In December 2022, the Foreclosure Abuse Prevention Act (FAPA) was passed into law with retroactive effect. As part of FAPA, New York Civil Procedure Law and Rules (CPLR) § 205-a was created to apply mostly to stale foreclosure actions. This has been referred to as a “savings” clause for certain foreclosure proceedings because it provides for a six-month window in which a lender can commence a second action of foreclosure after the first one was dismissed, if the statute of limitation has expired.
As part of FAPA, amendments were also made to Real Property Actions and Proceedings Law (RPAPL) § 1301, essentially overruling Freedom Mortgage v. Engel, 37 N.Y.3d 1 (2021). In Engel, the court had interpreted RPAPL as allowing a mortgage lender to discontinue an action and de-accelerate the mortgage loan, which would essentially reset the statute of limitation. As part of FAPA, the legislators wanted to make sure that no such do-over was possible for the lenders. Specifically, RPAPL § 1301 (3) states that no new action of foreclosure can be commenced without leave of court while the previous action is pending. Additionally, this section mandates the discontinuance of the prior action if the new action was commenced without permission. However, failure to obtain permission from the court to bring a second action while the first one is pending may result in dismissal of the second action if a defendant raises failure to comply with the condition precedent.
Interestingly, the intersection between CPLR § 205-a and RPAPL § 1301 (3) has been recently litigated, with many lenders arguing that the retroactive applicability of FAPA is unconstitutional. However,
[i]n those cases where the Attorney General has been properly noticed (see CPLR § 1012) and appeared, they have successfully argued “that FAPA comports with both the State and Federal Constitutions, its application ‘retroactively’ was plainly intended by the Legislature.”
An increase in litigation based on FAPA interpretation is anticipated and has already been evidenced by recent cases. For the most recent example, in October 2023, the Appellate Division Third Department aligned itself with the First and Second in the case of Caprotti v. Deutsche. In that case, the plaintiff, a borrower, moved to quiet title and discharge the mortgage pursuant to RPAPL § 1501 [4], arguing that the statute of limitation to foreclose on the mortgage had expired. The bank’s prior two actions had been dismissed for lack of standing. The Third Department held that because the bank never had standing to bring the previous actions, the debt had never been accelerated. The bank was successful in using the newly enacted savings clause.
The hope, of course, is that the legislators’ interest in protecting homeowners from lenders who seem to continuously delay the foreclosure process through either debt selling, numerous substitution of counsel, or even well-intentioned efforts at mitigation of the loss will have the effect of wrapping up some of the cases that have been lagging through the courts for, sometimes, decades. This may also ensure that the properties affected by the litigation finally get the attention they deserve, particularly in economically challenged communities. However, it may be that the unintended effect of the newly enacted law will be prolonging the very litigation the legislators intended to curb through the cases that will, no doubt, continue to challenge FAPA, thereby lengthening the litigation process and aggravating the very problem it intended to address. Unfortunately, only time will tell.
