Summary
holding that "FAPA was intended to have retroactive effect" and applying FAPA § 8 to a prior voluntary discontinuance
Summary of this case from E. Fork Funding v. U.S. BankOpinion
Index No. 2018-2821
01-02-2024
DITECH FINANCIAL LLC, Plaintiff, v. Jason TEMPLE ; Lori Temple; Creative Encounters, LLC; New York State Commissioner of Health; Michael Gannon; Dana Gannon, "John Doe #1" Through "John Doe #12," the last twelve names being fictitious and unknown to plaintiff, the persons or parties intended being the tenants, occupants, persons or corporations, if any, having or claiming an interest in or lien upon the premises, described in the complaint, Defendants.
In this residential mortgage foreclosure action, there are two (2) motions pending before the Court. The Plaintiff, U.S. Bank Trust National Association, Not In Its Individual Capacity But Solely As Owner Trustee For RCF 2 Acquisition Trust (hereinafter referred to as the "Plaintiff" or the "Mortgagee"), filed a Notice of Motion for Summary Judgment, Order of Reference, and Amendment of Caption, that was returnable on December 27, 2022. By Order dated January 9, 2023, the Court (Hon. Mark L. Powers, J.S.C., Presiding), granted the Plaintiff's Motion by default. Thereafter, by Order to Show Cause that was signed by the Court on June 21, 2023, Defendants, Jason Temple, Lori Temple, and Creative Encounters, LLC (hereinafter referred to as the "Defendants" or the "Mortgagors"), moved for an Order vacating the January 9, 2023 Order Granting Summary Judgment, Reference and Amendment of the Caption. On July 20, 2023, the return date of the Order to Show Cause, and after hearing oral argument, the Court vacated its January 9, 2023 Order on the record, finding that Defendants did not receive proper notice of the Plaintiff's Motion given the Plaintiff's failure to notify Defendants that the case had been converted to e-filing through NYSCEF. The Court indicated that the Plaintiff's Motion would be decided on the merits, and set a briefing schedule for the parties’ submissions thereon.
Although the caption of this action has never been amended, U.S. Bank Trust National Association, Not In Its Individual Capacity But Solely As Owner Trustee For RCF 2 Acquisition Trust, is the current assignee and holder of the Note and Mortgage that is the subject of this action. Ditech Financial LLC, the Plaintiff named in the caption, was the assignee and holder of the subject Note and Mortgage at the time this action was commenced.
Creative Encounters, LLC is named as a Defendant in this action because by Quitclaim Deed, dated February 4, 2015, Defendant, Jason Temple and Defendant Lori Temple, transferred the subject property to Defendant, Creative Encounters, LLC.
On July 30, 2023, Defendants filed a Notice of Cross-Motion seeking an Order denying the Plaintiff's Motion for Summary Judgment, granting their Cross-Motion for Summary Judgment, and dismissing the Complaint pursuant to CPLR Rule 3212. Defendants further request an Order quieting title and discharging the mortgage of record pursuant to RPAPL Article 15, and seek an award of attorneys’ fees and costs pursuant to RPL § 282. The Plaintiff opposes the Cross-Motion. This case was thereafter reassigned to me for further proceedings.
The undisputed facts are as follows: On August 2, 2007, Defendant, Jason Temple and Defendant, Lori Temple executed a Note in the amount of $200,700.00, in favor of the original lender, SunTrust Mortgage, Inc. The Note was secured by a Mortgage on real property located at 24 Weathercrest Court, Schenectady, New York 12302 (hereinafter referred to as the "subject premises"), duly recorded with the Schenectady County Clerk on August 3, 2007. Notably, the Mortgage provided that the lender has the right to accelerate the loan and require immediate payment in full in the event of the borrowers’ default under the terms of the Note and Mortgage.
On August 27, 2008, Federal National Mortgage Association, the then-assignee and holder of the Note and Mortgage at that time, commenced an action to foreclose on the Mortgage by filing a Summons, Complaint and Notice of Pendency with the Schenectady County Clerk (hereinafter referred to as the "2008 Action"). The Complaint in the 2008 Action was based on Defendants’ alleged default on the Note and Mortgage by failing to make the monthly payment due on May 1, 2008, and each and every month thereafter. The principal balance due as of the filing of that Complaint was $199,651.11 plus interest from April 1, 2008. Notably, as stated in the Complaint in the 2008 Action, "Plaintiff elects to call due the entire amount secured by the mortgage" (see , paragraph "FIFTH" of the Complaint in the 2008 Action, included as part of NYSCEF Doc. No. 17).
Defendants did not appear in the 2008 Action. However, on November 19, 2008, a Loan Modification Agreement was purportedly executed by Defendants that reflected a new principal balance of $216,834.09. The Plaintiff acknowledges that the original Agreement was never recorded with the Schenectady County Clerk and was either lost or inadvertently destroyed. Therefore, the mortgage tax relating to this Agreement, if any, was never paid.
