53rd St., LLC v. U.S. Bank Nat'l Ass'n

8 F.4th 74

53RD STREET, LLC, Plaintiff-Appellee,

v.U.S. BANK NATIONAL ASSOCIATION, Defendant-Appellant.

Docket No. 20-1804-cv

August Term, 2020

United States Court of Appeals, Second Circuit.

Argued: June 24, 2021

Decided: August 5, 2021

Danielle P. Light (Rafi Hasbani, on the brief), Hasbani & Light, P.C., New York, NY, for Plaintiff-Appellee.

Jonathan M. Robbin, J. Robbin Law, Armonk, NY, for Defendant-Appellant.

Before: LEVAL, CABRANES, and PARK, Circuit Judges.

LEVAL, Circuit Judge:

In this case within the diversity jurisdiction of the federal courts, Defendant U.S. Bank National Association ("U.S. Bank") appeals from the grant of summary judgment in favor of Plaintiff 53rd Street, LLC ("53rd Street LLC") by the United States District Court for the Eastern District of New York (Ann M. Donnelly, J.). 53rd Street LLC brought the suit under Article 15 of the New York Real Property Actions and Proceedings Law ("RPAPL") to discharge a mortgage held by U.S. Bank on Plaintiff's property located at 2052 East 53rd Place, Brooklyn, New York. Relying on a statement in Milone v. U.S. Bank, N.A. , 164 A.D.3d 145, 83 N.Y.S.3d 524 (2d Dep't 2018), the district court ruled that, because the bank's purported de-acceleration of the mortgage was motivated only by intent to avoid the expiration of the period of limitations on foreclosure, the bank did not succeed in deaccelerating the mortgage. Accordingly, the district court ruled that the six-year limitations period had expired and discharged the mortgage.

After the entry of judgment (and the filing of U.S. Bank's initial brief in this appeal), the New York Court of Appeals, in Freedom Mortgage Corp. v. Engel , 37 N.Y.3d 1, 146 N.Y.S.3d 542, 169 N.E.3d 912 (N.Y. 2021) (" Engel "), abrogated the reasoning of Milone on which the district court relied. Because the ruling of New York's highest court undermines the basis for the district court's ruling, we vacate the judgment and remand for reconsideration and further proceedings in light of Engel .

BACKGROUND

On January 5, 2006, Maria Pinto-Bedoya (hereinafter "Borrower") executed a note and mortgage for $428,000 in favor of Downey Savings and Loan Association, F.A. ("Downey S&L") for the property located at 2052 East 53rd Place. Borrower failed to make payments, and, on June 30, 2008, Downey S&L sued in New York Supreme Court, Kings County, to foreclose the mortgage. While the foreclosure action was pending, Downey S&L assigned the note and mortgage to U.S. Bank. In April 2013, the State court dismissed the action for nonappearance. The parties do not contend that the dismissal affected the rights of the parties with respect to the mortgage.

In June of 2014, within six years of Downey S&L's suit to foreclose, U.S. Bank sent letters to Borrower stating that the loan, which had been "previously accelerated by [the] filing [of] a [foreclosure] lawsuit," was "de-accelerated" and "re-instituted as an installment loan." Joint App'x 269-70. A few weeks later, on July 15, 2014, U.S. Bank sent Borrower a 90-day pre-foreclosure notice, stating that the loan was more than 2,000 days in default and that Borrower could cure the default by making a payment of $261,306.46 by the next month. The letter added that failure to resolve the matter within 90 days could result in legal action. In a second letter, also sent on July 15, 2014, U.S. Bank informed Borrower that she was in breach of the mortgage and that failure to make the account current would result in re-acceleration of the mortgage. The next day, U.S. Bank sent Borrower the first in a series of monthly mortgage statements demanding a monthly payment of approximately $2,900, asserting that Borrower was delinquent on her loan, and directing her to pay the outstanding balance of the loan.

In December of 2016, a different mortgagee (who had issued Borrower a second mortgage on the same property) sued to foreclose the interests of Borrower. See Courchevel 1850 LLC v. Pinto-Bedoya , No. 16-CV-06716 (E.D.N.Y. filed Dec. 5, 2016). The court ordered the foreclosure and sale of the property, which was accordingly sold at auction in January 2018 to 53rd Street LLC, the plaintiff in the present action. A few days after 53rd Street LLC finalized its purchase, it filed this action in the district court "to cancel and discharge [U.S. Bank's mortgage] based on the premise that the statute of limitations to foreclose the [mortgage] expired [o]n June 30, 2014." Joint App'x 20.

The parties cross-moved for summary judgment, and, as recited above, the district court granted 53rd Street LLC's motion. It concluded that U.S. Bank's June 2014 communications purporting to de-accelerate the mortgage failed to accomplish that objective so that the statute of limitations on foreclosure had expired on June 30, 2014. Accordingly, the district court discharged the mortgage. U.S. Bank then brought this appeal.

