Before the subprime mortgage crisis, neither courts nor mortgage lenders had a significant backlog of foreclosure cases through which they were forced to wade. However, once the crisis hit, mortgage lenders were inundated with defaulting homeowners and courts became overwhelmed with a shocking number of foreclosure cases being filed seemingly all at once. For example, in 2009, Nassau civil courts held 2,200 foreclosure conferences and in 2010, that same court held 11,620.1 It should be no surprise that cases were delayed as courts tried to determine how to best handle this continually increasing volume of foreclosure actions. In fact, New York still has one of the longest foreclosure processes in the United States.2
With foreclosure cases dragging on and on, defendants and homeowners facing foreclosure have begun using different legal strategies to defend against losing their homes. One defense that has been asserted more often in recent years is that their case should be dismissed due to an expired statute of limitations.
Statute of Limitations for Foreclosure in NY
Almost every type of legal claim has a statute of limitations set out in New York state law,3 which is the time that can elapse from the initiation of a cause of action before a party loses their right to bring a claim. Essentially, it is a deadline for filing a lawsuit.
Any debt is a contract – the lender agrees to loan the money and the borrower agrees to repay the money, and a mortgage loan is no different. When a borrower fails to make an obligated payment, they have breached the contract and the statute of limitations for breach of contract in New York is six years from the date the breach occurred.4
When one mortgage payment is missed, the mortgage lender then has a cause of action regarding that single payment amount and has six years from that date to file a claim. The same is true of the next month’s payment and each subsequent payment thereafter. None of these missed payments on their own cause a statute of limitations to run for the lender to collect on the entire mortgage through a foreclosure action. In order for that statute of limitations to begin running, the lender must accelerate the mortgage and attempt to collect the entire debt. Acceleration can occur in three primary ways:
Any of the above actions will start the statute of limitation running and the lender will then have six years from that date to pursue a foreclosure action. If the lender fails to do so, they will lose the right to collect on any of that mortgage debt in the future through the courts, including seeking a foreclosure.
How the Statute of Limitations Defense Can Work
Six years seems like a long period of time for a lender to file a foreclosure case, so it is natural to wonder when the statute of limitations may actually come into play. This is when we remind you of the often incredible length of the foreclosure process in New York.
To best understand the role the statute of limitations can play in foreclosure cases, we will examine some cases in which it was successfully asserted in New York courts either as a defense or as an affirmative claim.
Equity Recovery Corp. and 1174 Mazel LLC v. Kahal Minchas Chinuch of Tartikov – In this case, the full unpaid balance of the mortgage loan became due in October of 2006 and the borrowers (the plaintiffs) did not pay the balance. When the lender (defendant) failed to file any action in court seeking a foreclosure through October of 2012, the plaintiffs filed their own legal action to have the balance of the debt canceled based on the expiration of the statute of limitations. Ultimately, the Kings County Supreme Court agreed that the “subject mortgage should be extinguished” because the lender took no action within the statute of limitations.5 The mortgage payment obligations were then effectively ended.
U.S. Bank National Association v. Parisi – The borrowers (defendants) stopped making payments on their mortgage, so the lender filed an initial foreclosure claim to collect the entire mortgage amount in March of 2007. The case was never completed and the Suffolk County Supreme Court dismissed the case without prejudice in 2013. In 2014, the new owners of the mortgage filed a second foreclosure action and the borrowers asserted the defense based on the expired statute of limitations. The court dismissed the case, agreeing that the lender no longer had the right to seek a foreclosure of the mortgage.6
Conclusions Regarding the Role of Statutes of Limitations for Mortgages
While not successfully used on a regular basis, asserting a defense based on an expired statute of limitations can be a powerful legal tool for homeowners. Not only will a successful defense overcome a foreclosure action but may also cancel their obligation to pay any more of the mortgage debt and effectively award them their property free and clear. Based on this drastic end result, it should be no surprise that mortgage lenders have tightened their procedures regarding the timeline of filing or re-filing foreclosure actions within the statute of limitations and putting safeguards in place to halt the statute of limitations whenever possible, such as by revoking the acceleration of a mortgage (which will be explained in another blog).
However, there are still certain outliers among mortgage lenders who may be disorganized or may allow certain cases to slip through the cracks. This is especially true among individuals who hold mortgages. Therefore, the statute of limitations should always be carefully examined in every foreclosure case and an experienced foreclosure defense attorney should do just that.
Discuss Your Foreclosure Case with a Highly Experienced New York Foreclosure Defense Attorney
For the best chance at a favorable result in your foreclosure case, you should hire a foreclosure defense lawyer with extensive knowledge of New York law and experience practically applying these laws to your best advantage. At the Law Office of Ronald D. Weiss, P.C., we ensure that every possible defense to your foreclosure is explored and that you are able to take advantage of every opportunity for alternative dispute resolution. If you are falling behind on your mortgage or have other financial issues in or around Long Island, Suffolk, or Nassau, please call our office today at 631-271-3737 for assistance.
6Index No. 66885/2014 (Sup. Ct. Suffolk Co. Oct. 14, 2015)