Foreclosure Abuse Prevention Act in a Nutshell
In 2022, the New York State Legislature enacted the Foreclosure Abuse Prevention Act (FAPA), thereby amending several interrelated provisions of the Civil Practice Law and Rules (CPLR), the Real Property Actions and Proceedings Law (RPAPL), and the General Obligations Law (GOL), which affect how and when the statute of limitations may be invoked by defaulting borrowers to defeat foreclosure actions brought against them by their lenders.
This article will examine the background leading to the FAPA legislative amendments and how they have been construed, in recent Appellate Division decisions, where courts have been required to determine their application.
Background
FAPA was enacted to reverse the ruling of the Court of Appeals in Freedom Mortgage Corporation v. Engel, 37 NY3d 1 (2021), in which, the court seeing a “need for clarity and consistency,” in the “application of the statute of limitations,” to the “timeliness” of bringing “a mortgage foreclosure claim” that “[affects] real property ownership,” had adopted “a clear rule” holding 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.” (Emphasis added).
The court’s ruling had the effect of extending the statute of limitations well beyond the six-year statute of limitations that would otherwise limit a lender’s right to foreclose and elect to accelerate the maturity of the debt on a borrower’s second loan default.
The Legislature saw Freedom Mortgage as one of a series of court decisions that had “exacerbated” an “ongoing problem with abuses of the judicial foreclosure process and lenders’ attempts to manipulate statutes of limitations,” thereby “[giving] mortgage lenders and loan servicers opportunities to avoid strict compliance with remedial statutes and manipulate statutes of limitations to their advantage.” (Assembly Mem in Support of 2022 Assembly Bill A7737B, L2022, Ch. 821 at 1).
The Legislative Amendments
The primary legislative action aimed at ending manipulation of the statutes of limitation in foreclosure actions is set forth in CPLR §213(4), which prescribes that “an action upon a bond or note, the payment of which is secured by a mortgage upon real property, or upon a bond or note and mortgage so secured, or upon a mortgage of real property, or any interest therein,” must be commenced within six years, but which also prescribes, per new subdivisions (4)(a) and 4(b), that:
(a) In any action on an instrument described under this subdivision, “if the statute of limitations is raised as a defense, and if that defense is based on a claim that the instrument at issue was accelerated prior to, or by way of commencement of a prior action, a plaintiff shall be estopped from asserting that the instrument was not validly accelerated,” and
(b) In any action seeking cancellation and discharge of record of an instrument described under [RPAPL §1501(4), i.e., “where a person claims an estate or interest in real property” or where a municipality has purchased an estate or interest in real property at a tax sale], a defendant shall be estopped from asserting that the period allowed by the applicable statute of limitations 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 [as to both (a) and (b)] the prior action was dismissed based on an expressed judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated. (Emphasis added).
In addition, CPLR §203 (Method of computing periods of limitation generally) was amended by the addition of subdivision (h) (Claim and action upon certain instruments) which prescribes that:
Once a cause of action upon an instrument described in [CPLR 213(4)] has accrued, no party may, in form or effect, unilaterally waive, postpone, cancel, toll, revive, or reset the accrual thereof, or otherwise purport to effect a unilateral extension of the limitations period prescribed by law to commence an action and to interpose the claim, unless expressly prescribed by statute. (Emphasis added).
CPLR §3217 (Voluntary discontinuance) was amended to similar effect, by adding new subdivision “e”, prescribing that, “whether on motion, order, stipulation or by notice,” the voluntary discontinuance of actions described under CPLR 213(4) “shall not, in form or effect, waive, postpone, cancel, toll, extend, revive or reset the limitations period to commence an action and to postpone a claim, unless expressly prescribed by statute.”
