Over the last four months, New York’s Appellate Division has finally begun to address constitutional challenges to the state’s Foreclosure Abuse Prevention Act (FAPA), an act that became effective in December 2022 and promptly generated disparate trial court interpretations about whether the law was supposed to apply retroactively. As noted in prior posts, appellate precedent remained wanting. At last, beginning on October 24, 2024, the first of nine appellate court decisions was issued, rejecting constitutional challenges to certain portions of FAPA.
FAPA amended New York rules related to mortgage foreclosure time limits, to give lenders less flexibility in commencing foreclosure actions. It made six basic changes to New York law:
- Anti-Engel. FAPA invalidated the core holding in Freedom Mortgage v. Engel, 37 N.Y.3d 1 (2021). According to Engel, a lender that had accelerated a mortgage loan’s maturity date (acceleration is generally the first step in a foreclosure action in New York and generally starts the limitations period running) could revoke that acceleration by simply discontinuing the foreclosure action. Under FAPA-created procedural rules (CPLR 203(h) and CPLR 3217(e)), a discontinuance alone is not sufficient to revoke acceleration and stop the limitations clock.
- Saving Statute. FAPA created a new so-called “saving statute” specific to mortgage foreclosures (CPLR 205-a), more restrictive than the “saving statute” (CPLR 205(a)) for other actions. (A “saving statute” saves an otherwise time-barred claim by allowing a re-start within a short window of time following a non-substantive dismissal of the claim.)
- Estoppel. New FAPA procedural rules (CPLR 213(4)(A) and (B)) estop lenders, in certain circumstances, from asserting that a mortgage loan’s maturity date had not been accelerated such that the statute of limitations period to recover the debt had not yet started to run.
- GOL. FAPA amended the state’s General Obligations Law to strictly limit the circumstances in which a statue of limitations period can stop or reset.
- Election of Remedies. FAPA enhanced the so-called “election of remedies” rule (RPAPL 1301), which generally prohibits multiple lawsuits to enforce the same debt, such that now a creditor must in some cases obtain court permission if it needs to bring a repeat lawsuit, and further, any timeliness determination made in any action would have preclusive effect on all actions enforcing the same debt.
- Final Judgment Rule. By its terms, FAPA changed laws applicable to foreclosure actions even after entry of a final judgment of foreclosure in those actions, so long as the judgment “has not been enforced,” inviting challenges to adjudicated matters, post-judgment.
By its terms, FAPA was to “take effect immediately,” but its retroactive effect was not clear, which produced divergent trial court determinations. Although retroactive applications of FAPA’s provisions have been, and continue to be, upheld by various appellate court decisions without considering the issue of constitutionality (see e.g. Deutsche Bank N.A. v. Zak (2d Dep’t Feb. 19, 2025) (estoppel provision); 630 6A LLC v. U.S. Bank Tr. N.A., (1st Dep’t Jan. 21, 2025) (saving statute provision); Bank of N.Y. Mellon v. Richards, (3d Dep’t Dec. 12, 2024) (saving statute provision); Citimortgage, Inc. v. Goldstein, (2d Dep’t Sept. 18, 2024) (anti-Engel provision); Windward Bora LLC v. Browne, 110 F.4th 120 (2d Cir. July 26, 2024) (election of remedies provision)) whether retroactively applying FAPA is constitutional awaited determination. During this time, lenders generally challenged the retroactive effect of FAPA based on constitutional due process, violation of the Contracts Clause, and violation of the Takings Clause.
There had been some hope that New York’s highest court would weigh in. On October 1, 2024, the Second Circuit federal court of appeals, reviewing an appeal from an action brought in the federal district court to foreclosure a New York mortgage, certified a question to the New York Court of Appeals, asking whether the anti-Engel provisions of FAPA apply retroactively. At issue was the retroactivity of the anti-Engel portion of FAPA. Although deciding the issue would likely have required the Court of Appeals to resolve whether retroactive application of that part of FAPA was constitutional, on October 24, 2024, the court “respectfully declined” to do so.
On that same day, however, the Third Department of the New York Appellate Division, in Albany, concluded that the portion of FAPA amending the so-called “election of remedies” law (RPAPL 1301) did apply retroactively, rejecting a constitutional due process challenge. U.S. Bank v. Lynch (Oct. 24, 2024). The court found that the administrative dismissal of a foreclosure action could not be vacated because, after its dismissal, a second foreclosure action on the same mortgage was brought and then deemed untimely. Applying FAPA’s election of remedies law, the first foreclosure action that before FAPA would have been timely, was now time-barred. The Lynch court found that retroactive application of FAPA’s new election of remedies rule did not violate due process, but the court did not consider any constitutional Contracts Clause and Takings Clause arguments as they were unpreserved. Lynch was the first appellate level decision on the constitutionality of FAPA’s retroactive effects.
Then in November, 2024, the First Department of the New York Appellate Division, in Manhattan, found that the anti-Engel portion of FAPA applied retroactively without violating constitutional due process or the Contracts Clause. Bayview Loan Servicing, LLC v. Dalal, (Nov. 19, 2024). Shortly afterward, two more First Department decisions reiterated this, Wilmington Trust, N.A. v. Farkas, (Nov. 21, 2024); Bank of N.Y. Mellon v. Del Rio, (Dec. 17, 2024), with the Del Rio court further finding that the Takings Clause was not violated either because “[t]o the extent that anything deprived plaintiff’s mortgage of value, it was the six-year statute of limitations itself,” not FAPA.
In December, the Second Department, in Brooklyn, rejected constitutional challenges to FAPA’s anti-Engel provisions in two decisions. Deutsche Bank Nat’l Trust Co. v. Dagrin, (Dec. 24, 2024); 97 Lyman Ave, LLC v. MTGLQ Invs. LP, (Dec. 24, 2024). In January, it similarly rejected two more. FV-1, Inc. v. Palaguachi, (Jan 22, 2025); Citimortgage, Inc. v. Gunn, (Jan. 29, 2025).
On February 18, 2025, the First Department concluded that retroactive application of FAPA’s “estoppel” provision did not violate a lender’s constitutional right to contract, or its vested property rights. Van Dyke v. U.S. Bank, N.A. As a result, the foreclosing lender was estopped from raising the argument that its predecessor had lacked the necessary standing to accelerate the mortgage loan at issue and start its limitations period running. A judgment expunging the mortgage because its enforcement was time-barred was affirmed.
In sum, the constitutionality of the retroactive application of four of FAPA’s six changes to New York law have been, to some extent, recently addressed by New York’s Appellate Division. In all nine decisions, challenges to the provision based on their unconstitutionality have been rejected:
- Anti-Engel. Citimortgage, Inc. v. Gunn, (2d Dep’t); FV-1, Inc. v. Palaguachi, (2d Dep’t); Deutsche Bank Nat’l Trust Co. v. Dagrin, (2d Dep’t); 97 Lyman Ave, LLC v. MTGLQ Invs. LP, (2d Dep’t); Bank of N.Y. Mellon v. Del Rio, (1st Dep’t); Wilmington Trust, N.A. v. Farkas, (1st Dep’t); Bayview Loan Servicing, LLC v. Dalal, (1st Dep’t).
- Estoppel. Van Dyke v. U.S. Bank, N.A. (1st Dep’t).
- Election of Remedies. S. Bank v. Lynch (3d Dep’t).
Litigants in mortgage foreclosure actions must continue to wait for determinations on the constitutionality of the other provisions of FAPA and also to see if the Court of Appeals will ultimately resolve ongoing disputes about the timeliness of enforcing mortgage loans.
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