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Court Vacates and Discharges Mortgage After Ruling the Statute of Limitations to Foreclose Has Expired

In New York, the statute of limitations to foreclose on a mortgage is six years from the date of default. This six year statute of limitations runs on each missed payment, but the clock on seeking to recover principal begins to run only once the loan has been accelerated. In Gravesend LLC v. Wells Fargo Bank, N.Y. Slip Op. 33725(U) (Sup. Ct. Kings Nov. 5, 2020), Wells Fargo Bank, N.A. (“Wells Fargo”) asserted that its mortgage had not been accelerated as a result of the filing of a foreclosure complaint by its predecessor-in-interest more than six years before Wells Fargo had begun its action as no judgment of foreclosure had been issued in the prior action, and that, without a judgement of foreclosure, the right of reinstatement had not been extinguished. However, the motion court disagreed and held that, whether or not a judgment of foreclosure had issued was irrelevant, as it was the filing of the prior action that accelerated the mortgage.

Additionally, Wells Fargo asserted that a right of reinstatement – that is, the borrower’s right under a mortgage loan to bring the loan current with one payment of all outstanding amounts then due – prevented the statute of limitations from running. However, as the Wells Fargo mortgage did not include a provision providing the borrower with a right of reinstatement as a condition precedent to acceleration, the motion court found this argument unavailing. Thus, the court held that the Wells Fargo mortgage should be discharged and vacated because the statute of limitations had expired. This is yet another case in a long line of recent decisions addressing acceleration. It is critical to pay attention to the wording of the reinstatement provision to determine if it may provide a lender the ability to foreclose a mortgage, which otherwise appears to be subject to discharge,by creating a condition precedent for acceleration.