While the Legislature did not eliminate the right, granted by GOL §17-105, for parties to negotiate and waive “the expiration of the time limited for commencement of an action to foreclose a mortgage of real property or a mortgage for a lease of real property…by the express terms of a writing signed by the party to be charged…to make the time…run from the date of the waiver or promise,” even if “a shorter period of limitation than that otherwise applicable,” GOL §17-105(4) now expressly prescribes that such waiver or agreement “shall not, in form or effect, postpone, cancel, reset, toll, revive or otherwise extend the time limited for commencement of an action to foreclose a mortgage for a greater time or in any other manner than that provided in this section, unless it is made as provided in this section.” (Emphasis added).
The Legislature also enacted CPLR 205-a, which is expressly applicable only to cases brought under CPLR §213(4), to replace the six-month grace period contained in CPLR §205(a)(Termination of action), which permits a plaintiff to commence a new action, “within six months after the termination of a prior action, upon the same transaction or occurrence or series of transactions or occurrences alleged in the previously terminated prior action,” under certain conditions specified therein, “provided that the new action would have been timely commenced at the time of the commencement of the prior action and that service upon defendant is effected within such six-month period.”
Instead, CPLR §205-a prescribes that, where the prior action was commenced under CPLR 213(4) but terminated “for any form of neglect” [including, but not limited to those specified in CPLR §§3126, 3215, 3216, and 3404] the permission otherwise given to commence a new action, “upon the same transaction or occurrence or series of transactions or occurrences,” within six-months of the terminated action, is expressly excluded from the six-month grace period. (Emphasis added).
Finally, in further response to Freedom Mortgage, RPAPL §1301 (Separate Action for Mortgage Debt) was amended to prescribe, in subdivision “3,” that while a foreclosure action is pending “or after final judgment for the plaintiff therein, no other action shall be commenced or maintained to recover any part of the mortgage debt, including an action to foreclose the mortgage, without leave of the court in which the former action was brought,” and “the procurement of such leave shall be a condition precedent to the commencement of such other action and the failure to procure such leave shall be a defense to such other action. In addition, subdivision “4” was added prescribing that “[i]f any action to foreclose a mortgage or recover any part of the mortgage debt is adjudicated to be barred by the applicable statute of limitations, any other action seeking to foreclose the mortgage or recover any part of the same mortgage debt shall also be barred by the statute of limitations.” Emphasis added).
FAPA’s Experience in the Courts Thus Far
Since enactment of FAPA (as prescribed in the statutory amendments noted above), as this article is written, there have been 37 decisions of the Appellate Divisions in which FAPA has been construed and applied.
The final history of the FAPA amendments, depending on how the courts ultimately decide the Constitutionality of FAPA’s retroactive application, remains to be seen, but judging by the recent case law construing FAPA, it does appear that the Legislature has largely succeeded in “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.’” (Assembly Mem in Support, supra; see also Senate Introducer’s Mem in Support of 2022 N.Y. Senate Bill S5473D at 1).
Recent Cases
Most of the extant appellate decisions were issued in 2023, the first year after the enactment of FAPA in December 2022. Four appellate decisions have been issued thus far in 2024. Not surprisingly, virtually all the decisions involve cases commenced prior to FAPA’s enactment. Therefore, the court opinions deal mainly with either (a) explaining why arguments advanced on appeal, for extending the limitations period, made previously in the appeal without consideration of FAPA’s effect on the case, are now barred by FAPA, or (b) addressing and rejecting arguments which contend that FAPA does not bar the action before the court. The overwhelming number of appellate decisions issued to date have applied the FAPA amendments with the results the Legislature intended, i.e., barring lenders from extending the statute of limitations, to permit a second or even a third foreclosure action to proceed against a borrower, where doing so is precluded by one or more of the FAPA amendments.
The cases fall mainly into three categories: (1) where the lender (or a series of lenders) brought a second, or even a third, foreclosure action against the borrower, and the borrower contends, under CPLR §§213(4)(a) or (b), that the initial prior action was voluntarily dismissed, without an express judicial determination that the loan was not validly accelerated; (2) where the lender contends that the current action was brought after the dismissal of a prior action, but within the grace period provided by CPLR 205(a) and/or CPLR 205-a; and (3) where a lender or a series of lenders have previously brought foreclosure actions against the borrower, which have either been voluntarily dismissed, or dismissed for lack of standing, and the borrower is seeking a judgment, under RPAPL §1501(4), to cancel or discharge of record the subject mortgage.
