Appellate Court Allows Lender's Successor-in-Interest to Recommence Abandoned Foreclosure | Practical Law

Appellate Court Allows Lender's Successor-in-Interest to Recommence Abandoned Foreclosure | Practical Law

A New York appellate court recently held that a mortgage lender's successor-in-interest could recommence an abandoned foreclosure within six months of the dismissal of the original action.

Appellate Court Allows Lender's Successor-in-Interest to Recommence Abandoned Foreclosure

by Practical Law Real Estate
Published on 17 Mar 2017 • New York
A New York appellate court recently held that a mortgage lender's successor-in-interest could recommence an abandoned foreclosure within six months of the dismissal of the original action.
On February 8, 2017, in Wells Fargo Bank, N.A. v. Eitani, a New York appellate court affirmed that a successor-in-interest to a mortgage lender could recommence abandoned foreclosure proceedings within six months of a dismissal under Section 205(a) of the New York Civil Practice Law and Rules (CPLR) even though the action would otherwise be barred by the statute of limitations (47 N.Y.S.3d 80 (N.Y.A.D. 2 Dept.)).

Background

In 2005, the defendant purchased a home secured by a mortgage from Argent Mortgage Company, LLC. Defendant defaulted and the applicable notice and cure periods under the note and mortgage expired. The mortgage servicer accelerated the debt and commenced foreclosure proceedings in 2005. The defendant failed to answer the foreclosure complaint and Argent obtained an order of reference by default, but Argent did not obtain a judgment of foreclosure and sale.
In early 2008, Argent assigned the note and mortgage to Wells Fargo.
In 2011, while the action was still pending, the defendant conveyed the property by deed to Cohan, a third-party purchaser.
In 2013, the foreclosure was administratively dismissed as abandoned under CPLR 3215(c). Four months later, Wells Fargo recommenced the action under CPLR 205(a), which allows a plaintiff to recommence an action within six months its dismissal if certain requirements are met. Cohan argued that the action was time-barred because the six-year statute of limitations period expired, running from the date when the debt was accelerated in 2005.
Cohan moved for summary judgment claiming that CPLR 205(a) was not applicable because:
  • The prior action was dismissed for neglect to prosecute.
  • Wells Fargo was not the plaintiff in the previous action.
Cohan's motion was denied and this appeal ensued.

Outcome

The main question on appeal was whether the initial foreclosure action was dismissed for neglect to prosecute. CPLR 205(a) requires that the judge sets forth on the record the specific conduct constituting neglect that demonstrates a general pattern of delay in prosecuting the action.
As an initial matter, the court found that the facts satisfied the first three requirements of CPLR 205(a):
  • The current action would have been timely commenced if filed when the initial action was commenced in 2005.
  • The defendant was served within six months after the initial foreclosure action was dismissed.
  • The current action is based on the same occurrence as the initial foreclosure action.
CPLR 205(a) only allows the additional six-month period to recommence an action if it was dismissed on grounds other than:
  • Voluntary discontinuance.
  • Lack of personal jurisdiction.
  • Neglect to prosecute.
  • Final judgment on the merits.
The appellate court held that the initial foreclosure action was not dismissed for neglect to prosecute. Rather the foreclosure was deemed abandoned under CPLR 3215(c). The trial court's order did not contain any findings or specific conduct demonstrating a general pattern of delay. The court also took notice that the order dismissed the action without costs or prejudice, which left the plaintiff available to recommence the action.
The court also found that Wells Fargo was able to properly recommence the foreclosure action because:
  • Wells Fargo became a successor-in-interest to Argent when the mortgage and note were assigned.
  • The assignment to Wells Fargo occurred before the initial action was dismissed.
  • Both Wells Fargo and Argent were seeking to enforce the same rights and interests.
Accordingly, Wells Fargo was entitled to the savings provision of CPLR 205(a).

Practical Implications

This case has significant implications for homeowners and lenders. For homeowners, it provides caution that an action that is dormant and appears to be barred by the statute of limitations may be capable of being revived, even by a lender receiving an assignment of the mortgage and note. For lenders, it enables an assignee lender to continue a foreclosure proceeding even after the statute of limitations appears to have run.
For a complete list of New York foreclosure resources, see Foreclosure Toolkit (NY).