Trento 67 v. OneWest Bank

214 N.Y.S.3d 689

TRENTO 67, LLC, appellant,

v.ONEWEST BANK, N.A., etc., et al., respondents.

Supreme Court, Appellate Division, Second Department, New York.

Argued—February 8, 2024

June 12, 2024

APPEAL by the plaintiff, in an action pursuant to RPAPL 1501(4) to cancel and discharge of record a mortgage, from an order of the Supreme Court (Carolyn E. Wade, J.), dated April 29, 2022, and entered in Kings County. The order granted the defendants’ motion pursuant to CPLR 3211(a) to dismiss the complaint and denied, as academic, the plaintiff's cross-motion, inter alia, to consolidate this action with an action entitled Bank of New York Mellon Trust Company, N.A. v Munn, pending in the same court under Index No. 519175/21.

Charles R. Cuneo, P.C., Huntington, NY, for appellant.

Windels Marx Lane & Mittendorf, LLP, New York, NY (Robert J. Malatak and Elizabeth G. Uphaus of counsel), for respondents.

COLLEEN D. DUFFY, J.P., ROBERT J. MILLER, WILLIAM G. FORD, LAURENCE L. LOVE, JJ.

OPINION & ORDER

MILLER, J.

Courts and the legal community are now likely familiar with the 2020 executive orders that tolled time limitations due to the COVID–19 pandemic (see e.g. Espinal v. Port Auth. of N.Y. & N.J., 213 A.D.3d 101, 102, 184 N.Y.S.3d 98). On this appeal, we are asked to consider another governmental pause on business as usual that was spurred by the COVID–19 pandemic. On March 18, 2020, the United States Department of Housing and Urban Development (hereinafter HUD) instituted a COVID–19–related moratorium that effectively stayed foreclosures with respect to mortgages insured by the Federal Housing Administration (hereinafter FHA). This moratorium (hereinafter the FHA COVID–19 moratorium) remained in effect until July 31, 2021. This appeal presents an issue of apparent first impression for an appellate court in this State, namely, whether the statute of limitations for commencing a foreclosure action may be tolled by virtue of the FHA COVID–19 moratorium. We hold that the FHA COVID–19 moratorium, which constituted a stay of foreclosures of federally backed mortgages, may indeed toll the statute of limitations for commencing a foreclosure action, and, on the facts of this case, the FHA COVID–19 moratorium did toll the applicable limitations period. Given the benefit of the toll, one of the defendants timely commenced a separate but related action to foreclose a home equity conversion mortgage, also known as a reverse mortgage, and the Supreme Court properly granted the defendants’ motion pursuant to CPLR 3211(a) to dismiss the complaint, seeking to quiet title, brought by the alleged owner of the property encumbered by the reverse mortgage.

I. Factual and Procedural Background

On February 9, 2007, nonparty Thelma Miller (hereinafter the borrower) executed an adjustable rate note, with a maximum principal amount of $544,185, in favor of nonparty First Lincoln Mortgage Corporation. The note was secured by a reverse mortgage encumbering certain residential property in the East New York neighborhood of Brooklyn. Pursuant to paragraph 9 of the reverse mortgage, entitled "Grounds for Acceleration of Debt," the "Lender may require immediate payment in full of all sums secured by this Security Instrument if," among other contingencies, "[a] Borrower dies and the Property is not the principal residence of at least one surviving Borrower."¹ Pursuant to paragraph 13 of the reverse mortgage, which bears an FHA case number, the borrower executed a second mortgage on the property in favor of the Secretary of HUD.

The borrower died on February 28, 2013.

On or before April 4, 2014, the note and mortgage were assigned to the defendant OneWest Bank, N.A. (hereinafter OneWest).

A. Prior Foreclosure Action

[1] On April 4, 2014, OneWest commenced an action to foreclose the mortgage and elected in its complaint to accelerate the mortgage debt. By order dated April 10, 2019, the Supreme Court dismissed that action on the ground that one of the defendants, the borrower, was "deceased at the time of commencement." We note that the death of a defendant prior to commencement of a foreclosure action, although rendering such action a legal nullity from its inception, does not "revoke or invalidate, or otherwise destroy, [the lender’s] express invocation of the contractual election to accelerate the debt" (Wilson 3 Corp. v. Deutsche Bank Natl. Trust Co., 219 A.D.3d 870, 871, 195 N.Y.S.3d 497 [internal quotation marks omitted]; see Wells Fargo Bank, N.A. v. Torres, 187 A.D.3d 825, 130 N.Y.S.3d 328). Thus, as aptly acknowledged by the parties, the statute of limitations began to run on April 4, 2014, when the mortgage debt was accelerated (see HSBC Bank USA, N.A v. Francis, 214 A.D.3d 58, 61, 185 N.Y.S.3d 173).²

B. The FHA COVID–19 Moratorium

On March 18, 2020, "as part of a broader federal government effort" to address hardships caused by the COVID–19 pandemic, HUD instituted a 60–day moratorium on the "initiation of foreclosures" and the "completion of foreclosures in process" with respect to mortgages insured by the FHA (U.S. Dept. of Hous. & Urban Dev., Mortgagee Letter 2020–04, available at 2020 WL 1426638; see Freedom Mtge. Corp. v. King, 2023 WL 3494738, *4, 2023 U.S. Dist LEXIS 86695, *9-*10 [E.D.N.Y. May 17, 2023, No. 19–CV–4833 (NGG)(LB)]). The FHA COVID–19 moratorium was memorialized in a series of mortgagee letters, beginning with mortgagee letter 2020–04. These mortgagee letters were directed to "all FHA approved mortgagees" and "all government entity participants," among others.