On April 13, 2009, the 2008 Action was voluntarily discontinued by Federal National Mortgage Association by the filing of a Notice to Cancel Lis Pendens with the Schenectady County Clerk. The Attorney Affirmation in Support of Discontinuance and Cancellation of Lis Pendens that was filed along with the Notice to Cancel Lis Pendens indicates that the 2008 Action was being discontinued because a Loan Modification Agreement had been entered into with Defendants.
Approximately five (5) years later, on December 15, 2014, Green Tree Servicing, LLC, the then-assignee and holder of the Note and Mortgage at that time, filed an action in Schenectady County Supreme Court seeking an Order granting an equitable lien in the subject premises to Green Tree Servicing, LLC, and a directive that the Schenectady County Clerk accept for filing a copy of the Loan Modification Agreement (hereinafter referred to as the "2014 Action"). By Decision and Order dated August 2, 2016, the Court (Hon. Vincent J. Reilly, Jr., J.S.C., Presiding), denied the relief requested based in part on the lack of proof that the Loan Modification Agreement had been duly executed by Defendants or that it was valid on its face. The Court also found that the enforcement of an equitable lien on the subject premises, based on the Loan Modification Agreement that was purportedly executed on November 19, 2008, was time-barred based on the expiration of the six-year statute of limitations pursuant to CPLR § 213(1). Green Tree Servicing, LLC did not appeal this Decision and Order.
Approximately two (2) years following the date of the Decision and Order in the 2014 Action, on November 29, 2018, Ditech Financial LLC, the then-assignee and holder of the Note and Mortgage at that time, commenced the instant action to foreclosure on the Mortgage by filing a Summons, Complaint and Notice of Pendency with the Schenectady County Clerk (hereinafter referred to as the "2018 Action"). The Complaint in this action is based on Defendants’ alleged default on the Note and Mortgage by failing to make the monthly payment due on December 1, 2012, and each and every month thereafter. The principal balance due as of the filing of the Complaint was $211,060.83 plus interest from November 1, 2012. Defendants served an Answer to the Complaint and Counterclaims, dated December 20, 2018. Defendants asserted as and for an affirmative defense, among others, that this action is barred by the statute of limitations. Defendants, Michael Gannon and Dana Gannon, also served an Answer, dated December 5, 2018. There is nothing in the Court's record indicating that the Plaintiff served a Reply to Defendants’ Counterclaims. Approximately four (4) years after the commencement of this action, the Plaintiff moved for summary judgment.
An action to foreclosure a mortgage is subject to a six (6)-year statute of limitations. See , CPLR § 213(4) ; GMAT Legal Title Trust 2014-1 v. Kator , 213 AD3d 915, 916. Generally, when a mortgage is payable in installments, separate causes of action accrue as to each installment that is not paid, and the statute begins to run from the respective due date for each installment. See , Wells Fargo Bank, N.A. v. Burke , 94 AD3d 980.
An exception to this general rule is when the mortgage holder elects to accelerate the debt and declares the entire unpaid balance to be immediately due and payable. An election to accelerate the entire debt must be clear and unequivocal. "[T]he commencement of a foreclosure action wherein the plaintiff elects in the complaint to call due the entire amount secured by the mortgage", constitutes such a clear and unequivocal acceleration. Bank of NY Mellon v. Stewart , 216 AD3d 720, 722. See also , GMAT Legal Title Trust 2014-1 v. Kator , supra [internal citations omitted].
If the mortgage debt is accelerated, "the borrower's right and obligation to make monthly installments ceases, all sums become immediately due and payable, and the six-year statute of limitations begins to run on the entire mortgage debt". U.S. Bank N.A. as Trustee for RASC-2005KS5 v. Wongsonadi , 55 Misc 3d 1207(A), citing , EMC Mtge. Corp. v. Patella , 279 AD2d 604, and Federal Natl. Mtge. Assn. v. Mebane , 208 AD2d 892. See also , Sycp, LLC v. Evans , 217 AD3d 707, 708 ; Bank of NY Mellon v. Stewart , supra ; GMAT Legal Title Trust 2014-1 v. Kator , supra [internal citations omitted].
Defendants have established, prima facie, that the mortgage debt was clearly and unequivocally accelerated and the six-year statute of limitations began to run on the entire debt on August 27, 2008, when Federal National Mortgage Association commenced the 2008 Action with the filing of a complaint that called due the entire amount secured by the Mortgage. Since the instant action was not commenced until November 29, 2018, more than ten (10) years after the entire debt was accelerated, Defendants have demonstrated, prima facie, that this action is untimely. See , Sycp, LLC v. Evans , supra , at 708-709.
