In two long-awaited rulings yesterday, Article 13 LLC v. Ponce De Leon Fed. Bank and Van Dyke v. U.S. Bank, Nat’l Ass’n, the New York Court of Appeals addressed the constitutionality of the retroactive application of certain provisions of FAPA under the New York and US Constitution.
At issue in Article 13 LLC v. Ponce De Leon Fed. Bank was Section 7 of FAPA, which estops a noteholder defendant in an action seeking to cancel and discharge a mortgage as time-barred from arguing that the loan was not validly accelerated in a prior foreclosure action, unless the prior action was dismissed for that reason. The Court of Appeals held that, under the circumstances of that case, retroactive application of Section 7 does not violate the right to substantive and procedural due process under the New York Constitution. In addition to Section 7, at issue in Van Dyke v. U.S. Bank, Nat’l Ass’n were Sections 4 and 8 of FAPA, which created a statutory prohibition against a noteholder’s right to revoke an optional contractual election to accelerate, including via a voluntary discontinuance. The Court of Appeals rejected the defendant’s as-applied challenges under the Due Process clause and Contract Clause of the US Constitution.
The Court of Appeals left open the possibility of a different outcome in factually distinguishable cases involving FAPA Sections 4, 7, and 8, such as where the noteholder didn’t know about an earlier foreclosure, or where a discontinuance or de-acceleration was timely under “well-established” pre-FAPA law. Further, and critically, the High Court’s decisions do not address the constitutionality of the retroactive application of other FAPA provisions, including Section 6, which created the new foreclosure savings statute.
Relevant FAPA Amendments
Since at least 1905, the controlling law in New York regarding a lender’s right to de-accelerate a mortgage loan was: a lender may revoke its election to accelerate all sums due under an optional acceleration clause in a mortgage by an affirmative act occurring during the six-year statute of limitations period, provided that there is no change in the borrower’s position in reliance thereon.
Additionally, under pre-FAPA law, noteholders could defeat a statute of limitations defense/RPAPL 1501(4) quiet title claim by demonstrating that a mortgage loan was not validly accelerated in a prior action because, inter alia, the plaintiff in that action lacked standing.
On December 30, 2022, the Legislature enacted FAPA making sweeping changes to rules governing foreclosure actions. Particularly relevant are these sections:
- Section 4 of FAPA amended CPLR 203 by adding a new subdivision (h) – Under the new CPLR 203(h), once a cause of action upon a mortgage note 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.”
- Section 7 of FAPA amended CPLR 213(4) by adding a new subsection (b) – Under the new CPLR 213(4)(b), “[i]n any action seeking cancellation and discharge of record of a mortgage” as time-barred, a noteholder defendant is estopped from asserting that a prior foreclosure action did not “validly accelerate” the loan “unless the prior action was dismissed based on an expressed judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated.”
- Section 8 of FAPA amended CPLR 3217 by adding a new subdivision (e). – Under the new CPLR 3217(e), in any action on a mortgage note, “the voluntary discontinuance of such action…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.”
Article 13 LLC
In Article 13 LLC, on January 31, 2007, a consolidated mortgage loan was sold to the Morgan Stanley Mortgage Loan Trust 2007–2AX, Mortgage Pass–Through Certificates, Series 2007–2AX (the Trust), which continues to own and hold the loan. A foreclosure action was commenced in August 2007 by the then-servicer of the consolidated loan, Central Mortgage Company (CMC). The complaint identified CMC as the holder of the consolidated loan. In May 2017, CMC moved to discontinue the 2007 action voluntarily and without prejudice, and its motion was granted in June 2017.
In 2020, Article 13 LLC acquired a junior mortgage on the collateral property and commenced a quiet title action in the Eastern District of New York, seeking to cancel and discharge the Trust’s consolidated mortgage as time-barred. Both parties moved for summary judgment, and in December 2022, the district court denied both cross-motions, holding that there was a disputed issue of material fact over whether CMC owned or held the consolidated note at the time it commenced the 2007 action.
