1042 II Realty, Inc. v. PHH Mortgage Corporation

Background

1042 II Realty, Inc. brought an action under § 1501(4) of the New York Real Property Actions and Proceedings Law to cancel and discharge a mortgage encumbering property at 1042 College Avenue in the Bronx. PHH Mortgage Corporation was the defendant. The court stated that it had jurisdiction because the parties were citizens of different states and the amount in dispute exceeded the required threshold.

In 2008, Candido Rodriguez obtained a $526,500 loan secured by the mortgage. In May 2009, IndyMac Federal Bank, the then-owner of the mortgage loan, filed a foreclosure action against Rodriguez. The foreclosure complaint alleged that Rodriguez had failed to make required monthly payments and stated that the entire remaining principal, $524,617.86, was due. The loan was later assigned to other entities, including Ocwen Loan Servicing, LLC, which later merged with and became PHH Mortgage Corporation.

The foreclosure action was voluntarily discontinued in 2015, and the discontinuance was approved on June 6, 2016. 1042 II Realty later sued to quiet title, meaning it sought a court ruling that its property was free of the mortgage. PHH moved to dismiss the complaint for failure to state a legally sufficient claim under Federal Rule of Civil Procedure 12(b)(6). 1042 II Realty opposed that motion and asked for summary judgment, which is a ruling without a trial when no material fact requires a trial and the moving party is entitled to judgment under the law.

Legal Question

The parties agreed that the only issue was whether the six-year deadline for bringing a foreclosure action had expired. Under New York law, when a mortgage debt payable in installments is accelerated, the entire debt becomes due and the six-year limitations period begins to run on the full balance. The court had to decide whether the 2009 foreclosure filing accelerated the debt and whether the 2016 discontinuance reset the limitations period.

Court’s Analysis

The court held that the foreclosure complaint was an unequivocal act accelerating the debt. The complaint stated that the entire principal balance was due and owing. PHH argued that the loan had not been accelerated because required default notices had not been sent and because the mortgage allowed the borrower to bring the account current before a foreclosure judgment. The court concluded that PHH had abandoned the notice argument because it did not meaningfully respond after 1042 II Realty produced evidence of the notices. The court also rejected the argument based on the mortgage’s reinstatement provisions, relying on New York appellate authority holding that a borrower’s contractual ability to bring the loan current does not prevent acceleration when the foreclosure action is filed.

The court therefore determined that the six-year limitations period began on May 8, 2009, and expired on May 8, 2015. The parties agreed that voluntarily discontinuing a foreclosure action can revoke or undo an acceleration. But the court held that such a revocation stops the limitations period only if it occurs before the six-year period expires. Because the foreclosure action was discontinued in 2015 and the discontinuance was approved in 2016, after the limitations period had expired, the revocation was ineffective.

Disposition

The court concluded that the limitations period for collecting the mortgage debt had expired and that 1042 II Realty satisfied the requirements for cancelling and discharging the mortgage under New York law. 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 directed the Clerk to enter judgment in 1042 II Realty’s favor, cancel and discharge the mortgage, terminate the pending motions, and close the case.