Part Payment Fails To Rescue Lender From Statute Of Limitations Defeat

Many lenders and servicers are assuredly aware by now that borrowers have seized upon the six year statute of limitations to defeat foreclosure actions and thereby keep both the property and the monies loaned.  [This is a significant subject and has been addressed in more than a few of our alerts so basics will not be revisited here.  For readers needing the full story, attention is invited to Bergman on New York Mortgage Foreclosures §5.11, LexisNexis Matthew Bender (rev. 2016).] Mortgage holders should also know that any part payment made towards the mortgage by a borrower while the statute of limitations is running can serve to start the period running anew – but not so in a new case, U.S. Bank National Association v. Martin, 144 A.D.3d 891, 41 N.Y.S.3d 550 (2d Dept. 2016).

The bank needed to show, of course, that the payment to start the statute of limitations running again had been made.  To demonstrate that, the bank relied on the affidavit of an assistant secretary (officer) of the attorney- in- fact for the bank who stated that her knowledge of the facts was based upon the records and files of that attorney- in- fact entity, including the printout of the payment history regarding the subject loan.  The problem was that the court ruled the evidence insufficient to make the point because the bank failed to demonstrate the admissibility of the record relied upon by its affiant under what in New York is called the business records exception to the hearsay rule [CPLR 4518(a)].

While this may sound obscure, it is meaningful on an everyday basis.  In particular, because the affiant did not allege that she was personally familiar with the record keeping practices and procedures of that attorney- in- fact, she did not lay a proper foundation for the admission of the payment history of the subject loan.  Hence, there was effectively no proof that the payment was made.

Even had there been acceptable proof of the payment, it still had to be shown that the payment was “accompanied by circumstances amounting to an absolute and unqualified acknowledgement by the debtor of more being due from which a promise may be inferred to pay the remainder.”  This is standard legal stuff in New York and just needs to be understood.  But here the bank itself had asserted (in a sense admitted) that the payment was made as a condition to agreeing to an extension of a bankruptcy stay.  Therefore, the payment did not constitute an unqualified acknowledgement of the debt or manifest a promise to pay the remainder.

Finally, the court found that the payment history did not even show by whom the payment was made.  Therefore, it failed to prove that it was even made by the debtor.

The quick and ready lessons of this case, then, are as follows:

1. A lender asserting that a part payment starts the statute of limitations anew must prove that the payment was made, and the person swearing to it must be personally familiar with the record keeping practices of the institution; and
2. It must be shown that the payment absolutely supported the conclusion that payment of the debt was acknowledged; and
3. There must be a showing that the partial payment was actually made by the borrower.

Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2017), is a partner with Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. in Garden City, New York. He is also a member of the USFN, The American College of Real Estate Lawyers, The American College of Mortgage Attorneys, an adviser to the New York Times on foreclosure issues and writes a regular servicing column for the New York Law Journal. He is AV rated by Martindale-Hubbell, his biography appears in Who’s Who In American Law and he has been for years listed in Best Lawyers In America and New York Super Lawyers.