Two days later, FAPA was enacted. Article 13 then moved for reconsideration, arguing that U.S. Bank was estopped from attacking the validity of CMC’s 2007 acceleration under CPLR 213(4)(b). The district court granted the motion. And, on March 25, 2025, the Second Circuit certified the following questions to the Court of Appeals: (1) whether, or to what extent, Section 7 of FAPA applies to foreclosure actions commenced before the statute’s enactment; and (2) whether FAPA’s retroactive application violates the right to substantive and procedural due process under the New York Constitution.
The Court of Appeals held that “FAPA Section 7 applies retroactively in some circumstances,” and that retroactive application does not violate the substantive and procedural due process protections provided by the New York State Constitution.
Concerning the second certified question, the Court of Appeals found that FAPA did not change the six-year statute of limitations applicable to mortgage foreclosure actions under CPLR 213(4). The Article 13 LLC Court went on to explain that “[t]he only relevant change effected by FAPA is that New York’s estoppel doctrine, as now clarified by FAPA Section 7, precludes U.S. Bank from seeking to evade the statute of limitations by arguing that CMC’s prior acceleration of the loan was invalid.” For those reasons, the High Court rejected U.S. Bank’s argument that retroactive application of FAPA impairs its right to enforce its mortgage. And, instead, classified U.S. Bank’s “asserted right” under the Due Process clause as the “the right to challenge collaterally the validity of the prior foreclosure action,” which the Court concluded “is neither vested nor impaired by FAPA in any meaningful sense.”
In reaching that determination, the Court of Appeals explained that the commencement of an allegedly invalid foreclosure action is almost always caused by the “foreclosure plaintiff’s own lack of diligence in ensuring and demonstrating that it had obtained or possessed the note when its action was filed.” The High Court also pointed to the repeated changes to laws and rules concerning residential foreclosure actions leading up to FAPA’s enactment, the purpose of which was to “mitigate certain recurring problems in residential foreclosure litigation,” including, specifically, with respect to a plaintiff’s standing.
With respect to the specific facts of this case, the Article 13 LLC Court focused on the ten-year delay in discontinuing the 2007 foreclosure action, noting that “U.S. Bank does not dispute that its predecessor and it were aware of the prior action and in possession of the note throughout virtually the entire life of the prior foreclosure action.” The High Court explained that U.S. Bank could have discontinued the prior action within the six-year limitations period and commenced a new foreclosure action with the note and mortgage firmly in its possession and that there is no excuse for its failure to do so.
Van Dyke
In Van Dyke, a foreclosure action was commenced in October 2009 by defendant’s predecessor, Bank of New York Mellon Trust Company (Mellon). Plaintiff answered and pleaded as an affirmative defense that at the time Mellon’s action was commenced, Mellon lacked standing to foreclose.
In September 2016, defendant was assigned the note and mortgage, and the parties cross-moved for summary judgment on the issue of Mellon’s standing to sue. In 2019, the Supreme Court issued an order denying the motions because “[i]ssues of fact exist[ed] as to [Mellon’s] possession of the [promissory] note.” The parties cross-appealed the Supreme Court’s order, and in 2020, the Appellate Division affirmed. In March 2022, the Supreme Court so-ordered a stipulation discontinuing the action without prejudice. The stipulation stated that “based upon” Supreme Court’s affirmed order denying summary judgment on the issue of Mellon’s standing, Mellon had “failed to demonstrate that it had standing to commence the [a]ction.”
In April 2022, plaintiff commenced the subject quiet title action. Defendant moved to dismiss the complaint, arguing that plaintiff’s loan was never validly accelerated. In response, plaintiff cross-moved for summary judgment. FAPA then took effect while the parties’ motions awaited decision, and the parties submitted supplemental briefing disputing whether and how FAPA applies. The Supreme Court granted summary judgment to plaintiff and the Appellate Division affirmed.
