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NY: Statute of Limitations Defeats the Lender, Again


by Bruce J. Bergman
Berkman, Henoch, Peterson & Peddy, P.C. – USFN Member (NY)

There is reason to be incredulous about this aspect of the statute of limitations, and the industry is reminded of this yet again in a new case that voided a foreclosure — forever — because the statute of limitations had expired. [Solomon Holding Corp. v. Golia, 55 A.D. 3d 507, 868 N.Y.S. 2d 612 (1st Dept. 2008)] Mindful that in New York the statute of limitations to sue on a mortgage or the note is six years, how often would a lender wait that long to enforce its rights? One would think not often.

But there is a hidden threat. Once a foreclosure action is begun, even if it takes ten years to litigate (which does happen sometimes in New York), the statute of limitations is not an issue. It stopped running when the action began. If, however, after years of litigation or delay the foreclosure action is dismissed (for example via a ruling years later that service of process was deficient), even though the action itself disappeared, the acceleration survived. So if the mortgage balance had been accelerated more than six years ago, the statute of limitations has expired. (The lender could start the foreclosure anew, but if the borrower asserted the statute of limitations the borrower would win; the foreclosure would be dismissed.)

This lurking peril does strike with surprising frequency, relatively speaking. The subject case was of the garden variety: the lender just waited too long, more than six years! In this instance, the lender began a foreclosure and although the borrower answered the complaint, the borrower did not raise the statute of limitations as a defense. Interestingly, the statute of limitations as a defense can be waived, so if the borrower’s lawyer doesn’t notice it, the tardy lender may yet succeed. Here, though, the borrower awakened nineteen months after he served his answer and sought to amend to add the statute of limitations defense.

In response, the lender did not argue that the statute of limitations had not run out (obviously it had) but rather that it was too late for the borrower to now change the answer. That was the right approach to take, but unable to show the necessary elements of prejudice or surprise to bar amendment of a pleading, the plaintiff’s riposte was rejected.

Not only was the borrower’s answer amended, based upon the statute of limitations, the complaint was dismissed. The lender lost all. The lesson here is very apparent. Lenders cannot sit on their rights.

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