Other issues raised in the cases are (a) whether the retroactive application of FAPA violates the Due Process and/or Contract Clauses of the U.S. Constitution and/or the New York State Constitution, and (b) whether a successful borrower is entitled to an award of attorney’s fees under Real Property Law §282.
Voluntary Discontinuance of Prior Actions and Voluntary Deacceleration:
• GMAT Legal Title Trust 2014-1 v. Kator, 213 AD3d 915, 184 NYS3d 805 (2d Dept. 2023). The appeal in GMAT was argued on November 14, 2022, before FAPA’s enactment on December 30, 2022, and the Second Department’s decision was issued within eight weeks of FAPA’s enactment. It is emblematic of all the appellate decisions that have followed it in rejecting a lender’s contention that a prior foreclosure action, which was voluntarily dismissed, did not accelerate the loan at issue, and, therefore, the statute of limitations does not bar the current action.
The plaintiff lender commenced the foreclosure action against the defendant borrower more than six years after the underlying debt had been accelerated by the lender’s predecessor-in- interest. The defendant contended that the action was time barred. After a non-jury trial, judgment was entered in favor of the borrower.
On appeal, the lender argued that its predecessor-in-interest had lacked standing to commence the prior action, and, therefore, “the debt at issue was not validly accelerated.” The court held, however, that “the 2007 action was voluntarily discontinued, it was not dismissed ‘based on an expressed judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated,” citing CPLR 213(4)(a).
The court went on to explain that “FAPA had the effect of nullifying [the holding in Freedom Mortgage],” and that the voluntary discontinuance of a foreclosure action is now governed by amended CPLR §3217(e) whereby “[i]n any action on an instrument described in CPLR 213(4), the voluntary discontinuance of such action, whether on motion, order, stipulation or by notice, shall not, in form or effect, waive, postpone, cancel, toll, extend, revive or reset the limitations period to commence an action and to interpose a claim, unless expressly prescribed by statute.”
• S. Bank N.A. v. Simon, 213 AD3d 1041, 191 NYS3d 61 (2d Dept. 2023). In Simon, the Second Department followed its holding in GMAT. In September 2008, the plaintiff commenced an action to foreclose the mortgage at issue (the 2008 action), but in November 2008, the plaintiff, by affirmation, voluntarily discontinued the 2008 action.
In March 2016, the plaintiff commenced the second action to foreclose the mortgage. The defendant asserted the statute of limitations as an affirmative defense and counterclaimed to cancel and discharge of record the mortgage and to recover attorney’s fees.
The plaintiff lender, on appeal from defendant’s successful motion for summary judgment, cited Freedom Mortgage, contending that its “voluntary discontinuance of the 2008 action revoked its acceleration of the mortgage debt in the 2008 action, and thus, the instant action [was] timely.” The court, citing GMAT, supra, and CPLR 3217(e) and CPLR 203(h), held that “the voluntary discontinuance of the 2008 action did not ‘in form or effect, waive, postpone, cancel, toll, extend, revive or reset the limitations period to commence an action and to interpose a claim, unless expressly prescribed by statute.”
For similar rulings, see ARCPE 1, LLC v. DeBrosse, 217 AD3d 999, 193 NYS3d 51 (2d Dept. 2023); and Bank of New York Mellon v. Norton, 219 AD3d 680, 195 NYS2d 103 (2d Dept. 2023).
