In the wake of the Court of Appeals’ landmark decision in Freedom Mortgage v. Engel, 2021 NY Slip Op 01090 (2021), the Second Department has subsequently followed the guidance in Engel in modifying a lender’s burden in rebutting statute of limitation challenges.  In Engel, the Court of Appeals, reversing contrary Second Department holdings, held that a voluntary dismissal, by itself, constituted an affirmative act to revoke a lender’s acceleration of a mortgage loan, thus resetting the six-year statute of limitations to commence a mortgage foreclosure action.  Now, the Second Department, in U.S. Bank v. Papanikolaw, __ A.D.3d __ (2d Dept. 2021), has held that the transmittal of a de-acceleration letter to the borrower, without more, similarly constitutes an affirmative act to revoke a lender’s acceleration.

In Engel, the Court of Appeals did not clarify what other actions, apart from voluntary dismissal, constituted affirmative acts to revoke a lender’s acceleration.  However, Engel did note that other actions beyond a voluntary dismissal could also constitute a de-acceleration.  Prior to Engel, much of the de-acceleration case law related to situations where the lender sent the borrower a de-acceleration letter to de-accelerate the loan obligations and reset the statute of limitations.

Before Engel was decided, the Second Department had held that a de-acceleration notice constituted a sufficient affirmative act to revoke a lender’s acceleration only if it met stringent requirements.  These requirements included the lender making “a clear and unequivocal demand that the homeowner meet her prospective monthly payment obligations” as well as the lender “stat[ing] that [it] hereby de-accelerates the maturity of the Loan, withdraws its prior demand for immediate payment of all sums secured by the Security Instrument and re-institutes the loan as an installment loan.”  Milone v. U.S. Bank, N.A., 164 A.D.3d 145 (2d Dept. 2018).  The Second Department also analyzed whether the de-acceleration letter was pre-textual, or in other words, whether it was sent solely to circumvent the statute of limitations.  Id.  These requirements frequently led to trial courts finding that questions of fact existed as to the adequacy of de-acceleration letters, and created increased litigation.  

In Papanikolaw, the Second Department, in accord with Engel, did not analyze the contents of the de-acceleration letter, nor whether it was pre-textual.  Instead, Papanikolaw held that the mailing of the de-acceleration letter, without more, constituted an affirmative act to revoke a lender’s acceleration of a mortgage loan, thus resetting the six-year statute of limitations.

Under Papanikolaw, the precise language in a de-acceleration letter is seemingly less important and the underlying motivation for sending the notice is irrelevant.  So long as the de-acceleration letter informs the borrower that the loan is de-accelerated, the letter serves as the requisite affirmative act.  The analysis moving forward, therefore, is much simpler because the query is, largely, merely whether a de-acceleration letter, indicating the lender’s intent to revoke its prior acceleration, was sent.  Lenders should still be mindful that, under the reasoning of Engel, the contemporaneous indication of an intent not to de-accelerate – such as by otherwise seeking the full prior accelerated balance – could still result in a finding that the affirmative act, whether a voluntary dismissal or de-acceleration notice, did not constitute a de-acceleration.