The New York Appellate Division, Second Department, recently decided a novel issue which may serve as a lifeline for lenders facing the expiration of the statute of limitations in mortgage foreclosure actions.
In Wells Fargo Bank, N.A., v. Eitani (No. 2014-09426, 2017 N.Y. App. Div. LEXIS 1014; 2017 NY Slip Op 0101015, 2d Dep’t Feb. 8, 2017), the Second Department, in a 3-2 decision, held that an assignee of a note and mortgage is entitled under certain circumstances to invoke the six-month extension of the statute of limitations provided by CPLR 205(a), New York’s “Savings Statute”, even though the prior action was commenced by a prior holder of the same instruments.
In November 2005, Argent Mortgage Company LLC filed a foreclosure complaint in Supreme Court, Kings County, after the borrower-defendant Doron Eitani defaulted on his mortgage. Eitani did not answer the complaint and, in June 2008, the trial court entered an order of reference based upon his default.
Earlier that year, Argent had assigned the subject note and mortgage to Wells Fargo, as trustee, in trust for the registered holders of Park Place Securities, Inc., Asset-Backed Pass-Through Certificates, Series 2005-WCE1. In August 2013, more than five years after the trial court entered the order of reference, the court issued an order dismissing the foreclosure action “as abandoned pursuant to CPLR 3215(c), without costs or prejudice.”
Less than four months after the dismissal of the original foreclosure action brought by Argent, Wells Fargo commenced a new foreclosure action against the subject property. Defendant David Cohan, the record owner of the property by virtue of a quitclaim deed from Eitani in March 2011, moved to dismiss Wells Fargo’s complaint on the ground that it was time-barred. Cohan argued that the action was filed more than six years after Eitani’s loan was accelerated by the commencement of Argent’s action in 2005.
Wells Fargo opposed the motion, arguing that it was entitled to the savings provision of CPLR 205(a) because the prior action had not been dismissed on the merits. The trial court agreed with Wells Fargo and denied Cohan’s motion.
Cohan appealed.
The appeal presented two issues for the Second Department to decide: First, is the savings provision of CPLR 205(a) applicable where a prior action, like Argent’s foreclosure action, was dismissed for being abandoned? Second, can a party who was not named in the prior action, like Wells Fargo, take advantage of the savings provision of CPLR 205(a)?
CPLR 205(a) provides, in pertinent part, as follows:
If an action is timely commenced and is terminated in any other manner than by a voluntary discontinuance, a failure to obtain personal jurisdiction over the defendant, a dismissal of the complaint for neglect to prosecute the action, or a final judgment upon the merits, the plaintiff, or, if the plaintiff dies, and the cause of action survives, his or her executor or administrator, may commence a new action upon the same transaction or occurrence or series of transactions or occurrences within six months after the termination provided that the new action would have been timely commenced at the time of commencement of the prior action and that service upon defendant is effected within such six-month period.
The Second Department determined in summary fashion that CPLR 205(a) is applicable to actions that have been dismissed for being abandoned. Despite expressly stating that the savings provision is not available where the prior action was dismissed “for neglect to prosecute the action”, the Second Department found that abandonment is legally distinct. First, the trial court ruled that the dismissal of Argent’s action was pursuant to CPLR 3215(c), rather than 3216 which covers neglect. Second, the trial court made no specific findings of Argent’s specific conduct constituting neglect, demonstrating a general pattern of delay in the proceedings, as required under CPLR 205(a). Finally, the Second Department noted that the dismissal order stated that the action was dismissed “without costs or prejudice” and should not be prohibitively barred from being recommenced.
The Second Department acknowledged, however, that the second issue presented was novel. Yet, due to the prevalence of the assignment of loans during the pendency of foreclosure actions, it was an important issue for the court to decide. After reviewing the historical framework for the enactment of CPLR 205(a), and “[t]racing its roots to seventeenth century England,” Eitani, 2017 N.Y. App. Div. LEXIS 1014, at *10 (quoting Reliance Ins. Co. v. PolyVision Corp., 9 N.Y.3d 52, 56 (2007)), the Second Department concluded that the statute was “designed to insure to the diligent suitor the right to a hearing in court [until he or she] reaches a judgment on the merits,” id. (quoting Gaines v. City of N.Y., 215 N.Y. 533, 539 (1915)) and that the “‘core purpose’ of the statute is to provide ‘a genuine bite at the apple.'” Id. (quoting Matter of Winston v. Freshwater Wetlands Appeals Bd., 224 A.D.2d 160, 164 (N.Y. App. Div. 1996)).
“In other words, CPLR 205(a) provides ‘a second opportunity to the claimant who has failed the first time around because of some error pertaining neither to the claimant’s willingness to prosecute in a timely fashion nor to the merits of the underlying claim.'” Id. (quoting George v. Mt. Sinai Hosp., 47 N.Y.2d 170, 178-79 (1979)).
The Second Department further noted that the Court of Appeals has reaffirmed that CPLR 205 has a “broad and liberal purpose [that] is not to be frittered away by any narrow construction.” Id. at *11 (quoting Malay v. City of Syracuse, 25 N.Y.3d 323, 327 (2015)). Based on that backdrop, the Second Department found that Wells Fargo’s action was not time-barred because it had the right to take advantage of the savings provision of CPLR 205(a).
Addressing the two dissenting justices’ reliance on the 2007 Court of Appeals decision Reliance Insurance Co. v. PolyVision Corp., 9 N.Y.3d 52 (2007), which ruled that CPLR 205(a) does not apply to any other plaintiff other than the original plaintiff, the majority held that that the instant case was distinguishable from Reliance and represented a circumstance in which a successor in interest has the right to exercise the savings provision.
Unlike the entities in Reliance, Argent and Wells Fargo each brought suit to enforce the very same right, that is, to foreclose on the subject property based on the same default on the subject note and mortgage. The majority emphasized that Wells Fargo obtained its interest in the subject loan before Argent’s action was dismissed and that Wells Fargo had the legal right to continue that action in Argent’s place even without a formal substitution. The majority concluded that “Wells Fargo, as the assignee of the note and mortgage, was essentially the plaintiff in the prior action when it was dismissed.” Eitani, 2017 N.Y. App. Div. 1014, at *14-15.
Based on the foregoing, the Second Department affirmed the trial court’s denial of Cohan’s motion to dismiss. In light of the dissent, however, Cohan is entitled to appeal this decision to the New York Court of Appeals as of right.
This case should be watched closely by representatives of lenders and borrowers, as it has established a new approach for reviving foreclosure actions that have been dismissed after the expiration of the statute of limitations period.
