By Kevin Dobie, Esq.

Liebo, Weingarden, Dobie & Barbee, PLLP

USFN Member (MN)

With the rise in home prices in the past several years, many servicers and investors have begun foreclosing junior mortgages. Some of these mortgages were charged off, sold, or left for dead many years ago, and borrowers are often surprised when the mortgage rises from the ashes and a servicer or investor mails a default letter or files a foreclosure action. The Consumer Financial Protection Bureau issued an advisory opinion on these loans in April 2023 highlighting issues surrounding “zombie” mortgages, and lately, news organizations and foreclosure defense attorneys have also taken an interest in these “zombie” mortgage loans. A recent court of appeals decision in Minnesota highlights a few issues to avoid liability in enforcing a so-called zombie mortgage.

In the recent case, Reed v. Westgate Investments, the Minnesota Court of Appeals determined that the state’s 15-year statute of limitations to foreclose a mortgage was not extended by the mortgagors’ prior bankruptcy filing. 2024 WL 2716034, __ N.W.3d __ (Minn. App. 2024). The Reeds filed bankruptcy in 2005 and obtained a discharge in 2010. The loan matured in 2006. The servicer sent pre-foreclosure collection letters and commenced a non-judicial foreclosure in 2022, 16 years after the maturity date. Meanwhile, the Reed’s loan balance ballooned from $19,735 to over $62,000. The Reeds filed a lawsuit to stop the foreclosure and argued that the foreclosure was time-barred by the 15-year statute of limitations. At the district court, the servicer successfully argued that a Minnesota tolling statute extended the limitations period for five years because of the bankruptcy filing.

The Court of Appeals reversed and held that the statute of limitations was not tolled as a result of the automatic stay in the Reeds’ bankruptcy case. More specifically, the Minnesota statute of limitations provides that no action to foreclose a mortgage shall be maintained unless commenced within 15 years from the maturity date and this limitation shall not be extended by “reason of any disability of any party interested in the mortgage.” Minn. Stat. § 541.03 subd. 1. The Court of Appeals explained that this “disability” language in the statute specifically applied to the servicer’s bankruptcy tolling argument and that the 15-year statute of limitations was not extended by the automatic stay in the Reeds’ bankruptcy case.[1]

The obvious take-away is that servicers and their counsel must closely review the maturity date in the mortgage to ensure that any foreclosure activity is not prohibited by the 15-year statute of limitations. In Minnesota, it is not enough, however, to simply look at the maturity date in your system of record or on the promissory note and add 15 years to the maturity date. In Minnesota, the maturity date must be listed on the recorded mortgage. If the maturity date is not listed in the recorded mortgage,[2] the 15-year statute of limitations begins to run on the date of the origination of the loan. Minn. Stat. § 541.03 subd. 2. The maturity date or a statement that the term is, for example, 30 years is sufficient. A reference to the term listed in the promissory note is not sufficient because the promissory note is not part of the recorded document.

Foreclosure defense attorneys are now focused on the statute of limitations issue and have recently filed a number of class action cases in Minnesota targeting servicers and counsel who run afoul of the statute. This most often arises where a promissory note has a 30-year repayment term, but for whatever reason, the mortgage template used by the originating lender did not include a place to list the maturity date or the term. In those situations, if the maturity date is not listed or cannot be easily ascertained from the recorded mortgage, the mortgage can become unenforceable before the maturity date listed in the promissory note.

Because many of these older loans are secured by second mortgages that were charged off, servicers of charged off loans must also heed caution when adding interest and other charges. After a loan is charged off, a servicer may stop sending monthly statements. 12 C.F.R. § 1026.41(e)(6). A servicer may not, however, add interest or other charges to a charged-off loan unless the servicer resumes sending monthly statements. And even if the mortgage remains enforceable under the statute of limitations, a servicer may not retroactively assess fees or interest on the account for the period of time during which the loan was charged off. 12 C.F.R. § 1026.41(e)(6)(ii)(B). In other words, the servicer must foreclose using the balance at the time the loan was charged off.

