Do you live in New York and have a foreclosure suit in your past (initiated more than 6 years ago) that was voluntarily dismissed? Thanks to the recent Engels Decision, your lender may be able to re-start its case against you despite the many years that have passed. But first, you need to understand some legal terminology.

What is Loan Acceleration/De-acceleration?

If you read through your mortgage documentation, you may come across a clause that states that if you stop paying your mortgage payments, your lender has the right to ask for all the money you owe them at once and in one lump payment. This is called acceleration because the lender is accelerating the time between when the loan was signed and when the full payment will be expected to be completed. 

If your lender has started a foreclosure suit against you, the loan would be considered accelerated. However, if you were able to negotiate with the lender, and started your payments again, the loan would be considered de-accelerated because you are once again able to pay the debt over a longer period of time. Once a loan is de-accelerated, your foreclosure case would be considered voluntarily dismissed.

What is the Difference Between a Voluntary and Involuntary Dismissal?

There are two types of dismissals of foreclosure cases:

• A voluntary dismissal is when your lender stops the foreclosure suit against you on their own. An example of this is what happens if you successfully negotiate with your lender to re-pay or re-organize your loan.
• An involuntary dismissal is when the court decides against your lender and dismisses their case against you. For example, if your lender didn’t do the correct paperwork beforehand, the court can rule against them.

How Did the Statute of Limitations Work in Foreclosure Cases Prior to the Engels Decision?

From the time a lender decides to accelerate your debt, the statute of limitations in New York gives them six years to start the process by actually filing the complaint with the court. For example: if your mortgage lender accelerates your debt and sues you in 2014, and then the case was dismissed (either voluntarily or involuntarily because pre-Engel it did not make a big difference) in 2019, your lender usually couldn’t sue you again in 2021. This was because the courts considered your original acceleration (2014) to be the starting date of the six-year statute of limitations, and 2021 was over the time limit.

Needless to say, banks and lenders weren’t happy with this limitation. There were multiple arguments and cases in the court system all about the timing of when the six-year statute of limitations countdown actually started. They were especially upset that the countdown wasn’t restarted after a voluntary dismissal.

What Does the Engel Decision Change?

The Engel Decision (Freedom Mortg. Corp. v. Engel) was a Court of Appeals of New York decision that was actually based on four different cases – all having to do with the six-year statute of limitations, and the concept of acceleration and de-acceleration when it comes to residential foreclosure. Specifically, when does the “clock” start or stop?

What the Engel Decision mandated is the statute of limitations starts the clock on the date of the latest suit that was voluntarily dismissed, not the date of the original case. 

Using the example above, if your foreclosure suit started in 2014, and was voluntarily dismissed in 2019, your lender can NOW start a new case, using 2019 as the date of the last proceeding, because the 2019 case was a voluntary dismissal, and so the clock was restarted.

Note – the Engel Decision did not cover involuntary de-accelerations. Your foreclosure attorney maybe able to use the pre-Engel statute of limitations defense to fight your case if your last court decision was an involuntary dismissal.

What is The Foreclosure Abuse Prevention Act?

A number of New York housing advocates were concerned that unscrupulous lenders could use the Engel Decision to their own advantage. So several representatives created the Foreclosure Abuse Prevention Act. The justification of this bill was:

Engel effectively put the ability to unilaterally… stop, and restart the limitations period… at will, directly in the hands of mortgage foreclosure plaintiffs and their servicers, to the clear detriment of New York homeowners… As a direct result of Engel, …courts …have been bombarded with a flurry of motions made by mortgage lenders and servicers to re-open cases, some having been dismissed years ago on statute of limitations grounds, on the basis that Engel represents a change or clarification in the decisional law that, in effect, not only exempts mortgage foreclosure plaintiffs from having the statute of limitation applied to them, but gives them unilateral and unbridled control to manipulate calculation of the six-year period…

The bill passed both houses of the New York State Senate and is currently being reviewed by Governor Hochul. 

What to Do Next

We do not know if the Foreclosure Abuse Prevention Act will pass or in what form. In the meantime, if your older foreclosure case is being re-opened, you are going to need a lawyer by your side with extensive experience in foreclosure defense law. Foreclosure statute of limitations is not the only weapon a good foreclosure attorney can use. 

For a free consultation, reach out to New York foreclosure lawyer Ronald D. Weiss, P.C.  He can tell you what you need to know about fighting a foreclosure lawsuit and help you get your case started. Call 631-271-3737 and take the first step to a fresh start.