Article 13, LLC v. Ponce de Leon Federal Bank, Alliance Mortgage Banking Corp. and Van Buren Group, Inc.

Case Summary: ABA filed a coalition amicus brief urging the New York Court of Appeals to hold that FAPA does not apply to foreclosure actions commenced before its enactment, or, in the alternative, if retroactive application is intended, such application 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 starting a foreclosure proceeding. Article 13 argued that the statute of limitations to foreclose expired once CMC accelerated the debt.

On December 28, 2022, a New York district court denied summary judgment to both parties, citing a dispute over whether CMC held the note when it began foreclosure. Two days later, Governor Kathy Hochul signed FAPA into law, giving it immediate effect and fixing a six-year statute of limitations once a lender accelerated payments. Article 13 moved for reconsideration, and in August 2023, the court granted summary judgment in its favor, ruling that FAPA constituted an intervening, retroactive, and constitutional change in controlling law. LaSalle appealed, and the Second Circuit certified to the New York Court of Appeals whether Section 7 of FAPA applies to pre-enactment foreclosure actions and whether retroactive application violates due process, deferring its ruling until the New York Court of Appeals answers those questions.

In its brief, ABA argued that FAPA disrupted longstanding practices under New York mortgage law. ABA stressed that foreclosure actions brought by parties without standing cannot validly accelerate mortgage debt. FAPA narrows this rule by limiting it to cases where a court expressly determines, upon a timely defense, that the debt was not validly accelerated. By imposing an estoppel against mortgages, ABA argued, FAPA denies mortgagees any recourse even when unauthorized third parties harm their liens. ABA also noted that lenders have exercised a contractual right to revoke acceleration for more than a century and that recent pre-FAPA court rulings left this rule intact. Put differently, ABA explained that New York courts have long treated a voluntary discontinuance as a revocation of acceleration. Finally, ABA emphasized that New York’s lengthy foreclosure process already protects borrowers and shows why retroactive application of FAPA is inappropriate.

ABA also argued that retroactive application of FAPA damages the New York mortgage market. ABA explained that retroactive application of FAPA harms lenders by depriving them of contractual rights formed at the creation of each mortgage. ABA explained that lenders face three major harms. First, lenders that either discontinued foreclosure actions more than six years ago or saw unauthorized parties attempt acceleration are unable to assert related defenses in borrower cancellation actions. Second, retroactive application undermines the secondary mortgage market and worsens liquidity concerns, particularly for smaller banks. Third, lenders will hesitate to invest in New York if courts continue to apply FAPA retroactively, because retroactive changes devalue past investments and create uncertainty for highly regulated banks subject to federal and state capital requirements. ABA also warned that borrowers will face harm because lenders, concerned about the statute of limitations expiring, will avoid negotiating beyond what the law requires. As a result, lenders will feel forced to pursue foreclosure actions upon default, raising litigation costs and increasing the risk of foreclosure, contrary to FAPA’s stated purpose.

Finally, ABA argued that retroactive application of FAPA is unconstitutional because it violates due process and the federal Contract Clause. ABA explained that FAPA substantially impairs mortgage contracts and does not represent a reasonable or appropriate way to achieve its stated purpose. ABA also stressed that retroactive application violates the New York Constitution’s Takings Clause, which bars the state from taking private property for public use without just compensation.