Grill, Korman and Schieber Secure Affirmance of Discharge of Mortgage by the Appellate Division

In a contentious, hotly debated and widely misunderstood aspect of foreclosure law, the Appellate Division, Second Department sided with our borrower-client and affirmed the lower court’s order canceling a mortgage of record that encumbered a property situated in Old Westbury, N.Y.   In an aggressive and novel approach, we asked the lower court to expunge the mortgage on the ground that any potential foreclosure action that could be brought by the lender was time barred.  In 2008 and 2009, at the height of the mortgage crisis, two prior actions were commenced by the lender, which were dismissed and discontinued on technical grounds without prejudice.  We took the position that these discontinued and abandoned proceedings nonetheless served to accelerate the debt and triggered the statute of limitations.  Both the lower court and the Appellate Division agreed with our position that the filing of the prior foreclosure actions, in and of themselves, began the running of the statute of limitations.   The Court then held that the lender’s failure to re-commence a new foreclosure action within the ensuing six years required that the mortgage be discharged of record.  The Appellate Division also was asked to wrestle with the fundamental question of whether the statute could be reset by acts of the borrower.   The Court  agreed with our position that a series of letters sent by our client to the lender in an attempt to resolve the debt through a short sale was not sufficient to reset or toll the statute of limitations.  The Court also rejected the lender’s argument that the lender adequately revoked its prior acceleration by a letter of “de-acceleration,” holding that the evidence submitted by the lender was insufficient to demonstrate that it properly revoked the prior acceleration.  This decision should serve as notice to lenders that they must be vigilant in ensuring that, once a debt is accelerated, they timely commence an action.

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