DISCUSSION

U.S. Bank contends the district court's judgment should be vacated because the subsequent decision of the New York Court of Appeals in Engel abrogated the reasoning on which the district court based its decision. We agree.

(i) Standard of Review. "We review a district court's grant of summary judgment de novo, resolving all ambiguities and drawing all reasonable factual inferences in favor of the party against whom summary judgment is sought." Eastman Kodak Co. v. Henry Bath LLC , 936 F.3d 86, 93 (2d. Cir. 2019) (internal quotation marks and alterations omitted). Summary judgment is appropriate only where "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A genuine dispute as to a material fact "exists and summary judgment is therefore improper where the evidence is such that a reasonable jury could decide in the non-movant's favor." Lucente v. County of Suffolk , 980 F.3d 284, 296 (2d Cir. 2020) (internal quotation marks omitted).

(ii) De-acceleration of the loan. Article 15 of New York's RPAPL codifies the common law action to quiet title. See W. 14th St. Commercial Corp. v. 5 W. 14th Owners Corp. , 815 F.2d 188, 196 (2d Cir. 1987) ("New York has codified the common law action to quiet title and statutorily redefined the necessary elements for a well-pleaded remaining cloud on title complaint.") The statute provides, in relevant part:

Where the period allowed by the applicable statute of limitation for the commencement of an action to foreclose a mortgage ... has expired, any person having an estate or interest in the real property subject to such encumbrance may maintain an action against any other person or persons ... to secure the cancellation and discharge of record of such encumbrance, and to adjudge the estate or interest of the plaintiff in such real property to be free therefrom; provided, however, that no such action shall be maintainable in any case where the mortgagee ... or the successor of [the mortgagee] shall be in possession of the affected real property at the time of the commencement of the action.

N.Y. RPAPL § 1501(4) (omitting references to vendor's liens); see also J & JT Holding Corp. v. Deutsche Bank Nat'l Tr. Co. , 173 A.D.3d 704, 706, 104 N.Y.S.3d 112 (2d Dep't 2019) (same). To discharge a mortgage pursuant to § 1501(4), a plaintiff must demonstrate: "1) that it has an estate or interest in the real property; 2) that all necessary parties to the action were joined; and 3) that the applicable statute of limitations for commencing a foreclosure action has expired without the commencement of a foreclosure action." Gustavia Home LLC v. Envtl. Control Bd. , 2019 WL 4359549, at *5 (E.D.N.Y. Aug. 21, 2019). The parties do not dispute 53rd Street LLC's satisfaction of the first two prongs of this test, narrowing the issue on appeal to the question whether the statute of limitations on foreclosure had expired.¹

In New York, an action to foreclose on a mortgage is subject to a six-year statute of limitations. N.Y. CPLR § 213(4) ; see Retemiah v. Bank of N.Y. Mellon , 195 A.D.3d 649, 650, 144 N.Y.S.3d 627 (2d Dep't 2021). For a mortgage payable in installments, "separate causes of action accrue[ ] for each installment that is not paid, and the statute of limitations begins to run, on the date each installment becomes due." Wells Fargo Bank, N.A. v. Burke , 94 A.D.3d 980, 982, 943 N.Y.S.2d 540 (2d Dep't 2012). However, "[t]he law is well settled that, even 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." Ditmid Holdings, LLC v. JPMorgan Chase Bank, N.A. , 180 A.D.3d 1002, 1003, 120 N.Y.S.3d 393 (2d Dep't 2020) (internal quotation marks omitted).

Where acceleration of a mortgage debt upon default is made optional with the holder of the note and mortgage, the debt may be accelerated by the mortgagee's taking of "some affirmative action ... evidencing the holder's election to take advantage of the accelerating provision." Burke , 94 A.D.3d at 982-83, 943 N.Y.S.2d 540. "Commencement of a foreclosure action may be sufficient to put the borrower on notice that the option to accelerate the debt has been exercised." Id. at 983, 943 N.Y.S.2d 540 ; see also Engel , 37 N.Y.3d at 22, 146 N.Y.S.3d 542, 169 N.E.3d 912 ("[A]n election to accelerate must be made by an unequivocal overt act that discloses the noteholder's choice, such as the filing of a verified complaint seeking foreclosure and containing a sworn statement that the noteholder is demanding repayment of the entire outstanding debt." (internal quotation marks omitted)). The parties agree that Downey S&L's June 30, 2008, foreclosure action accelerated the mortgage, triggering the start of a six-year limitations period, which would expire on June 30, 2014.

After a mortgage is accelerated, the mortgagee can de-accelerate it, stopping the statute of limitations clock, provided the borrower has not "changed his position in reliance" on the...