By Stephen J. Vargas, Esq.

Nicole Gazzo, Esq.

Adam Gross, Esq.

Gross Polowy LLC

USFN Member (NJ, NY)

On December 30, 2022, New York Governor Kathy Hochul signed the “Foreclosure Abuse Prevention Act”[1], which took effect immediately and applies to all pending, pre-sale residential mortgage foreclosures. The law applies retroactively to permit a homeowner to raise a statute of limitations defense based on the newly enacted amendments, even though the mortgage debt was not time-barred at the time the foreclosure was commenced. The new laws overrule the Court of Appeals’ decision in Freedom Mortgage Corporation vs. Engel[2] by eliminating a plaintiff mortgagee’s ability to unilaterally de-accelerate a loan by discontinuing a pending foreclosure action within the limitations period.

The new laws also amend multiple sections of the New York State Consolidated Laws impacting foreclosures:

·       CPLR §203 (method of computing periods of limitations generally) and CPLR §3217 (voluntary discontinuance) were amended to prevent a foreclosing party from unilaterally revoking the acceleration of a loan. After a loan has been accelerated (typically by the commencement of a foreclosure), a plaintiff cannot utilize a deceleration letter or voluntary discontinuance of the foreclosure to revoke the acceleration and return the loan to installment payment status for the purpose of re-setting the statute of limitations. If a foreclosing party or a predecessor-in-interest accelerated a loan and decelerated it based on the law that existed prior to the Act, then the new law allows a defendant to argue that the prior deceleration was invalid, and the foreclosure commenced more than six years from the initial acceleration is subject to dismissal with prejudice as time-barred.

·   CPLR §205-a (termination of certain actions related to real property) is a new residential mortgage foreclosure-specific “savings statute” that imposes greater limitations on the ability to recommence a foreclosure if a prior foreclosure was dismissed outside the statute of limitations. The old “savings statute” (CPLR §205(a)) was available to a foreclosing party unless the prior foreclosure terminated by means other than voluntary discontinuance, failure to obtain personal jurisdiction over the defendant, a judgment on the merits, or neglect to prosecute (defined by appellate courts as a pattern of neglect, rather than a single, isolated neglectful omission or violation of a law or rule).

The new rule contains these prohibitions, but broadly defines neglect to include any omission that results in dismissal, including but not limited to: failure to move for an order of reference within one year from when the case is released from the foreclosure settlement conference part; failure to comply with a demand to resume prosecution; and failure to comply with any deadline order, appear at a court conference, or timely submit a proposed order or judgment. If a foreclosure is dismissed based on any of these failures more than six years from acceleration, then a new foreclosure is prohibited.

Additionally, CPLR §205-a is unavailable to a purchaser that bought a loan during the foreclosure process because it restricts its provisions to the original plaintiff and prohibits an assignee that came into ownership and possession of a note during a pending foreclosure from utilizing the savings provision. Thus, only the same entity that commenced the foreclosure that was dismissed can rely on the “savings statute,” and a new owner of the loan cannot, making foreclosure of the assignee’s loan time-barred. The law requires a foreclosing party that utilizes the “savings statute” to “plead and prove” it was the holder of the note and mortgage at the commencement of both the prior and re-commenced foreclosures. The retroactivity provision provides a defendant that answered the complaint with a ground to challenge a pending foreclosure commenced based on the “savings statute” if the foreclosing party is a different entity than the one that commenced the prior foreclosure, as well as if the prior foreclosure was dismissed for any neglect specified in the section.

·   RPAPL §1301 (separate actions for mortgage debt) was amended to prohibit the commencement of a new foreclosure while a prior foreclosure is pending unless the foreclosing party obtains permission from the court in which the action is pending to commence the subsequent foreclosure. This permission is a condition precedent to filing a subsequent foreclosure while the initial foreclosure has not been dismissed or voluntarily discontinued. If a foreclosing party elects to terminate a foreclosure for the purpose of commencing a new foreclosure, then it should voluntarily discontinue the initial foreclosure as soon as practicable and with enough time to mail a new 90-day notice and recommence the foreclosure before the 6-year SOL expires.

·     General Obligations Law §17-105 (promise & waivers affecting the time limited for action to foreclose a mortgage) was amended to establish that any promise or agreement to make payments will not extend the time for commencement of an action, unless it is in writing. To comply with the amendment, servicers should enter into written settlement agreements in connection with loss mitigation settlements.

·    CPLR §213 (actions to be commenced within six years) was amended to prohibit a foreclosing party or mortgagee defending a quiet title claim seeking to cancel and discharge a mortgage as time-barred from arguing a prior acceleration was invalid absent an expressed judicial determination, made upon a timely interposed defense, that the mortgage and note were not validly accelerated.

If a First Legal-stage loan is impacted by the Act (including, but not limited to, if a foreclosing party relied on a deceleration letter or voluntary discontinuance to revoke a prior acceleration or the “savings statute” after a neglect-based dismissal or mid-foreclosure transfer of the note and mortgage), then a new foreclosure cannot be commenced because the limitations period expired.

If a loan is the subject of a pending, contested foreclosure where the statute of limitations is at issue, then there is a high likelihood the foreclosure will be dismissed with prejudice based on the expiration of the statute of limitations, in which case remediation such as “advancing the due date” to within the six-year limitations period will not cure the defect. Any attempt to collect or recover a time-barred mortgage debt – including, but not limited to oral or written communication to the borrower concerning loss mitigation or threatening foreclosure – would create Fair Debt Collection Practices Act exposure for a debt collector law firm and loan servicer. Therefore, a foreclosing party and its servicer must exhaust litigation strategies (including motion and appellate practice) and consider all financially feasible loss mitigation home retention and liquidation options as an alternative to litigating a statute of limitations defense.

Further, by expanding the definition of neglect to include many common reasons for dismissal, any potential delay may result in a dismissal with prejudice. In the past, dismissals based upon neglect were often able to be vacated; however, that is unlikely under the new law. The servicer and counsel must work together to ensure the foreclosure moves forward in a timely manner and all court deadlines are met.

This law is new and contains many changes, and it is impossible to know how the courts may interpret the various provisions. Many questions related to the new law or potential updates to the law may occur post-publication of this article. If so, please consult with your New York counsel of choice.