A recent case provides clarity concerning what must be done to decelerate a loan as well as who can challenge a subsequent purchaser’s right to maintain a cause of action seeking to cancel and discharge a mortgage in a foreclosure action. In 53rd Street LLC v. U.S. Bank N.A. 1:18-CV-4203 (E.D.N.Y. May 8, 2020), a prior lender asserted that the purchaser’s statute of limitations defense to foreclosure was barred because such a defense was personal to the original borrower. Therefore, the prior lender asserted that a subsequent purchaser lacked standing to raise the defense. The court disagreed, holding that the subsequent purchaser of property stepped into the shoes of the original borrower for this purpose and thus had the right to assert such defense.
The court then reviewed the merits of the purchaser’s statute of limitations argument. The statute of limitations to foreclose on a mortgage loan in New York is six years. This period applies to each payment due under the mortgage, but once the lender accelerates the mortgage, the limitations period for the principal indebtedness is triggered and begins to run from that date. Here, the prior lender commenced a foreclosure action in June 2008, but did not aggressively pursue the action which was thereafter discontinued. Six days before the six-year statute of limitations would have run, the lender sent a purported deceleration letter to the borrower. However, the deceleration letter did not contain an express demand that the borrower resume making monthly payments or include copies of monthly invoices. Instead, the lender then sent a series of notices reflecting an intention to initiate a new foreclosure action.
Where a lender appears to decelerate the loan solely in order to avoid the statute of limitations and without providing proper demands or documents, the purported deceleration will be insufficient to extend the statute of limitations. Especially given the effect of the NY PAUSE Executive Orders on mortgagees, it is especially critical to pay careful attention to the statute of limitations as it pertains to the payment of principal, where the failure to properly decelerate the mortgage may prevent the mortgagee from foreclosing on the secured property or obtaining any payment on its loan.