As a practice pointer, servicers and their counsel should take care to review the mortgage document itself for these Minnesota-specific issues regarding the 15-year statute of limitations as well as the allowable interest and charges the servicer may recover when enforcing a charged-off “zombie” mortgage that has risen from the dead.

By Sonia J. Buck, Esq.

Brock &Scott, PLLC *

USFN Member (CT, NC, RI, AL, FL, GA, KY, MA, MD, ME, MI, NH, NJ, OH, PA, SC, TN, VA, VT)

In Finch v. U.S. Bank, N.A., 2024 ME 2; ____ A.3d ____, the Maine Law Court issued a 4-3 decision on January 11, 2024, overruling its prior “draconian” holding in Pushard v. Bank of Am., N.A. (2017 ME 230, 175 A.3d 103), which required a lender to discharge its mortgage following a foreclosure judgment in favor of the defendant mortgagor predicated on a faulty 14 M.R.S. § 6111 notice of default. Id. at ¶6. Under Pushard, if a judgment was entered in favor of the mortgagor because the lender made an error in its notice of default, the mortgagor would be entitled to a “free house” under res judicata principles. The mortgagee would thereafter be precluded from any subsequent foreclosure action and the mortgage would be unenforceable. The Law Court in Finch concluded, however, that a mortgagor is not automatically entitled to a discharge of the mortgage when a lender fails to comply with a necessary element to the foreclosure, namely, a demand letter that strictly complies with 14 M.R.S. § 6111.

The Law Court now properly recognizes the issuance of a conforming demand letter to be a condition precedent to the foreclosure action. If the notice was non-confirming, acceleration of the debt is a legal impossibility. In a well-written and well-reasoned majority opinion, the Law Court now acknowledges it was incorrect in Pushard insofar as it held that the mortgagee had accelerated the note, “despite the plain statutory prohibition on acceleration without compliance.” Finch at ¶2. Finch now makes it clear that “a failure to meet a precondition to the commencement of a suit does not have claim-preclusive effect.” Finch at ¶49.

As background, in Pushard, the plaintiff initiated a foreclosure action against the borrowers and lost. Pushard at 107; ¶4. As was the case in Finch, the trial court in Pushard concluded that the bank failed to meet its burden on critical elements of foreclosure. Id. The Court therefore entered a foreclosure judgment in favor of the defendants. Id. One of the elements the Bank failed to satisfy was the requirement of a notice of default that strictly complies with statutory requirements under 14 M.R.S. § 6111. Id. Citing the borrower-friendly line of foreclosure precedent since § 6111 was revamped in 2009, the Law Court in Pushard ruled that strict compliance with § 6111 is required and that failing to comply results in a judgment for the defendant. Such a judgment invokes res judicata principles and precludes the mortgagee from later enforcing the note and the mortgage in a subsequent foreclosure action. The Pushard Court further held that a discharge of the mortgage is required, because the “note and mortgage are unenforceable and [the borrowers] hold title to their property free and clear of the Bank’s mortgage encumbrance.” Id. at 115–16; ¶36 (citing Federal National Mortgage Association v. Deschaine, 170 A.3d 230, 236 (Me. 2017)). The result was extremely harsh, in that even a small typographical error or other de minimis mistake in the demand letter resulted in a free home for borrowers, notwithstanding the borrowers’ (often long-standing) default on the loan and an otherwise informative notice of default and right to cure.

After winning in the foreclosure action, the Pushards, like Finch, subsequently initiated an action against the bank seeking (among other things): “(1) a discharge of the mortgage and (2) an order enjoining the Bank from enforcing the note and mortgage and compelling the Bank to record a release of the mortgage.” Pushard at 108; ¶5. Both parties filed motions for summary judgment. The trial court found for Bank of America, correctly holding that the foreclosure judgment does not preclude a subsequent foreclosure claim because the bank did not accelerate the payments on the note. Pushard at 106; ¶1. The Law Court, however, in what now is being declared an error, reversed the trial court’s decision in Pushard and required that Bank of America discharge the Pushards’ mortgage. Id.

