A SECOND BITE AT THE APPLE

Decelerating a Mortgage to Foreclose on Your Home

EXAMINING HOW BANKS DECELERATE A MORTGAGE TO FORECLOSE ON YOUR HOME

October 14, 2016 | When a bank decides to foreclose on a lender’s property, the bank first accelerates the mortgage loan.  “Acceleration” is the legal term used by banks to demand full payment of the mortgage loan from borrowers.  Once the mortgage loan has been accelerated, the entire mortgage becomes due at once, instead of monthly installment payments and the statute of limitations begins to run.[1]  This means that once the mortgage loan has been accelerated, the bank has six years to commence and win a foreclosure case against the homeowner.[2]

Acceleration of the loan can occur in one of two ways.  One, a bank may decide to send a demand letter requesting payment of the entire mortgage loan.[3]  Two, a bank may also accelerate the mortgage loan by commencing a foreclosure action.[4]  In either case, the result will be the same in that the entire mortgage loan will be due at once instead of being due in monthly installment payments.

However, a bank can also choose to “deaccelerate” the mortgage loan after the loan has been accelerated and prior to prevailing in a foreclosure case against the homeowner.  A bank may decide to revoke its acceleration of the mortgage loan for a variety of reasons.  One main reason that may cause a bank to deaccelerate the mortgage loan is if the statute of limitations period is close to expiring and the bank realizes that it could potentially lose the case.

As noted above, a bank must foreclose on the property within six years from the date of accelerating the mortgage loan or risk relinquishing its claims against the property.  Due to various reasons, including court delays[5] and new homeowner protection rules enacted in light of the housing crisis in 2008,[6] banks may routinely find themselves in a situation where they are unable to foreclose on the property within the six-year period.  As a result, by revoking the acceleration of the mortgage loan, the bank is able to reset the six-year statute of limitations period and preserve its right to foreclose on the property at a later time.

Therefore, if the six-year statute of limitations period has already started to run, but the bank realizes it could potentially lose the case, the bank may consider deaccelerating the mortgage loan.  By deaccelerating the loan, the bank is effectively withdrawing its earlier demand of the entire mortgage debt and reverting back to the monthly installment payment plan.  In addition, the bank would not be entitled to the default interest that accrued during that time in the previous foreclosure case.

New York courts have ruled that while banks may deaccelerate the mortgage loan, banks must take affirmative steps in order for the revocation of the mortgage loan to be valid.[7]  In New York, banks may be able to revoke the acceleration of the mortgage, or what is called “deacceleration,” as long as “there is no change in the borrower’s position in reliance thereon[.]”[8]  New York courts have also suggested that if a bank chose to deaccelerate the mortgage loan, it must do within the six-year statute of limitations period.[9]

Courts in New York have made abundantly clear that banks must take affirmative steps to revoke the acceleration.  While the courts are less clear on what exactly constitutes “affirmative action,” courts have provided examples of acts that did not amount to a revocation of the mortgage loan.  For example, courts have ruled that a dismissal of a foreclosure action by the court was not an affirmative act by the bank to revoke its decision to accelerate the loan.[10]  In addition, courts have also found that acceptance of additional monthly payments after the mortgage has been accelerated did not constitute an affirmative act of revocation.[11]

The issue of whether a bank has taken affirmative action to revoke the mortgage loan acceleration clause is complex and dependent upon various factors.  Therefore, borrowers should obtain competent legal advice to determine whether the mortgage has been deaccelerated, or revoked, and what that may mean for the property, and potential future legal actions to foreclose on the home.

 

[1] EMC Mtg. Corp. v. Patella, 279 A.D.2d 604, 605, 720 N.Y.S.2d 161 (2nd Dept. 2001) (quoting Rols Capital Co. v. Beeten, 264 A.D.2d 724, 696 N.Y.S.2d 48 (2nd Dept. 1999); Loiacono v. Goldberg, 240 A.D.2d 476, 477, 658 N.Y.S.2d 138 (2nd Dept. 1997)). [2] See id. at 605–06. [3] See id. (“In this case, it is undisputed that in 1992 Dime notified the Patellas that their mortgage debt was being accelerated.  Accordingly, at that point in time, the entire mortgage debt became due, and the Statute of Limitations began to run.”). [4] Fed. Nat’l Mortgage Ass’n v. Mebane, 208 A.D.2d 892, 894, 618 N.Y.S.2d 88 (2nd Dept. 1994). [5] N.Y.S. Dept. of Fin. Servs., Report on New York’s Foreclosure Process (2015) (http://www.dfs.ny.gov/reportpub/fore_proc_report_052015.pdf). [6] See, e.g., Aurora Loan Servs. v. Weisblum, 85 A.D.3d 95, 107, 923 N.Y.S.2d 609 (2nd Dept. 2011). [7] See Mebane, supra, at 894 (“[A]lthough a lender may revoke its election to accelerate all sums due under an optional acceleration clause in a mortgage provided that there is no change in the borrower’s position in reliance thereon, the record is barren of any affirmative act of revocation occurring within the six-year Statute of Limitations period subsequent to the service of the complaint in the prior foreclosure action, wherein the holder of the mortgage notified the borrowers of its election to accelerate.”) (internal citations omitted). [8] Id. [9] See id. (“[T]he record is barren of any affirmative act of revocation occurring within the six-year Statute of Limitations period subsequent to the service of the complaint in the prior foreclosure action, wherein the holder of the mortgage notified the borrowers of its election to accelerate (internal citations omitted).” [10] Id.; Patella, supra, at 606. [11] Lavin v. Elmakiss, 302 A.D.2d 638, 639, 754 N.Y.S.2d 741 (3rd Dept. 2003).

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