In New York, the promissory note and mortgage are contracts and the six-year statute of limitations is applicable. There is much confusion as to how the six-year statute of limitations applies in mortgage foreclosure cases. In order to know how to apply the statute, we need to know if the loan was accelerated or not. Acceleration occurs when the bank declares the entire loan balance immediately due and payable. Once the loan is accelerated, the bank has six years to sue and failure to commence an action within the six year time period may result in a bar to recovery. If, however, during the six year period the borrower or his/her spouse filed for bankruptcy, the statute of limitations would be tolled, meaning stayed during the bankruptcy along with an additional time period tacked on in favor of the bank. Additionally, if the borrower filed for mortgage assistance during the six year period, the bank may assert that the borrower reaffirmed the debt and that the six year statute of limitations should run from the date of reaffirmation, i.e., the date the mortgage assistance application was made.
If, however, the bank did not accelerate the loan but has merely demanded that the borrower pay the loan arrears (missed payments and/or escrow charges, late fees, etc.), then each month that goes by is deemed a continuous loan default. Under this scenario, if the bank waited longer than six years from the date of the first default to commence its foreclosure, the bank would still be able to foreclose since in this situation the six-year statute of limitations applies only to missed payments that accrued more than six years. Since the loan balance was never accelerated, the bank can still foreclose and demand payment for the unpaid principal balance and all charges that accrued less than six years prior to filing the action. It is therefore likely that banks will decide not to accelerate their loan balances until they commence suit. If the bank does commence suit more than six years after the first missed payment, it only forfeits missed mortgage payments and charges that accrued more than six years. As discussed above, if the bank declared the entire loan due and payable (acceleration) then the bank MUST commence suit within the six years, unless of course the statute was tolled by a bankruptcy filing.
Additionally, if an action is timely commenced, but later dismissed before trial and at time of dismissal, the statute of limitations has expired or has less than six-months remaining then the aggrieved party, the bank, would be permitted an extension of six months from the date of dismissal to re-file the same action and serve process on the homeowner. Thus, just because the action was dismissed prior to a trial and at a time when the statute of limitations had expired does not necessarily bar the bank from commencing a new action. However, there are exceptions to this rule: the dismissal was on the merits or dismissal was due to the voluntary discontinuance by the bank, or the dismissal was based on the bank's failure to prosecute. See CPLR Section 205 (a). The attached link below will upload this section: http://codes.lp.findlaw.com/nycode/CVP/2/205
So, let’s assume the bank accelerated the loan three years prior to commencing foreclosure and the action has been inactive in court for another three years. If the borrower's attorney is able to have the action dismissed on the merits of the case then the bank may be barred from commencing a new foreclosure since the six year statute of limitations would apply. "On the merits" generally refers to substantive issues as opposed to procedural issues. For example, if an action is dismissed because the court determined that the homeowner was not properly served, this would not be deemed a trial on the merits of the case, and the bank would be permitted to recommence the same action within six months from the date of dismissal so long as it served process on the homeowner within that time period. If, however, the action was dismissed due to lack of standing then this would be on the merits, and the bank may be prohibited from refiling a new action so long as the borrower raises the statute of limitations defense in the answer.
Additionally, if the mortgage maturity date has passed, then the bank has six years from the maturity date to sue. This is not something we see often since most mortgages have a maturity date greater than 15 yrs, but it is something to consider.
Ultimately, the issues involving the statute of limitations in mortgage foreclosure actions are very complex and should only be handled by an experienced attorney.