For over seven years, the Pushard rule has been the law in Maine, putting lenders, servicers, and law firms in a position of extreme risk in the event of any errors, even minor or inconsequential ones, in the demand letter, despite substantial compliance and providing the borrowers with the necessary information (in other words, complying with the spirit and intent of § 6111, as amended in 2009). At long last, the Finch decision strikes a balance of equities between the parties with respect to the effects of a prior judgment against the mortgagee, while still requiring strict compliance with § 6111.

The procedural posture in Finch was much like that of Pushard. In 2015, U.S. Bank’s foreclosure action against Chares D. Finch resulted in a judgment in Finch’s favor, on the grounds that the bank’s demand letter failed to strictly comply with § 6111. Finch at ¶3. Relying on res judicata and “free and clear title” principles outlined in Pushard, Finch then filed a complaint for a declaratory judgment in Superior Court in an attempt to force U.S. Bank to discharge its mortgage, given the judgment in Finch’s favor. Id. The Superior Court entered judgment in Finch’s favor, and U.S. Bank appealed. Id.

The Law Court vacated the Superior Court’s declaratory judgment in favor of Finch and remanded the case for an entry in favor of U.S. Bank. U.S. Bank’s mortgage remains enforceable. Finch at ¶52. In overruling aspects of Pushard through Finch, the Law Court relied on the clear language of § 6111: “the mortgagee may not accelerate maturity of the unpaid balance of the obligation or otherwise enforce the mortgage because of a default consisting of the mortgagor's failure to make any required payment … until at least 35 days after the date that written notice … is given by the mortgagee.” Finch at ¶2; 6 (citing 14 M.R.S. § 6111). Based on the precondition to acceleration set forth in § 6111, for “claim preclusion purposes, the fact that the Bank could not accelerate the note balance or enforce the mortgage means that the Bank’s claim for the full amount due on the note and for foreclosure of the mortgage was not and could not have been litigated.” Finch at ¶7. If no justiciable litigation on the note or the mortgage is allowed due to failure of a condition precedent set forth in § 6111, no claim preclusion can occur.

The Finch Court noted that it erred with its premise in Pushard that acceleration can be “triggered” by a foreclosure action being filed without the lender having any right to do so under the statute: “Our premise that a lender’s filing of a foreclosure action automatically accelerates the note cannot be squared with the plain language of § 6111.” Finch at ¶25-27. The Finch Court also noted that it erred in not distinguishing Pushard from Johnson v. Samson Constr. Corp.,1997 ME 220, 704 A.2d 866, which is distinguishable in at least two material ways. Finch at ¶26. In Johnson, the foreclosure was dismissed with prejudice as a sanction. Whether or not the lender ever had the right to accelerate the note was not an issue in Johnson. Id. Further, Johnson involved a business loan on a non-residence such that the non-acceleration language and condition precedent set forth in § 6111 did not apply. Id. Therefore, the lender in Johnson was not prohibited from acceleration, such that the amount due was not only accelerated but the note and mortgage were also litigated. Id.

Despite the heavy-handed dissenting opinion, lamenting that principles of stare decisis are being eviscerated and that the Finch decision is a “retreat from the principles of judicial restraint,” (Finch at ¶90), the majority thoroughly reconciled its Finch decision with stare decisis principles, including consistency, anomaly, workability, reliance, and policy. It noted for example, that Johnson is still good law in its holding that a dismissal with prejudice in one foreclosure action, as a sanction for misconduct, barred a second foreclosure. Finch at ¶26. The Law Court further held that this decision was not a departure from current Maine jurisprudence, but a re-alignment to return Maine law back to consistency with prior rulings and with every other jurisdiction in the country.

