Key Points

  • The Second Department affirmed a judgment directing the Suffolk County Clerk to discharge of record a 2006 mortgage under RPAPL 1501(4).
  • The court held that the six-year limitations period began on July 30, 2008, when MERS, as Lehman's nominee, filed a foreclosure complaint electing to accelerate the mortgage balance, and expired before the borrower sued in August 2022.
  • CPLR 213(4)(b), as amended by FAPA, estopped U.S. Bank and MERS from arguing that MERS lacked standing to accelerate, because the 2008 action was not dismissed on an expressed judicial determination, made on a timely defense, that the loan was not validly accelerated.
  • Relying on Van Dyke v U.S. Bank, N.A. and Article 13 LLC v Ponce De Leon Fed. Bank, the court rejected arguments that FAPA does not apply retroactively and that its retroactive application is unconstitutional.
  • U.S. Bank's unjust-enrichment counterclaim for real estate taxes and upkeep payments was barred by the voluntary payment doctrine because the bank showed no mistake or fraud.

A New York appeals court on Wednesday affirmed a judgment directing that a mortgage on Amityville property, securing a $340,000 note, be removed from the public records, holding that a 2022 state law barred the loan's current holder, U.S. Bank National Association, from arguing that a 2008 foreclosure suit never started the six-year deadline to foreclose.

The Appellate Division, Second Department, affirmed a judgment won by the borrower, Samuel Desrosiers, in an unsigned decision joined by Justice Betsy Barros, who presided, and Justices Barry E. Warhit, Janice A. Taylor and Susan Quirk. The panel also upheld the dismissal of U.S. Bank's counterclaim for real estate taxes and upkeep costs it had paid on the property.

The ruling turns on an amendment to the state's foreclosure statute of limitations made by the Foreclosure Abuse and Prevention Act, known as FAPA. In a suit to cancel a time-barred mortgage, the provision bars the mortgage holder from claiming that an earlier foreclosure never validly accelerated the loan, unless the earlier court expressly found the acceleration invalid. The 2008 case against Desrosiers was dismissed on other grounds: the borrower had not been properly served.

In October 2006, Desrosiers signed a note in favor of Lehman Brothers Bank, FSB, that was secured by a mortgage on the property. Desrosiers allegedly defaulted by missing the payment due April 1, 2008, and those after it.

On July 30, 2008, Mortgage Electronic Registration Systems Inc., known as MERS, sued to foreclose as Lehman's nominee. A judgment of foreclosure and sale was entered in February 2010. In March 2011, the trial court vacated it and directed dismissal of the complaint, finding that service of process had not been properly made on the borrower.

Desrosiers sued U.S. Bank and MERS on Aug. 8, 2022, under RPAPL 1501(4), a statute that lets anyone with an interest in a property sue to cancel a mortgage on it once the time to foreclose has expired.

Foreclosure suits in New York must be brought within six years. A lender can accelerate a loan by suing to foreclose and seeking the full balance due in the complaint. "[E]ven if a mortgage is payable in installments, once a mortgage debt is accelerated, the entire amount is due and the statute of limitations begins to run on the entire debt," the court wrote, quoting an earlier appellate decision.

The panel found that the clock started on July 30, 2008, when MERS filed suit and elected in its complaint to "accelerate the mortgage balance and declare the same to be immediately due and payable." Desrosiers's suit came more than six years later.

U.S. Bank and MERS argued that the clock never started because MERS lacked standing when it brought the 2008 case. The court noted the rule behind that argument: "[S]ervice of a complaint is ineffective to constitute a valid exercise of the option to accelerate a debt where the plaintiff does not have the authority to accelerate the debt or to sue to foreclose at that time."

But the panel held that FAPA rules the argument out. As amended, CPLR 213(4)(b) provides that in a mortgage-cancellation suit, "a defendant shall be estopped from asserting that the period allowed by the applicable statute of limitation for the commencement of an action upon the instrument has not expired because the instrument was not validly accelerated" before or by way of an earlier suit.

The statute makes one exception, for a prior action "dismissed based on an expressed judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated." The court held that the 2008 action was not dismissed on that basis, so the standing argument was precluded.

The panel also rejected the defendants' contention that FAPA does not apply retroactively, citing two decisions, Van Dyke v. U.S. Bank, N.A., and Article 13 LLC v. Ponce De Leon Fed. Bank. "Their challenges to the constitutionality of the retroactive application of FAPA are also without merit," the court wrote.

U.S. Bank's counterclaim sought those tax and upkeep payments under a theory of unjust enrichment. A party making that claim must show the other side "was enriched at his or her expense, and [that] it is against equity and good conscience to permit that person to retain what is sought to be recovered," the court wrote, quoting prior case law.

The panel held the claim failed under the voluntary payment doctrine, which, the court wrote, "bars recovery of payments voluntarily made with full knowledge of the facts, and in the absence of fraud or mistake of material fact or law." U.S. Bank, the court found, "made no showing" that the payments "were made accidentally or mistakenly or that it was induced to make such payments by fraud."

The case came from Suffolk County Supreme Court, where Christopher Modelewski granted Desrosiers summary judgment, a ruling without trial, in February 2024 and entered judgment in May 2024. The panel dismissed a separate appeal from the February order because the right to appeal it directly ended once judgment was entered, and reviewed the issues on the appeal from the judgment.

U.S. Bank and MERS were represented by Stephen J. Vargas of Friedman Vartolo LLP. Desrosiers was represented by Charles Wallshein.

With the affirmance, the May 2024 judgment directing the Suffolk County Clerk to discharge the mortgage of record stands, and the court awarded Desrosiers one bill of costs. The decision is uncorrected and subject to revision before publication in the Official Reports.