Equitable Tolling of Foreclosure Interest for Plaintiff-Caused Standing Delay: Tolling from the First Defective Standing Motion

Introduction

HSBC Bank USA, N.A. v Ehrenthal (2026 NY Slip Op 01949 [App Div 2d Dept Apr. 1, 2026]) is a mortgage foreclosure decision in which the Second Department largely affirmed an order and judgment of foreclosure and sale, but modified it to grant significant equitable relief to the borrowers: tolling interest for a multi-year period attributable to the plaintiff’s shifting and inadequately supported standing theory.

The parties were HSBC Bank USA, National Association in different trustee/“trust” designations (initially styled as “HSBC/MHL” and later “HSBC/MortgageIT”) as foreclosing plaintiff, and homeowners Samuel Ehrenthal and Frimet Ehrenthal as defendants. The critical issues were: (i) whether the plaintiff had standing at commencement (possession of the note), (ii) whether the trial referee’s standing findings should be confirmed, (iii) whether the court should use its equitable discretion to toll interest due to litigation delay, and (iv) whether sanctions should be imposed under 22 NYCRR 130-1.1.

Summary of the Opinion

  • The Appellate Division held that the trial referee’s standing findings were supported by the record and were properly confirmed, where a Wells Fargo employee identified documents (including a pooling and servicing agreement) supporting that “HSBC/MHL” and “HSBC/MortgageIT” referred to the same trust/entity.
  • Exercising equitable discretion, the court modified the foreclosure judgment to toll interest not merely for the period recommended/used below, but for a longer span: from August 20, 2015 to August 19, 2019.
  • The court rejected the borrowers’ request for sanctions/attorneys’ fees under 22 NYCRR 130-1.1, finding they did not meet the high standard for “frivolous conduct.”
  • The court also rejected procedural objections to the borrowers’ post-trial challenge/tolling request, holding the cross-motion practice was timely or permissibly accepted by extension (citing CPLR 2004).

Analysis

Precedents Cited

1) Standing and the earlier appellate ruling

HSBC Bank USA, N.A. v Ehrenthal, 158 AD3d 668 (the “prior appeal”), is central to the 2026 decision. In that earlier order, the Second Department rejected summary judgment because an affidavit asserted note possession by “HSBC/MortgageIT,” yet failed to allege and prove that “HSBC/MortgageIT” was the same entity as “HSBC/MHL.” The 2026 court treats that earlier defect as the root cause of ensuing delay and the equitable basis for interest tolling.

2) Confirmation of referee findings and deference to credibility determinations

The court reiterated the standard for confirming a referee’s report:

  • U.S. Bank N.A. v Dallas, 212 AD3d 680: a referee’s report should be confirmed when findings are substantially supported by the record and credibility/issue resolution is clear.
  • Anvaer v Anvaer, 160 AD3d 794: credibility determinations receive “great weight” because the referee sees and hears the witnesses.

Applying these authorities, the court upheld confirmation of the post-trial referee’s standing determination.

3) Foreclosure as an equitable action; discretionary interest

The court grounded interest tolling in the equitable nature of foreclosure and the discretionary character of interest computation:

  • Deutsche Bank Natl. Trust Co. v Ould-Khattri, 201 AD3d 701: foreclosure triggers the court’s equitable powers.
  • Krupnick v Romano, 220 AD3d 941: in equitable actions, the date/rate of interest is discretionary; also cited for the principle that discretion is fact-specific and may consider wrongful conduct.
  • Wells Fargo Bank, N.A. v Chun Fei Lee, 208 AD3d 1384: further support for discretionary interest determinations in equitable contexts.
  • Dayan v York, 51 AD3d 964: quoted (via Krupnick) for the proposition that discretion is governed by the particular facts, including wrongful conduct.

Statutorily, the court cited CPLR 5001(a) for the discretionary principle in equitable actions.

4) Sanctions for frivolous conduct under 22 NYCRR 130-1.1

The court emphasized the “high” threshold for sanctions:

  • Stone Mtn. Holdings, LLC v Spitzer, 119 AD3d 548: sets out the discretion to award costs/fees for frivolous conduct and the high bar for a finding of frivolity, including the “completely without merit in law” standard.
  • U.S. Bank N.A. v Tait, 234 AD3d 889: applied regarding sanctions standards and analysis.
  • U.S. Bank Trust, N.A. v Johnson, 201 AD3d 841: cited in concluding defendants failed to show frivolous conduct.

5) Procedural discretion to extend time

Addressing timeliness/acceptance of defendants’ cross-motion practice, the court cited:

  • Yadegar v Deutsche Bank Natl. Trust Co., 164 AD3d 945: supporting the court’s discretion to extend time under CPLR 2004.

Legal Reasoning

A) Standing: proving “who” held the note at commencement

New York foreclosure standing commonly turns on whether the plaintiff (or the entity on whose behalf it sues) possessed the promissory note at commencement. Here, the litigation became unusually protracted because the plaintiff’s submissions repeatedly created (or failed to cure) an identity mismatch between “HSBC/MHL” and “HSBC/MortgageIT.” After the prior appeal’s rejection of summary judgment, the Supreme Court ordered a trial limited to standing and required admissible evidence identifying the two designations as the same entity.

The Second Department upheld the referee’s post-trial findings because the record included witness testimony (from Wells Fargo, the servicer) and documentary support (including a pooling and servicing agreement) showing the acronyms were used interchangeably to refer to the same trust/entity. Under U.S. Bank N.A. v Dallas and Anvaer v Anvaer, the referee’s credibility determinations were entitled to deference, and the findings were “substantially supported by the record.”

