Foreclosure Abuse Protection Act
U.S. Bank N.A. v. Simon, et al
Date: April 10. 2023
Issue: Whether the New York Foreclosure Abuse Protection Act (FAPA) is constitutional.
Case Summary: The American Bankers Association and a group of trade organizations (Amici) filed an amicus brief urging the New York Supreme Court’s Appellate Division to rule the retroactive application of FAPA is unconstitutional.
U.S. Bank attempted to foreclose on Robyn Simon’s home in 2009. Simon failed to comply with conditions of her note, and U.S. Bank elected to accelerate the loan. The New York Supreme Court dismissed the bank’s claim because it failed to sufficiently demonstrate standing to commence the action. U.S. bank attempted to foreclose on the property again in 2016. Simon argued the six-year statute of limitations expired in 2015 before the commencement of the 2016 proceeding.
Under New York law, a lender has six years to commence a mortgage foreclosure action. Once the borrower defaults, the lender may accelerate the loan and demand immediate repayment of the entire outstanding debt. An acceleration of the loan permits the lender to commence an action to foreclose the mortgage. After commencement of a foreclosure action, the lender and borrower frequently engage in discussions for a forbearance agreement or loan modification. Before FAPA, New York precedent provided revocation of an acceleration of debt stops and resets the statute of limitations clock, which would accrue with a new six-year period if the debt were to be subsequently accelerated.
In November 2017, the New York Supreme Court denied U.S. Bank’s foreclosure attempt again, concluding Simon raised a triable issue of fact on whether she sufficiently revoked the prior acceleration of the mortgage and whether her lawsuit is time-barred. In December 2017, U.S. Bank appealed to New York’s Appellate Division in the Second Department, which it denied. U.S. Bank appealed again in August 2022, following the New York Court of Appeals’ decision in Freedom Mortgage Corp. v. Engel. The Engel court concluded a noteholder’s voluntary discontinuance of a foreclosure action constitutes an “affirmative act” to reset the six-year statute of limitations.
On Dec. 30, 2022, New York Governor Kathy Hochul signed FAPA into law, with immediate effect. The New York legislature enacted FAPA to overturn Engel. Under FAPA, whenever a lender files a complaint for accelerated mortgage payments owed by a defaulting borrower, the six-year statute of limitations begins to run and cannot stop. In other words, de-acceleration of a mortgage loan will not reset the statute of limitations. Additionally, the New York Attorney General contends FAPA should apply retroactively to existing mortgages.
Amici filed its amicus brief supporting U.S. Bank. Amici argued the attorney general’s historical narrative is incorrect and incomplete. Amici emphasized lenders could revoke an acceleration by a voluntary discontinuance for more than one hundred years. Further, Amici asserted recent court decisions did not change the law governing voluntary discontinuances. Before 2019, ten of the thirteen New York trial courts concluded withdrawing the prior foreclosure action is an affirmative act of revocation which tolls the statute of limitations. According to Amici, the lengthy New York foreclosure process adequately protects borrowers and confirms retroactive application is inappropriate.
Amici also argued retroactive application would damage the New York mortgage market by harming lenders and future borrowers. Retroactive application of FAPA deprives lenders of the ability to assert contractual rights which were formed at the creation of each mortgage. Also, under FAPA, lenders are disincentivized form negotiating with borrowers beyond what is legally required.
Finally, Amici argued retroactive application of FAPA is unconstitutional. According to Amici, retroactive application of FAPA violates due process. Amici emphasized retroactive application of FAPA essentially creates a new statute of limitations period and bars new claims. It deprives lenders of substantive and vested rights. Amici asserted retroactive application violates the federal contact clause. According to Amici retroactive application: substantially impairs the contractual mortgage relationship; and is neither a reasonable nor appropriate means to achieve FAPA’s purpose. Amici also explained would cause unconstitutional takings. Amici emphasized retroactive application of FAPA violates the State and U.S. Takings Clauses which protect lenders from governmental appropriation of their vested property rights.
Bottom Line: The court’s decision will impact both New York lenders and borrowers and affect foreclosure negotiations.