New York State: New York Court of Appeals Rules Voluntary Abandonment Voids Prior Acceleration

Lenders seeking foreclosure remedy in New York frequently face the limitation period defense based on prior debt acceleration, usually in the form of a prior foreclosure action. Due to inconsistent applications of the law, state trial and appellate courts have differed in their interpretation of the effect of a lender’s decision to end a foreclosure and whether such withdrawal revoked the acceleration of the debt. Fortunately, this issue was clarified by the New York Court of Appeals, in its Decision of February 18, 2021 in Freedom Mortgage Corporation v. Engel, who ruled that a voluntary discontinuance revoked the election to expedite, limiting the limitation period defense.

In Freedom Mortg. Corp. v. Engel, 163 AD3d 631 (2d Dept. 2018), Appeal Division, Second Department, considered whether a lender who exercises the right to expedite can revoke acceleration by filing a voluntary disclaimer. In Engel, the Second Department held that the cessation stipulation had no effect on acceleration because it was “silent” on revocation. The Court of Appeal has now reversed this finding, establishing a rule that a voluntary discontinuance properly revokes a prior acceleration. Regarding the Engel case, the Court of Appeal held that, while Freedom Mortgage had accelerated its loan until the start of its action in 2008, the voluntary disclaimer filed in 2013 effectively canceled the acceleration of 2008. As a result of the Court of Appeal’s ruling, Freedom Mortgage is no longer bound by a statute of limitations from the start of its action in 2008, making the action it brought in February 2015 timely.

With the clear line rule enunciated by the New York Court of Appeals, litigation over the statute of limitations defense should be simplified, as a lender would no longer need to consider whether a disclaimer was intended to revoke an acceleration. earlier. The Court of Appeal held that investigating the conduct and correspondence of the parties after termination is “analytically ill-founded in contract law and impractical from a practical point of view.” On the contrary, the Court reasonably concluded that a voluntary disclaimer which effectively withdraws the complaint which expedited the loan is the functional equivalent of a letter specifically revoking the acceleration, or other statement in a disclaimer expressly revoking the acceleration. . The Court of Appeal added some certainty to the application of the limitation period so that each party could be guided accordingly. This way, lenders can more easily determine which loans are ripe for a restart and borrowers will know if they can restart monthly payments.

Under Engel’s new rule, lenders seeking to expedite a loan when a previous action had been voluntarily abandoned can now file the foreclosure complaint without the same worry about its effect on the statute of limitations. Meanwhile, in pending actions where a borrower has raised the limitation period defense on the basis of a prior waiver, we recommend citing Engel for the proposition that the voluntary waiver simultaneously revoked the prior acceleration. In the event that a borrower has succeeded in a motion to dismiss based on a prior discontinuance, a number of options may be available to reverse an unfavorable decision, including a motion for renewal based on the recent decision of the Court of Appeal. If you have any questions or concerns regarding these developments, please do not hesitate to contact our office.