The New York Appellate Division, Second Department, recently decided an issue of first impression concerning the evidence necessary to prove the de-acceleration of mortgage debt in a residential foreclosure action.1 The borrower commenced an action to cancel and discharge the mortgage and note pursuant to RPAPL 1501(4) on the basis that the statute of limitations for commencement of a foreclosure action had expired after a prior foreclosure action was dismissed. The bank moved to dismiss, arguing that a de-acceleration letter sent, prior to the expiration of the six-year statute of limitations period, revoked the prior acceleration of the debt. The Second Department reversed the trial court’s order granting the bank’s motion to dismiss.
The Second Department held that standing is a necessary element to prove a valid de-acceleration. Because the de-acceleration notice did not establish that the bank had standing to de-accelerate, and because the bank did not submit any proof on its motion to dismiss to demonstrate that it had standing to accelerate or de-accelerate the borrower’s mortgage debt, the Court found that the bank did not meet the standard of proof necessary to grant its motion to dismiss.
The Second Department further held that de-acceleration notices must be "clear and unambiguous". They also must not be pretextual, meaning when such letters are used solely to avoid an approaching statute of limitations deadline. To meet this standard, de-acceleration letters should contain an express demand that the borrower make his or her prospective monthly payment obligations or, if no such demand is made, the letter should be accompanied by copies of monthly invoices sent to the borrower for installment payments or some other type of evidence demonstrating the bank is truly seeking to de-accelerate.
In light of this decision, lenders and servicers should be cognizant to submit the proper evidence proving standing when engaging in motion practice in a matter involving a de-acceleration letter. Further, to ensure that a de-acceleration notice is valid in the first instance, the best practice for lenders and servicers is to ensure that all de-acceleration notices are "clear and unambiguous" in their intent to reinstate the mortgage loan as an installment loan.
1Milone v US Bank National Association, 164 A.D.3d 145 (2d Dep’t 2018).
About the Writers
Christina Parlapiano, a litigation partner at Day Pitney, handles complex commercial litigation. She represents lenders, mortgage loan servicers and financial institutions in disputes related to lending practices, loan origination, debt collection practices, loan servicing and deceptive business practices. She can be reached at [email protected] or 973.966.8229.
Adam Weiss, a litigator in Day Pitney’s Consumer Finance and Creditors' Rights group, represents major banks and other financial institutions in commercial litigation, handling matters involving allegations arising under federal and state consumer protection laws. He can be reached at [email protected] or 212.297.2460.