1042 II Realty, Inc. v. PHH Mortgage Corporation

Background

1042 II Realty, Inc. brought a New York quiet-title action seeking to cancel and discharge a mortgage on property located at 1042 College Avenue in the Bronx. The action was brought under Section 1501(4) of the New York Real Property Actions and Proceedings Law. PHH Mortgage Corporation moved to dismiss for failure to state a claim, and 1042 II Realty cross-moved for summary judgment, which asks whether the undisputed record requires judgment as a matter of law.

The mortgage secured a $526,500 loan obtained by Candido Rodriguez in 2008. In May 2009, IndyMac Federal Bank, which then owned the mortgage loan, filed a foreclosure action and alleged that Rodriguez had defaulted. IndyMac also declared the entire remaining loan balance due. The foreclosure action was voluntarily discontinued in 2015, and the discontinuance was granted in June 2016. The mortgage was later assigned to Ocwen Loan Servicing, LLC, which merged with and became known as PHH Mortgage Corporation.

Legal Question

The parties agreed that the central issue was whether the six-year statute of limitations for enforcing the mortgage debt had expired. Under New York law, filing a foreclosure action that unequivocally demands the entire debt accelerates the debt and starts the six-year limitations period for the full balance.

The court held that the debt was accelerated on May 8, 2009, when IndyMac filed the foreclosure action and demanded payment of the entire outstanding balance. The court rejected PHH’s argument that provisions allowing the borrower to bring the account current before a foreclosure judgment meant that the debt had never been accelerated. The court relied on New York appellate authority holding that those provisions do not prevent acceleration when the foreclosure action is filed.

The limitations period therefore expired on May 8, 2015. The court recognized that voluntarily discontinuing a foreclosure action can revoke an acceleration, but held that a revocation is effective to stop the limitations period only if it occurs before the limitations period expires. Because the foreclosure action was discontinued after May 8, 2015, the revocation was ineffective and did not revive the expired claim. The court also concluded that PHH had abandoned its argument concerning an alleged failure to mail a required default notice because PHH did not meaningfully respond to 1042 II Realty’s response.

Ruling

Judge Valerie Caproni denied PHH Mortgage Corporation’s motion to dismiss and granted 1042 II Realty, Inc.’s cross-motion for summary judgment. The court concluded that 1042 II Realty satisfied the requirements for quiet title and cancellation of the mortgage under Section 1501(4). It directed the Clerk to enter judgment for 1042 II Realty, cancel and discharge the mortgage encumbering the Bronx property, terminate the pending motions, and close the case.