THE MERE DISCONTINUANCE OF A PRIOR FORECLOSURE ACTION DOES NOT DE-ACCELERATE THE MORTGAGE DEBT; EXPLICIT NOTICE OF DE-ACCELERATION IS REQUIRED
On May 26, 2020, Mayor Bill de Blasio signed into law Section 22-1005 of the NYC Administrative Code, which prohibits the enforcement of personal guaranties of New York City commercial leases involving COVID-19 impacted tenants. Significantly, the new
On June 3, 2020, the Appellate Division, Second Department in the case of Trust v. Barua, 2020 N.Y. Slip Op. 03095, reversed a decision by the lower court and held that the discontinuance of a prior foreclosure action did not, standing alone, de-accelerate the mortgage debt. Therefore, a subsequently filed foreclosure action was time-barred.
On November 6, 2009, Chase Bank commenced a mortgage foreclosure action against the defendant by filing a summons and complaint in the Supreme Court (the “First Action”). In the complaint, it was alleged that Chase “elected and does hereby elect to declare the entire principal balance [of the note] to be due and owing.” Chase subsequently moved to discontinue the First Action, and the motion was granted in an order dated October 15, 2013.
On November 10, 2015, an assignee of the mortgage and note commenced a second action against the defendant to foreclose the mortgage (the “Second Action”).
The defendant moved to dismiss the Second Action arguing that since the First Action was commenced on November 6, 2009, and accelerated the full amount due on the note at that time, the Second Action, commenced on November 10, 2015, was commenced beyond the six-year statute of limitations and therefore should be dismissed as untimely. In opposition, the plaintiff argued that the discontinuance of the First Action without prejudice, which occurred within six years of that action’s acceleration of the full balance due on the note, operated as a de-acceleration of the debt thereby saving the Second Action from dismissal as being untimely.
The lower court concluded that since the First Action had been voluntarily discontinued by Chase, that affirmative act by itself revoked the 2009 acceleration of the debt; therefore, the debt acceleration of the Second Action in 2015 was timely.
The issue before the Appellate Division was whether the mere discontinuance of the First Action acted to de-accelerate the mortgage thereby saving the Second Action from dismissal based upon the six-year statute of limitation defense.
The Appellate Division reaffirmed established law that lenders may revoke the acceleration of full mortgage loan balances, so long as the revocation is accomplished by a clear and unambiguous express act occurring within six years of the earlier acceleration. The Court held that a lender’s mere act of discontinuing an action, without more, does not constitute, in and of itself, a clear and unambiguous affirmative act revoking an earlier acceleration of the debt.
Any time there is an instance where there are multiple foreclosure actions based upon the same debt, it is important that a careful analysis be done to determine whether there is a meritorious statute of limitations defense to the most current filed foreclosure action. Because a statute of limitations defense can be waived, it is imperative to immediately have legal counsel examine the matter so as to protect your rights.
It is expected that this new law will face many challenges by commercial landlords in the City of New York. One very obvious challenge is whether this new law violates the Contracts Clause in the United States Constitution. Art. 1, Sec. 10, Clause 1 of the US Constitution provides that “[n]o State shall…pass any…Law impairing the Obligation of Contracts.”
As all COVID-19 events and legislation are ever evolving on what seems an hourly basis, Daniels Norelli Cecere & Tavel, PC will be monitoring developments closely. If you have a commercial lease in NYC, we can review it and address any questions you may have.