Much confusion remains on the enforceability of certain New York mortgages following a recent New York Court of Appeals ruling upholding the retroactive application of New York’s Foreclosure Abuse Prevention Act (FAPA) to time bar many pending foreclosure actions. The ruling in Article 13 LLC v. Ponce De Leon Federal Bank puts pressure on related parties to confirm that an entity initiating a foreclosure lawsuit is actually a noteholder with standing. This can be tricky when the note can change hands and move through the secondary mortgage market or be securitized as commonly happens, says Adam Swanson. “The industry needs to coordinate to ensure that the suit is commenced by a plaintiff with standing.” Adam notes that a footnote to the court’s decision indicates that the ruling does not extend to situations where a “true stranger” acts without standing to foreclose.
Why does all this matter? Because New York is a financial center and many New York mortgages are wrapped into the securitized market. Key provisions of FAPA affecting the statue of limitations on which a noteholder can enforce a mortgage and the retroactive application of these provisions, in conflict with pre-existing precedent allowing noteholders to de-accelerate foreclosures within the six-year statute of limitations, are having an outsized impact on the New York mortgage industry.
And the recent ruling did not end confusion concerning FAPA’s application. The US Court of Appeals for the Second Circuit is reviewing challenges that FAPA’s terms and retroactive application violate the federal constitution. Additionally, Adam says another recent New York Court of Appeals ruling in a separate FAPA-related case Van Dyke v. US Bank NA was limited in offering clarity. The court upheld the retroactive application of FAPA under two additional sections than were reviewed in Article 13 LLC and dismissed a federal constitutional contracts and due process clause challenge. He says they did so “because the voluntary discontinuance was filed after the statute of limitations ran, the lender failed to establish a vested right required for the analysis under the due process clause.”