            In addition, strict compliance with § 6111 is only one element required to be proven for a foreclosure judgment to be issued to a mortgagee. There remain eight essential elements:

1.     The existence of the mortgage, including the book and page number of the mortgage, and an adequate description of the mortgaged premises, including the street address, if any;

2.     Properly presented proof of ownership of the mortgage note and the mortgage, including all assignments and endorsements of the note and the mortgage;

3.     A breach of condition in the mortgage;

4.     The amount due on the mortgage note, including any reasonable attorney fees and court costs;

5.     The order of priority and any amounts that may be due to other parties in interest, including any public utility easements;

6.     Evidence of properly served notice of default and mortgagor's right to cure in compliance with statutory requirements;

7.     Proof of default of or completion of mediation; and

8.     If the homeowner has not appeared in the proceeding, a statement, with a supporting affidavit, of whether or not the defendant is in military service in accordance with the Servicemembers Civil Relief Act.

Chase Home Finance, LLC v. Higgins, 2009 ME 136, ¶11, 985 A.2d 508, 510-511. If a mortgagee fails to prove the foreclosure case due to failure of any of the other elements, where the note was accelerated, there might still be a res judicata impact on any subsequent foreclosure.  

            Much remains to be seen in this line of jurisprudence. Foremost, J.P. Morgan Mortgage Acquisition Corp. v. Moulton , Law Court Dkt. No. Oxf-21-412 (argued Nov. 1, 2022) remains pending before the Law Court. Like Finch, the Moulton case also involves a demand letter that failed to comply with the strict requirements of § 6111 and resulted in judgment for the defendant, again holding that the note and mortgage were unenforceable. The Finch case will undoubtedly be further discussed and analyzed in the highly anticipated Moulton decision. Even if Moulton retains the strict compliance component in interpreting § 6111, the Law Court should provide guidance on what constitutes strict compliance. For example, what level of itemization of the amounts due will be required? Might § 6111 interpretation provide room for de minimis errors, where the notice of default substantially complies and addresses the spirit of the statute? It also remains to be seen what impact Finch (and soon-to-be Moulton) will have on the body of foreclosure case law in Maine going forward. What is certain is that Finch represents a long overdue shift in Maine foreclosure law and a course-correction by our Law Court and marks a victory for lenders in what has historically been a borrower-friendly foreclosure environment in Maine courts.

Copyright © USFN 2024

USFNews - January 24

* Denotes firm is a 2023 USFN Award of Excellence recipient

By Ron Chernek, Esq.

Reimer Law Co.*

USFN Member (KY, OH, WV)

Looking back at the historical evolution of the foreclosure process and the legal systems of the Roman civil law and the Common Law of England, we can trace how these ancient beginnings have shaped the concept of foreclosure over the centuries, and just how little has changed over 1,500 years.

When we review the historical aspects of the foreclosure process, it is imperative that we first understand the meaning of the term “mortgage.” In the legal publication known as Ohio Jurisprudence 2d, a mortgage is defined as “the conveyance of property to secure performance of some obligation, conditioned to become void on the due performance thereof.” In other words, property is given as security for some type of obligation that will cease when the person/entity obligated completes whatever he or she (or “it” in the case of a business entity) has promised to do. It is thought that the word “mortgage” has been derived from the Latin “mortuum vadium.” The literal translation of this term is a “dominant pledge.” This meaning appears to reflect the view that, if the obligation was not performed within the stated time, the security (property pledged) of the debtor or person/entity who made the promise would become dead or dormant.

Each state has various statutes that govern mortgages. In all states, the real estate mortgage is security for a related obligation, like a note or loan, with that obligation being the primary document and the mortgage being used to collateralize the document. In other words, the mortgage follows the note.

There are two requirements to any mortgage – the right to redeem in the mortgagor (the borrower) and the right to foreclose in the mortgagee (the lender). These concepts are basic to modern real estate practices. The borrower can repay his or her obligation and have the security interest satisfied as a result, whereas the lender retains the right to enforce its lien on the collateral if there is a default. The right of enforcement is what is known as foreclosure.

