Just When You Thought It Could Not Get More Unanimous, The Court of Appeals Determines that FAPA’s Retroactive Application Does Not Violate the Due Process or Contract Clauses of the United States II

.By Jonathan H. Freiberger

Last Week in our BLOG article: “Just When You Thought It Could Not Get More Unanimous, The Court of Appeals Determines that FAPA’s Retroactive Application Does Not Violate the Due Process or Contract Clauses of the United States Constitution or the Right to Substantive and Procedural Due Process Under the New York Constitution – Part 1,” we discussed FAPA and the New York Court of Appeals’ decision in Van Dyke v. U.S. Bank, N. A., in which the Court determined that retroactive application of FAPA passes constitutional muster under the Constitution of the United States. We also promised a sequel – and here it is. Today we will discuss Van Dyke’s sister case, Article 13 LLC v. Ponce De Leon Fed. Bank.

ARTICLE 13 LLC

Certified Questions

Article 13 LLC arrived at the door of the New York Court of Appeals from the United States Court of Appeals for the Second Circuit (Art. 13 LLC v. Ponce De Leon Fed. Bank, 132 F.4th 586, 594 (2d Cir.2025)) on the following two certified question:

“1. Whether, or to what extent does, Section 7 of the Foreclosure Abuse Prevention Act, codified at N.Y. C.P.L.R. § 213(4)(b), apply to foreclosure actions commenced before the statute's enactment.”

“2. Whether FAPA's retroactive application violates the right to substantive and procedural due process under the New York Constitution, N.Y. Const., art. I, § 6.” (Hyperlink added.)

Underlying Facts

Borrower purchased a property in Brooklyn, New York, that was subject to a first mortgage. At or around the time of the purchase, borrower borrowed additional funds and delivered a second mortgage to the lender. The first and second mortgages were consolidated into a single consolidated mortgage on the property (the “Senior Mortgage”). The same day that the consolidated loan transaction occurred, the borrower borrowed additional funds from the consolidated loan lender, who took a second mortgage on the property (the “Junior Mortgage”). Thereafter, the Senior Mortgage was sold. Central Mortgage Company (“CMC”) was the servicer until July of 2008. In 2007, the borrower defaulted on the consolidated loan and, later that year, CMC commenced a foreclosure action (the “First Foreclosure Action”) in its own name against the borrower, in which it identified itself as the holder of the consolidated loan. Ten years later, in 2017, CMC’s motion to discontinue the First Foreclosure Action was granted. 

In 2020, Article 13 LLC acquired the Junior Mortgage and brought a quiet title action pursuant to RPAPL 1501(4) in the United States District Court for the Eastern District of New York in which it sought to cancel and discharge the Senior Mortgage as time barred. Both parties moved for summary judgment. The lender, among other things, argued that CMC’s acceleration of the Senior Mortgage was invalid. Both motions were denied by the district court, which held, in part, that:

there was a disputed issue of material fact regarding whether CMC had standing to bring the [First] Foreclosure Action as a "holder" of the Consolidated Note. Article 13 LLC v. Ponce de Leon Fed. Bank, No. 20-CV-3553 (HG), 2022 WL 17977493, at 7, 9 (E.D.N.Y. Dec. 28, 2022). That genuine dispute related to material facts because, if CMC lacked standing, the [First] Foreclosure Action was invalid to accelerate the debt, and the statute of limitations on the Senior Mortgage did not begin to run with CMC's initiation of the Foreclosure Action. (Hyperlink added.)

FAPA was enacted two days after the district court’s decision. Section 7 of FAPA, which is codified at CPLR 231(4)(b), provides:

In any action seeking cancellation and discharge of record of an instrument described under subdivision four of section fifteen hundred one of the real property actions and proceedings law, a defendant shall be estopped from asserting that the period allowed by the applicable statute of limitation for the commencement of an action upon the instrument has not expired because the instrument was not validly accelerated prior to, or by way of commencement of a prior action, 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 10 of FAPA provides that the law "shall apply to all actions commenced on [a mortgage] in which a final judgment of foreclosure and sale has not been enforced.”

After FAPA’s enactment, Article 13 LLC moved for reconsideration “arguing that FAPA was an intervening change in controlling law” and, therefore, Section 7 of FAPA applied and operated to estop the lender from challenging the validity of CMC’s acceleration. The district court agreed and held that FAPA’s retroactive application “estopped [the Senior Mortgage Lender] from bringing a defense against the quiet title action based on the invalidity of a prior acceleration of the mortgage debt.” Accordingly, summary judgment was granted to Article 13 LLC. 

The Senior Mortgage lender appealed to the Second Circuit. The Second Circuit articulated the issues related to New York law raised by the Senior Mortgage lender as “(1) whether FAPA applies retroactively as a matter of statutory construction, and (2) whether its retroactive application would violate substantive and procedural due process rights guaranteed by the N.Y. Constitution. After reviewing the issues, the Second Circuit certified the referenced questions to the Court of Appeals.

Legal Analysis

The Court of Appeals’ analysis tracks that which was discussed in last week’s BLOG.

Retroactivity

The Court of Appeals found that the “plain language” of FAPA Sections 7 and 10 supports retroactivity. Accordingly, it framed the “real issue” as being one of timing: “how does FAPA apply to pending or future foreclosure actions when a previous foreclosure action was dismissed for some reason other than ‘an expressed judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated?’” Although legislation is presumed to apply prospectively, retroactive application, according to the Court of Appeals, is appropriate where “(1) the legislature has made a specific pronouncement with respect to retroactive effect or conveyed a sense of urgency, (2) the statute was designed to rewrite an unintended judicial interpretation and (3) the statute reaffirms a legislative judgment about what the law in question should be.” (Citation and internal quotation marks omitted). Simply stated, the Court of Appeals found all three factors applicable and, therefore:

even if a prior foreclosure action was commenced by another party not in possession of the underlying note, and that action was discontinued without an express determination by the court that the instrument was not validly accelerated, the six-year statute of limitations accrued on the date that action was commenced and continued to run from that date, tollable only as provided for under FAPA.

Violation of New York State Constitution

Substantive Due Process

Having found retroactivity appropriate “in some circumstances,” the Court of Appeals moved on to the question of whether the retroactive application of FAPA violates both procedural and substantive due process rights afforded by the New York State Constitution. The Court of Appeals found that it did not.

Substantive due process is implicated when vested rights are “taken away or impaired.” (Citation omitted.) The Court of Appeals’ discussion focused on the lender’s lack of diligence being the true issue and, when observed in that light, “FAPA Section 7 does not deprive the noteholder of the ability to protect its property interest.” The Court of Appeals also noted that even if a protectable interest was impaired by FAPA, “the legislature may impair legally cognizable interests without running afoul of substantive due process” if “a rational legislative purpose” exists. (Citations and internal quotation marks omitted.) Based on prior abuses of borrowers by financial institutions, the Court of Appeals found that the FAPA legislation was rationally based.

Procedural Due Process

The Court of Appeals also found that the lender’s procedural due process rights were not impacted. The lender argued that “that because FAPA Section 7 modified the event that triggers the limitations period, our Court must therefore provide a reasonable time in which to file foreclosure actions that would be timely but for FAPA's application.” (Citation, internal quotation marks and brackets omitted.) The Court of Appeals rejected the lender’s argument finding that “FAPA did not alter the six-year statute of limitations whatsoever; the successive holders of the note and mortgage have had the full six-year limitations period in which to discontinue an improperly commenced foreclosure action and commence a new one lacking the prior infirmity.”

Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.