When A Lender Is Pleased That It Had No Standing – Acceleration And The Statute Of Limitations

Lenders need not be told yet again that standing is a virtually inevitable defense in New York mortgage foreclosure cases – and not incidentally succeeds perhaps too often from the perspective of mortgage holders.  When lack of standing is decreed, a foreclosure is dismissed and, if the statute of limitations has by that time expired, all is lost.  That is to say, the borrower is relieved of the mortgage burden on his or her property and the lender collects nothing, even though it had made a loan which remained unpaid.  It is therefore counterintuitive for a lender to be pleased that a standing defense might ever succeed, but a recent case presents informative circumstances where just such an event occurred. [DLJ Mortgage Capital, Inc. v. Hirsh, 161 A.D.3d 944, 78 N.Y.S.3d 160 (2d Dept. 2018)].

The initial scenario is a scary – the usual situation which can lead to disaster for the lender.

Here graphically are the events:

• June 2007, summons and complaint in foreclosure filed, which would be deemed an acceleration starting the running of the statute of limitations.
• Written assignment of the note and mortgage to plaintiff in the foreclosure action is executed, but after commencement of the action.
• July 2009, likely recognizing the infirmity in the assignment of the note and mortgage, plaintiff’s application to discontinue the 2007 foreclosure action is granted by order. (This would typically leave the acceleration in place so if an action were begun late, the statute of limitations would have run.)
• New foreclosure action is commenced in 2015.
• Borrower defendants move to dismiss the foreclosure action against them on the ground that the statute of limitations of six years has expired.

Given this scenario, which as noted is the usual one leading to dismissal of a foreclosure action, it can be observed that the new action was begun more than six years after the initial action.  If the first action served as an acceleration (which did not necessarily go away when the first action was discontinued), then the second action was initiated more than six years after acceleration and therefore would indeed otherwise be barred by the running of the statute of limitations.

What was different here, though, was that at the time of the first action, the named plaintiff did not have standing – assignment of the note only came after the action was begun and there was no evidence that the note had been actually delivered prior to the beginning of the action.  Therefore, the plaintiff in the first action had not standing to begin it.  Without that standing, the action was a nullity in that it could never have accelerated the balance of the mortgage, the action having been brought by a party that did not own the note and mortgage.

To be sure, lenders do not want to lose foreclosures because of lack of standing.  Nor do they even want to start an action when they do not have that requisite standing.  But when that happened in this case, and although the foreclosing plaintiff wasted much time and expense, it was rescued from a total loss resulting from a possible running of the statute of limitations because that never began based upon lack of standing.

In the end, it is all a bit of an anomaly.  It highlights some of the ineffable twists and turns of foreclosure cases in the Empire State.  It also serves to underscore the ever present need to have standing when the action is begun – even though that failure in this unusual instance was not fatal.

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.