Too many homeowners in New York believe that if they default on their mortgage, they will inevitably lose their homes to foreclosure. However, this is far from the experience of many homeowners who have actually been in this situation. There are many different complications that may arise before or during a foreclosure case, many which will affect homeowners. One action that a lender may take outside of a foreclosure action to complicate or delay a foreclosure is to revoke the prior acceleration of the mortgage loan. The following is further discussion regarding mortgage acceleration and the revocation of such.
When a lender and borrower sign a contract, the borrower agrees to make monthly installment payments on the mortgage for a specified period of time. If the borrower fails to meet that obligation at any point, they have breached the mortgage contract and the lender has the right to file suit to collect the unpaid portion of the mortgage debt. However, for each missed payment, the lender will have a cause of action only regarding that missed payment. A lender does not automatically have the right to foreclose on the entire amount of the loan but only the arrears.
In order to file a claim regarding the entire mortgage debt, a lender must demand payment of the entire mortgage balance all at once. This is referred to as an acceleration of the mortgage loan and is allowed by clauses in most standard mortgage contracts. Such an acceleration may be accomplished in different ways, including:
Though acceleration can occur in different manners, some affirmative act is generally required from the lender that effectively communicates to the borrower that the lender has accelerated the collection of the debt. Once an effective acceleration has taken place, the mortgage lender will no longer be limited to only seeking collection of arrears but will have the right to seek payment of the entire debt through a foreclosure action. It is therefore understandable why mortgage lenders want to accelerate loans. After a loan is accelerated, lenders generally will not accept any payments based on prior agreements or accept partial payments less than the balance of the mortgage.
In some situations, a homeowner whose mortgage loan has been accelerated may be surprised to learn that their lender has revoked that acceleration, also referred to in some states as “deceleration.” Such revocation will return the mortgage loan to its original terms, most of which require monthly installment payments.
One of the major reasons why a lender may choose to revoke acceleration is to stop the statute of limitations from running regarding a future foreclosure. The statute of limitations is the amount of time during which a lender has the right to initiate a foreclosure claim in civil court. Statutes of limitations vary from state to state and under New York law, the statute of limitations for a foreclosure (and other breach of contract actions) is six years. So what does the six-year statute of limitations have to do with revocation of loan acceleration?
After the housing crisis, foreclosure cases have become increasingly complex and have delayed the process of foreclosure in New York. Some foreclosure cases take years to resolve and may be dismissed by the court or by the lender for a variety of reasons. While a dismissal without prejudice allows the lender to re-file another foreclosure case in the future, the six-year statute of limitations will not be interrupted. Therefore, if a lender accelerated a loan by filing a foreclosure case in 2010 and that claim was dismissed without prejudice in 2013, the lender would still only have until 2016 to subsequently seek a foreclosure.
One way lenders have stopped the running of the statute of limitations is by issuing letters to borrowers that revoke the acceleration within the six-year period. This is complicated, since most mortgage contracts present the requirements for valid acceleration, but do not address the process of a valid revocation, as it was not previously a common occurrence. However, New York courts have ruled that a revocation must be legitimate for the statute of limitation to cease running.
Since this has been a relatively new legal issue, there is no overarching rule that dictates what constitutes a proper revocation of acceleration. Instead, courts have been identifying specific circumstances that do or do not constitute a revocation for the purposes of resetting the statute of limitations. For example:
In short, there is much confusion and little clarification about what exactly may qualify as valid revocation for the purposes of defeating a statute of limitations in a foreclosure case. We will keep you updated with any new case law developments on this issue.
While successful revocation can prevent a borrower from asserting a statute of limitations defense in the future, it can also buy a borrower time to find solutions to pay their arrears and become current on their mortgage loan through bankruptcy or loan modifications.
Foreclosure cases can be complex and you need a foreclosure defense attorney who can identify and address any unique issues that may arise in your case. Please call the Law Offices of Ronald D. Weiss, P.C. at 631-271-3737 to discuss your situation today.
3 Fed. Nat. Mortgage Ass’n v. Mebane, 208 A.D.2d 892 (2d Dep’t 1994).
4 Clayton Nat. v. Guldi, 307 A.D.2d 982 (2d Dep’t 2003).
5 EMC Mortgage v. Patella, 279 A.D.2d 604 (2d Dep’t 2001).
6 4 Cosgrove 950 v. Deutsche Bank Nat. Trust, 2016 WL 2839341 (New York Cty. Supreme Ct. 2016).
7 Lavin v. Elmakiss, 302 A.D.2d 638 (3d Dep’t 2003).