In jurisdictions that contain them, statutes of limitations have long posed unique challenges in mortgage foreclosure cases. New York State, which has a six-year limitations period from the date of loan acceleration, is no exception.
Historically, these concerns have hampered the ability and willingness of lenders to voluntarily discontinue foreclosure actions out of fear that doing so might, with protracted foreclosure cases, bring them outside of the limitations period or at least put them at risk. These concerns were alleviated by the New York State Court of Appeals’ (the state’s highest court) 2021 holding in Freedom Mtg. Corp. v. Engel,1 which clarified that a voluntary discontinuance revoked any prior loan accelerations and “reset” the limitations period.
In 2022, however, in response to political pressure surrounding the lingering effects of the 2008 financial crisis and a perception of foreclosure abuses, the New York State legislature enacted the Foreclosure Abuse Prevention Act (FAPA), which was designed, in part, to retake control of the issue from the Court of Appeals as well as clarify and tighten limitations periods. FAPA, in effect, reversed Engel’s holding and legislatively proclaimed that any unilateral discontinuance of a foreclosure action would not reset the limitations period. Thus, a lender considering whether to voluntarily stop a foreclosure action would have to weigh the long-term effects of doing so relative to its future rights.
The Second Circuit’s recent decision in East Fork Funding, LLC v. Nat’l Assn’,2 which certified the question of FAPA’s retroactivity to pre-FAPA voluntary discontinuances to the Court of Appeals, demonstrates how vexing and unsettled this area of law can be. Among the justifications for asking the New York State Court of Appeals to answer the retroactivity question, perhaps the most understated comes in the Second Circuit’s statement that “…FAPA’s interpretation has implications for the New York mortgage market, New York property owners, and New York law governing retroactive application of statutes.”3 Indeed it does, so we will be monitoring future developments in this area.
The Thought Leadership Committee of Barclay Damon’s Restructuring, Bankruptcy & Creditors’ Rights Practice Area issues alerts and blogs on an ongoing basis to keep clients, colleagues, and friends up to date on important developments in the insolvency space. If you have any questions regarding the content of this alert, please contact the author, Brian Rich, partner, at brich@barclaydamon.com; Janice Grubin or Jeff Dove, Restructuring, Bankruptcy & Creditors’ Rights Practices Area co-chairs, at jgrubin@barclaydamon.com and jdove@barclaydamon.com; or Robert Wonneberger, Thought Leadership Committee chair, at rwonneberger@barclaydamon.com.
137 N.Y. 3d 1, 31 (2021).
2No. 23-659 (October 1, 2024).
3See East Fork Funding, LLC v. Nat’l Assn’, No. 23-659, 17 (2d Cir. 2024).