July 31, 2021

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New York Clarifies Mortgage Loan Acceleration and De-Acceleration: Starting and Stopping the Limitations Clock | Bradley Arant Boult Cummings LLP

On February 18, 2021, the New York Court of Appeals passed consolidated dissolution of four cases in which two critical questions about the application of the statute of limitations to mortgage foreclosures in New York were answered: What constitutes a valid acceleration to start the six-year “clock” and which measures constitute a valid “deceleration”? a loan?

Question 1: What does the clock start?

Two cases were discussed in the opinion: Wells Fargo Bank, NV v Ferrato and Vargas v Deutsche Bank National Trust, Addressing actions that may or may not constitute a valid acceleration. As in most states, New York requires lenders to expedite their loans through a “definite open act.” in the FerratoThe court analyzed whether a loan had been expedited in 2009 when the lender filed a complaint but failed to attach the parties’ loan modification agreement. Ultimately, the court found that the lender’s failure to attach, approve, or otherwise reference the operational loan documents was fatal to the prior foreclosure and therefore the loan was never expedited.

in the VargasThe court examined whether a notice of default could constitute a valid acceleration. The language of the letter advised the borrower that “failure to comply with the default may result in foreclosure and sale” and that the lender will “expedite” the loan. The court ruled that the letter could not be viewed as an act of acceleration as the letter did not request immediate payment and described the acceleration as a “future event”.

While may not be as significant as the light line acceleration rule discussed below, the resolution is the Ferrato and Vargas Cases offer lenders more clarity about what exactly is speeding up, especially in the context of standard letters where there has been some disagreement among the New York lower courts. The cases indicate that while the language needs to be carefully considered, lenders can be assured that a standard standard letter can be sent to a borrower in New York without the risk of the letter being automatically classified as expediting becomes.

Question 2: What is the clock stopping?

In the other two cases of opinion Freedom Mortgage Corp. against angels and Ditech Financial, LLC v NaiduThe court has resolved the long-controversial issue of automatically expediting a mortgage loan after voluntarily dismissing a prior foreclosure lawsuit. The general consensus in New York courts, similar to litigation level courts in many states, is that acceleration can only be achieved by an overt act that provides clear and unambiguous notification to the borrower. However, the New York courts disagreed as to whether this was the case in cases where the previous foreclosure had been voluntarily dismissed.

Either Angel and NaiduThe court finally made it clear that the voluntary suspension of a foreclosure action by a lender serves to revoke the prior expeditation. In adopting this clear rule, the court rejected prior, conflicting holdings that required a subjective investigation of the non-owner’s intention or motivation to stop the foreclosure action, thereby eliminating the need for a case-by-case review. If the lender does not make an “express, simultaneous statement to the contrary” when voluntarily rejecting a foreclosure action, the credit is automatically relieved by the rejection alone.

Bring away

On his face Angel and Naidu provide lenders with a clear rule on expediting through voluntary dismissal, and the holding company is offering lenders the opportunity to review and potentially revive cases in New York that have been voluntarily dismissed and so far deemed potentially excluded by law from restrictions . As noted above, the issue of speeding up in several other states is still unresolved, and it remains to be seen whether the courts in those states will follow New York’s lead.