B) Interest tolling: equity responds to plaintiff-caused delay

The most consequential part of the decision is the modification tolling interest for August 20, 2015 to August 19, 2019. The court framed foreclosure as an equitable proceeding (Deutsche Bank Natl. Trust Co. v Ould-Khattri) and relied on the principle that interest computation in equitable actions is discretionary (CPLR 5001[a]; Krupnick v Romano; Wells Fargo Bank, N.A. v Chun Fei Lee).

Critically, the court identified the operative “fault line” for equitable adjustment: the plaintiff’s “changing theory of the case” and the use of affidavits/affirmations that represented the entities as separate in support of the 2015 summary judgment motion. While the referee (and Supreme Court) used a narrower tolling window tied to the prior appeal decision, the Second Department extended the tolling back to the moment the plaintiff first sought dispositive relief premised on the problematic standing presentation—August 20, 2015—through August 19, 2019, when the Supreme Court ordered the standing trial.

The reasoning reflects an equitable allocation of the “time value of money” consequences of delay: when the plaintiff’s litigation choices materially prolong the case, equity may prevent the plaintiff from charging the borrower interest for that period, even if the plaintiff ultimately proves standing at trial.

C) Sanctions: delay and weak positions are not automatically “frivolous”

Although the plaintiff’s standing presentation produced significant delay and required multiple opportunities to prove standing, the court declined to impose sanctions. Under Stone Mtn. Holdings, LLC v Spitzer and U.S. Bank N.A. v Tait, a position is frivolous only if it is “completely without merit in law” and cannot be supported by reasonable argument. The court held defendants did not meet their burden to show frivolous conduct (U.S. Bank Trust, N.A. v Johnson). In effect, the court separated two ideas: (i) equity can mitigate financial consequences of plaintiff-caused delay (interest tolling), but (ii) sanctions require a higher showing.

D) Procedural flexibility: accepting late cross-motion practice

The court rejected the plaintiff’s procedural objection to the timeliness of defendants’ cross-motion seeking to reject the referee’s post-trial report, and held that, as to the later cross-motion seeking tolling and sanctions, the Supreme Court did not improvidently exercise discretion in extending time (CPLR 2004; Yadegar v Deutsche Bank Natl. Trust Co.). This reinforces that, especially in long-running foreclosure litigation, courts may use procedural discretion to reach equitable merits.

Impact

  • Anchoring tolling to the plaintiff’s first defective standing motion. The decision signals that interest tolling may be pegged not only to appellate reversals or discrete court-identified error points, but to the earlier moment when the plaintiff affirmatively invoked the court’s machinery (e.g., summary judgment/order of reference) on a materially flawed standing narrative. That expands the practical exposure for plaintiffs who pursue foreclosure while their standing proof is unsettled or internally inconsistent.
  • Incentivizing rigor in “entity identity” proof. Securitized-trust foreclosures often involve multiple names, abbreviations, trustees, and series designations. This case underscores that imprecision about “who the plaintiff is” can have monetary consequences, even if the plaintiff ultimately prevails.
  • Separating equitable remedies from punitive sanctions. Courts may be more willing to grant equitable tolling than to brand conduct “frivolous” under 22 NYCRR 130-1.1—providing defendants meaningful relief without the heavier finding required for sanctions.
  • Trial referees’ credibility findings remain resilient on appeal. By reaffirming U.S. Bank N.A. v Dallas and Anvaer v Anvaer, the decision signals that once a standing trial occurs and the referee credits documentary-backed testimony, appellate review will be deferential.

Complex Concepts Simplified

Standing (in foreclosure)
The legal right to sue. In New York mortgage foreclosure cases, standing is commonly shown by possession of the promissory note at the time the action is started. If the wrong entity sues—or the plaintiff cannot prove it held the note—dismissal or denial of dispositive relief may follow.
Referee’s report (after trial) and “confirmation”
A referee can be appointed to hear evidence and make findings (here, on standing). “Confirmation” is the court’s adoption of the referee’s findings. Appellate courts generally uphold confirmed findings when supported by the record, especially on credibility, because the referee observed the witnesses firsthand.
Pooling and servicing agreement (PSA)
A governing contract for a securitized mortgage trust. It often identifies the trust, trustee, servicer, and how loans/notes are held and administered—making it relevant to questions about trust identity and note possession.
Interest tolling
A court-ordered pause in the accrual of interest. In equitable cases like foreclosure, courts may toll interest for periods of delay attributable to one side—preventing that party from benefiting financially from the delay.
Frivolous conduct (22 NYCRR 130-1.1)
Litigation behavior so meritless or improper that the court may award attorneys’ fees/costs as a sanction. The threshold is high; losing or causing delay does not automatically equal frivolity.

Conclusion

HSBC Bank USA, N.A. v Ehrenthal confirms two practical rules for New York foreclosure litigation. First, once a standing dispute is tried and supported by documentary-backed testimony, a referee’s credibility-based findings are likely to be confirmed. Second—and most notably—the Second Department reaffirmed and sharpened the equitable power to toll mortgage interest where plaintiff-driven standing confusion materially delays the case, and it anchored tolling to the plaintiff’s earliest problematic standing motion (August 20, 2015), not merely to later appellate or trial-order milestones. The decision therefore strengthens equitable oversight of foreclosure delay while reserving sanctions for truly “frivolous” conduct under 22 NYCRR 130-1.1.