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Prior Foreclosure is Not Necessarily an Act of Acceleration!

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Prior Foreclosure is Not Necessarily an Act of Acceleration!

In Nationstar Mortgage LLC v. MacPherson, 2017 NY Slip Op 27120 (Sup. Ct. Suff. Co. April 3, 2017) the court examined whether a Statute of Limitations defense barred further foreclosure proceedings based on the plaintiff’s filing of an earlier foreclosure complaint more than 6-years prior to the institution of the current foreclosure complaint.  The Court held it was not!

The MacPherson’s borrowed $1,495,000 from Nationstar Mortgage, LLC on July 25, 2006.  Defendants defaulted on July 1, 2007.  Plaintiff’s predecessor, Aurora Loan Servicing, LLC commenced foreclosure proceedings on Oct. 30, 2007.  That matter concluded through failure of the bank to prosecute the action.  That case began more than 6-years before the new foreclosure was started.

On Sep. 17, 2014, the bank, via Nationstar Mortgage, LLC, filed a new foreclosure action.  Defendant answered, asserting various defenses and counterclaims, including a statute of limitations defense.  Among the affirmative defenses, defendants challenged plaintiff’s lacked standing (2nd Affirmative Defense).  Additionally, although the mortgage instrument provided that Defendants could cure a default and reinstate the loan at any time by paying the accrued arrears, they advanced a statute of limitations defense under CPLR Sec. 213 (3rd Affirmative Defenses). 

The Court ultimately decided that the statute of limitations was not actionable because of the fact that acceleration of the debt was neither automatic upon the filing of a foreclosure complaint, nor unequivocal, given the unusual scope of rights granted to defendants under the mortgage instrument in question.

Essentially, the court reasoned that because the “lender’s right to accelerate” was expressly made subject to the borrower’s right, per paragraph 19 of the mortgage, to cure the default, have the mortgage reinstated and resume making payments, it was not really an acceleration.  The ability to resume making monthly payments by curing the defaults was a right conferred to borrower – so the acceleration of the mortgage was therefore not unequivocal as required under Albertina.

Defendant’s Standing Arguments

As has been the trend in recent years, the Court gave short shrift to defendant’s standing challenges, stating in essence that “the attachment of a duly indorsed mortgage note to [plaintiff’s] complaint or to the certificate of merit required by CPLR 3012-b, coupled with an affidavit in which it alleges that it had possession of the note prior to the commencement of the action, has been held to constitute due proof of the note prior to the commencement of the action and thus its standing to prosecute its claim for foreclosure and sale.” Nationstar Mtge., LLC v. Catizone, 217 AD3d 1151 (2005).

"Either a written assignment of the underlying note or the physical delivery of the note to the plaintiff, prior to the commencement of the action, is sufficient to transfer the obligation.” See Emigrant Bank v. Larizza 123 Ad3d 904, 905 (2nd Dept 2015); Wells Fargo Bank, N.A. v. Parker, 125 AD3d 848 (2d Dept 2015); U.S. Bank N.A. v. Guy, 125 AD3d 845 (2015).

The court went on: “The plaintiff may also establish its standing by demonstrating that it is the holder of the mortgage note within the contemplation of the Uniform Commercial Code. Holder status is established where the plaintiff possesses a note that, on its face or by allonge, contains an endorsement in blank or bears a special endorsement payable to the order of the plaintiff. See UCC 1-201, 3-202, 3-204; Hartford Acc. & Indem. Co. v. American Express Co., 74 NY2d 153, 159 (1989). A "holder" is "the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession." UCC 1-201 [b] [21]. Notably, "the holder of an instrument whether or not he is the owner may . . . enforce payment in his own name." UCC 3-301; Wells Fargo Bank, NA v. Ostiguy, 127 AD3d 1375 (3d Dept 2015). " 'Bearer' means a person in possession of a negotiable instrument." UCC 1-201 [b] [5], and where the note is indorsed in blank, it may be negotiated by delivery alone. See UCC 3-202 [1]; 3-204 [2]). "An indorsement in blank specifies no particular indorsee and may consist of a mere signature" and "[a]n instrument payable to order and indorsed in blank becomes payable to bearer and may be negotiated by delivery alone until specially indorsed.” UCC 3-204 [2]. JPMorgan Chase Bank, N.A. v. Weinberger, 142 AD3d 643, 645 (2016), supra [internal quotation marks omitted]).”

