Notice-Recipient Designations in Reverse Mortgages Impute Knowledge to the Lender: Second Department narrows CPLR 306‑b “interest of justice” extensions for heir defendants

Introduction

In OneWest Bank N.A. v. All the Heirs at Law (2025 NY Slip Op 04258), the Appellate Division, Second Department, affirmed a Richmond County Supreme Court order that dismissed a foreclosure complaint against an heir, Raymond Moran, for failure to timely serve process under CPLR 306‑b and denied the lender’s request for an extension of time to serve “in the interest of justice.” The decision, authored by a panel consisting of Genovesi, J.P., Brathwaite Nelson, Ventura, and McCormack, clarifies the contours of CPLR 306‑b in the foreclosure context, especially where the loan documents themselves identify a designated “Notice Recipient.”

The central holding is twofold:

Where reverse mortgage documents designate an individual as a “Notice Recipient” and provide an address, the lender “should have known” the identity and address of that person at commencement—undermining claims of inability to locate heirs and weighing strongly against an “interest of justice” extension under CPLR 306‑b.
Expiration of the statute of limitations—ordinarily a factor favoring an extension—does not overcome extreme lack of diligence, prolonged delay in seeking an extension, and failure to show the defendant had actual notice within the 120-day service period.

Summary of the Judgment

The borrowers, Edward and Aud Moran, executed a reverse mortgage in 1995 and designated their son, Raymond Moran, as a “Notice Recipient,” supplying his address. After Edward died in 1998 and Aud died intestate in 2013, the lender (OneWest Bank N.A.) commenced foreclosure in August 2014 against, among others, “all the heirs at law” of Aud Moran—without naming Raymond individually despite the loan’s designation.

The lender did not serve Raymond until December 13, 2021—over seven years after the 120-day service period had expired—using CPLR 308(2). Raymond moved to dismiss under CPLR 306‑b. The lender cross-moved to extend time for service “in the interest of justice,” arguing, among other things, that local policy in Richmond County required appointment of an estate administrator in Surrogate’s Court, complicating service on heirs.

The Supreme Court granted Raymond’s motion and denied the lender’s extension request. The Second Department affirmed, holding:

The motion court properly applied the “interest of justice” standard, and could consider the lender’s lack of diligence even if “good cause” was not claimed.
The lender’s asserted difficulties did not excuse a 3½-year delay in even initiating a Surrogate’s Court proceeding nor the absence of attempts to serve Raymond until 2021, particularly where the loan documents and a 2017 affidavit identified Raymond and his address.
Although the statute of limitations had expired by the time the extension was sought (a factor that often favors granting an extension), the lender’s “overall extreme lack of diligence” outweighed that factor.
The lender failed to rebut the inference of substantial prejudice arising from the protracted delay, as it did not show Raymond had actual notice within the 120-day period.

Detailed Analysis

Factual Timeline

1995: Borrowers execute reverse mortgage; designate son Raymond as “Notice Recipient,” listing his address.
1998: Edward (co-borrower) dies.
July 18, 2013: Aud (last surviving borrower) dies; loan matures by its terms upon death of last borrower.
August 4, 2014: Foreclosure action commenced against “all heirs at law” of Aud—without naming Raymond individually.
October 2017: Lender submits affidavit to Surrogate’s Court identifying Raymond as Aud’s son and listing his address.
December 13, 2021: Raymond is served under CPLR 308(2).
January 2022: Raymond moves to dismiss under CPLR 306‑b; lender cross-moves for 306‑b extension “in the interest of justice.”
May 27, 2022: Supreme Court grants dismissal and denies extension; Second Department affirms.

Issues Presented

Whether the motion court applied the correct standard in evaluating a CPLR 306‑b extension request premised solely on the “interest of justice.”
Whether facts showing lender knowledge of an heir’s identity and address at commencement, prolonged delay in service, and late motion for extension justified denial of an “interest of justice” extension.
How the expiration of the statute of limitations interacts with the “interest of justice” balancing under CPLR 306‑b, particularly where the plaintiff’s lack of diligence is severe.