The legal purpose/reason for foreclosure involves cutting off the “equity of redemption,” or the right to retain property of the mortgagor in his or her security. In Roman civil law, often thought to be the predecessor of modern foreclosure laws, a pledge of fixtures, or land, was termed a “hypotheca.” Failure of payment as required by the pledge resulted in a procedure with notice to all interested parties whereby a hearing was held in open court on the default, and the sale of the property was publicized. The goal was to minimize damages to both parties.

Although the present system does not appear to vary in theory from that practiced by the Romans, the mortgage pledge was not recognized by feudal law in England. Not until the 16^th century did Common Law, the source of much of the law in the United States, come to accept the principle of “mortuum vadium.”

            English loans in the 11^th to 16^th centuries were unpredictable. Lenders could demand repayment at any time. If the borrower defaulted, a lender could seek a court order and the land would be forfeited to the lender by the borrower. A borrower then had the option of petitioning the king, who could then refer the matter to a lord chancellor, who had ultimate authority to rule as he saw fit. From 1618 to 1621, the lord chancellor was Sir Francis Bacon, who established the Equitable Right of Redemption, which allowed borrowers to pay off debts, even after default. The official end of the period to redeem the property was called “foreclosure,” derived from an old French word that means “to shut out.”

            In Common Law, the “mortuum vadium” was an absolute mortgage, a failure of which resulted in a forfeiture of title without any recourse to the debtor. This severe remedy was eased over a period of years by the various courts of England, known as courts of equity and chancery. As time progressed, the laws primarily stated that a mortgagee could not obtain clear title without actively demonstrating that it had a great enough interest in the property to cut off the mortgagor’s right to redeem the property, also known as the “equity of redemption.” The matters were routinely heard in a court proceeding where the parties were able to plead their respective cases.

            In the 1700s, the phrase “equity of redemption” came into common usage. In the case of Duchess of Hamilton v. Countess of Dirlton (1Ch.R. 165), the right of redemption was subject to two conditions:

1.     The mortgagor must pay the principal and interest within a reasonable time after the property was taken by the mortgagee, and

2.     The mortgagee had a right to petition the court to grant a decree ordering the debtor to pay by a fixed date or be forever barred from being able to redeem the property.

Upon obtaining a decree that cut off the equity of redemption, the mortgage obligation was satisfied by what was known as strict foreclosure. This was where the pledged property entirely became the property of the mortgagee when the right of redemption was terminated by the court’s decision. This greatly favored the mortgagee. Today, foreclosure is completed by public sale where fair conduct and bidding at the sale come into play, and surplus funds after satisfying expenses and mortgage claims and liens are generally turned back to the mortgagor.

During the Great Depression, beginning in the early 1930s, masses of homeowners were unable to make their mortgage payments. Between 1929 and 1933, personal income in the U.S. declined by 44 percent, the unemployment rate climbed to 25 percent, and housing values plummeted. The resulting defaults led to record numbers of foreclosures by mortgagees, largely banks. By 1933, a staggering 40 to 50 percent of all mortgages in the United States were in default, leading nearly 275,000 people into foreclosure as compared to 68,000 in 1926! This slide toward total collapse was one of the primary contributors to the banking crisis of the early 1930s. Twenty-seven states instituted moratoria to reduce the number of foreclosures at that time.

To combat these housing problems, the U.S. Federal Government instituted the Home Loan Bank Act of 1932. This was followed by the Home Owners’ Refinancing Act of 1933, which eventually led to the Federal Housing Authority (FHA), which was actually part of Franklin Roosevelt’s New Deal. This created federally funded long-term low-interest mortgages to refinance unstable mortgages. In 1938, the government created the Federal National Mortgage Association (Fannie Mae), which backed banks by purchasing mortgages, and thus freed up more of the banks’ money for additional mortgage and construction loans. This eventually led to the post-World War II housing boom.

In the 1950s and 1960s, the mortgage industry was fraught with discriminatory practices. Unbridled lending discrimination culminated in massive foreclosures for a disproportionate number of minority homeowners. Lenders disparately foreclosed upon upper-class, middle-class, and lower-class minority homeowners. This served to deepen racial segregation and prolonged the stagnancy in the real estate market in post-war America. This led to the Fair Housing Act of 1968, which really did very little to curb the discriminatory procedures of lending to and foreclosing on minorities.

