Loan Modification Application Does Not Save Statute Of Limitations

The statute of limitations has lately proven so deadly to lenders that it elevates the importance of those acts or events which can toll or revive the period of limitations.  These include, among others, any part payment of the mortgage or a writing which acknowledges the debt.  [There really is much to this exigent subject and for those for whom a complete presentation of the law would be helpful, attention is invited to 1 Bergman On New York Mortgage Foreclosures §5.11[6], LexisNexis Matthew Bender (rev. 2018)].

This would immediately suggest that a mortgage modification agreement would serve to start the statute of limitations running afresh.  That would typically be so because such an agreement is invariably a clear acknowledgement that the debt exists, and a promise to repay it, albeit in a now slightly different fashion.  But what so often preceeds a mortgage modification is an application for that modification.  If a borrower is seeking to modify the mortgage, one would think that inherent in that is an acknowledgment that the debt exists – why else would the borrower seek to modify the obligation?  At the same time, though, the application itself is typically not an unconditional promise to pay – an aspect which is needed to revive the statute of limitations.  The application seeks permission to enter into an agreement which might indeed become that acknowledgement, but the application itself does not represent that.

While the principle is not necessarily new (a case citing that goes back to at least 1991) it is only a recent ruling which places the concept in the context of the mortgage modification application which, after all, is far more common today than it was decades ago. [U.S. Bank National Association v. Kess, 159 A.D.3d 767, 71 N.Y.S.3d 635 (2d Dept. 2018)]

Here the rule was affirmatively stated that the loan modification application was not an acknowledgment of the debt and an unconditional promise to repay the debt sufficient to reset the running of the statute of limitations.  That being so, where a foreclosing lender is in jeopardy that the statute of limitations will extinguish the debt, and that coincides with the possibility of pursuing a mortgage modification, the lender will need to think about obtaining an acknowledgment of the debt and the promise to pay either in the application (not easy to do) or in some accompanying clear writing.  Whether this will be obtainable is, of course, somewhat problematic.  But it needs to be understood that the application itself, which may or may not lead to a full modification agreement, is likely to be insufficient to save the day.

Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2018), 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.