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Appellate Division, First Department, Holds That The Foreclosure Abuse Prevention Act Is To Be Applied Retroactively

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  • Posted on: Dec 22 2023

By Jonathan H. Freiberger

This BLOG has written numerous times on statutes of limitation issues in mortgage foreclosure actions.  See, e.g., [here], [here], [here], [here], [here], [here] and [here].

Briefly stated, and as has been stated previously in this BLOG, an action to foreclose a mortgage is governed by a six-year statute of limitations.  CPLR 213(4)See also, Fed. Nat. Mort. Assoc. v. Schmitt, 172 A.D.3d 1324, 1325 (2nd Dep’t 2019).  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.”  HSBC Bank USA, N.A. v. Gold, 171 A.D.3d 1029, 1030 (2nd Dep’t 2019).  Most mortgages, however, provide that a mortgagee may accelerate the entire debt in the event of, inter alia, a payment or other default by a mortgagor. Thus, “the terms of the mortgage may contain an acceleration clause that gives the lender the option to demand due the entire balance of principal and interest upon the occurrence of certain events delineated in the mortgage.”  Bank of New York Mellon v. Dieudonne, 171 A.D.3d 34, 37 (2nd Dep’t 2019) (citations and internal quotation marks omitted).  Once the mortgagee’s election to accelerate is properly made, “the borrower’s right and obligation to make monthly installments ceased and all sums became immediately due and payable.”  The statute of limitations begins to run anew on the entire debt upon acceleration.  HSBC, 171 A.D.3d at 1030 (citations omitted).

Today’s BLOG will discuss Genovese v. Nationstar Mortgage LLC, a case decided by the Appellate Division, First Department, on December 19, 2023.  Genovese, is an action to cancel and discharge a mortgage pursuant to RPAPL 1501(4).  [Eds. Note: this BLOG has addressed RPAPL 1501(4) [here], [here] and [here].]  Simply stated, RPAPL 1501(4) permits, inter alia, a mortgagor to commence an action to have a mortgage discharged and cancelled of record if the lender would otherwise be time-barred from bringing its own action to foreclose the mortgage.  

The basic facts of Genovese are important.  Plaintiff’s decedent executed a reverse mortgage on property in the Bronx.  Plaintiff’s decedent’s repayment obligation was triggered by the decedent’s death in March 2008.  Lender commenced a foreclosure action against the decedent’s heirs in May 2009.  At the time of the commencement of the action a fiduciary had not yet been appointed.  The lender clearly accelerated the debt in the complaint.  A fiduciary was appointed seven months after the commencement of the action.  An order of reference was obtained in September of 2015 and a judgment of foreclosure and sale was issued in or about April of 2016.  In April of 2017, the judgment of foreclosure and sale was vacated, and the action dismissed, because the court lacked personal jurisdiction over the decedent’s heirs, who were the named defendants because “a plaintiff is unable to commence an action during the period between the death of a potential defendant and the appointment of a representative of the estate and no representative had been appointed for the decedent’s estate at the time the foreclosure action was commenced.”  (Citation and internal quotation marks omitted.)  The motion court, however, did not address acceleration in any way.  As will be discussed, this last fact is important.  Thereafter, the original lender assigned the mortgage to another lender.

In 2022, one of the co-executors of decedent’s estate commenced an action pursuant to RPAPL 1501(4) to cancel and discharge the mortgage as time-barred.  Plaintiff argued that the mortgage debt was accelerated in 2009, thus triggering the six-year statute of limitations.  Defendant lender moved to dismiss the complaint “on the grounds that the debt secured by the mortgage had not been validly accelerated in the foreclosure action because that action was a nullity, the six-year statute of limitations to commence a foreclosure action had not begun to run (let alone expire), and, therefore, an action to foreclose the mortgage was not time-barred.”  Agreeing with the lender’s position, the motion court granted the motion to dismiss.  Also, in its decision, the motion court “intimated” that no acceleration occurred because “the foreclosure action was a nullity.”  After the complaint was dismissed, but before the appeal was perfected, the Foreclosure Abuse Prevention Act (“FAPA”) became the law in New York.