One of the latest foreclosure crises occurred late in the first decade of the 2000s.  The financial industry was tanking, and Congress attempted to right the economy with a $700 billion bailout of the financial industry. The collapse of the housing market was largely responsible for the downturn and, as a result, the bailout did little to improve the economic situation in the U.S. In mid-2010, there was a 14 percent increase in the number of homeowners receiving default notices, and a staggering one in every 45 homes were foreclosed upon during that time period. In August 2014, the foreclosure rate was 33.7 percent, most densely in New York, New Jersey, and Florida. The problem became more widespread due to vast unemployment, and banks became more aggressive in their foreclosure efforts. 

Recently, the foreclosure industry has been greatly affected by the COVID-19 pandemic. The inception of moratoria and forbearance plans largely brought the foreclosure process to a halt. In addition, the government assisted Americans with stimulus funds in an attempt to curb the economic hardships resulting from the pandemic. Toward the end of 2021, and into 2022 and beyond, foreclosures increased dramatically as the moratoria gradually came to an end, as did the economic assistance.

In looking back at history and the evolving landscape of foreclosures, it is interesting to note that, after 1,500 years of changes in laws and rules, even with all the latest challenges to the way foreclosure is handled in our country, we have a system similar to that of the Romans. In most states, the primary instruments that have a mortgage effect are the mortgage deed and the deed of trust. To a degree, we have come full circle in adopting a foreclosure process that has recognizable similarities to the process used by our ancient ancestors.

Copyright © USFN 2023
USFN e-Update - October

By Stephen J. Vargas, Esq.

Nicole Gazzo, Esq.

Adam Gross, Esq.

Gross Polowy LLC

USFN Member (NJ, NY)

On December 30, 2022, New York Governor Kathy Hochul signed the “Foreclosure Abuse Prevention Act”[1], which took effect immediately and applies to all pending, pre-sale residential mortgage foreclosures. The law applies retroactively to permit a homeowner to raise a statute of limitations defense based on the newly enacted amendments, even though the mortgage debt was not time-barred at the time the foreclosure was commenced. The new laws overrule the Court of Appeals’ decision in Freedom Mortgage Corporation vs. Engel[2] by eliminating a plaintiff mortgagee’s ability to unilaterally de-accelerate a loan by discontinuing a pending foreclosure action within the limitations period.

The new laws also amend multiple sections of the New York State Consolidated Laws impacting foreclosures:

·       CPLR §203 (method of computing periods of limitations generally) and CPLR §3217 (voluntary discontinuance) were amended to prevent a foreclosing party from unilaterally revoking the acceleration of a loan. After a loan has been accelerated (typically by the commencement of a foreclosure), a plaintiff cannot utilize a deceleration letter or voluntary discontinuance of the foreclosure to revoke the acceleration and return the loan to installment payment status for the purpose of re-setting the statute of limitations. If a foreclosing party or a predecessor-in-interest accelerated a loan and decelerated it based on the law that existed prior to the Act, then the new law allows a defendant to argue that the prior deceleration was invalid, and the foreclosure commenced more than six years from the initial acceleration is subject to dismissal with prejudice as time-barred.

·   CPLR §205-a (termination of certain actions related to real property) is a new residential mortgage foreclosure-specific “savings statute” that imposes greater limitations on the ability to recommence a foreclosure if a prior foreclosure was dismissed outside the statute of limitations. The old “savings statute” (CPLR §205(a)) was available to a foreclosing party unless the prior foreclosure terminated by means other than voluntary discontinuance, failure to obtain personal jurisdiction over the defendant, a judgment on the merits, or neglect to prosecute (defined by appellate courts as a pattern of neglect, rather than a single, isolated neglectful omission or violation of a law or rule).

