period is said to be barred by the statute of limitations.
This becomes more tricky with a mortgage default. This is because although the whole amount of loan was advanced or paid when the real property was purchased or prior loan refinanced, each payment only becomes due whenever provided for by the payment schedule. Therefore, in month number one, the payment for month 100 (for example) has not yet come due, so its nonpayment is not a default under the note. By month 101, that 100th-month payment would be past due, or in default. If that 100th-month payment was still not paid after six more years, or after the 172nd month, that particular payment (and any unpaid payment having come due before the 100th month) would generally be time-barred from collection.
The nature of mortgages and their payment over monthly installments means that in order to foreclosure on the entire mortgage loan, the loan generally must be accelerated. An acceleration is essentially the lender exercising its right under the mortgage note to call the entire loan due as a result of the borrower’s default–this notwithstanding that the note would otherwise allow payments to be made in monthly installments over a period of months or years.
Now back to the statute of limitations, the accrual of the lender’s cause of action to foreclosure upon the entire loan in order to repossess the real-property is generally the date the entire loan balance was accelerated.
Freedom Mortgage vs. Engel concerned a foreclosure case that was brought subsequent to a prior, discontinued foreclosure case between the parties. The prior case had been accelerated upon the commencement of that action but had been later voluntarily discontinued by the lender. The lender brought a second foreclosure case more than six years from the commencement of hte prior case and the question then became whether that second foreclosure case was time barred by the six-year statute of limitations for foreclosure actions. The Court of Appeals held that the voluntary discontinuance of the prior case, by itself revoked the prior acceleration for statute of limitations purposes. Thus, the fact that the subsequent case was brought more than six years after the acceleration in the prior case did not bar the subsequent case because the acceleration had been revoked when the prior case was discontinued. It should be noted that payments that had come due more than six years before the later case was filed would presumably be barred from collection by the lender. But the Court of Appeals effectively gave lenders an automatic revocation of their prior acceleration and the potential for a do-over in the subsequent case.