ABA, Trades File Amicus Brief Supporting U.S. Bank in Foreclosure Abuse Protection Act Case

Foreclosure Abuse Protection Act
U.S. Bank N.A. v. Simon, et al
Date: April 10. 2023

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

Case Summary: The American Bankers Association and a group of trade companies (Amici) submitted an amicus quick advising the New York Supreme Court’s Appellate Division to rule the retroactive application of FAPA is unconstitutional.

U.S. Bank tried to foreclose on Robyn Simon’s house in 2009. Simon stopped working to abide by conditions of her note, and U.S. Bank chosen to speed up the loan. The New York Supreme Court dismissed the bank’s claim due to the fact that it stopped working to adequately show standing to begin the action. U.S. bank tried to foreclose on the home once again in 2016. Simon argued the six-year statute of constraints ended in 2015 prior to the beginning of the 2016 case.

Under New York law, a loan provider has 6 years to begin a home loan foreclosure action. Once the debtor defaults, the loan provider might speed up the loan and need instant payment of the whole arrearage. An velocity of the loan allows the loan provider to begin an action to foreclose the home mortgage. After beginning of a foreclosure action, the loan provider and debtor regularly participate in conversations for a forbearance contract or loan adjustment. Before FAPA, New York precedent offered cancellation of a velocity of financial obligation stops and resets the statute of constraints clock, which would accumulate with a brand-new six-year duration if the financial obligation were to be consequently sped up.

In November 2017, the New York Supreme Court rejected U.S. Bank’s foreclosure effort once again, concluding Simon raised a triable problem of truth on whether she adequately withdrawed the previous velocity of the home mortgage and whether her suit is time-barred. In December 2017, U.S. Bank attracted New York’s Appellate Division in the Second Department, which it rejected. U.S. Bank appealed once again in August 2022, following the New York Court of Appeals’ choice in Freedom Mortgage Corp. v. Engel. The Engel court concluded a noteholder’s voluntary discontinuance of a foreclosure action makes up an “affirmative act” to reset the six-year statute of constraints.

On Dec. 30, 2022, New York Governor Kathy Hochul signed FAPA into law, with instant result. The New York legislature enacted FAPA to reverse Engel. Under FAPA, whenever a loan provider submits a problem for faster home mortgage payments owed by a defaulting debtor, the six-year statute of constraints starts to run and cannot stop. In other words, de-acceleration of a home loan will not reset the statute of constraints. Additionally, the New York Attorney General competes FAPA needs to use retroactively to existing home mortgages.

Amici submitted its amicus quick supporting U.S. Bank. Amici argued the attorney general of the United States’s historic story is inaccurate and insufficient. Amici stressed loan providers might withdraw a velocity by a voluntary discontinuance for more than one a century. Further, Amici asserted current court choices did not alter the law governing voluntary discontinuances. Before 2019, 10 of the thirteen New York high court concluded withdrawing the previous foreclosure action is an affirmative act of cancellation which tolls the statute of constraints. According to Amici, the prolonged New York foreclosure procedure effectively secures debtors and verifies retroactive application is unsuitable.

Amici likewise argued retroactive application would harm the New York home mortgage market by damaging loan providers and future debtors. Retroactive application of FAPA denies loan providers of the capability to assert legal rights which were formed at the development of each home mortgage. Also, under FAPA, loan providers are disincentivized kind working out with debtors beyond what is lawfully needed.

Finally, Amici argued retroactive application of FAPA is unconstitutional. According to Amici, retroactive application of FAPA breaks due procedure. Amici stressed retroactive application of FAPA basically produces a brand-new statute of constraints duration and bars brand-new claims. It denies loan providers of substantive and vested rights. Amici asserted retroactive application breaks the federal contact stipulation. According to Amici retroactive application: considerably hinders the legal home mortgage relationship; and is neither an affordable nor suitable methods to attain FAPA’s function. Amici likewise described would trigger unconstitutional profits. Amici stressed retroactive application of FAPA breaks the State and U.S. Takings Clauses which safeguard loan providers from governmental appropriation of their vested home rights.

Bottom Line:   The court’s choice will affect both New York loan providers and debtors and impact foreclosure settlements.

Documents: Brief