Adam Swanson speaks with National Mortgage News to discuss the pending petition before the US Supreme Court to consider the constitutionality of retroactively applying New York’s Foreclosure Abuse Prevention Act (FAPA)–a law that is causing great disruption to the New York mortgage and secondary mortgage marketplaces. Regarding the petition itself, Adam says the court has not decided “whether to review it or not, but that it will be conferenced by the justices of the Supreme Court.” If the Supreme Court takes the case, it could decide whether some New York foreclosures can move forward and whether older loans are still at risk under the new law.
FAPA rolled back case law in New York that allowed the six-year statute of limitations to foreclose on a mortgage to be reset if the mortgage servicer took certain steps to deaccelerate that foreclosure action. And then went further by retroactively applying the new law, Adam says. Constitutional arguments against FAPA are that its retroactive application conflicts with protections for due process and contracts and also with the “takings” clauses. Additionally, “one of the challenges being faced by the industry is that the application of the law needs to be challenged on a case-by-case basis. So therefore you see various lawsuits where a mortgage holder is trying to foreclose the mortgage, and because of FAPA, the court is ruling that it is unenforceable.” This also impacts the secondary mortgage market, since the statute permits only the ‘original plaintiff’ to refile certain dismissed foreclosure cases — making the loans worthless if transferred or sold. The American Legal and Financial Network estimates this could affect approximately $1.2 billion or 7,100 loans in New York with dismissed foreclosure actions.