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Homeowners Win Statute of Limitations Defense: NY Residential Foreclosure Case

NY Residential Foreclosure Case

On November 17, 2021, the Supreme Court of the State of New York, Appellate Division, Second Judicial Department affirmed a lower court’s holding that granted Defendants (homeowners) motion for summary judgment in U.S. Bank Trust, N.A. etc. v Donna M. Yozzo, et al, ____ AD3d _____ (2d Dept. 2021)Clair Gjertsen & Weathers PLLC represented the winning borrowers in this action, and asserted that the statute of limitations had run on the bank’s right to bring a residential foreclosure action. The bank argued that it was a mortgagee in possession, as it had secured the property, by changing the locks and winterizing the house, and therefore the statute of limitations was tolled.  However, the lower court and Second Judicial Department found that the bank’s argument was unsound.  The Second Judicial Department did not provide any specific examples of what would constitute a mortgagee in possession, but as there is very minimal case law on what constitutes a mortgagee in possession in New York State, this is a huge win for borrowers across the state.

What is the Statute of Limitations for New York Residential Foreclosures?

Pursuant to CPLR § 213(4), foreclosures of residential real property are governed by a six-year statute of limitations, whereby an action to foreclose a mortgage may be brought to recover unpaid sums which were due within the six-year period immediately preceding the commencement of the action or acceleration.  

A mortgage debt is accelerated when the mortgagee has the right to require payment of the entire amount due and the borrower’s right to make monthly payments ends.  EMC Mtge. Corp. v Patella, 279 A.D.2d 604, 605-606 (2d Dept. 2001); Fed. Natl. Mtge. Assn. v Mebane, 208 A.D.2d 892, 894 (2d Dept. 1994).  Such acceleration must be “clear and unequivocal”.  Sarva v Chakravorty, 34 A.D.3d 438, 439, (2006); See, Arbisser v Gelbelman, 286 A.D.2d 693, 694 (2d Dept. 2001)Colonie Block & Supply Co. v Overmyer Co., 35 A.D.2d 897, 897 (1970).

What is a Mortgagee in Possession?

A mortgagee who is occupying the property to the exclusion of the owner; this may happen at any time, even if there has been no default by the mortgagor.  A “mortgagee in possession takes the rents and profits in the quasi character of trustee or bailiff of the mortgagor…They are applied in equity as an equitable set off to the amount due on the mortgage debt.”  Hubbell v Moulson, 53 N.Y. 225, 228 (1873).  See also, Morris v Budlong, 78 N.Y. 543 (1879); Gasco Corp.  Gordian Group v Tosco Props., 236 A.D.2d 510; 653 N.Y.S.2d 687 (2d Dept. 1997); Luna Light., Inc. v Just Indus., Inc., 137 A.D.3d 1228 (2d Dept. 2016).  A mortgagee in possession can act to toll any applicable statute of limitations, as they are possessing the property, in an effort to improve and/or rent out same in order to offset the subject debt.  Further, the collection of rental payments from an alleged mortgagee in possession may not be sufficient alone to toll the statute of limitations, as rental payments that go towards insurances, taxes and repairs would not act to toll the statute, as the monies did not go towards principal or interest.  

Changing the locks and maintaining possession to the subject property to the exclusion of the owner is not enough to be a mortgagee in possession.  Only when a record is supported by evidence demonstrating actual occupancy for several years, with improvements to the property, and periods of time of renting out said property does a mortgagee in possession relationship exist.  LaPlaca v Schell, 68 A.D.3d at 1479-1480. In LaPlaca, the defendant purchased a parcel of land and assumed the already existing mortgage on that land.  Thereafter, defendant conveyed half of the parcel to plaintiff in exchange for a release from their mortgage, but the deed was never executed because defendant was in bankruptcy at the time.  The court found a mortgagee in possession relationship existed, as Plaintiff had moved into the property for a period of time, and when he was not living there had rented the property to tenants, used the property as a storage area for his business, and made improvements on the property.  

Have you defaulted on your mortgage payments and moved out of the property?  

You could still have legal rights to your home, and potentially a statute of limitations defense.  You could even have the right to bring a lawsuit against the bank to have the mortgage lien marked off your county clerk’s records.  Timing is of the utmost importance and it is imperative that you speak with an attorney knowledgeable in residential foreclosures and foreclosure defense.  Clair Gjertsen & Weathers PLLC has been helping people through this complex process for the last 40-years.  We offer free initial consultations to see what options might be available to you.  Please contact us or give us a call at 914.472.6202.

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