On March 27, 2020, the United States Congress passed the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) (see 15 USC § 9001 et seq.; Islam v. Cuomo, 475 F.Supp.3d 144, 155 [E.D.N.Y. 2020]), which provided certain forbearances for borrowers with federally backed mortgage loans and, more importantly, prohibited servicers of certain "[f]ederally backed mortgage loan[s]" from "initiat[ing] any judicial or non-judicial foreclosure process, mov[ing] for a foreclosure judgment or order of sale, or execut[ing] a foreclosure-related eviction or foreclosure sale for not less than the 60–day period beginning on March 18, 2020" (15 USCA § 9056[c][2]; see Freedom Mtge. Corp. v. Gregg, 2021 WL 12186081, *2–*3, 2021 U.S. Dist LEXIS 270822, *5-*6 [E.D.N.Y. Sept 29, 2021, No 19–CV–861 (RRM)(RER)]).

On May 14, 2020, by mortgagee letter 2020–13, which referred to the CARES Act, HUD extended the FHA COVID–19 moratorium. Through subsequent mortgagee letters, the FHA COVID–19 moratorium eventually was extended through July 31, 2021 (see U.S. Dept. of Hous. & Urban Dev., Mortgagee Letter 2021–19, available at 2021 WL 3713371).

By the express terms of the mortgagee letters instituting and extending the FHA COVID–19 moratorium, including mortgagee letters 2020–13 and 2020–19, the FHA COVID–19 moratorium "applie(d) to all FHA Title II Single Family forward and Home Equity Conversion Mortgage (reverse) mortgage programs," or simply "all FHA-insured mortgages," with one express exception, namely, the FHA COVID–19 moratorium did not apply to FHA-insured mortgages secured by vacant or abandoned properties. This is consistent with the language in the CARES Act, which provided that the moratorium applied to any "[f]ederally backed mortgage loan" except for such mortgages on "vacant or abandoned property" (15 USC § 9056[c][2]). For the purpose of the moratorium, the CARES Act defined the term "federally backed mortgage loan" to include "any loan which is secured by a first or subordinate lien on residential real property (including individual units of condominiums and cooperatives) designed principally for the occupancy of from 1–to 4– families that is … insured by the [FHA] under title II of the National Housing Act" (id. § 9056[a][2][A] [emphasis added]).

C. Commencement of the Quiet Title Action

On June 10, 2021, the plaintiff commenced this action (hereinafter the quiet title action) against OneWest and Bank of New York Mellon Trust Company, N.A. (hereinafter BONY, and, together with OneWest, the defendants), not in its individual capacity but solely as owner trustee for Mortgage Assets Management Series I Trust. As alleged in the complaint, by a deed recorded on January 20, 2021, one of the borrower’s "heirs-at-law," Ty Elonzo Allen, conveyed to the plaintiff his interest in the property encumbered by the reverse mortgage. The complaint further alleged that neither of the defendants were in possession of the property. Pursuant to RPAPL 1501(4), the plaintiff sought to cancel and discharge of record the reverse mortgage on the ground that the statute of limitations to commence a foreclosure action expired prior to the commencement of the quiet title action.

D. Second Foreclosure Action

On August 1, 2021, BONY commenced an action to foreclose the reverse mortgage, which is pending in the Supreme Court, Kings County, under Index No. 519175/21 (hereinafter the current foreclosure action). As alleged in the complaint in the current foreclosure action, the sum of $514,097 remained due under the note as of June 30, 2021. Among the defendants therein were no fewer than 21 alleged heirs and distributees of the borrower.

E. Motion Practice in the Quiet Title Action

On September 10, 2021, the defendants moved pursuant to CPLR 3211(a) to dismiss the complaint in the quiet title action on the ground that the statute of limitations was tolled by the FHA COVID–19 moratorium in effect from March 18, 2020, through July 31, 2021, and, thus, the current foreclosure action was timely commenced on August 1, 2021—just one day after the FHA COVID–19 moratorium ended. The plaintiff opposed the motion and cross-moved pursuant to CPLR 602(a) to consolidate the quiet title action with the current foreclosure action and, upon such consolidation, to compel the acceptance of the plaintiff's late answer in the current foreclosure action.

F. Order Appealed From

By order dated April 29, 2022, the Supreme...