Appellate Division Confirms, In a Case of First Impression, That FHA Covid-19 Moratorium Tolled the Statute of Limitations for Commencing a Foreclosure Action of Federally Backed Mortgages
It is well understood that, during the Covid-19 pandemic, there were a series of executive orders issued by then-Governor Andrew Cuomo (the “Tolling Orders”) that tolled the statute of limitations for many lawsuits and proceedings in New York through November 2, 2020. What has been less clear, is the impact of certain federal relief and prohibitions during Covid-19 on New York’s statute of limitations. In a comprehensive decision issued June 12, 2024, the Appellate Division: Second Judicial Department (the “Second Department”) provided much needed clarity on the Covid-19 related moratorium instituted by the United States Department of Housing and Urban Development (“HUD”) which effectively stayed foreclosure proceedings with respect to mortgages insured by the Federal Housing Administration (“FHA”) (the “FHA Moratorium”). Trento 67, LLC v. OneWest Bank, N.A., No. 2022-04453, 2024 N.Y. App. Div. LEXIS 3229 (2d Dep’t June 12, 2024). Specifically, the Second Department, after acknowledging the issue to be one of first impression for an appellate court in New York State, confirmed that the FHA Moratorium may indeed toll the statute of limitations for commencing a foreclosure action, and did toll the applicable limitations period in Trento.
At the onset of the Covid-19 pandemic, HUD had instituted the FHA Moratorium, and it initially ran nearly concurrently with the Tolling Orders. However, the Tolling Orders were only extended through November 2, 2020 while the FHA Moratorium remained in place through July 31, 2021. Given this discrepancy, until recently, it was unclear whether the FHA Moratorium effectively tolled the statute of limitations for commencing a foreclosure action with respect to FHA insured mortgages.
In Trento, Trento 67, LLC (“Appellant”) appealed from the order of the Hon. Carolyn E. Wade (the “Motion Court”), dated April 29, 2022 (the “Order”), which, among other things, dismissed Appellant’s action to discharge a reverse mortgage held by Bank of New York Mellon Trust Company, N.A., not in its individual capacity but solely as owner Trustee for Mortgage Assets Management Series I Trust (“Lender”). Appellant argued that Lender and OneWest Bank, N.A. f/k/a OneWest Bank, FSB (“OneWest” and with Lender, “Respondents”), our clients, had failed to timely commence foreclosure proceedings encumbering certain real property (the “Mortgaged Property”) and so the reverse mortgage encumbering the Mortgaged Property (the “Mortgage”) must be discharged. However, Appellant had failed to account for the FHA Moratorium, and indeed commenced the underlying action on June 10, 2021—while the FHA Moratorium was still in effect. For its part, Lender commenced an action to foreclose the Mortgage on Sunday, August 1, 2021—one day after the FHA Moratorium expired. The Motion Court held that Lender’s foreclosure action was timely due to the FHA Moratorium and dismissed Appellant’s action.
Appellant filed the instant appeal of the Order, arguing the FHA Moratorium was inapplicable to the Mortgage or the Mortgaged Property because the borrower had passed away and the Mortgaged Property contains a two-family home as opposed to a “single family home.”
In a comprehensive decision, dated June 12, 2024, the Second Department held the Motion Court properly determined that the FHA Moratorium constituted a stay and tolled the statute of limitations for actions to foreclose federally backed mortgages, including reverse mortgages from March 18, 2020 through July 31, 2021. As set forth in the decision, “[a] toll suspends the running of the applicable statute of limitations for a finite time period, and the period of the toll is excluded from the calculation of the time in which a plaintiff may commence an action.” Trento 67, LLC v. OneWest Bank, N.A., No. 2022-04453, 2024 N.Y. App. Div. LEXIS 3229 at *11 (2d Dep’t June 12, 2024). The Appellate Division further confirmed that it was immaterial whether the Mortgaged Property was a two-family dwelling as the FHA Moratorium applied to all federally backed mortgages except those secured by vacant or abandoned properties.
As such, Trento has provided much needed clarity on the impact of the FHA Moratorium on the deadline to commence foreclosure proceedings with respect to federally backed mortgages. Now, lenders may rest easy with the knowledge that, while they could not commence foreclosure actions during the FHA Moratorium, their time to do so was tolled, not lost. Accordingly, if a lender’s deadline to commence a foreclosure action began to run prior to March 18, 2020, Trento confirms that this deadline was effectively extended the length of the FHA Moratorium – 500 days.
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