On December 30, 2022, New York Governor Kathy Hochul signed the Foreclosure Abuse Prevention Act (FAPA) into law. The legislation remained unchanged from its passing back in May 2022 despite many industry experts expecting Governor Hochul to amend certain portions, including its retroactive effect. The FAPA, however, which takes effect immediately, applies retroactively and effectively overturns the New York court of appeals’ decision in Freedom Mortgage Corporation v. Engel, 37 N.Y.3d 1 (2021). The Engel decision allowed lenders and servicers to voluntarily pause the statute of limitations on foreclosures and reserve the right to restart the action again, as long as it was done within six years.
We previously addressed the FAPA’s passing, including the anticipation that the law, as written, would invite significant litigation, including challenges to its constitutionality, given the retroactive effect on lenders and servicers already involved in the foreclosure process. The FAPA amends several statutes that govern the foreclosure process in New York, including:
- The new law applies retroactively to any pending foreclosure filed before December 30, 2022, where a final judgment and order of sale have not been enforced.
- A unilateral action by a lender or servicer does not extend the statute of limitations for a foreclosure action, and the lender or servicer is time-barred from foreclosing the mortgage after six years from the date the lender or servicer accelerated the loan.
- The new law amends New York’s Real Property and Proceeding Law § 1301 (often referred to as the “Election of Remedies” statute) to provide that once the statute of limitations bars a foreclosure action, a lender or servicer is prohibited from bringing a separate action to recover a personal judgment against the borrower on the promissory note.
- A loan owner or servicer is only permitted to assert that acceleration was invalid if a prior foreclosure action was dismissed based on a court ruling that the acceleration was invalid.
The FAPA will likely constrain the ability of lenders and servicers to efficiently prosecute foreclosure actions, including those actions restored under Engel, which will now likely face immediate dispositive motions from borrowers.
Troutman Pepper will continue to monitor the impact of the FAPA and report on any relevant updates as they happen.