Batavia Townhouses, Ltd. v. Council of Churches Hous. Dev. Fund Co.
| Decision Date | 24 May 2022 |
| Docket Number | 45 |
| Citation | 38 N.Y.3d 467,195 N.E.3d 503,174 N.Y.S.3d 670 |
| Parties | BATAVIA TOWNHOUSES, LTD., et al., Respondents, v. COUNCIL OF CHURCHES HOUSING DEVELOPMENT FUND COMPANY, INC., Appellant. |
| Court | New York Court of Appeals Court of Appeals |
38 N.Y.3d 467
195 N.E.3d 503
174 N.Y.S.3d 670
BATAVIA TOWNHOUSES, LTD., et al., Respondents,
v.
COUNCIL OF CHURCHES HOUSING DEVELOPMENT FUND COMPANY, INC., Appellant.
No. 45
Court of Appeals of New York.
Decided May 24, 2022
Woods Oviatt Gilman LLP, Rochester (William E. Brueckner of counsel), and McConville, Considine, Cooman & Morin, P.C., Rochester (Kevin S. Cooman of counsel), for appellant.
Holland & Knight LLP, Washington, D.C. (Steven D. Gordon of the District of Columbia bar, admitted pro hac vice, of counsel), and Harter Secrest & Emery LLP, Rochester (Jeffrey A. Wadsworth of counsel), for respondents.
OPINION OF THE COURT
TROUTMAN, J.
The primary question presented by this appeal is which section of article 17 of the General Obligations Law governs the tolling or revival of the statute of limitations period in an action pursuant to Real Property Actions and Proceedings Law (RPAPL) § 1501(4). RPAPL § 1501(4) allows a party to cancel a mortgage where the limitations period for commencing a foreclosure action has expired. We hold that General Obligations Law section 17–105, not section 17–101, governs whether the statute of limitations has been tolled or revived in such an action.
Defendant Council of Churches Housing Development Fund Company (Council) borrowed approximately $4.7 million in 1971 to develop and operate Birchwood Village Apartments (Birchwood). Council defaulted on the private loan in 1979, which was insured by the U.S. Department of Housing and Urban Development (HUD). Upon Council's default, HUD acquired the note and associated mortgage on Birchwood. With HUD poised to foreclose on the property, Council subsequently formed plaintiff Batavia Townhouses, Ltd. (the Partnership) to bring in a cash infusion from private investors. Council is the managing general partner of the Partnership, which also currently has two limited partners: plaintiffs Arlington Housing Corp. and Batavia Investors, Ltd. The Partnership bought Birchwood from the Council in 1979 for $5.5 million and executed a wraparound note and mortgage (wraparound mortgage) in that amount in favor of Council. From 1979 to 2012, the Partnership used income from Birchwood to make payments to Council on the wraparound mortgage, and Council used those funds to pay off the HUD mortgage on the property, which was fully satisfied in February 2012. The Partnership's wraparound mortgage, the only remaining encumbrance on Birchwood, matured on March 1, 2012. The Partnership made no further payments on that debt for the next seven years, and Council did not commence any foreclosure proceedings.
In May 2019, the limited partners brought this derivative action, on behalf of the Partnership, against Council seeking a declaration that the wraparound mortgage was unenforceable because the six-year limitations period for foreclosure had expired in March 2018. Council responded that the statute of limitations had been tolled under §§ 17–101 or 17–105 because the Partnership's annual financial statements and tax returns for 2012 to 2018 listed the
mortgage as an outstanding liability. Section 17–101 provides that an "acknowledgment" of a contractual debt is "competent evidence of a new or continuing contract" that tolls the limitations period for commencing actions "other than an action for the recovery of real property." Section 17–105(1) states,
"A waiver of the expiration of the time limited for commencement of an action
to foreclose a mortgage of real property ... or a promise to pay the mortgage debt ... by the express terms of a writing signed by the party to be charged is effective ... to make the time limited for commencement of the action run from the date of the waiver or promise."
Supreme Court, among other things, granted plaintiffs’ motion for summary judgment seeking to cancel and discharge the wraparound mortgage. As is pertinent, the court ruled that the action to foreclose on the mortgage was time barred pursuant to CPLR 213(4) and the six-year statute of limitations was not tolled or revived under § 17–105.