• HSBC Bank USA v. Gifford, 224 AD3d 447, __ NYS3d __ (1st 2024). In Gifford, the defendant borrower “demonstrated prima facie that the [current] action was commenced more than six years after plaintiff commenced a prior foreclosure action in 2013, which accelerated the loan.” The court noted that the prior dismissal “was based on plaintiff’s failure to comply with RPAPL §1304” (which requires that home loan mortgagors be given 90-day notice of their default “before a lender, an assignee or a mortgage loan servicer commences legal action against the borrower”), and “not on a failure to serve a default notice constituting a precondition for acceleration, and there was no express determination that the loan was not validly accelerated.”
The court held, therefore, that “plaintiff’s argument that the dismissal of the prior foreclosure action also resulted in the loan not having been validly accelerated in 2013 is unavailing.”
However, the plaintiff also argued that the action was timely “because it deaccelerated the loan through a letter mailed to defendant in June 2018.” Despite an affidavit of an employee providing evidentiary foundation for the mailing of the letter, the Court cited CPLR §203(h) and held, “[t]hus, if CPLR §203(h) [which prohibits a unilateral waiver of the accrual of an acceleration of the loan] applies to this previously commenced action, the 2018 letter purporting to restart the running of the statute of limitations on a loan is ineffective, regardless of whether or not the letter was pretextual.” (Emphasis added).
For a similar ruling, see US Bank Trust, N.A. v. Reizes, 222 AD3d 907, 202 NYS3d 407 (2d Dept. 2023).
The Application of CPLR 205(A) and 205-A Grace Periods
Perhaps the most litigated issue thus far in FAPA cases is when does the six-month grace period, provided in CPLR 205(a) and 205-a, apply to new foreclosure actions, filed within six-months of the termination of a prior action upon the same transaction or occurrence or series of transactions or occurrences. The cases show that, due to the prevalence of multiple assignments of the underlying notes and loans, determining the application of the grace period can be extremely confusing and uncertain.
• Johnson v. Cascade Funding Mortgage Trust 2017-1, 220 AD3d 929, 196 NYS3d 796 (2d Dept. 2023). In Johnson, a foreclosure action commenced on September 26, 2011 (the 2011 action) was dismissed on March 25, 2019, for the lender’s failure to comply with the 90-day pre-foreclosure notice required by RPAPL §1304.
In June 2019, the borrower commenced an action under RPAPL §1501(4) to cancel and discharge of record the mortgage. The lender asserted a counterclaim to foreclose the mortgage, and the borrower moved for summary judgment, asserting that the second foreclosure action, in the form of the counterclaim, was time barred because it was commenced on Sept. 4, 2019, more than six years after the commencement of the 2011 action.
The lender argued that the foreclosure counterclaim was timely because it was commenced within six months of the March 25, 2019 dismissal of the 2011 action. In rejecting the lender’s argument, the Court noted that the “recently enacted [FAPA] replaced the savings provision of CPLR §205(a) with CPLR §205-a in actions upon instruments described in CPLR §213(4).”
The court further noted that “while Cascade established that it interposed its counterclaim to foreclose the mortgage within the six-month period provided under CPLR §205-a on September 4, 2019, Cascade is an assignee of the original plaintiff and has not pleaded nor proved that it is acting on behalf of the original plaintiff. Therefore, Cascade is not entitled to the benefit of the savings provision of CPLR §205-a.”
• Sperry Associates Federal Credit Union v. John, 218 AD3d 707, 193 NYS3d 209 (2d Dept. 2023). Sperry is a case where the Second Department concluded that CPLR §205-a permitted the lender to enjoy the benefit of the six-month grace period to commence the instant action in January 2019, despite having commenced two prior foreclosure actions against the borrower in January 2012 (the 2012 action on “the February note”) and in February 2013 (the 2013 action on “the March note”).
The 2012 action was dismissed for lack of personal jurisdiction. The 2013 action was also dismissed for lack of personal jurisdiction on June 23, 2016. The lender appealed the dismissal of the 2013 action, and the Second Department affirmed the dismissal of the complaint. During the pendency of that appeal, the lender commenced a third action (the 2017 action) which was dismissed under CPLR §3211(a)(4), by reason of a prior action pending between the same parties and for the same causes of action, “and that ‘the 2013 [action] is on appeal.’” (Emphasis added).