The Plaintiff argues that the voluntary discontinuance of the 2008 Action prior to the expiration of the statute of limitations served to revoke the acceleration of the debt, or decelerate the debt, and reset the statute of limitations. The Plaintiff relies on Freedom Mtge. Corp. v. Engel , 37 NY3d 1, wherein the Court of Appeals held that "where acceleration occurred by virtue of the filing of a complaint in a foreclosure action, the noteholder's voluntary discontinuance of that action constitutes an affirmative act of revocation of that acceleration as a matter of law, absent an express, contemporaneous statement to the contrary by the noteholder". Id. , at 32. The Plaintiff contends that based on the holding in Engel , the acceleration of the debt with the filing of the 2008 Action was revoked in 2009 when that action was voluntarily discontinued, and that the debt was not reaccelerated until the filing of the 2018 Action when the statute of limitations began to run anew. Thus, the Plaintiff argues that the instant action was timely commenced and is not barred by the statute of limitations.
However, the New York State Legislature recently enacted the Foreclosure Abuse Prevention Act ("FAPA"), which became effective on December 30, 2022. The Appellate Division, Second Department has held that the enactment of FAPA had the effect of nullifying the above-quoted holding in Engel . See , Bank of NY Mellon v. Stewart , supra , at 723; GMAT Legal Title Trust 2014-1 v. Kator , supra , at 917. Specifically, FAPA amended CPLR § 3217 regarding the voluntary discontinuance of actions by adding subdivision (e) which provides that "in any action on an instrument described under CPLR § 213(4), the voluntary discontinuance of such action, whether on motion, order, stipulation or by notice, shall not, in form or effect, waive, postpone, cancel, toll, extend, revive or reset the limitations period to commence an action and to interpose a claim, unless expressly prescribed by statute".
The Plaintiff submits that FAPA should only be applied prospectively to cases commenced after its effective date and therefore, it is not applicable to this pending action. The Plaintiff argues that Engel is the controlling law that should be applied in this case. Defendants contend that FAPA, which overruled Engel , should be applied retroactively to this case.
While the Appellate Division, Third Department has not yet ruled on whether FAPA should be given retroactive application or should only be applied prospectively, the Second Department has consistently applied FAPA retroactively in several recent cases wherein the statute of limitations was raised as an affirmative defense. See , Johnson v. Cascade Funding Mtge. Trust 2017-1 , 220 AD3d 929, 931-932 ; ARCPE 1, LLC v. DeBrosse , 217 AD3d 999, 1001-1002 ; Deutsche Bank Natl. Trust Co. v. Natal , 217 AD3d 835, 836 ; U.S. Bank N.A. v. Outlaw , 217 AD3d 721, 723 ; Sycp, LLC v. Evans , supra , at 709; MTGLQ Invs., L.P. v. Singh , 216 AD3d 1087, 1088 ("the voluntary discontinuance of the 2011 action did not serve to reset the statute of limitations", citing , CPLR § 3217(e) and GMAT Legal Title Trust 2014-1 v. Kator , supra ); U.S. Bank N.A. v. Onuoha , 216 AD3d 1069, 1072-1073 ; Bank of NY Mellon v. Stewart , supra , at 723.
Additional support for the retroactive application of FAPA is found in the explicit terms set forth in Section 10 of FAPA which states that "[t]his act shall take effect immediately and shall apply to all actions commenced on an instrument described under subdivision four of section two hundred thirteen of the civil practice law and rules in which a final judgment of foreclosure and sale has not been enforced". See , NYSCEF Doc. No. 65. Indeed, since the enactment of FAPA, several lower courts have found that this language demonstrates that the Legislature intended FAPA to be remedial in nature and to have retroactive effect. See , 195-197 Hewes LLC v. Citimortgage Inc. , 2023 NY Misc. LEXIS 14352; Ditech Fin. LLC v. Naidu , 2023 NY Misc. LEXIS 22694; U.S. Bank Trust, N.A. v. Miele , 80 Misc 3d 839, 845-849 ; Wells Fargo Bank NA v. Haq , 2023 NYLJ LEXIS 1431; Deutsche Bank National Trust Company v. Dagrin, et al. , 2023 NY Misc. LEXIS 13056.
Based on the express language of Section 10 of FAPA and the holdings in the above-cited cases, particularly those in the Appellate Division, Second Department decisions that are binding on this Court, this Court likewise finds that FAPA was intended to have retroactive effect. Thus, FAPA is the controlling law which should govern in a case such as this one where a final judgment of foreclosure and sale has not yet been enforced. Applying FAPA to this case, specifically CPLR § 3217(e), it is clear that the unilateral, voluntary discontinuance of the 2008 Action, by filing the Notice to Cancel Lis Pendens in 2009, did not reset the six-year statute of limitations that began to run on August 27, 2008.
