The Appellate Division, Third Department recently issued a decision in Citimortgage, Inc. v Ramirez, ___AD3d___, 2020 NY Slip Op 07970 (2020) (“Ramirez“), concerning the plaintiff lender’s appeal from the Supreme Court’s dismissal of an action for recovery on a note, where plaintiff’s two prior foreclosures had already been dismissed. In its decision reversing dismissal, the Third Department held that when a lender accelerates a mortgage debt and elects to commence a foreclosure of the mortgage, the six-year statute of limitations on any claim by the lender for money damages on the note is tolled during such foreclosure(s), at least to the extent the foreclosures were themselves timely when filed.

The Third Department found statutory support for its holding in the interplay between Civil Practice Laws and Rules (“CPLR”) 204(a) and Real Property Actions and Proceedings Law (“RPAPL”) 1301(3). In relevant part, CPLR 204(a) tolls the statute of limitations for claims stayed by statutory prohibition. RPAPL 1301 codifies the common law doctrine of election of remedies mandating that a lender cannot maintain actions on the mortgage and note simultaneously. As applied by the Ramirez court, where a lender elects to commence an action to foreclose the mortgage, the statutory time limit for bringing an action solely for money damages on the note is thereby tolled. Therefore, the six year statute of limitations on a note action does not start running until the dismissal of the timely-filed foreclosure.


Notably, the holding in Ramirez is not unanimously supported by the prior case law of New York’s other judicial departments. In fact, in allowing for application of CPLR 204(a) tolling to claims statutorily prohibited by RPAPL § 1301, the Ramirez court cites to just two appellate decisions, each issued by a different judicial department, namely, Phalen-Sobolevsky v. Mullin, 26 AD3d 806 (4th Dept 2006) (“Mullin“) and Torsoe Bros. Constr. Corp. v. McKenzie, 271 AD2d 682 (2d Dept 2000) (“McKenzie“). In Mullin, the Fourth Department held that CPLR 204(a) tolled the six-year statute of limitations on a potential foreclosure action, where the lender’s timely action on the note was still pending. In the roughly fourteen years between the issuance of Mullin and the Ramirez decision, not a single court adopted the holding of the Mullin court, a fact noted by the New York Southern District Court in Costa v Deutsche Bank Natl. Trust Co., 247 F Supp 3d 329, 346, n 12 (SDNY 2017) (noting that Mullin “provides little supporting analysis for its holding, only one case has cited it to date, and that citation was not for the tolling proposition”).


The Mullin court cited to a single opinion to support its holding that tolling applied the Second Department’s McKenzie decision from 2000. In the McKenzie decision, the Second Department applied CPLR 204(a) to RPAPL 1301 and found that the six-year statute of limitations governing foreclosure claims was tolled during the three years between the issuance of a money judgment in a prior action on the underlying note and the return of the judgment on the note as unsatisfied. The McKenzie court did not rely on any prior case law for this specific holding.


However, just eight days before the Third Department court issued its Ramirez decision, the Second Department issued its decision in First Am. Tit. Ins. Co. v Holohan, ___AD3d___, 2020 NY Slip Op 07547 (2020) (“Holohan“), explicitly overruling McKenzie  and restating the holding found in other post-McKenzie Second Department decisions that CPLR 204(a) does not toll the statute of limitations for commencing a foreclosure action or an action on the note, regardless of which remedy is elected first. Thus, the Second Department has already rejected its prior holding that gave rise to the Third and Fourth Departments’ now-conflicting case law. Therefore, in the Second Department at least, a statute of limitations bar on mortgage enforcement likewise serves as a bar to enforcement of the note.


To date, neither the First Department nor the Court of Appeals has issued an opinion concerning application of CPLR 204(a) tolling to claims on a note that have been stayed by operation of election of remedies under RPAPL 1301. It remains to be seen whether the now-existing split between the Third (Ramirez) and Fourth Departments (Mullin) , on one hand, and the Second Department (Holohan and its predecessors), on the other, will be taken up and resolved by the Court of Appeals. Until such time though, the crucial Second Department, with its high volume of foreclosure actions, has barred note actions where the statute of limitations bars enforcement of the mortgage.