Foreclosure Abuse Protection Act
East Fork Funding LLC v. U.S. Bank
Date: Aug. 8, 2023
Issue: Whether the New York Foreclosure Abuse Protection Act (FAPA) is constitutional.
Case Summary: ABA and trade groups (Amici) filed an amicus brief urging the Second Circuit to rule the retroactive application of FAPA is unconstitutional.
GMAC Mortgage LLC attempted to foreclose on two borrowers’ condominium in 2010. The borrowers violated the conditions of their note and GMAC, which owned the mortgage at the time, brought a foreclosure action against the borrowers. GMAC filed a stipulation asking the court to cancel the action based on a discrepancy relating to the service of the 90-day notice. In November 2011, GMAC brought another foreclosure action. In March 2013, while the second foreclosure action was pending, the obard of managers of the borrowers’ building filed a lien against the property for unpaid common charges totaling $26, 464.11 and filed its own foreclosure action. The foreclosure action was successful and East Fork Funding LLC purchased the property through a judicial sale. In 2015, GMAC assigned the mortgage to U.S. Bank
East Fork Funding sued seeking to discharge the mortgage on its property because the applicable statute of limitations for commencing a foreclosure action expired. East Fork Funding argued the mortgage was improperly recorded and did not describe the property. U.S. Bank rejected East Fork Funding’s statute of limitations argument relying on Freedom Mortgage Corp. v. Engel. In Engel, the court ruled borrowers have the right to repay any arrears and resume satisfaction of the loan over time via installments, which resets the limitations period to bring a new foreclosure claim. The district court agreed with East Fork Funding, concluding U.S. Bank did not meet its burden of proof to present admissible evidence establishing that a future foreclosure action would be timely or to raise a question of fact as to whether the action would be timely. U.S. Bank appealed the district court’s decision.
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. First, Amici argued FAPA disrupted longstanding historical practices of New York mortgage laws. 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, 10 of the 13 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.
Second, Amici argued retroactive application of FAPA would damage the New York mortgage market by harming both lenders and future borrowers. According to Amici, retroactive application of FAPA deprives lenders of the ability to assert contractual rights which were formed at the creation of each mortgage. Amici also asserted under FAPA, lenders are discouraged from negotiating with borrowers beyond what is legally required due to the risk that the six-year statute of limitations will run or even elapse.
Finally, Amici argued retroactive application of FAPA is unconstitutional for several reasons. First, Amici argued retroactive application of FAPA violates due process because such an action essentially creates a new limitations period and bars new claims, while depriving lenders of substantive and vested rights. Second, Amici argued retroactive application violates the federal contact clause by substantially impairing the contractual mortgage relationship and is neither a reasonable nor appropriate means to achieve FAPA’s purpose. Third, Amici argued retroactive application of FAPA violates the Takings Clause which protects lenders from governmental appropriation of their vested property rights. Amici emphasized whenever a law deprives the owner of the beneficial use and free enjoyment of his property it deprives him of his property within the meaning of the Constitution.
Bottom Line: East Fork Funding’s appellee brief is due Oct. 31, 2023.
Documents: Brief
