Acceleration is an “Overt Act” to Demand the Full Amount Due Under the Mortgage Loan

 

 

The “Engels case” on the Court of Appeals level was not completely reversed by the Foreclosure Abuse Prevention Act (“FAPA”) and at least half of it is still valid law. The Court of Appeals in the “Engels Case” consolidated x4 cases. Two x2 cases were focused on what is an acceleration; the other x2 cases were focused on whether the lender has the corollary right to “de-accelerate”. FAPA reversed the “de-acceleration” argument ONLY. The “acceleration” definition is still good law. In that 1st part of the decision the Court of Appeals emphasized that the “overt act” causing acceleration was NOT about notice to the borrower NOR about the intentions of the lender, BUT whether the contractual election was effectively evoked. 

“The determinative question is not what the noteholder intended or the borrower perceived, but whether the contractual election was effectively invoked. There are sound policy reasons to require that an acceleration be accomplished by an “unequivocal overt act.” 

I BELIEVE THAT THE SIGNING OF THE COMPLAINT UNDER THIS DEFINITION, rather than the filing or service of the complaint suffices where in an earlier foreclosure the complaint was signed 10 days before it was filed and it violates FAPA based on the date of signing but not the date of filing (which was a few days under 6 years). 

Please see a fuller context of the pertinent part of the case below:

Freedom Mtge. Corp. v Engel 2021 NY Slip Op 01090 Decided on February 18, 2021 Court of Appeals DiFiore, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and subject to revision before publication in the Official Reports. 

Decided on February 18, 2021 
No. 1 
No. 2 
No. 3 
No. 4 

[*1]Freedom Mortgage Corporation, Appellant, 

v

Herschel Engel, Respondent, et al., Defendants. No. 2

Ditech Financial, LLC, & c., Appellant, 

v

Santhana Kumar Nataraja Naidu, Respondent, et al., Defendants. 

Juan Vargas, Respondent, 

v

Deutsche Bank National Trust Company, Appellant. 

Wells Fargo Bank, N.A., & c., Appellant, [*2]

v

Donna Ferrato, Respondent, The Simon & Mills Building Condominium Board, et al., Defendants. 

Wells Fargo Bank, N.A., & c., Appellant, 

v

Donna Ferrato, Respondent, Capital One Bank (USA) N.A., et al., Defendants. 

Case No. 1:

Brian A. Sutherland, for appellant.

Anthony R. Filosa, for respondent.

Legal Services NYC, et al., American Legal and Financial Network, New York State Foreclosure Defense Bar, New York Mortgage Bankers Association, USFN – America’s Mortgage Banking Attorneys, United Jewish Organizations of Williamsburg, Inc., amici curiae.

Case No. 2:

Christina A. Livorsi, for appellant.

Holly C. Meyer, for respondent.

New York State Foreclosure Defense Bar, United Jewish Organizations of Williamsburg, Inc., Adam Plotch, amici curiae.

Case No. 3:

Patrick Broderick, for appellant.

Justin F. Pane, for respondent.

Francis M. Caesar, New York State Foreclosure Defense Bar, United Jewish Organizations of Williamsburg, Inc., Adam Plotch, amici curiae.

Case No. 4:

Brian S. Pantaleo, for appellant.

M. Katherine Sherman, for respondent.

Francis M. Caesar, New York State Foreclosure Defense Bar, amici curiae.

 

DiFIORE, Chief Judge:

These appeals—each turning on the timeliness of a mortgage foreclosure claim—

involve the intersection of two areas of law where the need for clarity and consistency are at their zenith: contracts affecting real property ownership and the application of the statute of limitations. In Vargas v Deutsche Bank Natl. Trust Co. and Wells Fargo Bank, N.A. v Ferrato, the primary issue is when the maturity of the debt was accelerated, commencing the six-year statute of limitations period. Applying the long-standing rule derived from Albertina Realty Co. v Rosbro Realty Corp. (258 NY 472 [1932]) that a noteholder must effect an “unequivocal overt act” to accomplish such a substantial change in the parties’ contractual relationship, we reject the argument in Vargas that the default letter in question accelerated the debt, and similarly conclude in Wells Fargo that two complaints in prior discontinued foreclosure actions that each failed to reference the pertinent modified loan likewise were not sufficient to constitute a valid acceleration…

