Summary of Foreclosure Abuse Prevention Act Proposed in the New York Legislature

March 24, 2022

On Wednesday, March 23, 2022, the New York State Assembly passed Assembly bill A7737B, known as the “foreclosure abuse prevention act.”[1] If this bill becomes law, it will fundamentally alter the foreclosure of a mortgage in New York State. The bill would reverse existing law on such important issues as the statute of limitations, and the ability to start a new foreclosure action after dismissal of an existing action on a mere technicality. Once passed, the law “shall take effect immediately and shall apply to all [mortgage foreclosure actions] in which a final judgment of foreclosure and sale has not been enforced.”  This means that the new law could be given retroactive application, affecting not only prospective foreclosure actions, but existing foreclosures, including those in which a judgment of foreclosure and sale has been entered, but the auction has not yet occurred.

A summary of the provisions of the proposed legislation are as follows:

  1. RPAPL 1301. This is the statute governing mortgage foreclosure actions in New York State. The proposed amendment states that, while a foreclosure action is pending, no other action to foreclose, or for a money judgment on the note, may be commenced without leave of court. If a new action is commenced without authorization from the court in the existing action, the defendant may assert this as a defense in the new action, and seek dismissal of the new action. The practical impact of this rule is that where a mortgagee seeks to discontinue an existing action based upon a procedural defect, and there is an impending statute of limitations deadline before which the new action must be commenced, the mortgagee cannot merely file a motion to discontinue and commence the new action. Rather, the existing action must be discontinued, and/or leave of court obtained, before the new action can be commenced. As we know, it can take months, and even years, for the Supreme Court to decide a motion. This additional hurdle could be the difference between a mortgagee being able to discontinue an existing action, and timely recommence a new one, or being hung out to dry while the court sits on a pending motion to discontinue/for leave to start a new action. Where a mortgagee faces this issue, it should move via order to show cause, and request leave to commence the new action in the interim order, to speed up the process of obtaining leave to commence the new action, while the court considers the motion to discontinue.
  2. GOL 17-105. This section of the General Obligations Law states that an agreement to waive the statute of limitations to foreclose a mortgage is effective if expressly set forth in writing and signed by the party to be charged. The proposed amendment adds that such “an acknowledgment, waiver, promise or agreement, express or implied in fact or in law, shall not, in form or effect, postpone, cancel, reset, toll, revive or otherwise extend” the statute of limitations to foreclose a mortgage, except as otherwise provided in section 1 of the statute. This could mean that certain commonly used settlement options may not reset the statute of limitations unless they include an express waiver of the statute of limitations as part of the agreement.
  3. CPLR 203. This is the section of the CPLR governing the computation of limitations periods generally. The proposed amendment adds a new section (h), which states that once a cause of action to foreclose a mortgage accrues, no party may unilaterally stop the running of the statute of limitations. This directly contradicts long-standing New York case law which allows a mortgagee to unilaterally stop the statute of limitations from continuing to run on a cause of action to foreclose a mortgage by revoking the acceleration of the mortgage debt. This also overrules the Court of Appeals decision in Freedom Mortgage Corp. v. Engel, 37 N.Y.3d 1 (2021), which held that, where the statute of limitations began to run upon the commencement of a foreclosure action, a voluntary discontinuance of that action constitutes a revocation of the election to accelerate, stopping the running of the statute of limitations. Under the proposed law, voluntary discontinuance of an existing foreclosure action will no longer constitute an act of revocation and will not stop the running of the statute of limitations.
  4. CPLR 205. This is the section of the CPLR is referred to as the “saving statute”, which permits a new action to be commenced where a prior action for the same relief was dismissed for any reason other than (1) by voluntary discontinuance, (2) failure to obtain personal jurisdiction over the defendant, (3) dismissal for neglect to prosecute, or (4) dismissal on the merits.  The proposed amendment seeks to add a new section 205-a, which limits the use of the saving statute in a mortgage foreclosure action. The proposed amendment would prohibit the use of the saving statute to commence a new mortgage foreclosure action after the dismissal of a prior action for the same relief, where the dismissal was for any of the 4 original reasons set forth in CPLR 205, or where the dismissal was for any form of neglect, including, but not limited to, dismissal for failure to take a default judgment against non-appearing parties within one year pursuant to CPLR 3215(c), violation of any court rule or individual part rule, failure to comply with any scheduling order, failure to appear for a conference or calendar call, failure to timely submit a judgment or order, failure to comply with discovery, or where the case is “marked off”, and not restored within one year pursuant to CPLR 3404.  The proposed amendment also states that “[a] successor in interest or an assignee of the original plaintiff shall not be permitted to commence the new action, unless pleading and proving that such assignee is acting on behalf of the original plaintiff,” which could limit the use of the saving statute in foreclosure cases that are dismissed because the wrong entity was named as the plaintiff.    Finally, this proposed amendment would limit a mortgagee’s use of the saving statute to one time only. If a foreclosure action is recommenced pursuant to CPLR 205(a), a non-merits procedural dismissal of the recommenced action could preclude the commencement of a new action to foreclose.
  5. CPLR 213. This section of the CPLR sets forth the limitations periods for the various causes of action addressed therein, including mortgage foreclosures. The proposed amendment limits a mortgagee from defending an action to cancel a mortgage due to the alleged expiration of the statute of limitations based on the commencement of a prior action. A mortgagee will be prohibited from asserting the argument that a prior action was not a valid acceleration of the debt, unless it is based on a court-ordered dismissal of the prior action, after a defendant’s successful standing defense in the prior action.
  6. CPLR 3217. This is the section of the CPLR governing voluntary discontinuance of an action. The proposed amendment states that a voluntary discontinuance of a mortgage foreclosure action does not reset the statute of limitations, even if it is by mutual stipulation between the parties. The only way to reset the statute of limitations is pursuant to an agreement in writing, signed by the party to be charged, as set forth in GOL 17-105, as amended.
  7. Effective date and application. The proposed law states that the act “shall take effect immediately and shall apply to all actions commenced on an instrument described under CPLR 213(4) in which a final judgment of foreclosure and sale has not been enforced.” This appears to mean that the new law will apply to any existing foreclosure that has not yet been sold at auction. That could potentially result in motions to dismiss cases after the entry of judgment based on the change in law.  If passed, this legislation could result in the dismissal of a significant number of existing foreclosure cases, with prejudice.

The proposed legislation has far-ranging implications for the mortgage servicing industry, as it will severely limit a mortgagee’s right to ever reach the merits of a claim to foreclose a mortgage due to the borrower’s failure to repay the debt. The proposed legislation singles out mortgage foreclosures from all other types of civil claims, and harshly penalizes mortgagees for almost any procedural defect; standards that are not applied to any other civil litigant. The proposed legislation will encourage borrowers to delay foreclosure proceedings, refuse loss mitigation and debt restructuring efforts, and defend a foreclosure action on any and all procedural grounds, as any successful defense, even if it is not on the merits, could achieve for them a free house in a windfall.

[1] A “same as” bill in the Senate, S5473D, is likely to be passed shortly. 

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This Legal Update is intended to keep readers current on developments in the law and is not intended to be legal advice. If you have any questions, please contact any member of the Financial Service Litigation Group

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