Batavia Townhouses, Ltd. v. Council of Churches Hous. Dev. Fund Co.

• Decision Date: 02 October 2020
• Docket Number: CA 19-01672,314
• Citation: 189 A.D.3d 20,133 N.Y.S.3d 133
• Parties: BATAVIA TOWNHOUSES, LTD., Arlington Housing Corporation and Batavia Investors, Ltd., Plaintiffs-Respondents, v. COUNCIL OF CHURCHES HOUSING DEVELOPMENT FUND COMPANY, INC., Defendant-Appellant.
• Court: New York Supreme Court — Appellate Division

189 A.D.3d 20

133 N.Y.S.3d 133

BATAVIA TOWNHOUSES, LTD., Arlington Housing Corporation and Batavia Investors, Ltd., Plaintiffs-Respondents,

v.COUNCIL OF CHURCHES HOUSING DEVELOPMENT FUND COMPANY, INC., Defendant-Appellant.

314

CA 19-01672

Supreme Court, Appellate Division, Fourth Department, New York.

Entered: October 2, 2020

MCCONVILLE, CONSIDINE, COOMAN & MORIN, P.C., ROCHESTER (WILLIAM E. BRUECKNER OF COUNSEL), FOR DEFENDANT-APPELLANT.

HOLLAND & KNIGHT LLP, WASHINGTON, D.C. (STEVEN D. GORDON, OF THE WASHINGTON, D.C. BAR, ADMITTED PRO HAC VICE, OF COUNSEL), AND HARTER SECREST & EMERY LLP, ROCHESTER, FOR PLAINTIFFS-RESPONDENTS.

PRESENT: CENTRA, J.P., PERADOTTO, NEMOYER, WINSLOW, AND BANNISTER, JJ.

OPINION AND ORDER

Opinion by Peradotto, J.:

It is hereby ORDERED that the order so appealed from is unanimously modified on the law by remitting the matter to Supreme Court, Genesee County, for further proceedings in accordance with the following opinion and as modified the order is affirmed without costs.

In this action seeking, inter alia, a declaration that a mortgage is unenforceable on the ground that the limitations period for enforcement thereof had expired, we must determine, among other things, the applicable provision of the General Obligations Law under which the otherwise expired statute of limitations might be revived. We conclude that General Obligations Law § 17-105 (1), and not § 17-101, applies in this case.

I.

The undisputed facts establish that plaintiff Batavia Townhouses, Ltd. (Partnership)—which at all relevant times was comprised of defendant, as general partner, and plaintiffs Arlington Housing Corporation and Batavia Investors, Ltd. (collectively, Limited Partner plaintiffs), as limited partners—was formed to acquire and operate an apartment complex that had been owned and managed by defendant. Partnership purchased the apartment complex and executed a wraparound note and mortgage (collectively, mortgage) in favor of defendant that was subordinate to a separate, previously issued loan on which defendant remained the obligor. Income generated by the apartment complex was used by Partnership to pay down the debt under the mortgage and, in turn, those funds were used by defendant to pay down the debt on the loan. Both the loan and the mortgage matured at the beginning of March 2012, and the loan was paid off on schedule, thereby leaving the mortgage as the sole encumbrance on the apartment complex property. After the maturity date, however, payments on the mortgage ceased, and defendant never instituted an action to foreclose on it.

More than six years after the maturity date, the Limited Partner plaintiffs accused defendant of violating its duties as the general partner by keeping rents at the apartment complex artificially low and preventing Partnership from paying off the mortgage, thereby siphoning the equity interest of the Limited Partner plaintiffs to defendant's own account. The Limited Partner plaintiffs sought to remove defendant as general partner pursuant to the partnership agreement, and litigation then began in federal court concerning the attempted removal. A few months later, defendant's Board of Directors adopted a resolution stating that defendant, as holder of the mortgage, demanded that Partnership resume "monthly debt service payments of interest" on the mortgage. The resolution stated that the purpose for demanding resumption of those payments was because defendant "ha[d] an immediate need for cash resources in order to defend itself and assert its interests in the litigation with the [Limited Partner plaintiffs]." Thereafter, defendant, as general partner of Partnership, made such payments to itself, as holder of the mortgage, which eventually totaled $330,000.

The Limited Partner plaintiffs commenced this derivative action (see Partnership Law § 121-1002 ) seeking, inter alia, a judgment declaring pursuant to RPAPL 1501 (4) that the mortgage is unenforceable on the ground that the limitations period for enforcement thereof had expired. Defendant appeals from an order that, among other things, denied its motion for summary judgment seeking a declaration that the mortgage is valid and enforceable and granted plaintiffs' cross motion for summary judgment seeking, inter alia, to cancel and discharge the mortgage.

II.

