Pursuant to New York’s Civil Practice Law and Rule 231 (4), a lienholder is generally required to bring judicial action on a note secured by a mortgage on real property within six (6) years of acceleration of the mortgage note. This can be accomplished by filing a foreclosure summons and complaint in supreme court or through some clear, overt act accelerating the balance due, such as an acceleration letter. Once the mortgage is accelerated, the lienholder has six (6) years to see the foreclosure matter to its conclusion; however, the lender can take action to reset the statute entirely if the deadline is looming.
As stated herein, it is the act of “acceleration,” an overt calling in of the entire balance of the note, which causes the statute of limitations to run in foreclosure actions. However, as most lenders are aware of, if a borrower does not have sufficient funds to make monthly payments on the note than he likely does not have sufficient funds to pay-off the balance of said note. Accordingly, many lenders will continue to work with their borrowers subsequent to acceleration, when the statute is ticking, to refinance or resolve the default. If a foreclosure action is filed in New York, the supreme court requires the parties attend a settlement conference within sixty (60) days of service of the complaint to determine whether they can come to a mutually agreeable resolution. If the parties are able to resolve the default, then the matter will be dismissed on motion from the lender. However, only an affirmative act by the lender will work to stop the statute of limitations. If the foreclosure action is dismissed either because the lender took no action in the face of dismissal or the matter was dismissed on procedural or substantive grounds, the statute of limitations will continue to run.
Let us assume a fictional mortgage was accelerated through the filing of litigation on June 1, 2004, but the matter was settled through a judicially ordered conference and dismissed by the lender. As legal acceleration occurred on June 1, 2004, if the borrower fails to make good on her settlement obligations in the interim, is the lender subject to a potential statute of limitations defense if it files a new foreclosure action on June 2, 2010? The answer is no because the statute of limitations has not actually been running. When the lender voluntarily dismissed the foreclosure lawsuit, it effectively “decelerated” the mortgage note, which means that statute of limitations lapsed when the lawsuit was dismissed. Although the lender may not go back and sue the borrower for payments due more than six years after a missed payment, the borrower cannot claim that an action re-accelerating her debt based on a future default is barred by the original acceleration of June 1, 2004.
New York courts have held that an “affirmative and unambiguous” act by the lender that explicitly revokes a prior acceleration causes the six-year statute of limitations to lapse. However, only an “affirmative act” taken before the statute of limitations expires works to neutralize acceleration. When faced with a statute of limitations defense during foreclosure litigation, many lenders have attempted to argue that, at some point prior to expiration of the statute, they “decelerated” the loan. For example, in Lamin v. Elmakiss, 302 A.D.2d 638 (N.Y. Ct. App. 3rd Dep’t 2003), the lender argued that because after accelerating the loan the borrower’s trust made payments on the loan that the lender accepted, the lender had “decelerated” the loan by accepting the installment payments. The appellate division did not agree, and it held that deceleration can only be accomplished by an affirmative act, such as an official “declaration” letter, and not a passive act, such as accepting additional loan payments.
If you have defaulted on your loan, your lender and many non-profit counseling agencies may recommend you consider “loan modification.” This modification can be accomplished if you declare bankruptcy, which triggers an automatic stay if your foreclosure matter is in litigation, or it can be agreed to between the parties. Loan modification occurs when the lender agrees to change an essential term of your mortgage to assist you in making your payments. This can include reducing the interest rate or extending the term of the loan. However, not everyone is eligible for a loan modification, and you must:
The question remains, therefore, whether modification of an already accelerated loan causes the statute of limitations to lapse, especially if the borrower neglects to make the necessary payments during the trial period. The answer is, yes, but again, it must be an explicit modification that works to rescind the terms of the original loan. “Passive” modification, such as accepting payments or waiving late fees after acceleration, may not work to toll the statute of limitations.
Although it is rare, some lenders may choose to forgive a default without judicial intervention. This is known as “internal forgiveness,” and lenders are generally required to report any amount forgiven to the IRS. Wise lenders may only permit internal forgiveness if the borrower agrees, in writing, to toll the statute of limitations on an already accelerated debt. New York General Obligations Law 17-101 permits the parties to enter into such agreements, and the statute of limitations would be tolled so long as the parties adhered to the terms of their written agreement.
Because explicit modification of a loan will generally cause the statute of limitations to lapse, many lenders will accelerate the debt with the intent that the loan will be modified during settlement negotiations. The acceleration becomes leverage for the lender during modification negotiations, but an experienced Long Island foreclosure attorney can advise you as to the benefits of either accepting or rejecting a modification offer depending on the nature of the statute of limitations.
In summation, a lender can affirmatively stop the statute of limitations from running following acceleration if it engages in some affirmative act to either decelerate or modify the terms of the loan prior to the statute’s expiration. However, New York courts have discretion in determining what qualifies as an “affirmative” act under the facts of each case, as a lender’s attorney will certainly argue when faced with a statute of limitations defense that some past action on the lender’s part was sufficient to decelerate the loan. The question as to what causes the statute of limitations in foreclosure actions to either run or lapse is complex, but a qualified Long Island foreclosure attorney can analyze your lender’s actions, including past modifications, in order to determine whether the statute has run. Ronald D. Weiss, P.C., Attorney at Law is your premier foreclosure attorney on Long Island, serving both Nassau and Suffolk County residents. He can analyze the specific facts of your case in order to determine whether your lender has run afoul of the statute of limitations. Contact our office online today or at 631.271.3737 for a no-risk consultation.