Because some lenders were employing a tactic of acceleration/deacceleration/reacceleration to extend the six-year statute of limitations to circumvent mistakes made in pending foreclosure actions, among other reasons, FAPA was passed by the New York Legislature and signed into law by the Governor.  The Genovese Court described the problem thusly:

FAPA represents the Legislature’s response to litigation strategies and certain legal principles that distorted the operation of the statute of limitations in foreclosure actions (Assembly Mem in Support of 2022 Assembly Bill A7737B, L2022, ch 821 at 1; Senate Introducer’s Mem in Support of 2022 NY Senate Bill S5473D at 1). “The legislature [found] that there is an ongoing problem with abuses of the judicial foreclosure process and lenders’ attempts to manipulate statutes of limitations; that the problem has been exacerbated by recent court decisions which, contrary to the intent of the legislature, have given mortgage lenders and loan servicers opportunities to avoid strict compliance with remedial statutes and manipulate statutes of limitations to their advantage; and that the purpose of [FAPA] is to clarify the meaning of existing statutes, and to rectify these erroneous judicial interpretations thereof” (Assembly Mem in Support of 2022 Assembly Bill A7737B, L2022, ch 821 at 1). FAPA’s aim: “to thwart and eliminate abusive and unlawful litigation tactics that have been adopted and pursued in mortgage foreclosure actions to manipulate the law and judiciary to yield to expediency and the convenience of mortgage banking and servicing institutions at the expense of the finality and repose that statutes of limitations are meant to ensure” (id.; see also Senate Introducer’s Mem in Support of 2022 NY Senate Bill S5473D at 1).

Genovese, at *2 – *3.  Indeed, FAPA, “had the effect of nullifying [the Court of Appeals’] holding in [Freedom Mtge. Corp. v. Engel, 37 N.Y.3d 1, 32 (2021)]” (GMAT Legal Title Trust 2014-1 v. Kator, 213 A.D.3d 915 (2nd Dep’t 2023)), in which, inter alia, the Court adopted a bright-line rule “that where the maturity of the debt has been validly accelerated by commencement of a foreclosure action, the noteholder’s voluntary withdrawal of that action revokes the election to accelerate, absent the noteholder’s contemporaneous statement to the contrary”  (Engel, 37 N.Y.3d at 19).  [Eds. Note: this BLOG has addressed Engel [here], [here], [here].

In describing FAPA, the Genovese Court stated:

Although FAPA effected a number of important changes to the RPAPL (i.e., RPAPL 1301[3], [4]), the General Obligations Law (i.e., General Obligations Law § 17-105[4], [5]), and the CPLR (e.g., CPLR 203[h], 205[c], 205-a, 3217[e]), this appeal implicates only one: the addition of paragraph b to CPLR 213(4) (see L 2022, ch 821, § 7). The new CPLR 213(4)(b) provides that, in an action under RPAPL 1501(4) to cancel and discharge a mortgage, “a defendant shall be estopped from asserting that the period allowed by the applicable statute of limitation for the commencement of an action upon the instrument has not expired because the instrument was not validly accelerated prior to, or by way of commencement of a prior action, unless the prior action was dismissed based on an expressed judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated.”

An outstanding issue with FAPA is whether it is to be applied retroactively — an issue about which New York lower courts are split.  See, e.g., HSBC Bank USA, N.A. v. Besharat, 80 Misc 3d 269, 284 – 85 (Sup. Ct. Putnam Co. 2023) (FAPA is not to be applied retroactively); U.S. Bank Trust, N.A. v. Miele, 80 Misc. 3d 839, 848 (Sup. Ct. Westchester Co. 2023) (FAPA is to be applied retroactively).  The plaintiff in Genovese argued that FAPA should be applied retroactively.  Retroactive application of FAPA would negate the lender’s defense that the statute of limitations never began to run because the 2009 acceleration did not occur because the first action was a nullity.

After analyzing the language of FAPA and the relevant law on retroactive application of statutes, the Court concluded that FAPA should be applied retroactively.  First, the Court determined that FAPA’s clear language supports retroactive application.  Second, the Court found that FAPA is “remedial in nature,” as it was “designed, in part, to rewrite unintended judicial interpretations, and to reaffirm legislative judgment about what certain laws relating to the application of the statute of limitations to mortgage foreclosure actions should be.”  

After concluding that FAPA is to be applied retroactively, the Court found that the lender was estopped under CPLR 213(4)(b) “from asserting that the statute of limitations on a cause of action to foreclose on the mortgage has not expired.”  The Court noted that “CPLR 213(4)(b)’s potent estoppel bar will not be imposed, and a defendant will be free to assert that the debt secured by the mortgage was not validly accelerated in connection with a prior action, if, and only if, the prior action was dismissed based on an express judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated.”  The Court then noted that the motion court made mention of acceleration.

The Court did not address the defendant’s constitutional challenge on retroactive application because the lender did not notify the Attorney General of such a challenge as is required by CPLR 1012(b).

Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.

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