Simon PLC Attorneys & Counselors – March 2025 Memorandum
New York’s Foreclosure Abuse Prevention Act Revisited -Two Years Later
Troy, MI. It has been more than two years, since the New York legislature enacted the “Foreclosure Abuse Prevention Act” (“FAPA”) in direct response to the New York Court of Appeals’ decision in Freedom Mortg. Corp. v. Engel (“Engel”), a 2021 case in which New York’s highest court held that, where the maturity of the debt had been validly accelerated by the commencement of a foreclosure action, the noteholder’s voluntary withdrawal of that action was sufficient to revoke the prior election to accelerate the debt (see Freedom Mtge. Corp. v Engel, 37 NY3d 1, 19), thereby resetting the statute of limitations. The passing of FAPA was significant because it essentially reversed judicial precedent that permitted a lender, after a borrower’s default, to unilaterally undo the acceleration of a mortgage and stop the running of the statute of limitations in a foreclosure action through voluntary dismissal, discontinuance of foreclosure actions, or even de-acceleration letters. The Legislature justified the passage of the Act to “overrule the Court of Appeals’ recent decision in [Engel] … .” because it needed to “correct judicial applications … and overturn those decisions that have strayed from legislative prescription and intent.” S.B. S5473D at Sponsor Memo, Justification.
An action to foreclose a mortgage is governed by a six-year statute of limitations (CPLR§ 213[4]; Lubonty v U.S. Bank N.A., 34 NY3d 250, 261). Pursuant to the terms found in almost every note secured by a mortgage, a borrower is obligated to make monthly payments on the mortgage loan. In the event of a default, the note gave the noteholder the right to elect to call due the entire outstanding principal and all interest owing on that amount. When a mortgage is payable in installments, separate causes of action accrue for each installment that is not paid and the statute of limitations begins to run on the date each installment becomes due (see US Bank Trust, N.A. v Reizes, 222 AD3d 907, 909; Nationstar Mtge., LLC v Weisblum, 143 AD3d 866, 867). However, once the mortgage debt is accelerated (i.e. by commencement of a foreclosure action), the entire balance of the debt accrues and the statute of limitations begins to run on the full amount due (see GMAT Legal Title Trust 2014-1 v Kator, 213 AD3d 915, 916; EMC Mtge. Corp. v Patella, 279 AD2d 604, 605). Pre-FAPA, a noteholder could commence a foreclosure action in 2010, voluntarily discontinue it in 2012 (thereby revoking the acceleration of the mortgage loan) and re-commence a second action in 2018 (eight years after the initial acceleration) without being time-barred. FAPA essentially foreclosed this practice by lenders.
When FAPA was enacted, it was to take effect immediately, however, its retroactive effect was not clear and resulted in conflicting trial court decisions. What soon resulted was the appellate courts being inundated with appeals regarding the retroactive application of FAPA from lenders whose cases were being dismissed because of prior foreclosure actions and from borrowers who believed that the lender commenced the current foreclosure beyond the six-year statute of limitations. On appeal, the appellate courts have upheld the retroactive application of FAPA reasoning that “[a]mendments are presumed to have prospective application unless the Legislature’s preference for retroactivity is explicitly stated or clearly indicated. However, remedial legislation should be given retroactive effect in order to effectuate its beneficial purpose” (Matter of Gleason [Michael Vee, Ltd.], 96 NY2d 117, 122 [citation omitted]). The appellate courts found that FAPA was remedial in nature. The Legislature enacted FAPA to “take effect immediately” and to apply to all actions in which a final judgment of foreclosure and sale has not been enforced (L 2022, ch 821, § 10). Moreover, the Legislature enacted FAPA in response to what it saw was an ongoing problem of abuse of the judicial foreclosure process and to recent court decisions that were contrary to the intent of the Legislature and that had enabled mortgage lenders and loan servicers to avoid strict compliance with remedial statutes and to manipulate statutes of limitations to their advantage (see U.S. Bank N.A. v Lynch, _____ AD3d _____, 2024 NY Slip Op 05261 [3d Dept]; Genovese v Nationstar Mtge. LLC, 223 AD3d at 41). FAPA is remedial in nature, and applying FAPA retroactively effects its beneficial purpose (see U.S. Bank N.A. v Lynch, _____ AD3d _____, 2024 NY Slip Op 05261).
While retroactive applications of FAPA’s provisions have been, and continue to be, upheld by various appellate court decisions, the courts failed to consider the issue of its Constitutionality until recently. (see e.g. Deutsche Bank N.A. v. Zak (2d Dep’t Feb. 19, 2025) (estoppel provision); 630 6A LLC v. U.S. Bank Tr. N.A., (1st Dep’t Jan. 21, 2025) (saving statute provision); Bank of N.Y. Mellon v. Richards, (3d Dep’t Dec. 12, 2024) (saving statute provision); Citimortgage, Inc. v. Goldstein, (2d Dep’t Sept. 18, 2024) (anti-Engel provision); Windward Bora LLC v. Browne, 110 F.4th 120 (2d Cir. July 26, 2024).
In the landmark decision, Deutsche Bank National Trust Company v. Frantz Dagrin, et al.,233 AD3d 1065 (2d Dept.), the Second Department held that the retroactive application of FAPA comports with due process. In so holding, the Court held that “[i]t is well settled that ‘[l]egislative enactments are entitled to a strong presumption of Constitutionality’ ” (White v Cuomo, 38 NY3d 209, 216 [2022] [internal quotation marks omitted], quoting Dalton v Pataki, 5 NY3d 243, 255 [2005]), and a party challenging the enactment’s legitimacy must demonstrate its invalidity beyond a reasonable doubt (see id.). “To comport with the requirements of due process, retroactive application of a newly enacted provision must be supported by a legitimate legislative purpose furthered by rational means” (Matter of Regina Metro. Co., LLC v New York State Div. of Hous. & Community Renewal, 35 NY3d 332, 375 [2020]. Here, as previously stated, the Legislature enacted FAPA in direct response to the Engel case, which “would allow noteholders to abuse the foreclosure process by manipulating and extending the statute of limitations to the detriment of homeowners” (U.S. Bank N.A. v Lynch, 233 AD3d at 117; see Senate Introducer’s Mem in Support of 2022 NY Senate Bill S5473D [same-as bill to 2022 NY Assembly Bill A7737B], Bill Jacket, L 2022, ch 821 at 98). However, the Second Department did not stop at the due process analysis. The Court further held that FAPA did not violate the Contract Clause and Takings Clause of the United States Constitution.
While there had been some hope that New York’s highest court would eventually weigh in on the issue of retroactivity of FAPA, such did not occur. On October 1, 2024, the Second Circuit federal court of appeals, reviewing an appeal from an action brought in the federal district court to foreclose a New York mortgage, certified a question to the New York Court of Appeals, asking whether the anti-Engel provisions of FAPA apply retroactively, as the legislation directly impacted foreclosures in NY and dealt with NY law. At issue in the federal court was the retroactivity of the anti-Engel portion of FAPA. Although deciding the issue would likely have required the Court of Appeals to also resolve whether retroactive application of that part of FAPA was Constitutional, on October 24, 2024, the court “respectfully declined” to do so and sent the case back to the federal court.
Since Dagrin, other appellate courts have had to decide Constitutional issues relating to the retroactivity of FAPA. Due to the impact FAPA has on the outcome of not only current but future foreclosure proceedings, it will only be a matter of time before the Court of Appeals will finally weigh in on this issue.
Given the evolving nature of this area of the law, Simon PLC Attorneys & Counselors will continue to monitor any critical developments.
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