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Does the Word 'Will' Clearly Accelerate a NY Mortgage Debt?

Mortgage servicers and other financial institutions have been battling the issue of what affirmative act “clearly and unequivocally” accelerates a mortgage debt for years. Currently, there is a split in authority between the First and Second Departments of the New York Supreme Court Appellate Division regarding whether a notice of default using the words “will be accelerated" clearly and unequivocally accelerates a mortgage debt upon the expiration of the cure period. The First Department has ruled that a notice of default indicating that the debt “will be accelerated" automatically accelerates the debt once the cure period expires. However, the Second Department reached the opposite conclusion and has held that a notice of default using the word “will” refers to a future event and therefore does not clearly and unequivocally accelerate the debt. This heavily litigated gray area in the law is ripe for the New York Court of Appeals to adjudicate.

General Standard to Accelerate a Debt — “Clear and Unequivocal” Notice

Under New York law, the election to accelerate the mortgage must consist of a notice of election to the borrower or some overt act that is clear and unequivocal of such election.¹ A demand letter or notice of default does not accelerate the mortgage debt, where the letter references a possible future event and therefore is not clear and unequivocal.²

New York’s Appellate Authority Is Split — What Constitutes “Clear and Unequivocal” Notice?

Borrowers have argued that the mailing of the contractually required notice of default constitutes an election to accelerate the debt and therefore triggers the statute of limitations. To determine whether the notice of default accelerated the debt, courts look to the express language in the notice. Courts have agreed that stating that the debt “may” be accelerated in a notice of default does not constitute clear and unequivocal notice of acceleration. However, the First and Second Departments are split on whether the term “will” accelerates the debt upon the expiration of the cure period in the notice of default.³
 

Automatic Acceleration in the First Department v. Future Event in the Second Department

In Deutsche Bank Nat’l Trust Co., as Trustee v. Royal Blue Realty Holdings Inc., the First Department⁴ ruled that when the notice of default states that the loan “will” be accelerated if the default is not cured, such language provides “clear and unequivocal” notice of acceleration, and the debt is automatically accelerated upon the expiration of the cure date.⁵ Royal Blue also upheld the New York County Supreme Court’s decision in Deutsche Bank Nat’l Trust Co., as Trustee v. Souto,⁶ which held that the term “will accelerate” means “unless plaintiff gets the money within 30 days, the note becomes due and foreclosure will be the next step. There is no indication that plaintiff is only kidding about the 30 day deadline, and that as long as the payment is received before the foreclosure action is commenced, the default will be cured. There is no indication that there will be any other notices between the letter in the borrower’s hands and the commencement of the foreclosure case. The 30 days is the last chance to cure.”⁷

Recently, the New York County Supreme Court applied Royal Blue to determine the date of acceleration and whether the action was timely commenced. Specifically, in Bosco Credit V Trust Series 2012-1 v. Johnson,⁸ the plaintiff’s servicer sent a notice of default that stated that defendants “could cure their default ‘on or before July 12, 2009’ and that ‘[i]f you do not cure your default, we will accelerate your mortgage.’”⁹ The court held that the loan could not be accelerated on July 12, 2009, because it was still within the cure period; rather, it would only be accelerated after the 30 days expired, i.e., no earlier than July 13, 2009. Accordingly, when the plaintiff filed the action on July 13, 2015, it was timely. Similarly, in Mazzella v. Capital One NA, the New York County Supreme Court held that a notice of default containing the phrase “shall result in the acceleration” was clear and unequivocal notice that Capital One “will” accelerate the loan.¹⁰ In fact, the court found the use of the word “shall” indicated even greater certainty than the phrase “will accelerate” and therefore, the notice unequivocally accelerated the debt. Further, the Southern District of New York applied the same rationale in Costa v. Deutsche Bank Nat’l Trust Co. for GSR Mortg. Loan Trust 2006-OA1.¹¹ Like in Royal Blue, the Southern District held that, where the notice of default stated that plaintiff’s failure to cure “will” result in the acceleration of sums secured by the mortgage, “the Notice of Default was a ‘clear and unequivocal’ acceleration of the Loan upon expiration of the curing period because ... the Notice did not discuss the mere possibility of a future event, nor did it couch acceleration in tentative terms.”¹²

