Can the Foreclosure Abuse Prevention Act (FAPA) be applied retroactively? Unfortunately, mortgage noteholders lack a clear response.
Prior to FAPA, the New York Court of Appeals in Freedom Mortgage Corporation v. Engel, held that if a foreclosure action is voluntarily discontinued it resets the six-year statute of limitations, allowing for a subsequent foreclosure action on the same mortgage. As we previously addressed, in response and in disagreement with this decision, the New York legislature enacted FAPA, and, as we anticipated, lenders and borrowers are now litigating over whether FAPA can be applied retroactively. Without clear precedent on this issue from the New York state courts, the U.S. Court of Appeals for the Second Circuit recently asked the New York Court of Appeals to decide this important question.
In East Fork Funding v. U.S. Bank, the plaintiff filed a quiet title action against a mortgage lender relating to a mortgage recorded against the plaintiff’s property. The mortgage had already been the subject of three foreclosure actions, the first of which was filed in 2010, prior to FAPA’s enactment in December 2022, and was voluntarily discontinued in 2011. However, the Eastern District of New York granted summary judgment in favor of the plaintiff, and applied FAPA retroactively, finding the statute of limitations continued to run from the commencement of the first foreclosure action in 2010 and ran out six years later.
The lender appealed and argued that retroactive application of FAPA violated the Due Process and Contracts clauses of the Constitution. The lender also invoked the deeply rooted presumption against retroactive application of legislation. The Second Circuit declined to decide this issue and instead certified the following question to the New York Court of Appeals: “Whether Sections 4 and/or 8 of the Foreclosure Abuse Prevention Act, codified at N.Y. C.P.L.R. 203(h) and 3217(e), respectively, apply to a unilateral voluntary discontinuance taken prior to the Act’s enactment.”
Our Take:
Until the case is decided, it is vital for lenders to be prudent in review of their loan portfolios to identify mortgages that were the subject of prior pre-FAPA enforcement actions and assess whether future acceleration and foreclosure will be time-barred. Lenders would also be wise to consider including language in their mortgage contract that addresses deacceleration of the mortgage and resets the statute of limitations, rather than a unilateral voluntary discontinuance which could run afoul of FAPA.
Troutman Pepper will continue to monitor the impact of FAPA and report on any relevant updates as they happen.