Furthermore, the voluntary discontinuance of the 2008 Action is not exempt from the provisions of CPLR § 3217(e) simply because it was based on a Loan Modification Agreement purportedly executed by Defendants. CPLR § 3217(e) does carve out an exception if the voluntary discontinuance is based on an agreement to waive or postpone the accrual of the statute of limitations. However, the agreement must strictly comply with the requirements of GOL § 17-105. See , NYSCEF Doc. No. 65.
Here, the Loan Modification Agreement cannot be relied upon to exempt the voluntary discontinuance of the 2008 Action from the provisions of CPLR § 3217(e) for several reasons. First, this Court has already determined that the Loan Modification Agreement, the original of which was never recorded, is unenforceable. See , the Court's August 2, 2016 Decision and Order in the 2014 Action, which was never appealed and therefore, has res judicata effect. Second, even if the Agreement was enforceable, the Plaintiff does not have standing to enforce the Agreement because there is no evidence that it was ever assigned to the Plaintiff. In fact, the Loan Modification Agreement is not mentioned in any of the Assignments of the Mortgage in the chain of assignments submitted with the motion papers. Third, even if the Agreement was enforceable and the Plaintiff had standing to enforce it, the Agreement itself does not contain any language expressly stating that the debt was being decelerated or that the statute of limitations was being waived, extended, postponed or reset. Therefore, the Agreement is not in compliance with the necessary provisions of GOL § 17-105 to qualify it for exemption under CPLR § 3217(e). See , Section 3 of FAPA, which amends GOL § 17-105(4) and (5) "to clarify that these subdivisions represent the exclusive means by which parties are enabled to effectuate a waiver, postponement, cancellation, resetting, tolling, revival or extension of time limited by statute for commencement of an action or proceeding and interposition of a claim to foreclose a mortgage". NYSCEF Doc. No. 65. Accordingly, the Plaintiff's argument that Defendants agreed to the deceleration of the debt and a waiver of the statute of limitations by entering into the Loan Modification Agreement must fail.
The Plaintiff also contends that the retroactive application of FAPA is unconstitutional in that it violates the Plaintiff's rights under the Due Process Clause and the Contract Clause of both the New York State and the United States Constitutions. Although deciding that FAPA is to be applied retroactively, the Appellate Division, Second Department did not address the constitutionality of the retroactive application of FAPA in any of its decisions. Nor have any of the other Appellate Divisions in New York yet addressed the constitutionality of the retroactive application of FAPA as of the date of this Decision and Order. However, several lower courts have addressed this issue in recent decisions. See , e.g. , 195-197 Hewes LLC v. Citimortgage Inc. , supra ; Ditech Fin. LLC v. Naidu , supra ; U.S. Bank Trust, N.A. v. Miele , supra , at 849-854; Wells Fargo Bank NA v. Haq , supra ; HSBC Bank USA, N.A. v. IPA Asset Mgt., LLC , 79 Misc 3d 821, 824-826 ; Deutsche Bank National Trust Company v. Dagrin, et al. , 2023 NY Misc. LEXIS 13056, which all hold that the retroactive application of FAPA does not violate the mortgage lender's constitutional rights. Compare , Deutsche Bank Natl. Trust Co. v. Warren , 2023 NY Misc. LEXIS 7773; U.S. Bank v. Johns , 2023 NYLJ LEXIS 2080; HSBC Bank USA, N.A. v. Besharat , an unreported decision submitted as NYSCEF Doc. No. 68, which hold that the retroactive application of FAPA does violate the mortgage lender's constitutional rights. As can be seen by this sampling of decisions, which are not binding on this Court, the lower courts are divided on the constitutionality of the retroactive application of FAPA.
Before this Court can decide the constitutionality of the retroactive application of FAPA, the New York State Attorney General must "be notified and permitted to intervene in support of its constitutionality". CPLR 1012(b)(1). CPLR 1012(b)(3) further provides, in pertinent part, that "[t]he court having jurisdiction in an action or proceeding in which the constitutionality of a state statute ... is challenged shall not consider any challenge to the constitutionality of such state statute ... unless proof of service of the notice required by this subdivision is filed with such court".
Accordingly, the Plaintiff is hereby directed to serve the notice required by CPLR 1012(b)(1), and a copy of this Decision and Order, upon the New York State Attorney General by Friday, January 19, 2024 , and file proof of such service with the Court by Friday, January 26, 2024 . The New York State Attorney General will then have an opportunity to intervene in this action and file papers stating her position regarding the constitutionality of FAPA, which papers must be filed with the Court by Friday, March 1, 2024 .
The Court reserves decision on the remaining issues raised by the parties in their respective motion papers until its receipt of papers filed by the New York State Attorney General, if she chooses to intervene in this action.
The foregoing shall constitute the Decision and Order of this Court.