New York Courts Split On The Constitutionality Of The Foreclosure Abuse Prevention Act – Charges, Mortgages, Indemnities

In the six months since New York’s governor signed the
Foreclosure Abuse Prevention Act, L. 2022, ch. 821 (eff. Dec. 30, 2022) (FAPA),
a split has emerged about whether the law applies
retroactively.

FAPA strictly cabins the time limits for commencing mortgage
foreclosures by amending five New York procedural rules (CPLR 203;
CPLR 205; CPLR 213; CPLR 3217; RPAPL 1301) and the state’s
General Obligations Law (GOL 17-105). The intent of the act, according to its sponsor, was to overturn
certain precedent interpreting those rules and laws. Most
significantly, FAPA invalidates the holding of Freedom Mortgage v. Engel,
37 N.Y.3d 1 (Feb. 18, 2021). In that case, New York’s highest
court concluded that a mortgage holder may revoke a prior election
to accelerate an installment debt (acceleration is generally a
precursor to foreclosure), thereby preserving the option to
accelerate again in the future. By undoing Engel, and
other precedent too, FAPA takes away this and similar options from
foreclosing plaintiffs.

Recent court decisions applying FAPA have varied as to whether
or not the act’s effects may, constitutionally, be
retroactive.

Two federal court decisions have found that it may. One found
FAPA applied retroactively such that the mortgage owner’s
discontinuance of a prior foreclosure action, which under
Engel would have functioned to revoke acceleration of the
mortgage loan, no longer had that effect. East Fork Funding LLC
v. U.S. Bank N.A., 2023 WL 2660645 (E.D.N.Y. Mar. 23, 2023)
(canceling mortgage as time-barred). Another applied the
FAPA-amended CPLR 205. Windward Bora, LLC v. Sotomayor,
2023 WL 2575582 (S.D.N.Y. Mar. 20, 2023). Appeals have been filed
in both cases.

In New York state court, the decisions are split.

Five New York trial courts have declined to apply FAPA
retroactively. HSBC Bank USA, N.A. v. Besharat, Index
No. 500836/2021 (N.Y. Sup. Ct. Putnam Cnty May 19, 2023); Wilmington Savings Bank v. Hack, Index
No 701590/2019 (N.Y. Sup. Ct. Queens Cnty Apr. 21, 2023);
Deutsche Bank Nat’l Tr. Co. v. Feurtado, Index No.
719810/2019 (N.Y. Sup. Ct. Queens Cnty Mar. 29, 2023); NewRez LLC v. Kalina, (N.Y. Sup. Ct.
Albany Cnty Mar. 22, 2023); MTGLQ Invs., L.P. v. Gross, (N.Y.
Sup. Ct. Westchester Cnty Mar. 16, 2023); see
also Nestor I LLC v. Moriarty-Gentile,
Index No. 065328/2014 (N.Y. Sup. Ct. Suffolk Cnty May 2, 2023) (in
dicta, noting FAPA should not apply retroactively).

Seven others have found the act does apply
retroactively. U.S. Bank Tr., N.A. v. Miele, Index
51023/2016 (NY Supr. Westchester Cnty June 21, 2023); U.S. Bank Tr., N.A. etc. v. Leonardo,
Index No. 14266/2013 (NY Supr. Nassau Cnty June 12, 2023); HSBC Bank USA, N.A. v IPA Asset Mgt.,
LLC, (NY Supr. Suffolk Cnty May 16, 2023); Deutsche Bank v. Cheng, (NY Supr.
Nassau Cnty May 1, 2023); Deutsche Bank Natl. Trust Co. v
Dagrin, (NY Supr. Queens Cnty Apr. 12, 2023); U.S. Bank N.A. etc. v. Pierre, (NY
Supr. Suffolk Cnty Feb. 23, 2023); Wilmington Savings Fund Doc., FSB v.
Madden, 78 Misc.3d 736, 186 N.Y.S.3d 910 (NY Supr. Putnam
Cnty Feb. 10, 2023); see also Aspen v. Santoro, 77 Misc.3d 1277(A),
181 N.Y.S.3d 460 (N.Y. Sup. Ct. Suffolk Cnty Jan. 19, 2023) (in
dicta, noting dismissal of action as time-barred due to prior
acceleration not revoked is “in harmony” with FAPA).

None of the four departments of New York’s Appellate
Division have decided the issue.

In the Second Department, a dozen decisions have applied FAPA
without determining its constitutionality, but those appeals were
briefed before FAPA became effective, without its constitutionality
being raised. ARCPE 1 LLC v. DeBrosse, (2d
Dep’t June 28, 2023); Bank of N.Y. Mellon v. Treitel, (2d
Dep’t June 28, 2023); Deutsche Bank Nat’l Tr. Co. v.
Natal, (2d Dep’t June 21, 2023); U.S. Bank N.A. v. Outlaw, (2d
Dep’t June 7, 2023); SYCP, LLC v. Evans, (2d Dep’t
June 7, 2023); Bank of New York Mellon v. Joseph,
(2d Dep’t May 31, 2023); MTGLQ Investors, L.P. v. Singh, (2d
Dep’t May 24, 2023); U.S. Bank, N.A. v. Onuoha, (2d
Dep’t May 17, 2023); Bank of N.Y. Mellon v. Stewart, (2d
Dep’t May 10, 2023); U.S. Bank, N.A. v. Coleman, 215
A.D.3d 780, 185 N.Y.S.3d 701 (2d Dep’t 2023); Reinman v. Deutsche Bank Nat’l Tr.
Co., 215 A.D.3d 704, 187 N.Y.S. 3d 666 (2d Dep’t
2023); GMAT Legal Title Tr. 2014-1 v. Kator,
213 A.D.3d 915, 184 N.Y.S.3d 805 (2d Dep’t 2023); see
also HSBC Bank USA, N.A. v. Francis, 214
A.D.3d 58, 185 N.Y.S.3d 173 (2d Dep’t 2023) (denying
consolidation because one foreclosure action was time-barred and
noting in dicta, “our result may be compelled by
[FAPA]”).

Similarly, the First Department has twice decided cases touching
upon FAPA, but provided no retroactively analysis. U.S. Bank, N.A. v. Fox, (1st
Dep’t May 4, 2023) (applying amended CPLR 205 without
discussion of retroactivity); U.S. Bank Tr., N.A. v. Chung, (1st
Dep’t May 2, 2023) (determining timeliness of complaint
“regardless of whether the debt was [as allowed before FAPA]
de-accelerated by the voluntary discontinuance of the 2008
action”). The Third and Fourth Departments have not reached
the issue. Cf. Deutsche Bank v. Quinn, (3d Dep’t
June 15, 2023) (denying plaintiff’s appeal of time-bar
dismissal on procedural grounds, not addressing FAPA).

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