by Partner Mark Anderson, Associate Andreas Christou, and Law Clerk Stephen Blake

Our office is now seeing a growing trend among banks commencing foreclosure actions against people that are deceased. This is problematic for the banks because such actions are a nullity as to the borrowers. Rather, banks must sue the heirs of the borrower of their estate.

However, what’s more troubling is that it would appear that banks are proceeding in foreclosure actions when a deceased borrower defaults. Suspiciously, banks will advise courts of the default, but not that the reason for the default was the borrower having died. We have seen a number of cases where the banks learn from the court—based on their own research—that the borrower is dead. Only then do the banks say, “whoops – we had no idea.”

Partner Mark Anderson

In the event that this happens, the proper procedure, provided the Court grants permission, would be for the banks to discontinue the action, open an estate on behalf of the deceased person so that the administrator can be sued, and then recommence the action. This process can be accomplished in a few weeks, but if oftentimes proves to be too difficult and costly for the banks. Instead, they usually choose a few less than creative “solutions”:

  1. Banks can do nothing and let the case languish on the court docket. They will appear at court conferences and claim they are “looking into it.”
  2. Banks can truly believe one can sue a deceased person, and will just keep trying to push the case through. In other words, they attempt the impossible: a resurrection order.
  3. They discontinue the matter but do not timely recommence their action against the heirs or administrator for the estate of the deceased borrower.
  4. An heir of the borrower is alerted of the case and files a motion to dismiss.

We had recent success in a case entitled Wilmington Savings Fund Society, FSB v. Friedberg. In this case, the bank filed its foreclosure action in 2013, but the borrower had passed away in 2012. Interestingly, the bank argued the case was not a nullity because they had served all the parties they could find.  The court was not buying that argument and dismissed the case.

Importantly, each of these lazy and less than creative solutions have one major problem: by the time the banks wake up and realize what they should have done, the foreclosure case is time-barred. If the action is time-barred, the mortgage can be extinguished under New York law (See RPAPL section 1501).

Associate Andreas Christou

Unsurprisingly, even if the action is time-barred, banks will not go quietly into the night. They cannot accept that they gave someone a free house because they were negligent in discovering the death of the borrower or were caught intentionally trying to dupe the client into believing they had no idea the borrower was dead.

In response to actions to remove mortgages, also known as quiet title actions, the banks who incredibly would have the court believe the prior case was NOT a nullity, will now argue the exact opposite. Why? For the simple reason that this argument now benefits them. That is, the bank will now say the foreclosure action is not time-barred because the prior acceleration of the mortgage—the event that starts the accrual of the statute of limitations—could not have occurred because the last action was a nullity to begin with. You read that right: they now embrace the very argument they argued against in the foreclosure case.

Although not yet addressed in the Second Department, one trial court in New York flatly rejected this convenient argument in Your New Home, LLC v. JP Morgan Chase Bank, N.A., 62 Misc.3d 1046, 92 N.Y.S.3d 851 (Supreme Court Westchester County, January 18, 2019). At issue was whether a mortgage debt is accelerated, so as to commence the statute of limitations, by the filing of a complaint in a foreclosure action even though the mortgagor had deceased prior to the commencement of the foreclosure action. Expectedly, the defendant bank argued that the foreclosure action cannot have accelerated the debt, triggering the statute of limitations, because the foreclosure action was a nullity. Conversely, the plaintiff, pointing to the typical language used in foreclosure actions, “Plaintiff has elected and hereby elects to declare immediately due and payable the entire unpaid balance of principal”, argued that while the action was a nullity, the acceleration of the debt was not.

In deciding this case, the Your New Home court relied on the language of the Second Department in Milone v. U.S. Bank Natl. Assn., 164 A.D.3d 145, 152 (2d Dep’t 2018), summarizing the three ways in which a mortgage can be accelerated:

One way is in the form of an acceleration notice transmitted to the borrower by the creditor or the creditor’s servicer. To be effective, the acceleration notice to the borrower must be clear and unequivocal. A second form of acceleration, which is self-executing, is the obligation of certain borrowers to make a balloon payment under the terms of the note at the end of the pay-back period. A third form of acceleration exists when a creditor commences an action to foreclose upon a note and mortgage and seeks, in the complaint, payment of the full balance due.

The third form of acceleration, commencement of a foreclosure action, is what is at issue in these situations. In this form, the Second Department has recognized that “acceleration is accomplished upon the filing of the complaint, irrespective of whether the complaint was actually transmitted to the borrower.” Your New Home, LLC, 62 Misc.3d at 1050, citing Beneficial Homeowner Serv. Corp. v. Tovar, 150 A.D.3d 657, 658 (2d Dep’t 2017). With these considerations in mind, the Your New Home court found that the acceleration was not a nullity, that the statute of limitations had begun to run with the filing of the foreclosure action, that the statute of limitations had since expired, and that the plaintiff was entitled to summary judgment on their quiet title action.

SBAGK’s team continues to litigate these complex foreclosure matters, holding banks accountable as they try to bury their mistake instead of taking the proper course to correct it. Many times, banks believe the consequences of their negligence falls on the shoulders of the borrower, even if they’ve passed away, but SBAGK won’t stand for it. The Court’s decisions are clear; banks cannot sidestep the law.