The Appellate Division modified the Supreme Court order insofar as appealed from by remitting the matter to Supreme Court for the grant of an appropriate judgment declaring the rights of the parties and otherwise affirmed. The court agreed with Supreme Court that only § 17–105(1) "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" ( 189 A.D.3d 20, 25, 133 N.Y.S.3d 133 [2020] ). The Court reached that conclusion based on the "plain language" and legislative history of sections 17–101 and 17–105 ( id. at 25–26, 133 N.Y.S.3d 133 ). The Court explained that, although section 17–101 allows a "mere ‘acknowledgment’ " to extend the statute of limitations for "contractual debts," section 17–105(1) "was enacted specifically to address the waiver of the statute of limitations applicable to mortgage debt and ... provided that an express promise to pay such debt ... would be sufficient to revive the otherwise expired statute of limitations" ( id. ). As a result, the Appellate Division unanimously concluded that the Partnership's financial statements and tax returns could not revive the limitations period because they "do not constitute an express promise to pay the mortgage debt" ( id. at 28, 133 N.Y.S.3d 133 ). We granted leave to appeal ( 36 N.Y.3d 906, 2021 WL 627951 [2021] ), and we now affirm.
In pertinent part, RPAPL § 1501(4) provides as follows:
"Where the period allowed by the applicable statute of limitation for the commencement of an action to foreclose a mortgage, or to enforce a vendor's lien, has expired, any person having an estate or interest in the real property subject to such encumbrance may maintain an action against any other person or persons, known or unknown, including one under disability as hereinafter specified, to secure the cancellation and discharge of record of such encumbrance, and to adjudge the estate or interest of the plaintiff in such real property to be free therefrom" ( RPAPL § 1501[4] [emphasis added]).
Thus, a party seeking to cancel or discharge a mortgage must first establish that the limitations period for enforcement by way of foreclosure has already expired. Here, it is undisputed that the six-year statute of limitations to foreclose on Birchwood expired on March 2, 2018, pursuant to CPLR 213(4), unless it was extended or revived by one of the means set forth in either General Obligations Law §§ 17–101 or 17–105. The question we must answer is whether both or only one of those sections of the General Obligations Law applies here.
Despite what Council contends, General Obligations Law § 17–105, by its express terms, is the sole statute governing the tolling or revival of the statute of limitations for an action to foreclose a
mortgage. Section 17–105(1) states that, among other things, a
"promise to pay the mortgage debt, if made after the accrual of a right of action to foreclose the mortgage ... by the express terms of a writing signed by the party to be charged is effective ... to make the time limited for commencement
of the action run from the date of the ... promise" (emphasis added).
The statute further states that
"[e]xcept as provided in subdivision five, no acknowledgment, waiver or promise has any effect to extend the time limited for commencement of an action to foreclose [a] mortgage for any greater time or in any other manner than that provided in this section, nor unless it is made as provided in this section" ( § 17–105[4] [emphasis added]).
Moreover, section 17–101 excludes itself—and by implication its allowance for a mere acknowledgment to toll or revive the statute of limitations—because it indicates that it does not apply to "actions for the recovery of real property."
Council further argues that General Obligations Law §§ 17–101 and 17–105 both apply to mortgage foreclosure actions based on this Court's precedent in ( Petito v. Piffath, 85 N.Y.2d 1, 623 N.Y.S.2d 520, 647 N.E.2d 732 [1994] ), in which we considered both statutes in concluding that a time-barred foreclosure had not been revived. However, Petito is distinguishable from the present case because the record in that case reveals that, unlike the present case, the parties did not present this Court with the threshold question of which section of the General Obligations Law applied in a mortgage foreclosure action.
Under General Obligations Law § 17–105(1), the Partnership's actions in this case could only toll or revive the statute of limitations for the Council to bring a foreclosure action if the Partnership made an "express" "promise to pay the mortgage debt." Accordingly, the Appellate Division correctly concluded that the Partnership's delivery of its financial statements and tax returns to Council did not meet the requirements of section 17–105(1) because they were not express promises to pay the mortgage debt ( 189 A.D.3d at 28, 133 N.Y.S.3d 133 ).1
Council seeks, however, to draw a distinction between an "express promise" and General Obligations Law § 17–105(1) ’s requirement of a "promise ... made ... by the express terms of a writing." According to Council, a mere acknowledgment meets that requirement. Section 17–105(1), however, does not use the word "acknowledgement," and it instead refers to a "promise" or "waiver" made "by the express terms of a writing." The logical reading is that, whereas section 17–101 allows for a written and signed "acknowledgement [of] or promise" to pay a contractual obligation to toll or revive the statute of limitations, section 17–105(1) requires the mortgage debtor to make an "express" "promise to pay the mortgage debt." To instead construe the word "promise" to refer both to an...
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