New York Mortgage Industry Should Brace for Impact of Newly Enacted Foreclosure Law
On December 30, 2022, Governor Kathy Hochul signed into law the Foreclosure Abuse Prevention Act (“FAPA”), effective immediately, which will have long-lasting impact on the future of New York foreclosure litigation. Among other things, FAPA drastically restricts lenders’ flexibility in the prosecution of foreclosure actions by, most notably, setting an unalterable six-year statute of limitations from the date of loan acceleration. FAPA also overwrites recent caselaw and amends key provisions of the New York Civil Practice Law and Rules (“CPLR”) and Real Property Actions and Proceedings Law (“RPAPL”) to take procedural maneuverability away from lenders prosecuting foreclosures and instead gives it to borrowers defending them.
Prior to FAPA’s enactment, lenders relied upon the New York Court of Appeals decision, Freedom Mortgage Corporation v. Engel, 37 N.Y.3d 1 (2021), in which the Court of Appeals held that lenders could voluntarily revoke acceleration of the mortgage debt (or “de-accelerate”), and, therefore, stop accrual of the six-year statute of limitations, by voluntarily discontinuing a foreclosure action within six years from the date of acceleration. However, FAPA eliminates the Court’s Engel holding by amending CPLR 3217 with a new subparagraph that insulates the foreclosure statute of limitations from a voluntary discontinuance, whether by motion or stipulation.
In addition to adding an immovable six-year statute of limitations to mortgage foreclosures, FAPA also restricts a lender’s ability to recommence foreclosure actions. Specifically, FAPA amends RPAPL 1301 by adding a new subparagraph that prevents a lender from commencing or maintaining a foreclosure action, without leave of court, while another action to foreclose the same mortgage is pending. The amended RPAPL 1301 also provides borrowers with a defense to the new foreclosure action if the lender does not seek leave to commence the new action. The amended RPAPL 1301 also deems the first foreclosure action discontinued, by operation of law, should the lender commence the second foreclosure action without leave of court.
FAPA also adds new CPLR Section 205-a, specifically for mortgage foreclosures, and current CPLR 205 will no longer apply to foreclosure actions. CPLR 205-a eliminates the ability for a lender to recommence a foreclosure following dismissal based upon a neglect to prosecute, which was previously possible under CPLR 205. CPLR 205-a also allows a borrower who asserted affirmative defenses and/or counterclaims in a prior foreclosure action to assert the same defenses and/or counterclaims in the second foreclosure action, even if they are untimely in the second action.
FAPA also amends CPLR 213, which now estops lenders, either prosecuting foreclosures or defending quiet title actions from asserting that a loan was not validly accelerated in a prior foreclosure action if the borrower raises the statute of limitations as a defense based on a claim that the loan was previously accelerated, unless the lender can demonstrate that the prior foreclosure action was expressly dismissed based upon the defense that the loan was not validly accelerated.
In sum, FAPA grants borrowers considerable power in the courtroom. The New York mortgage industry should expect an influx of litigation in pending foreclosure actions, where newly empowered borrowers will seek dismissal via FAPA, and in new RPAPL Article 15 actions to discharge their mortgage obligations as time barred.