Thus, the Court concluded that plaintiff had established standing to the Court’s satisfaction.

Defendant’s Statute of Limitations Arguments

"Once a mortgage debt is accelerated, 'the borrowers' right and obligation to make monthly installments ceased and all sums [become] immediately due and payable,' and the six-year Statute of Limitations begins to run on the entire mortgage debt." EMC Mtge. Corp. v. Patella, 279 AD2d at 605, citing Federal Natl. Mtge. Assn. v. Mebane, 208 AD2d 892 (2d Dept 1994). Notice to the borrower to accelerate the entire amount of the mortgage debt must be "clear and unequivocal." Sarva v. Chakravorty, 34 AD3d 438, 439 (2d Dept 2006).

The Court further noted that: “The rules stated above emanate from the seminal mortgage acceleration case of Albertina Realty Co. v. Rosbro Realty Corp., 258 NY 472 (1932). Therein, the lender filed a foreclosure action after the borrower failed to make a timely installment payment. The borrower tendered the late payment three days after the action was filed but prior to service of the pleadings. The lender refused payment arguing that the complaint had accelerated the entire debt. The mortgage contained a strict statutory acceleration clause found in Real Property Law §258, schedule M. Id. at 474.

The Court of Appeals agreed and held that the lender had elected to exercise its right to accelerate. The Court described the acceleration clause as "a fair and legal contract which the parties to the mortgage had a right to enter into." Id. at 475. Importantly, the Court noted that "[t]he agreement does not provide what the holder of the mortgage must do to evidence its election to declare the whole amount due. Such a provision could have been embodied in the contract if the parties had so desired." Id. at 475-476. Since that time, numerous cases have relied upon the holding in Albertina, that the commencement of a prior foreclosure action starts the running of the statute of limitations. See Clayton Natl. v. Guldi, 307 AD2d 982 (2d Dept 2003); Federal Natl. Mtge. Assn. v. Mebane, 208 AD2d 892 (1994); See also U.S. Bank N.A. v. Martin, 144 AD3d 891 (2d Dept 2016); PSP-NC, LLC v. Raudkivi, 138 AD3d 709 (2d Dept 2016).

However, as noted in Albertina, "[t]he parties to the mortgage in question were not limited to the use of the form of acceleration clause contained in the mortgage in question." Albertina at 476. In the instant case, the parties did not choose to use the statutory form of acceleration set forth in Real Property Law § 258, schedule M or N. cf. Charter One Bank, FSB v. Leone, 45 AD3d 958 (3d Dept 2007).”

Justice Whelan then took a close look at the acceleration provisions of the mortgage:

"22. Lender's Rights If Borrower Fails to Keep Promises and Agreements. Except as provided in Section 18 of this Security Instrument, if all of the conditions stated in subsections (a), (b) and (c) of this Section 22 are met, Lender may required that I pay immediately the entire amount then remaining unpaid under the Note and under this Security Instrument. Lender may do this without making any further demand for payment. This requirement is called 'Immediate Payment in Full.'

"If Lender requires Immediate Payment in Full, Lender may bring a lawsuit to take away all of my remaining rights in the Property and have the property sold. At this sale Lender or another Person may acquire the Property. This is known as 'Foreclosure of Sale.' In any lawsuit for Foreclosure and Sale, Lender will have the right to collect all costs and disbursements and additional allowances allowed by Applicable Law and will have the right to add all reasonable attorneys' fees to the amount I owe Lender, which fees shall become part of the Sums Secured.

