THE STATUTE OF LIMITATIONS DEFENSE IN A NEW YORK FORECLOSURE ACTION
A statute of limitations is a law that sets the time in which a legal action may be brought. Failure to start a legal action within the prescribed time period usually means that the plaintiff (the party bringing the lawsuit) has permanently lost the right to sue.
The statute of limitations in a residential foreclosure case in New York is six years after service of a “notice of acceleration” upon the homeowner. A notice of acceleration is a demand for immediate payment in full of all principal and interest payments due under the mortgage. A notice of acceleration must be served either before the foreclosure action is filed, or if the mortgage allows, it may be included in the foreclosure complaint.
The statute of limitations defense is rarely an issue in a bank’s first attempt at foreclosing on a property. The notice of acceleration is typically served shortly before the foreclosure action is commenced or included as a clause in the foreclosure complaint that is served upon the homeowner.
The statute of limitations defense becomes important when a bank commences a foreclosure action within the six-year time limit, but the action is dismissed “without prejudice” after the six years have expired.
If an action is dismissed “without prejudice” the bank may bring a second foreclosure action even if the statute of limitations has expired (see below). A dismissal without prejudice typically occurs for a technical reason such as the bank’s law firm missing a deadline, not responding to a motion, or failing to appear on a court date.
In contrast, if a foreclosure action is dismissed “with prejudice” the bank may not bring a second foreclosure case and the homeowner is free to keep the home indefinitely without making mortgage payments. A dismissal with prejudice usually occurs when the judge applies the law to the facts of the case and finds that the bank has no right to foreclose.
To determine whether the bank can proceed with a second foreclosure action after the first action has been dismissed without prejudice, it is necessary to consider both the statute of limitations defense and its exceptions.
IMPORTANT EXCEPTIONS TO THE STATUTE OF LIMITATIONS DEFENSE
Even when more than six years have passed since service of the notice of acceleration, the bank may still foreclose in the following situations:
1. After dismissal of a foreclosure action without prejudice, New York law gives the bank six months to start another foreclosure action even if the six-year time limit set by the statute of limitations has expired or will expire within the six months. The homeowner’s best option is usually to wait and hope the bank will not start another foreclosure case within the six months.
2. If a foreclosure case is dismissed without prejudice because the bank’s attorneys failed to do something (such as appearing in court or responding to a motion to dismiss the case), the bank has a year to make a motion to “vacate the dismissal,” which means to reopen the case.
The statute of limitations defense only applies when a new foreclosure action is filed. Since the bank is asking the judge to reopen the original foreclosure case, the statute of limitations defense does not apply. To win a motion to vacate the dismissal, the bank must show a reasonable excuse for not doing what it failed to do and a meritorious foreclosure case. The judge usually grants the motion to vacate the dismissal unless it is clear that the bank has no right to foreclose.
3. Even if the six years set by the statute of limitations and the six months to start a new action after a dismissal without prejudice have expired, a bank may still file a new foreclosure action. Unless the homeowner’s attorney includes an “affirmative defense” in the Answer to the Foreclosure Complaint stating that the action is barred by the applicable statute of limitations, the statute of limitations defense is lost and the bank can foreclose upon the property even though it started the second foreclosure action too late. This is another important caveat for any attorney who practices foreclosure defense litigation.
The second and third exceptions to the statute of limitations defense are just two examples of the many deadly pitfalls encountered throughout a foreclosure case. Such hidden dangers are a compelling reason to retain an attorney experienced in foreclosure defense litigation (not just applying for loan modifications) immediately after becoming aware of a foreclosure action. If the homeowner delays, the home may be lost unnecessarily.
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