Precedents Cited and Their Role in the Decision

Leader v Maroney, Ponzini & Spencer, 97 NY2d 95: Foundational authority establishing that CPLR 306‑b provides two independent routes for extension—“good cause” (focused on diligence in service) and “interest of justice” (broader, multifactor balancing). The Court reiterated that under the “interest of justice” standard, diligence remains relevant but is not a threshold requirement; other factors include the statute of limitations, merits, length of delay, promptness in seeking an extension, and prejudice.
Bumpus v NYC Transit Auth., 66 AD3d 26: Emphasizes diligence and early recourse to the court for relief when service issues arise. The Second Department invoked Bumpus (cf.) to contrast cases where plaintiffs made reasonable efforts with OneWest’s situation—where the record showed the bank should have known the heir’s identity and address at the outset and yet made no timely attempts to serve.
U.S. Bank N.A. v Bindra, 217 AD3d 719: Reaffirms the independence of the “good cause” and “interest of justice” standards, and that courts retain discretion to consider diligence (or its absence) within the interest-of-justice analysis.
US Bank N.A. v Fink, 206 AD3d 858: Critical to the outcome. Fink holds that the expiration of the statute of limitations—a factor that often weighs in favor of an extension—can be outweighed by a plaintiff’s “overall extreme lack of diligence.” The Court quotes Fink to characterize the lender’s prolonged delay here and to justify denial despite the time-bar concern.
HSBC Bank USA, N.A. v Labin, 232 AD3d 861: Supports the principle that no single factor is dispositive and addresses prejudice analysis—particularly the inference of substantial prejudice arising from long delays when the defendant lacks actual notice within the 120-day period. The lender failed to rebut this inference.
PNC Bank, N.A. v Sarfaty, 225 AD3d 721: Emphasizes the holistic nature of interest-of-justice balancing and recognizes that actual notice within the 120-day window can mitigate prejudice—again underscoring why the absence of such proof hurt the lender here.
BAC Home Loans Servicing, L.P. v Rogener, 171 AD3d 996: Cited to illustrate the defect of offering no evidence of attempts to serve before the very late service date.
Pierre v Grueso, 219 AD3d 1535; PROF-2013-M4 Legal Title Trust 2015-1 v Morales, 211 AD3d 866; Federal Nat’l Mtge. Assn. v Cassis, 187 AD3d 1145: These cases reinforce that waiting years past the service period to move for a 306‑b extension—especially only after a motion to dismiss—strongly militates against relief.

Legal Reasoning

The Court’s reasoning tracks the Leader framework and emphasizes several decisive facts:

Separate standards; correct framework applied. Although OneWest did not argue “good cause,” the motion court properly proceeded under the “interest of justice” standard and, under Leader, was permitted to factor in the lender’s “diligence, or lack thereof.”
Knowledge imputed via the loan documents. The reverse mortgage expressly named Raymond as the “Notice Recipient” and provided his address. This meant the bank “should have known” the identity and address of at least one heir at commencement. The Court also noted the bank’s 2017 Surrogate’s Court affidavit again listing Raymond and his address. Despite this, there was no attempt to serve him until December 2021. This undercut any claim of inability to identify or locate heirs.
Unexcused and compounded delay. The lender cited a local policy requiring appointment of an administrator by the Surrogate’s Court in Richmond County. But the Court found no excuse for the 3½-year delay in even commencing a Surrogate’s proceeding. On top of that, there was a seven-year lapse after the 120-day window before moving for a 306‑b extension—and that motion came only after the defendant moved to dismiss. These facts eroded equitable claims for relief.
Statute of limitations not dispositive. The Court expressly acknowledged that an expired statute of limitations typically favors granting an extension, but it relied on Fink to hold that this factor is overridden where the plaintiff’s “overall extreme lack of diligence” is evident.
Prejudice and actual notice. Given the lengthy delay, an inference of substantial prejudice arose. The lender offered no evidence that Raymond had actual notice within the 120-day period, failing to rebut the prejudice presumption recognized in Labin and related cases.
Discretion and standard of review. Echoing Bindra and Leader, the Second Department underscored that whether to grant an interest-of-justice extension is a discretionary call for the motion court. On this record, the motion court “providently exercised its discretion” in denying relief and dismissing as to Raymond.

What is Clarified or New

Notice-Recipient Designations Matter: The decision breaks important ground in explicitly using the “Notice Recipient” designation in a reverse mortgage to impute knowledge to the lender for CPLR 306‑b purposes. That contractual designation made it untenable for the lender to claim it could not identify or locate heirs, materially weakening the “interest of justice” pitch.
Reaffirmation of Fink’s Limiting Principle: Even when dismissal effectively time-bars the claim, courts may deny a 306‑b extension if the plaintiff’s lack of diligence is extreme, the delay is prolonged, and there is no showing of actual notice within the service period.
No Safe Harbor in Probate Complexity: The court signals that perceived local practices requiring Surrogate’s Court appointments do not excuse multi-year inertia. Lenders must still act promptly, both in surrogate proceedings and in seeking 306‑b relief.

