In 2004, the corporation purchased property secured by a mortgage. In 2006, the corporation conveyed it to an individual (the “mortgagor”), who then acquired a second mortgage loan from a banking corporation. She then consolidated the two loans into a single loan secured by a senior mortgage and executed a new promissory note. On the same day, the mortgagor obtained another mortgage (the “junior mortgage”). The consolidated loan was later sold to a mortgage-backed securities trust, with the bank serving as trustee, and the mortgage company servicing the consolidated loan on behalf of the trust. The mortgagor defaulted on the loan in 2007, prompting the mortgage company to start a foreclosure proceeding that same month, which was voluntarily discontinued in 2017. In 2020, an LLC acquired the junior mortgage and filed a quiet title action in the district court seeking, among other relief, a judgment cancelling and discharging the senior mortgage as time-barred. The district court rejected the cross-motions for summary judgment. It cited a disputed issue of material fact about whether the mortgage company had standing to initiate a previous foreclosure as the “holder” of the consolidated note. Two days after the court rejected the parties’ motions, the New York Foreclosure Abuse Prevention Act (“FAPA”) was enacted, and the LLC requested reconsideration. The court granted reconsideration, holding that FAPA was an intervening change of controlling law. The court applied FAPA retroactively and granted summary judgment to the LLC. The trustee appealed, contending that FAPA does not apply retroactively and that retroactive application would be unconstitutional.
In Article 13 LLC v. Ponce de Leon Fed. Bank, 132 F.4th 586 (2d Cir. 2025), the court considered two main issues: (1) whether Section 7 of FAPA applies retroactively to foreclosure cases initiated before its enactment, and (2) whether applying FAPA retroactively violates substantive and procedural due process rights under the New York Constitution. The court examined the language of N.Y. C.P.L.R. § 213(4), Section 7, and Section 10 of FAPA to reach its decision. While the district court ruled that FAPA applies retroactively and that Section 7 of FAPA prevented the trustee from challenging the validity of the foreclosure acceleration, Section 7 estops the trustee from contesting the prior acceleration, effectively rendering the senior mortgage time-barred. Because of the broad impact that applying FAPA retroactively would have on the New York mortgage market, the court certified these questions to New York’s highest court, the Court of Appeals. In so doing, the court noted the New York Court of Appeals had not yet addressed FAPA’s retroactivity, the statute's plain language did not provide a clear answer, resolution would require significant value and policy judgments better suited for the state’s highest court, and the Court of Appeals’ answer to the question would be controlling in the case’s before the court. Weighing these considerations, the court was heavily swayed by the third consideration, emphasizing that determining FAPA’s retroactive reach would require significant public policy judgments affecting the stability of New York’s mortgage and foreclosure system. Therefore, the court certified those two questions to the Court of Appeals of New York and retained jurisdiction to resolve the present appeal once the Court of Appeals has made its determination.
By Annette Addo-Yobo [email protected]
Edited By Jace Brown [email protected]
Edited By Callighan Ard [email protected]
Edited By Hayden Mariott [email protected]