In contrast, after the First Department’s Royal Blue decision, the Second Department¹³ held that a notice of default stating that the debt “will” be accelerated does not clearly and unequivocally accelerate the debt. Specifically, in 21st Mortg. Corp. v. Adames, the Second Department found that the notice of default “was nothing more than a letter discussing acceleration as a possible future event, which does not constitute an exercise of the mortgage’s optional acceleration clause.”¹⁴ Although the Adames decision is silent on the language contained in the notice of default, in U.S. Bank v. Bank of America, the Honorable Noach Dear pulled a copy of the notice of default from Adames to inform his decision.¹⁵ The Adames letter stated, in part, that “[i]f you have not cured the default within forty five (45) days of this notice. Litton will accelerate the maturity date of the Note and declare all outstanding amounts immediately due and payable.”¹⁶ Accordingly, the Second Department has ruled that when a notice of default contains the hypothetical language “will,” it does not accelerate the debt and merely discusses a possible future event.

Since Adames, the lower courts within the Second Department have consistently held that the hypothetical language “‘will’ be accelerated” is insufficient to accelerate the debt. For instance, in Deutsche Bank Nat’l Trust Co. v. Ruggiero Jr., the Suffolk County Supreme Court ruled that the notice of default, which stated that the loan servicer “will accelerate the entire sum” was nothing more than a letter discussing acceleration as a possible future event and did not constitute an exercise of the mortgage’s optional acceleration clause.¹⁷ Similarly, in U.S. Bank Nat’l Ass’n, as Trustee for Greenpoint Mortg. Funding Trust Mortg. Pass-Through Certificates, Series 2006-AR5 v. Mathew,¹⁸ the Queens County Supreme Court held that a default letter advising the borrower that unless payment of all past due amounts were received within 30 days, the lender “will accelerate the maturity of the loan” fell short of providing “clear and unequivocal” notice that the entire mortgage debt would be automatically accelerated upon failure to cure the default within 30 days. Specifically, the court found that the language in the letter “allows that sometime in the future, after the expiration of the 30 days without a cure and without further demand, the lender will declare the obligation due and payable at once, i.e. will accelerate the mortgage debt, and proceed with foreclosure proceedings.”¹⁹ Moreover, in Deutsche Bank Nat’l Trust Co. v. Rienzi,²⁰ the Nassau County Supreme Court held that the notice stating that “if the default is not cured, plaintiff ‘will accelerate the loan balance and proceed with foreclosure,’ did not qualify as an acceleration.” Finally, in U.S. Bank NA, as Trustee successor in interest to Wachovia Bank Nat’l Ass’n as Trustee for Bank of America Funding Corp. Mortg. Pass-Through Certificates Series 2005-A v. Distefano,²¹ the Suffolk County Supreme Court rejected the borrowers’ contention that the mortgage loan was automatically accelerated upon the expiration of the cure period prescribed in the default notice. In citing Adames, the court found that the notice was merely a letter discussing acceleration as a possible future event and did not constitute an exercise of the mortgage’s optional acceleration clause.

Notably, the decisions within the Second Department are consistent with Black’s Law Dictionary, which defines “will” as a “wish; desire; choice.”²² Further, Merriam-Webster defines “will” as a “desire, wish” and also indicates that while “will” can be “used to express desire, choice, [or] willingness,” it can also be “used to express futurity.” See Webster’s Dictionary.²³ Despite the plain meaning of the word “will,”²⁴ New York appellate authority is split on its interpretation when determining the acceleration of a debt.

As it stands, whether the statute of limitations is triggered by a notice of default stating that the debt “will” be accelerated currently turns on whether a particular property is located within the First Department or the Second Department. Given the conflicting rulings by the First and Second Departments, the New York Court of Appeals must resolve the issue.

Footnotes:

¹ See Nationstar Mortg., LLC v. Weisblum , 143 A.D.3d 866, 867, 39 N.Y.S.3d 491 (2d Dept. 2016).