Impact and Implications

This decision will likely influence foreclosure practice statewide, with particular force in the Second Department:

Reverse mortgage litigation: Lenders frequently rely on “unknown heirs” captions when the borrower dies. Where the loan documents identify a “Notice Recipient,” this case makes clear that known heirs (or designated contacts) must be promptly and individually served. Failure to do so significantly weakens any later 306‑b extension request.
Diligence expectations: Courts will closely scrutinize timelines—when the lender learned of an heir’s identity, whether reasonable efforts to serve were made within or near the 120-day window, and when any Surrogate’s Court proceeding was initiated. Prolonged inactivity will be fatal even in meritorious foreclosure cases.
Prejudice and actual notice: To overcome the prejudice inference from delay, plaintiffs should marshal proof that the defendant had actual notice within the 120-day period. Absent this, prejudice will be presumed and weigh heavily against relief.
Strategic timing for 306‑b motions: Plaintiffs must move for an extension promptly once service difficulties arise—preferably before the 120-day deadline or shortly thereafter. Waiting years, or moving only after a dismissal motion, almost guarantees denial.
Practical bar by time: Although 306‑b dismissals are “without prejudice,” if the statute of limitations has run, the practical effect is often case-ending as to that defendant. OneWest reaffirms that courts will accept that outcome where plaintiff’s conduct shows “overall extreme lack of diligence.”

Complex Concepts Simplified

CPLR 306‑b: New York’s rule that a plaintiff must serve the summons and complaint within 120 days of commencing the action. If service is not timely, the court must either dismiss without prejudice or extend the time for service upon “good cause” or “in the interest of justice.”
Good Cause vs. Interest of Justice:
- Good cause: Plaintiff shows reasonable diligence in trying to serve but, despite efforts, could not complete service.
- Interest of justice: A broader, equitable balancing considering diligence, statute of limitations, merits, delay length, promptness in seeking an extension, and prejudice. No single factor controls.
CPLR 308(2): A method of personal service often called “deliver and mail.” A copy is delivered to a person of suitable age and discretion at the defendant’s dwelling or actual place of business, followed by mailing to the defendant’s last known residence or actual place of business.
Reverse Mortgage: A loan typically available to older homeowners that does not require periodic payments; the balance becomes due upon certain maturity events, including the death of the last borrower or sale of the property.
Acceleration: Contractual term triggering the entire debt becoming due upon specified events (here, death of the last surviving borrower).
Notice Recipient: A person designated in the loan documents to receive notices on behalf of the borrower. This case treats that designation, with an address, as evidence that the lender knew or should have known how to contact the individual.
Surrogate’s Court: New York’s court handling probate/administration of estates. Lenders often seek estate appointments to identify proper parties where borrowers die intestate. This decision makes clear that resort to Surrogate’s Court must be timely and does not excuse prolonged inaction in serving known heirs.
Prejudice and Actual Notice: Courts infer prejudice from extreme delays in service. That inference can be rebutted if the plaintiff shows the defendant had actual notice of the action within the 120-day service period.

Practice Pointers

At loan origination, capture and retain Notice Recipient data; at default, verify and update it. Treat that contact as a potential defendant for service planning.
In death-triggered defaults, immediately review loan files for designated contacts/heirs and endeavor to serve them individually. Do not rely solely on “unknown heirs” captions.
If surrogate proceedings are necessary, initiate them without delay and memorialize efforts contemporaneously to support any later “good cause” or “interest of justice” showing.
Calendar the CPLR 306‑b deadline upon filing and, if service problems arise, move for an extension before the 120-day period lapses or promptly thereafter.
Gather proof of actual notice to intended defendants within 120 days (e.g., correspondence, acknowledgments, communications) to rebut prejudice from any later delay.
Be prepared that an expired statute of limitations will not salvage an extension request where diligence is absent; courts may accept a time-bar result if plaintiff’s conduct is wanting.

Conclusion

OneWest Bank N.A. v. All the Heirs at Law crystallizes two critical points in New York service-of-process jurisprudence under CPLR 306‑b. First, contractual notice designations in loan documents—particularly in reverse mortgages—will be used to impute knowledge of an heir’s identity and address to the lender, undermining claims of inability to locate parties. Second, even where dismissal risks time-barring the claim, courts will deny “interest of justice” extensions when the record shows prolonged, unjustified inaction, belated motion practice, and no proof of actual notice within the 120-day window.

In the foreclosure arena, the decision raises the diligence bar for plaintiffs and provides a robust defense tool for heirs served years after the action began. It reinforces that 306‑b’s equitable safety valve is not a failsafe for neglect; rather, it is a discretionary remedy reserved for plaintiffs who act promptly, document their efforts, and can demonstrate the absence of prejudice to defendants.

Key Takeaways

Notice-recipient data in loan documents can defeat claims that heirs were unidentifiable—expect courts to treat such designations as knowledge imputable to the lender.
Interest-of-justice relief under CPLR 306‑b remains discretionary and multifactorial; extreme lack of diligence will outweigh even an expired limitations period.
Proof of actual notice within 120 days is central to rebutting the prejudice presumed from long delays.
Foreclosure plaintiffs must move quickly both in Surrogate’s Court and in seeking 306‑b extensions; waiting until after a dismissal motion is a losing strategy.