The new rule contains these prohibitions, but broadly defines neglect to include any omission that results in dismissal, including but not limited to: failure to move for an order of reference within one year from when the case is released from the foreclosure settlement conference part; failure to comply with a demand to resume prosecution; and failure to comply with any deadline order, appear at a court conference, or timely submit a proposed order or judgment. If a foreclosure is dismissed based on any of these failures more than six years from acceleration, then a new foreclosure is prohibited.

Additionally, CPLR §205-a is unavailable to a purchaser that bought a loan during the foreclosure process because it restricts its provisions to the original plaintiff and prohibits an assignee that came into ownership and possession of a note during a pending foreclosure from utilizing the savings provision. Thus, only the same entity that commenced the foreclosure that was dismissed can rely on the “savings statute,” and a new owner of the loan cannot, making foreclosure of the assignee’s loan time-barred. The law requires a foreclosing party that utilizes the “savings statute” to “plead and prove” it was the holder of the note and mortgage at the commencement of both the prior and re-commenced foreclosures. The retroactivity provision provides a defendant that answered the complaint with a ground to challenge a pending foreclosure commenced based on the “savings statute” if the foreclosing party is a different entity than the one that commenced the prior foreclosure, as well as if the prior foreclosure was dismissed for any neglect specified in the section.

·   RPAPL §1301 (separate actions for mortgage debt) was amended to prohibit the commencement of a new foreclosure while a prior foreclosure is pending unless the foreclosing party obtains permission from the court in which the action is pending to commence the subsequent foreclosure. This permission is a condition precedent to filing a subsequent foreclosure while the initial foreclosure has not been dismissed or voluntarily discontinued. If a foreclosing party elects to terminate a foreclosure for the purpose of commencing a new foreclosure, then it should voluntarily discontinue the initial foreclosure as soon as practicable and with enough time to mail a new 90-day notice and recommence the foreclosure before the 6-year SOL expires.

·     General Obligations Law §17-105 (promise & waivers affecting the time limited for action to foreclose a mortgage) was amended to establish that any promise or agreement to make payments will not extend the time for commencement of an action, unless it is in writing. To comply with the amendment, servicers should enter into written settlement agreements in connection with loss mitigation settlements.

·    CPLR §213 (actions to be commenced within six years) was amended to prohibit a foreclosing party or mortgagee defending a quiet title claim seeking to cancel and discharge a mortgage as time-barred from arguing a prior acceleration was invalid absent an expressed judicial determination, made upon a timely interposed defense, that the mortgage and note were not validly accelerated.

If a First Legal-stage loan is impacted by the Act (including, but not limited to, if a foreclosing party relied on a deceleration letter or voluntary discontinuance to revoke a prior acceleration or the “savings statute” after a neglect-based dismissal or mid-foreclosure transfer of the note and mortgage), then a new foreclosure cannot be commenced because the limitations period expired.

If a loan is the subject of a pending, contested foreclosure where the statute of limitations is at issue, then there is a high likelihood the foreclosure will be dismissed with prejudice based on the expiration of the statute of limitations, in which case remediation such as “advancing the due date” to within the six-year limitations period will not cure the defect. Any attempt to collect or recover a time-barred mortgage debt – including, but not limited to oral or written communication to the borrower concerning loss mitigation or threatening foreclosure – would create Fair Debt Collection Practices Act exposure for a debt collector law firm and loan servicer. Therefore, a foreclosing party and its servicer must exhaust litigation strategies (including motion and appellate practice) and consider all financially feasible loss mitigation home retention and liquidation options as an alternative to litigating a statute of limitations defense.

Further, by expanding the definition of neglect to include many common reasons for dismissal, any potential delay may result in a dismissal with prejudice. In the past, dismissals based upon neglect were often able to be vacated; however, that is unlikely under the new law. The servicer and counsel must work together to ensure the foreclosure moves forward in a timely manner and all court deadlines are met.

This law is new and contains many changes, and it is impossible to know how the courts may interpret the various provisions. Many questions related to the new law or potential updates to the law may occur post-publication of this article. If so, please consult with your New York counsel of choice.