…………

Indeed, a noteholder’s election to accelerate the entire debt has multiple, significant effects. Particularly relevant to these appeals, under the typical contract, acceleration permits the noteholder to commence an action seeking the remedy of full foreclosure (see Odell, 73 NY at 345)—an equitable tool permitting the noteholder to take possession of the real property securing the debt (Copp v Sands Point Mar., 17 NY2d 291, 293 [1966]). Accordingly, a cause of action to recover the entire balance of the debt accrues at the time the loan is accelerated, triggering the six-year statute of limitations to commence a foreclosure action (see CPLR 203[a], 213[4]; Phoenix Acquisition Corp. v Campcore, Inc., 81 NY2d 138, 143 [1993]; Lubonty, 34 NY3d at 261; see also CDR Créances S.A. v Euro-American Lodging Corp., 43 AD3d 45, 51 [1st Dept 2007]; EMC Mtge. Corp. v Patella, 279 AD2d 604, 605 [2d Dept 2001]; Lavin v Elmakiss, 302 AD2d 638, 639 [3d Dept 2003]; Business Loan Ctr., Inc. v Wagner, 31 AD3d 1122, 1123 [4th Dept 2006])[FN3] . Acceleration is therefore a significant event for statute of limitations purposes and, in two of these appeals, the timeliness dispute turns on whether certain acts—in Wells Fargo, the filing of complaints in prior foreclosure actions and, in Vargas, the issuance of a default letter—effectuated an acceleration of the indebtedness, starting the clock on the noteholders’ claims.

.I.

We have had few occasions to address how a lender may effectuate an acceleration of the maturity of a debt secured on real property. However, in Albertina Realty Co., we made clear that any election to accelerate must be made in accordance with the terms of the note and mortgage and that the parties are free to include provisions detailing what the noteholder must do to accelerate the debt (258 NY at 475-476). We further held that, to be valid, an election to accelerate must be made by an “unequivocal overt act” that discloses the noteholder’s choice, such as the filing of a verified complaint seeking foreclosure and containing a sworn statement that the noteholder is demanding repayment of the entire outstanding debt (id. at 476). Although the Court did not otherwise decide “just what a holder of a mortgage must do to exercise the right of election, under an acceleration clause,” it did clarify that “[t]he fact of election should not be confused with the notice or manifestation of such election” (id.). While the act evincing the noteholder’s election must be sufficient to “constitute[] notice to all third parties of such [a] choice,” a borrower’s lack of actual notice “d[oes] not as a matter of law destroy” the effect of the election (id.). Put another way, the point at which a borrower has actual notice of an election to accelerate is not the operative event for purposes of determining when the statute of limitations begins to run. Indeed, in Albertina, we held that the debt was accelerated when the verified complaint and lis pendens were filed, even though the papers had not yet been served [*3]on the borrower (id.). The determinative question is not what the noteholder intended or the borrower perceived, but whether the contractual election was effectively invoked.

There are sound policy reasons to require that an acceleration be accomplished by an “unequivocal overt act.” Acceleration in this context is a demand for payment of the outstanding loan in full that terminates the borrower’s right to repay the debt over time through the vehicle of monthly installment payments (although the contracts may provide the borrower the right to cure) (see Federal Natl. Mtge. Assn. v Mebane, 208 AD2d 892, 894 [2d Dept 1994]). Such a significant alteration of the borrower’s obligations under the contract—replacing the right to make recurring payments of perhaps a few thousand dollars a month or less with a demand for immediate payment of a lump sum of hundreds of thousands of dollars—should not be presumed or inferred; noteholders must unequivocally and overtly exercise an election to accelerate. With these principles in mind, we turn to the two appeals before us in which the parties dispute whether, and when, a valid acceleration of the debt occurred, triggering the six-year limitations period to commence a foreclosure claim.

The bolded section and decision the Engels Court of Appeals case regarding foreclosure “acceleration” is still good NYS law and the most decisive and highest  NYS case to deal with the subtleties of the question of “acceleration”. As we can see in some cases these subtleties can be decisive.