Beating The Statute Of Limitations By Starting The Action Anew

Lenders and servicers likely need not be reminded of the surfeit of cases dismissing foreclosures because the statute of limitations has run on the mortgage obligation.  This is a subject we have addressed more than a few times in these alerts so the minutia involved need not be repeated, save to lament (from the lenders’ point of view) the strange situation of the borrower simply allowed to keep all the mortgage proceeds because some mishap caused the statute of limitations to expire.

 These should be an awareness as well, though, of a savings provision contained in New York statutes, of which we are reminded by a helpful twist in a new case: U.S. Bank Trust, N.A. as Trustee for LSF9 Master Participation Trust v. Moomy-Stevens, 167 A.D.3d 1380, 91 N.Y.S.3d 788 (3d Dept. 2018).

Proceeding to the mentioned statute, if the foreclosure action has been dismissed, by which time the statute of limitations has expired, there is some limited authority which allows the action to be initiated anew.  Pursuant to CPLR § 205, entitled “Termination of action,” if an action was timely commenced but later terminated, the plaintiff is permitted to commence a new action upon the same transaction within six months after the termination.

 A number of provisos, however, limit the efficacy this authority to restart the action.  The new action had to have been timely in the first instance when the prior action was commenced.  Additionally, service upon the defendant must have been effected within that six month period.

 The most critical practical limiting factor mandated by the section is its unavailability if termination of the action was accomplished by voluntary discontinuance, neglect to obtain personal jurisdiction over the defendant, dismissal for want of prosecution or final judgment on the merits.  When all the conditions are met, prior action timely commenced, not dismissed via voluntary discontinuance, lack of personal jurisdiction or neglect to prosecute and there was no final adjudication on the merits, then upon commencing a new foreclosure within six months of the order of dismissal the statute of limitations will not be a bar.

In the new case cited, although want of prosecution is a circumstance to deny restarting of the action, dismissal granted upon abandonment, where the plaintiff waited more than a year to seek appointment of a referee, was found not the same as neglect to prosecute (pursuant to CPLR § 3216); certainly where the court did not find specific conduct showing a general pattern of delay in proceeding with the litigation.

In the end, the recent case offers helpful explanation of the ability to maintain the new action even though the statute of limitations has expired in the face of the borrower accusing the plaintiff of fatally abandoning the first action.

Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2019), 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.