The Appellate Division, First Department, Reiterates in Two Cases That The Foreclosure Abuse Prevention Act (“FAPA”) is to Have Retroactive Application and Otherwise Passes Constitutional Muster

• Posted on: Nov 22 2024

By: Jonathan H. Freiberger

As readers of this BLOG know, we frequently write about issues relating to mortgage foreclosure.[1] We have also written numerous articles relating to the recently enacted FAPA. See, e.g., [here], [here], [here], [here] and [here]. Today’s BLOG article relates to Wilmington Trust, N.A. v. Farkas, and Bayview Loan Servicing, LLC v. Dalal, cases decided by the Appellate Division, First Department, on November 21, 2024, and November 19, 2024, respectively.[2]

FARKAS

The lender in Farkas commenced a foreclosure action in 2008 in which, by the complaint, it elected to accelerate the loan.[3] The 2008 action was voluntarily dismissed in 2013. A new action was commenced to foreclose the same mortgage in 2022. The Court found that the voluntary discontinuance of the 2008 action did not operate to deaccelerate the loan because FAPA “provides that the voluntary discontinuance of such an action “shall not, in form or effect, waive, postpone, cancel, toll, extend, revive or reset the limitations period to commence an action.” The Court also found that a 2014 “de-acceleration letter” did not operate to de-accelerate the loan because of FAPA’s addition of CPLR 203(h), prevents a party from “unilaterally” resetting the statute of limitations.[4]

The Court also found that the lender’s argument that FAPA should not be applied retroactively, is contrary to its decision in Genovese and the Third Department’s recent decision in U.S. Bank N.A. v Lynch (a case this BLOG addressed [here]). According to the plain language of FAPA, it “applies to pending suits ‘in which a final judgment of foreclosure and sale has not been enforced’” and was enacted, inter alia, to curtail ability of lenders “to manipulate the limitations period [which practice] was ‘to the clear detriment of New York homeowners,’ and [because] ‘[n]o other civil plaintiff in this state is extended such unilateral and unfettered powers’ to restart the limitation period.” (Quoting the Senate Mem in Support of 2022 NY Senate Bill S5473D.) Accordingly:

retroactive application of FAPA is supported by a legitimate legislative purpose furthered by rational means. These facts, together with the Legislature’s statement that FAPA was remedial and meant to clarify existing law, warrant FAPA’s application to pending actions. [Citation and internal quotation marks omitted.]

Similarly, the Court also found that retroactive application of FAPA is consistent with due process as the legislation was “remedial” in nature and furthered a “rational legislative purpose” that “allow FAPA to “meet the test of due process.” (Citation and internal quotation marks omitted.) The Court also rejected the lender’s separation of powers argument and its argument that FAPA’s application “would violate the Contracts Clause of the Federal Constitution.”

DALAL[5]

In 2009, the lender commenced an action to foreclose a mortgage and, in the complaint, elected to accelerate the loan balance. In 2014, the lender sent the borrower a “de-acceleration” letter. In 2015, the motion court granted the lender’s motion to discontinue the 2009 action.

A new action to foreclose the same mortgage was commenced in 2016. The motion court denied the borrower’s motion for summary judgment dismissing the complaint on statute of limitations grounds because the “de-acceleration” letter raised factual questions as to whether the loan was de-accelerated. The borrower renewed its motion for summary judgment after the passage of FAPA arguing that the new CPLR 203(h) warranted the granting of the motion. The Court agreed and, in so doing, rejected the lender’s argument that CPLR 203(h) does not apply retroactively and that, even if it does, the statute violates due process, the contract clause of the New York and United States Constitutions, and the United States Constitution’s Takings Clause.”.

For reasons like those stated in Farkas, Genovese and Lynch, the Court held that FAPA was to be applied retroactively. The Court held that CPLR 203(h) did not violate due process due to its remedial nature in curtailing “abusive and unlawful litigation tactics” of lenders. (Citation and internal quotation marks omitted.) Thus, retroactive application of CPLR 203(h) serves a legitimate legislative purpose furthered by rational means.” (Citation and internal quotation marks omitted.)

As to the lender’s “contract rights” arguments, the Court stated:

In addition, although plaintiff asserts that it has a contractual or property right to de-accelerate a loan, plaintiff has not identified a contract provision giving it this right. Accordingly, retroactive application of CPLR 203(h) does not significantly affect contractual or property rights so as to raise heightened concerns.

Plaintiff also points to no contract provision in its loan documents that CPLR 203(h) purportedly impairs such that the statute violates the contracts clauses of the New York and United States Constitutions. [Citation and internal quotation marks omitted.]

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.

[1] Eds. Note: this BLOG has written numerous articles addressing all aspects of residential mortgage foreclosure. To find BLOG articles related to mortgage foreclosure, visit the “Blog” tile on our website and enter “foreclosure” (or any related topic of interest) in the “search” box.

[2] Eds. Note: On December 19, 2023, the Appellate Division, First Department, in Genovese v. Nationstar Mortgage LLC, 223 A.D.3d 37 (2023), held that FAPA is to be applied retroactively. However, the First Department could not consider the lender’s “constitutional challenges to the retroactive application of FAPA under the Contract and Due Process Clauses of the Federal Constitution because defendant did not notify the Attorney General of those challenges (see CPLR 1012 [b]).” Genovese, 223 A.D.3d at 45. This Blog wrote about Genovese [here].

[3] Eds. Note: this BLOG has written numerous articles addressing all aspects of loan acceleration. To find BLOG articles related to loan acceleration, visit the “Blog” tile on our website and enter “accelerate” (or any related topic of interest) in the “search” box.

[4] Even without FAPA, the Court indicated that the 2022 action would have been time barred because the purported de-acceleration occurred after the statute of limitations expired and, accordingly, such “expiration would have foreclosed plaintiff from revoking acceleration of the loan.” (Citing Fed. Nat. Mort. Ass’n v. Rosenberg, 180 A.D.3d 401, 402 (1^st Dep’t 2020).)

[5] The facts of Dalal as recited herein are simplified for editorial purposes.