What does New York’s Foreclosure Abuse Prevention Act (FAPA) mean for loan servicers and the secondary market in 2026 and beyond? One issue is standing. Servicers will need to give increased scrutiny to determining whether they have standing to foreclose on mortgages. Servicers acquiring mortgage servicing rights (MSRs) on the secondary market may learn that the foreclosure statute of limitations has already expired—even if a foreclosure suit is pending—if a previous foreclosure was initiated without standing. That has broad implications for lenders, servicers, and the secondary mortgage market, says McCarter partner Adam Swanson. “Servicers and foreclosure counsel are going to be required to give flawless execution and that’s going to drive the cost of a default higher,” Adam says. “Those costs have to be priced into how much a loan will be purchased for on the secondary market, and that impacts, the rate that a private lender is willing to give when the loan is originated.” FAPA’s application is particularly relevant to the secondary market given that New York is a financial center where many mortgages are securitized. Securitization can further complicate determining which of multiple entities involved holds the note and has standing to enforce mortgages governed by FAPA.
Another issue is electronic notes and mortgages (eNotes). Reports going back to well before the Covid pandemic suggest that more and more mortgages are being closed with eNotes and eMortgages. Those originations only increased during and after the Covid pandemic. While eNotes may be helpful in ease of tracking and other efficiencies, Adam says eNotes are governed under a different and new law—namely the Uniform Electronic Transfers Act—that has a less established legal context and is subject to evolving interpretation by the courts. “The whole concept of being in possession of the promissory note is replaced by a new concept of being in control of the authoritative copy of the electronic record,” Adam says. “What happens under the e-note regime is that Article 3 of the UCC, which concerns negotiable instruments, is almost entirely supplanted by a new area of law.” Adam says servicers will want to keep an eye on how the courts interpret legal standing to enforce eNotes in 2026 because with FAPA in the background, even the slightest foot-fault could result in a complete loss.