Article 13 LLC v. Lasalle National Bank Association

Issue: Whether the New York Foreclosure Abuse Protection Act (FAPA) is constitutional.

Case Summary: ABA and trade groups (Amici) filed an amicus brief urging the Second Circuit to rule that the retroactive application of FAPA is unconstitutional.

Article 13 LLC sued Lasalle National Bank Association to cancel a consolidated mortgage loan encumbering its property. In 2007, LaSalle’s loan servicer, Central Mortgage Company (CMC) accelerated the debt by commencing a foreclosure proceeding. Article 13 argued that the statute of limitations to foreclose on the property expired after CMC accelerated the debt.

On December 28, 2022, a New York district court denied both Article 13 and LaSalle’s motion for summary judgment, concluding there was a genuine dispute regarding whether CMC was the holder of the note when it initiated the foreclosure action. On December 30, 2022, New York Governor Kathy Hochul signed the Foreclosure Abuse Protection Act (FAPA) into law, with immediate effect. Under FAPA, whenever a lender files a complaint for accelerated mortgage payments owed by a defaulting borrower, the six-year statute of limitations begins to run and cannot stop. Article 13 filed a motion for reconsideration arguing that there had been a change in the controlling law. In August, the district court granted Article 13’s motion for summary judgment. The district court concluded that: FAPA is an intervening change of controlling law; FAPA applies retroactively; and retroactive application of FAPA is constitutional. LaSalle appealed the district court’s decision.

Amici filed its amicus brief supporting LaSalle on appeal. The brief underscored why FAPA disrupted longstanding historical practices under New York mortgage laws. Lenders have had the right to revoke an acceleration by a voluntary discontinuance for more than one hundred years. New York courts have historically held that an acceleration becomes final and irrevocable – meaning it cannot be undone by a voluntary discontinuance – only after the borrower changes his position in reliance on that election. Recent pre-FAPA court decisions did not change the law governing voluntary discontinuances. Before 2019, 10 of the 13 New York trial courts concluded that withdrawing the prior foreclosure action is an affirmative act of revocation which tolls the statute of limitations.

In addition, the brief explained why the lengthy New York foreclosure process adequately protects borrowers and confirms that retroactive application is inappropriate. The foreclosure process in New York is currently regarded as one of the most burdensome in the country. FAPA worsens the situation by imposing new restrictions on a lender’s right to revoke an acceleration and later prevail when the borrower seeks a discharge of the mortgage contract.

The brief also argued retroactive application of FAPA would damage the New York mortgage market by harming both lenders and future borrowers. According to Amici, retroactive application of FAPA deprives lenders of the ability to assert contractual rights which were formed at the creation of each mortgage. Under FAPA, lenders are discouraged from negotiating with borrowers beyond what is legally required due to the risk that the six-year statute of limitations will run or even elapse.

Finally, the brief argued retroactive application of FAPA is unconstitutional for several reasons. First, Amici claimed retroactive application of FAPA violates due process because such an action essentially creates a new limitations period and bars new claims, while depriving lenders of substantive and vested rights. Second, Amici claimed retroactive application violates the federal contract clause by substantially impairing the contractual mortgage relationship and is neither a reasonable nor appropriate means to achieve FAPA’s purpose. Third, Amici claimed retroactive application of FAPA violates the Takings Clause which protects lenders from governmental appropriation of their vested property rights. Amici emphasized that whenever a law deprives the owner of the beneficial use and free enjoyment of his property it deprives him of his property within the meaning of the U.S. Constitution.