After years of inconsistent New York decisions focused on the state's statute of limitations for mortgage foreclosure actions, the New York Court of Appeals declared some bright-line rules in a recent opinion that should bring clarity to debt acceleration and revocation. The ruling resolves a split between the First and Second Departments concerning whether a noteholder's default letter clearly accelerates a mortgage debt and the conduct sufficient to both accelerate and revoke acceleration of a mortgage debt.

In Freedom Mortgage Corp. v. Engel, the New York Court of Appeals addressed four appeals to determine whether the appellants filed timely foreclosure actions. 2021 NY Slip Op 01090 (Feb. 18, 2021). In two cases, the issue was whether the maturity of the debt accelerated, triggering the six-year statute of limitations period for foreclosures in New York. The remaining cases focused on whether a noteholder's voluntary discontinuation of a foreclosure action revoked the debt's acceleration.

Foreclosure Statute of Limitations

New York law has a six-year statute of limitations concerning contracts. See NY CPLR § 213. Because a mortgage is a contract, this limit applies to mortgage foreclosure as well, with each payment becoming its own cause of action, time-barred six years after its due date.

Acceleration of Mortgage Debt

If a borrower defaults on a mortgage, the lender can accelerate the debt, and all remaining payments become due immediately. When the lender does this, there are no remaining future payments, and the entire remaining debt is subject to the six-year statute of limitations. Acceleration typically happens with any act that “clearly and unequivocally manifests the intent to accelerate.” This act can include default notices that “manifest the intent to accelerate.” Once the noteholder does this, the statute of limitations period begins. A note holder can also de-accelerate the debt if it does so before the statute of limitations expires.

Freedom Mortgage v. Engel

In its ruling, the New York Court of Appeals ruled:

• A default letter that says the noteholder “will” accelerate a debt refers to a future event and doesn't trigger acceleration.
• If a noteholder voluntarily discontinues the foreclosure process within six years, this revokes the acceleration.
• The reason for a noteholder's acceleration revocation is irrelevant. It doesn't matter if the noteholder revoke's acceleration to avoid the statute of limitations.
• A verified foreclosure complaint needs to clearly refer to the debt and the loan document at issue.

After this ruling, lenders should be careful with the language in any default letter or notification to avoid accelerating the debt and starting the statute of limitations period.

NYC Real Estate Attorney

If you're concerned about New York foreclosure law and how it can affect your business, you need legal advice from an experienced commercial and residential real estate attorney. The Law Offices of Melvin Monachan, PLLC, can help. We can advise you on the most current foreclosure law and how recent moratoriums may apply to you or your business. Call us at (516) 714-5763 to schedule a consultation or contact us online.