Thereafter the lender commenced the instant action in January 2019 (the 2019 action) against the borrower “to recover the indebtedness due under the March note. The borrower moved, pursuant to CPLR §3211(a)(defense founded upon documentary evidence), to dismiss the 2019 action as time barred “arguing that the debt due under the March note was accelerated and that the six-year statute of limitations period began to run on the March note in January 2012 when the plaintiff commenced the 2012 action.”
The plaintiff argued that, even if the defendant could establish that the complaint in the 2012 action accelerated the debt due under the March note, this action was nevertheless timely commenced pursuant to CPLR §205(a).” Supreme Court granted the borrower’s motion to dismiss the complaint under CPLR §3211(a) and did not address the lender’s CPLR §205(a) argument.
The Second Department, on appeal, held that, “even assuming that the defendant established that the filing of the complaint in the 2012 action validly accelerated the debt under the March note, the plaintiff demonstrated it was entitled to commence this action within six months after the termination of the 2017 action.” As the court explained, although the “defendant [borrower] contended that the six-month extension of time pursuant to CPLR 205-a is not available to a plaintiff where the prior action was dismissed pursuant to CPLR 3211(a)(4)…such an interpretation would be contrary to the plain language of CPLR 205(a) and CPLR 205-a, which each clearly set forth the circumstances in which [CPLR 205(a) and CPLR 205-a] do not apply, and a dismissal pursuant to CPLR 3211(a)(4) is not one of the enumerated circumstances.” (Emphasis added).
Other Issues
FAPA’s Constitutionality. To date, due to appellate challenges to FAPA, on constitutional grounds, having thus far been made only in cases commenced prior to FAPA’s enactment, all such challenges have been remanded to the respective Supreme Courts from which the appeals have been made.
The “Standing” Issue. Although CPLR §213(4) bars the bringing of a second foreclosure action unless a prior action was dismissed “based on an expressed judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated,” it is unclear whether CPLR §213(4) permits a second action to be brought, more than six years after the commencement of the first action, if the prior action was dismissed on “standing” grounds.
In GMAT, supra, the Court rejected the lender’s contention that its predecessor-in-interest had lacked standing to commence the prior action, and, therefore, “the debt at issue was not validly accelerated.” The Court held instead that, because the prior action had been voluntarily discontinued, the dismissal was not “based on an expressed judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated.”
However, in U.S Bank N.A. v. Pearl-Nwabueze, 218 AD3d 834 (2d Dept. 2023), the Court held that the defendant borrower’s contention “that the plaintiff in the instant action lacked standing because the plaintiff in the 2008 action lacked standing is without merit,” and, therefore, “the plaintiff demonstrated, prima facie, that the debt was never validly accelerated.” It is not clear whether the holdings of these two Second Department decisions can be reconciled.
The “Attorney Fees” Issue. Thus far, in the appellate cases where the successful borrower sought an award of attorney fees, the court decisions have rejected the claim because the borrowers either (a) had “not established that they [were] a prevailing party within the meaning of [Real Property Law §282],” Johnson, supra, 220 AD3d at 932, or (b) had not complied with the express terms of the statute by having failed to assert a claim for an award of attorney’s fees in the trial court. See, e.g., U.S. Bank N.A. v. Armand, 220 AD3d 963, 199 NYS3d 137 (2d Dept. 2023).
Conclusion
Undoubtedly, as future foreclosure appeals are made from cases commenced after FAPA’s enactment, the foreclosure legal landscape is likely to settle into a pattern that conforms with the Legislature’s intent to restore the “finality and repose that statutes of limitations are meant to ensure.”
Adam Leitman Bailey is the founding partner of Adam Leitman Bailey, P.C., and John M. Desiderio is a partner and chair of the firm’s real estate litigation group. Jacklyn DiRienzo, a litigation extern and student at the Hofstra University Maurice A. Deane School of Law, assisted in the preparation of this article.