Can a Quiet Title Action to Discharge a Mortgage Help You Save Your Home?

Can a Quiet Title Action to Discharge a Mortgage Help You Save Your Home?

October 14, 2016 | In the years leading up to 2008, mortgages were sold back and forth among banks as an investment tool.[1]  When the housing bubble popped in 2008, it led to an economic recession with many homeowners defaulting or becoming late on their mortgage payments.  However, some banks found it difficult to win a foreclosure case in court even when it was clear that the homeowners stopped paying the mortgage a long time ago.[2]  This was because the banks could not prove that they actually owned the mortgage and the note when the banks transferred the mortgages so many times.[3]  So, what happens when a bank files a foreclosure against you and the bank loses?

Even if the bank loses the mortgage foreclosure action, it may still not mean that the borrowers are free and clear of their obligations to pay the mortgage and certainly they may not be free and clear legal owners of the property.  Not having free and clear title can have a significant impact on any potential sale of the property.  After all, one must legally own the property before he or she can sell it.  Therefore, when the bank has lost a mortgage foreclosure case, borrowers may have the option to go on the offensive and sue the bank in what is called a “Quiet Title Action.”[4]

Quiet title actions are lawsuits brought by a party against anyone having a legal interest in a piece of property in order to establish legal title over that property.  Essentially, these proceedings involve asking the court to decide whether the bank has a viable action to foreclose and whether the homeowner can have the mortgage removed as a lien from the title of the property.[5]

For mortgage foreclosure cases, one way that a borrower can start a quiet title action is to challenge the statute of limitations.[6]  Simply put, the statute of limitations is the legal timeframe in which one party has to begin a lawsuit.  To quiet title in a mortgage foreclosure case, the borrower must wait six years after the entire loan (instead of the usual monthly payments) is demanded by the bank, or what is called “accelerated.”[7]

Acceleration is the legal term used by banks to demand full payment of the borrower.  Banks must accelerate the defaulted loan in order to commence a particular action.  The courts also use the legal term “acceleration” when determining if the homeowner will prevail in the quiet title action.

However, calculating when the six-year period started can be a difficult process.  As this six-year period is one of the main elements of a quiet title case, the bank and the borrower will dispute about when the six-year period actually started, and of course, the issue is left to the courts to decide.[8]

The facts and circumstances of each case will dictate when the six-year period first started.  New York courts have ruled, though, that the six-year period begins to run when the bank first demands payment of the entire loan.[9]

The bank may demand payment of the entire loan in one of two ways.  First, the bank may send a letter declaring that as payments are overdue, the loan must be repaid in full.[10]  Second, the bank may also start the foreclosure process by suing the borrower and demanding payment of the entire mortgage loan.[11]

Either way, once the bank has demanded payment of the entire mortgage by clear and unequivocal terms, the six-year period will start running.[12]  This means that the bank has six years from when the loan was demanded in full to win a foreclosure action against a borrower.  If the bank does not prevail in a mortgage foreclosure case, and the six-year period has expired, only then can the borrower initiate a quiet title action.

Borrowers can only use a quiet title proceeding if the bank, or anyone else with an interest in the property, has not already won on the foreclosure issue.  Therefore, if it has been at least six years since the bank demanded payment of the entire mortgage loan, borrowers should consider whether a quiet title action can help them obtain free and clear title to their properties.

[1] See Paul Krugman, Just Say AAA, N.Y. Times, Jul. 2, 2007,[2] See U.S. Bank v. Videjus, 19 Misc.3d 1125(A), 862 N.Y.S.2d 818 (Sup. Ct. Kings Cnty. 2008); Wells Fargo Bank, N.A. v. Guy, 19 Misc.3d 1127(A), 866 N.Y.S.2d 96 (Sup. Ct. Kings Cnty. 2008).  [3] Gretchen Morgenson and Andrew Martin, Battle Lines Forming in Clash Over Foreclosures, N.Y. Times, Oct. 21, 2010,[4] Michael Corkery, Foreclosure to Home Sales, as 5-Year Clock Expires, N.Y. Times, Mar. 29, 2015,[5] See Salatino v. Salatino, 64 A.D.3d 923, 924, 881 N.Y.S.2d 721 (3rd Dept. 2009). [6] New York Real Property Actions and Proceedings Law § 1501(4); see also  id. [7] See Wells Fargo Bank, N.A. v. Burke, 94 A.D.3d 980, 982–83, 943 N.Y.S.2d 540 (2nd Dept. 2012). [8] Corkery, supra[9] See Burke, supra, at 983; see also id. [10] Burke, supra; Sherman v. Klein, 2008 N.Y. Misc. LEXIS 10183, *8, 2008 N.Y. Slip. Op 32567(U) (Sup. Ct. Nassau Cnty, Sept. 17, 2008). [11] See Burke at 983.[12] EMC Morg. Corp. v. Patella, 279 A.D.2d 604, 605, 720 N.Y.S.2d 161 (2nd Dept. 2001).

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