Although the term “foreclosure” is used liberally whenever a mortgagor is unable to abide by the terms of his mortgage note, in New York, “foreclosure”1 actually refers to a supreme court lawsuit filed by the mortgage holder, traditionally a bank or finance company, against the mortgagee, traditionally a private homeowner. Foreclosure begins when the lawsuit is filed, and the homeowner is considered “in foreclosure” pending judicial determination of that action. Because New York is a “judicial foreclosure”2 state, the lender must sue the borrower in order to enforce its rights and ultimately obtain a court order foreclosing on the mortgage. As judicial action and subsequent ruling are necessary to proceed with sale of the foreclosed property, like in many actions, the filing of a summons and complaint in a foreclosure action is subject to a statute of limitations.
The American judicial system functions in accordance with a common law that strongly favors the protection of property rights, especially real property rights. Under New York’s Civil Practice Law and Rule 231 (4),3 a mortgagee is generally required to bring judicial action on a note secured by a mortgage on real property within six (6) years of a triggering event. Failure to bring a foreclosure action within that timeframe can result in dismissal of the foreclosure action and removal of the lien, as recently occurred when a Suffolk County Supreme Court judge dismissed a foreclosure action on a $2.4 million Westhampton estate4 for failure to adhere to the statute of limitations.
In New York, the statute of limitations in a foreclosure action begins to run on the date each unpaid mortgage installment comes due. Accordingly, if installment payments are missed in January 2006 and January 2012, the mortgage holder has until January 2018 to file an action for foreclosure. It does not matter that the first payment was missed in January 2006, as the statute of limitations renews with each missed installment. However, if the mortgage holder elects to “accelerate the debt,” meaning that payment is no longer due in installments but in a lump sum, then the statute of limitations begins to run on the entire remaining balance upon acceleration. If the mortgage holder elects to accelerate the debt but fails to see a foreclosure action to its conclusion within the six-year statute of limitations, then it runs the risk of forfeiting its right to collect on the note. Further, upon the filing of a foreclosure summons and complaint in New York Supreme Court, the debt is automatically accelerated, installments cease, and the six-year statute of limitations begins to run even if the mortgage holder did not formalize acceleration prior to the filing of the foreclosure summons and complaint.
Pursuant to New York RPAPL §1304,5 lenders are required to send a borrower in default, by registered or certified and first-class mail, a written notice at least ninety (90) days before a foreclosure action is commenced that contains the following information:
New York law requires this notice, and it does not constitute “acceleration” of the loan so as to trigger the six-year statute of limitations. Again, written notices that the borrower is in default and/or demand letters requesting the borrower become current on the loan do not constitute acceleration. Further, even written or verbal threats that if the borrower does not remit the amount owed to the lender it will accelerate the loan do not constitute acceleration so as to trigger the statute of limitations.
Formal acceleration is the process by which the lienholder sends a letter to the borrower in default informing her that it is unequivocally “calling in” the debt under the mortgage note’s acceleration clause: not that it will call in the debt if the borrower fails to take certain action, but that it is calling in the debt. Upon acceleration, installment payments cease, and the borrower no longer has the option of paying the arrears to become current; the entire balance of the loan is due upon receipt of an acceleration notice specifying the date on which the balance must be paid.
Although in the vast majority of foreclosures acceleration is triggered automatically upon the filing of a foreclosure summons and complaint, the lender traditionally has the option of sending an acceleration notice prior to commencing legal action. In this case, the statute of limitations would begin to run upon receipt of the earlier mailed acceleration letter and not the filing of a later legal action. It is a basic principle of New York law that acceleration of the debt secured by real property is the primary triggering event that starts the clock on the six-year statute of limitations whether the debt is or is not accelerated through a formal judicial process.
In New York, the statute of limitations for foreclosures is not triggered unless acceleration is accomplished by “some clear, overt act which manifests the election to immediately be paid in full.”6 Although New York lenders are required to send their borrowers notice of default under RPAPL §1304,7 they are not required to send notice of future acceleration. The private contract between the borrower and lender may specify that notice of acceleration must be given, but it is not a requirement under New York law. Ultimately, the six-year statute of limitations in New York can be triggered by written acceleration notice that manifests the lender’s immediate intent to be paid in full. Anything less than such a clear, overt act will not suffice to trigger the statute of limitations prior to the filing of the foreclosure summons and complaint in supreme court.
There have been a string of recent newsworthy New York foreclosure cases involving violation of the six-year statute of limitations. As New York has one of the nation’s longest foreclosure processes and loans are often transferred between multiple lenders, it is not uncommon for one lender to be unaware that a mortgage was previously accelerated prior to its acquisition of such. As families who have found themselves in arrears are well aware, most lenders will bombard you with a plethora of default notices and verbal and written acceleration treats prior to commencing legal action. Such letters will not be sufficient to trigger the statute of limitations unless by some clear, overt act the lender demands that the balance of the loan be paid in full. 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 him today online or at 631.271.3737 for a no-risk consultation.