New York Case Law Update – Second Circuit Finds HUD Assignees Protected from Statute of Limitation Defense
Mortgage servicers operating in New York frequently encounter challenges involving the statute of limitations, either defensively in a foreclosure, or as a basis to quiet title, where a borrower alleges that their mortgage should be discharged as time-barred. Currently, the New York Court of Appeals is reviewing several matters involving the statute of limitations. Whereas all these cases turn on when acceleration occurred, lenders have addressed the statute of limitations by arguing either a revocation of the prior acceleration, re-affirmation of the debt through a subsequent payment, or a failure to establish standing to commence a prior action. However, recent authority from the U.S. Court of Appeals for the Second Circuit provides a new strategy that outlines immunity from the New York statute of limitations altogether.
On December 10, 2020, the Second Circuit issued a decision in Winward Bora, LLC v. Wilmington Savings Fund Society, FSB, finding that the New York statute of limitations was not applicable where a lender was foreclosing on a mortgage assigned by the U.S. Department of Housing and Urban Development (HUD). The Court’s analysis described the federal government’s invulnerability to a statute of limitations period unless specifically bound by one established by Congress. By extension, the Court found that an assignee of the federal government is also entitled to immunity from the statute of limitations because an “assignee of the United States stands in the shoes of the United States,” citing to UMLIC VP LLC v. Matthias, 364 F.3d 125, at 133 (3d Cir. 2004). Incidentally, the Court in Matthias found that there is no federal limitations period applicable to foreclosure actions brought by the federal government or its successors in interest.
Currently, the New York Court of Appeals is reviewing Freedom Mortg. Corp. v. Engel, 163 A.D.3d 631 (2d Dept. 2018) as well as Wells Fargo Bank, N.A. v. Ferrato, 183 A.D.3d 529 (1st Dept. 2020), where the Appellate Divisions each held that a voluntary discontinuance was insufficient to revoke a prior acceleration of a debt. Uncertainty remains as to how the New York Court of Appeals will rule on these matters as well as similar cases such as Vargas v. Deutsche Bank Natl. Trust Co., 168 A.D.3d 630 (1st Dept. 2019), which found an aged default letter was sufficient acceleration to trigger the statute of limitations. Accordingly, the decision in Winward Bora provides a welcome relief to lenders holding FHA-insured loans that have been assigned from HUD that are facing statutes of limitations concerns.
Based on the recent finding in Winward Bora, lenders and their counsel should carefully review the chain of title on new default matters to determine whether the loan had been assigned from HUD. Once confirmed a loan was transferred by HUD, counsel can then determine whether it’s beneficial to file a foreclosure action in federal court to limit the risk associated with a statute of limitations defense in state court. If you have any questions or concerns regarding these recent developments, please feel free to reach out to our office.
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