Defendant contends that, under either General Obligations Law § 17-101 or § 17-105 (1), its submissions—i.e., Partnership's financial statements that were sent to defendant and the Limited Partner plaintiffs during the relevant period and Partnership's tax returns—establish that the limitations period on a foreclosure action was revived and therefore that the mortgage remains enforceable. We agree with plaintiffs, however, that: (A) only General Obligations Law § 17-105 (1) applies, and (B) the documents submitted by defendant are not sufficient under that subdivision to revive the statute of limitations.

Initially, RPAPL 1501 (4) provides in pertinent part that,

"[w]here the period allowed by the applicable statute of limitation for the commencement of an action to foreclose a mortgage ... has expired, any person having an estate or interest in the real property subject to such encumbrance may maintain an action ... to secure the cancellation and discharge of record of such encumbrance."

Thus, a party with an interest in real property that is subject to a mortgage may commence an action seeking to cancel and discharge the mortgage based on the expiration of the six-year statute of limitations applicable to mortgage foreclosure actions (see CPLR 213 [4] ; LePore v. Shaheen , 32 A.D.3d 1330, 1330-1331, 821 N.Y.S.2d 532 [4th Dept. 2006] ). With an exception not relevant to this case, "it is well established that the six-year period begins to run when the lender first has the right to foreclose on the mortgage, that is, the day after the maturity date of the underlying debt" ( CDR Créances S.A. v. Euro-American Lodging Corp. , 43 A.D.3d 45, 51, 837 N.Y.S.2d 33 [1st Dept. 2007] ).

Here, it is undisputed that plaintiffs established in support of their cross motion that the six-year limitations period began to run at the beginning of March 2012 and expired at the beginning of March 2018. It is further undisputed that no payments on the mortgage were made by Partnership, the property owner, during that period. Plaintiffs thus met their initial burden of "establishing that more than six years had elapsed since [Partnership] defaulted on the mortgage ... thereby establish[ing] that a mortgage foreclosure action commenced by defendant would be time-barred" ( LePore , 32 A.D.3d at 1331, 821 N.Y.S.2d 532 ; see Defelice v. Frew , 166 A.D.3d 725, 726, 85 N.Y.S.3d 780 [2d Dept. 2018] ). The burden therefore shifted to defendant to raise a triable issue of fact whether the statute of limitations was tolled or revived (see JBR Constr. Corp. v. Staples , 71 A.D.3d 952, 953, 897 N.Y.S.2d 223 [2d Dept. 2010] ; LePore , 32 A.D.3d at 1331, 821 N.Y.S.2d 532 ; see generally Alvarez v. Prospect Hosp. , 68 N.Y.2d 320, 324, 508 N.Y.S.2d 923, 501 N.E.2d 572 [1986] ).

A.

There are two statutory provisions that potentially apply in this case to revive the otherwise expired statute of limitations. General Obligations Law § 17-101 provides, in relevant part:

"An acknowledgment or promise contained in a writing signed by the party to be charged thereby is the only competent evidence of a new or continuing contract whereby to take an action out of the operation of the provisions of limitations of time for commencing actions under the civil practice law and rules other than an action for the recovery of real property."

Further, General Obligations Law § 17-105 (1) provides, in relevant part:

"A waiver of the expiration of the time limited for commencement of an action to foreclose a mortgage of real property or a mortgage of a lease of real property, or a waiver of the time that has expired, or a promise not to plead the expiration of the time limited, or not to plead the time that has expired, or a promise to pay the mortgage debt, if made after the accrual of a right of action to foreclose the mortgage and made, either with or without consideration, by the express terms of a writing signed by the party to be charged is effective, subject to any conditions expressed in the writing, to make the time limited for commencement of the action run from the date of the waiver or promise."

We agree with plaintiffs for the reasons that follow that General Obligations Law § 17-105 (1), and not § 17-101, applies in this case.

First, the plain language of subdivision (1) of section 17-105 is specifically applicable to waivers of the limitations period for commencement of an action to foreclose a mortgage and promises to pay mortgage debt. As plaintiffs correctly contend, and contrary to defendant's assertion, that subdivision, by its terms, applies to the type of action brought here under RPAPL 1501 (4), which requires the party bringing such an action to establish that the limitations period for the commencement of a mortgage foreclosure action has expired (see generally Albin v. Dallacqua , 254 A.D.2d 444, 444, 679 N.Y.S.2d 402 [2d Dept. 1998] ).

Second, legislative history supports the conclusion that subdivision (1) of section 17-105 governs here. The Law Revision Commission recognized that the rationale for permitting a mere "acknowledgment" to revive a general or contractual debt—i.e., that such acknowledgment implied a new promise to pay the debt supported by moral consideration of the previous obligation—is inapplicable to the acknowledgment of a mortgage lien on real property because a mortgage is not a promise but rather an executed transaction creating an interest in real property (see 1961 Rep of NY Law Rev Commn, reprinted in 1961 McKinney's Session Laws of NY, at 1873-1874). The Commission thus proposed a separate provision—eventually codified as General Obligations Law § 17-105 —that would clarify whether a...