² Sarva v. Chakravorty , 34 A.D.3d 438, 826 N.Y.S.2d 74 (2d Dept. 2006) (the record fails to establish a clear and unequivocal acceleration of the mortgage debt); Goldman Sachs Mortg. Co. v. Mares , 135 A.D.3d 1121, 1122, 23 N.Y.S.3d 444, 445 (3d Dept. 2016) (holding that the demand letter is “nothing more than a ‘letter discussing a possible future event,’ which ‘d[oes] not constitute an exercise of the . . . mortgage’s optional acceleration clause’”); Pidwell v. Duvall , 28 A.D.3d 829, 831, 815 N.Y.S.2d 754, 756–57 (3d Dept. 2006) (the letter discussing a possible future event did not constitute an exercise of the optional acceleration clause); 21st Mortgage Corp. v. Osorio , 51 Misc. 3d 1219(A) (Sup. Ct. Queens Cty. May 9, 2016) (finding that a default notice discussing possible future events does not constitute acceleration).

³ The Third and Fourth Departments have not expressly ruled on this issue.

⁴ The First Department includes New York and Bronx Counties.

⁵ 148 A.D.3d 529, 48 N.Y.S.3d 597 (1st Dept. 2017).

⁶ 2016 WL 3618640, at *4-5 (Sup. Ct. N.Y. Cty. July 5, 2016).

⁷ See also Deutsche Bank Nat’l Trust Co., as Trustee v. Unknown Heirs of Serge Souto , 52 Misc. 3d 1210(A), at *2, 41 N.Y.S.3d 718 (Sup. Ct. N.Y. Cty. July 5, 2016).

⁸ 2018 WL 3364451 (Sup. Ct. N.Y. Cty. July 10, 2018)

⁹ Id. at *8.

¹⁰ 2017 WL 1345598 (Sup. Ct. N.Y. Cty. Apr. 12, 2017).

¹¹ 2017 WL 1194698, at *10 (S.D.N.Y. Mar. 30, 2017).

¹² Royal Blue was decided on March 16, 2017, shortly before the Court’s decision in Costa. However, the Costa decision does not reference or rely on the Royal Blue holding.

¹³ The Second Department includes Kings (Brooklyn), Suffolk, Nassau, Queens, Richmond (Staten Island), Westchester, Rockland, Putnam, Orange, and Dutchess Counties.

¹⁴ 153 A.D.3d 474, 475, 60 N.Y.S.3d 198 (2d Dept. 2017).

¹⁵ 2017 WL 5957220, at *2 (N.Y. Sup. Ct. Kings Cty. Nov. 1, 2017).

¹⁶ Id. at *1–2 (emphasis added).

¹⁷ 2018 WL 3076642, at *2 (N.Y. Sup. Ct. Suffolk Cty. May 29, 2018).

¹⁸ 2018 WL 2976057 (N.Y. Sup. Ct. Queens Cty. Apr. 13, 2018)

¹⁹ Id. at *3.

²⁰ 2018 WL 1882809, at *1 (N.Y. Sup. Ct. Nassau Cty. Apr. 9, 2018)

²¹ Index No. 607490/2015 (N.Y. Sup. Ct. Suffolk Cty. Jan. 8, 2018)

²² WILL, Black’s Law Dictionary (10th ed. 2014).

²³ Available at: https://www.merriam-webster.com/dictionary/will (last visited, July 26, 2018).

²⁴ Similarly, Black’s Law Dictionary defines “may” as “to be permitted,” “to be a possibility,” or loosely, is required to; shall; must.” MAY, Black’s Law Dictionary (10th ed. 2014). Moreover, Merriam-Webster defines “may” as “having the ability to” or “to indicate possibility,” and notes that, when used in law, can also be interpreted as “shall; must.” https://www.merriam-webster.com/dictionary/may (last visited May 30, 2018). Thus, the word “will” is synonymous with the word “may.”

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"Does the Word 'Will' Clearly Accelerate a NY Mortgage Debt?," by Diana Eng and Andrea Roberts was published in Law360 on August 7, 2018. Reprinted with permission. To view the article online, please click here.