Court Determines if Claim Was Barred By Statute of Limittaions
According to his complaint, Theodore Welz was in the business of acquiring and disposing of real property. In early 2017, he formed 571 Acad 3C, LLC for the purpose of purchasing a condominium unit located at 571 Academy Street, Unit 3C in New York City. 571 Acad took title to the property on July 27, 2017. On or about November 29, 2017, Welz borrowed $200,000 from SN Funding LLC, in exchange for providing SNF with a deed to the property, as well as pledging his 100% interest in 571 Acad as security for the loan. Welz and SNF modified the loan, increasing the principal amount and extending the maturity date. The complaint did not allege that either the original loan or the first modification were at a usurious rate of interest. The parties modified the loan again on October 18, 2018, increasing the principal to $285,666.50, extending the maturity date three months to January 31, 2019, and increasing the interest rate to 2.75% per month, annualized to 33%.
Welz purportedly defaulted on the loan, and on March 6, 2019, SNF recorded the deed to the property transferring title from 571 Acad to SNF. SNF subsequently sold the property to Ailene Brown.
In February 2021, Welz and 571 Acad sued SNF and Brown alleging that the 2019 modification was criminally usurious and thus the loan was void ab initio. Brown moved to dismiss, asserting that the action was time-barred. Supreme Court granted the motion. SNF appealed.
While a loan usurious at its inception is void and unenforceable, an obligation valid at its inception is not invalidated or tainted with usury by a subsequent usurious transaction. The invalidity of the final modification did not extinguish the borrower’s liability under the original contract and cannot taint the original agreement regardless of whether the usury was criminal or civil.
Consequently, Supreme Court properly granted Brown’s motion to dismiss the complaint on the ground that the action was barred by the one-year statute of limitations applicable to usury actions. The limitations period began running upon the date the property was delivered pursuant to the usurious transaction. The action to have the deed declared void and for the return of the real property was commenced more than one year after the date of the delivery of the deed to SNF was time barred.