On appeal to the Court of Appeals, defendant claimed the following vested rights under the Due Process clause: its property interest in the mortgage, and its interest in prosecuting its pending 2022 foreclosure action. Those arguments were rejected by the Van Dyke Court for the same reasons relied on by the Article 13 LLC Court. Additionally, like the Article 13 LLC Court, the Van Dyke Court focused on the fact that defendant’s predecessors chose to allow the 2009 action “to remain pending for more than a dozen years—more than double the six-year limitations period.”
Concerning FAPA Sections 4 and 8, the voluntary discontinuance of the 2009 foreclosure action did not occur within the six-year statute of limitations period, making it ineffective under pre-FAPA law. For that reason, the High Court held that “defendant…has not shouldered its ultimate burden of demonstrating [FAPA]’s constitutional invalidity as applied here.
Based on the foregoing, the Court of Appeals held that the defendant failed to demonstrate that retroactive application of the relevant FAPA provisions “offends the US Constitution’s due process guarantee or the Contract Clause as applied to this case.”
Applicability of Article 13 LLC & Van Dyke
The grounds relied on by the Court of Appeals in Article 13 LLC & Van Dyke for upholding retroactive application of Sections 4, 7 and 8 in those cases do not apply to other FAPA provisions. For example, Section 6 of FAPA, codified at CPLR 205-a(a), created a new savings statute solely for mortgage foreclosure actions, under which the neglect to prosecute exception was vastly extended to include a dismissal for “any form of neglect.” Existing section 205(a) was left wholly intact and applicable to all cases except foreclosures.
Prior to FAPA’s enactment, in 2008, the Legislature amended CPLR 205(a) to add the requirement that, “[w]here a dismissal is one for neglect to prosecute the action made pursuant to [CPLR 3216] or otherwise, the judge shall set forth on the record the specific conduct constituting the neglect, which conduct shall demonstrate a general pattern of delay in proceeding with the litigation.” According to the Senate Introducer’s Memorandum in Support, the bill which resulted in the 2008 amendment “set[ ] forth a resolution to a persistent problem within our courts regarding dismissal for neglect to prosecute the action.” That memorandum continued, “[t]he intent of CPLR § 205(a) has been misconstrued allowing for many cases to be dismissed on the basis of neglect to prosecute.The law is presently unclear with respect to what specifically constitutes a neglect to prosecute particularly where it falls outside Rule 3216.” With respect to the justification for the bill, the memorandum concluded that “[a]mending CPLR § 205(a) to provide uniformity would reestablish the original legislative intent of this chapter.” Thus, this prior legislative history establishes that the original intent was for the-neglect to-prosecute exception to apply in limited circumstances only, not for just any failure to comply with a statute or court rule. Consequently, unlike the “changing regulatory environment” referenced by the Article 13 LLC Court, here, there was no reason for noteholders to expect the changes effected under CPLR 205-a(a).
Additionally, as Judge Grossman aptly put it:
[N]ewly enacted Section 205-a(a) applies only to mortgage foreclosure cases; existing Section 205(a) continues to apply in all other cases; consequently, only in the case of mortgage lender, and in that of no other injured plaintiff, is a dismissal resulting from the failure to appear at a single scheduled court conference deemed a “neglect to prosecute” causing a forfeiture of the benefit of the statutory “savings provision. There is no conceivable rational basis for that distinction: a single failure to appear evinces neglect to prosecute or it does not, but the answer does not vary according to the identity of the plaintiff.
Conclusion
The Article 13 LLC Court’s decision does not foreclose the possibility of a different outcome in cases where the noteholder establishes that it had no knowledge of the prior action. Indeed, the High Court expressly recognized that possibility: “[w]hether a holder of a note and mortgage who was unaware of a prior foreclosure action brought by a complete stranger to the note could raise an as-applied due process challenge to Section 7 of FAPA is not presented to us by the certified question.” Concerning Sections 4 and 8 of FAPA, the Van Dyke Court’s holding implies that the outcome may have been different had the 2022 action been “timely brought under well-settled pre-FAPA law,” such as by a timely de-acceleration notice. Moreover, the Court of Appeals’ reasoning for upholding the constitutionality of retroactive application of FAPA in those cases does not apply with equal force to other FAPA provisions.