"Lender may require immediate Payment in Full under this Section 22 only if all of the following conditions are met:

"(a) I fail to keep any promise or agreement made in this Security Instrument or the Note, including, but not limited to, the promises to pay the Sums Secured when due, or if another default occurs under this Security Instrument;

"(b) Lender sends to me, in the manner described in Section 15 of this Security Instrument, a notice that states:

"(1) The promise or agreement that I failed to keep or the default that has occurred;

"(2) The action that I must take to correct that default;

"(3) The date by which I must correct the default. That date will be at least 30 days from the date on which the notice was given;

"(4) That if I do not correct the default by the date stated in the notice, Lender may require immediate Payment in Full and Lender or another Person may acquire the Property by the means of Foreclosure and Sale;

"(5) That if I meet the conditions stated in Section 19 of this Security Instrument, I will have the right to have Lender's enforcement of this Security Instrument stopped and to have the Note and this Security Instrument remain fully effective as if Immediate Payment in Full had never been required; and

"(6) That I have the right in any lawsuit for Foreclosure and Sale to argue that I did keep my promises and agreements under the Note and under this Security Instrument, and to present any other defenses that I may have; and

"(c) I do not correct the default stated in the notice from lender by the date stated in that notice. . . .


"19. Borrower's Right to Have Lender's Enforcement of this Security Instrument Discontinued. Even if Lender has required Immediate Payment in Full, I may have the right to have enforcement of this Security Instrument stopped. I will have this right at any time before the earliest of: (a) five days before sale of this property under any power of sale granted by this Security Instrument; (b) another period as Applicable law might specify for the termination of my right to have enforcement of the Loan stopped; or (c) a judgment has been entered enforcing this Security Instrument. In order to have this right, I will meet the following conditions:

"(a) I pay to Lender the full amount that then would be due under this Security Instrument and the Note as if Immediate Payment in full had never been required;

"(b) I correct my failure to keep any of my other promises or agreements made in this Security Instrument;

"(c) I pay all of Lender's reasonable expenses in enforcing this Security Instrument including, for example, reasonable attorneys' fees, property inspection and valuation fees, and other fees incurred for the purpose of protecting lender's interest in the Property and rights under this Security Instrument; and

"(d) I do what Lender reasonably requires to assure that lender's interest in the Property and rights under this Security Instrument and my obligations under the Note and under this Security Instrument continue unchanged.

"Lender may require that I pay the sums and expenses mentioned in (a) through (d) in one or more of the following forms, as selected by Lender: (a) cash; (b) money order; (c) certified check, bank check, treasurer's check or cashier's check drawn upon an institution whose deposits are insured by a federal agency, instrumentality or entity; or (d) Electronic Funds Transfer.

"If I fulfill all of the conditions in this Section 19, then this Security Instrument will remain in full effect as if Immediate Payment in Full had never been required. However, I will not have the right to have Lender's enforcement of this Security Instrument discontinued if Lender has required Immediate Payment in Full under Section 18 of this Security Instrument." (Emphasis added.)

Here, the lender bargained away its right to demand payment in full simply upon a default in an installment payment or the commencement of an action and has afforded the borrower greater protections than that set forth in the statutory form of an acceleration clause under Real Property Law § 258 or under the holding in Albertina. As set forth by the Court of Appeals in W.W.W. Assoc. v. Giancontieri, 77 NY2d 157, 162 (1990), "[a] familiar and eminently sensible proposition of law is that, when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms." As with any other contractual option, the holder of an option may be required to exercise an option to accelerate the maturity of a loan in accordance with the terms of the mortgage. Wells Fargo Bank, N.A. v. Burke, 94 AD3d at 983. "A party who executes a contract is presumed to know its contents and to assent to them." Nerey v. Greenpoint Mtge. Funding, Inc., 144 AD3d 646, 648 (2d Dept 2016).”

Thus, Justice Whelan concluded that the specific mortgage instrument in question did not lead the Court to conclude that the prior action was the kind of clear and unequivocal acceleration needed to trigger the applicable 6-year statute of limitations and to bar a subsequent mortgage foreclosure action.

As a slight consolation, the Court limited recovery on the mortgage note to those installments accruing after Sep. 17, 2008, the 6-years preceding institution of the instant action.




Category: Foreclosure Law

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