Can a Lender or Investor Lose the Right to Foreclosure in Five Years?


The answer is “yes”, it is definitely possible in the state of New York. Pay attention, note investors, lenders and servicers! If the owner of the mortgage does not properly decelerate the debt in the state of New York within 6 years after the foreclosure started, without reinstating the debt through a modification or similar agreement, the mortgage becomes UNENFORCEABLE. To make things worse for mortgage holders, the practical timeline is shorter than the six year statute. The lender or servicer accelerates the debt due by sending a correspondence to the borrower with a 30-day option to cure for full payment or catch up on debt payment. The foreclosure case is filed if the borrower takes no action after 30 days, which means that the time to foreclose from acceleration of debt is five years and 11 months. Furthermore, if the borrower files a bankruptcy at the end of the last year of the statute of limitation, the statute is not extended. Assuming the bankruptcy will take on average 6-8 months, the time to foreclose is cut to five years and three to five months.

I personally know of at least three clients that are facing mortgage enforceability issues in the state of New York due to this law. Here is what the court order would look like siding with the borrower and dismissing the lender’s right to foreclose:
Per HinShaw Law, "The State of New York's Appellate Division for the Second Department has now addressed the issue of whether a lender's voluntary discontinuance of a judicial foreclosure action, whether by court order or stipulation of the parties, is sufficient evidence of a lender's intent to revoke the acceleration of the entire mortgage debt. Unfortunately for mortgage lenders, the court determined voluntary discontinuance is not sufficient."

Ref: https://www.hinshawcfs.com/new-york-court-determines-lender-s-revocation-of-acceleration-of-entire-mortgage-debt-by-voluntary-discontinuance


In the quick example below, the lender filed a foreclosure case in May of 2008 and did not decelerate the debt, restarting the foreclosure again in August of 2014.
The borrower (defendant) argued that the lender lost power to foreclose within six years.
I know this is very confusing for non-lawyers in the audience.


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