The foreclosure defense bar is buzzing with excitement about the newly enactedForeclosure Abuse Prevention Act (signed into law on December 30, 2022). In three blog posts, I will tell you about some of the most significant parts.
In no particular order, I will start with the new “savings statute”—because I recently wrote a brief for a client with a pending appeal in the Appellate Division, First Department on precisely this point.
Here is the fact setup that gives context to the law change.
The statute of limitations for bringing a mortgage foreclosure action is six years. The limitations period begins to run each time a mortgage payment is due and unpaid. That means the lender has a renewing six-year period each month a borrower doesn’t pay their mortgage.
BUT the industry practice is to “accelerate” the entire mortgage loan as due and owing when the lender files a foreclosure action against the borrower (though sometimes the lender accelerates the loan before it starts foreclosure, more on that later). Once a loan is accelerated in a foreclosure action, the limitations period is triggered and is running while the lender is prosecuting the action.
As we all know by now, lenders can be incompetent (a charitable view) or mischievous (a less charitable view) during litigation—but they are almost always cavalier with an assumption that they are going to win no matter what. The foreclosure defense bar has held lender’s feet (or at least their lawyers’ feet) to the fire in vigorously litigating for the strict application of the first set of laws that came into effect as a Foreclosure Abuse Prevention Act (back in 2009).
That means that sometimes a foreclosure action is dismissed after the statute of limitations has expired. Lenders are in a pickle when that happens. Borrowers almost always follow up a dismissal with an action to quiet title by discharging the mortgage.
But, before the latest Act was passed, lenders had an ace in their pocket: something known as the “savings provision” that allows a plaintiff whose action has been dismissed after expiration of the statute of limitations to “save” their claim by filing and serving a new summons and complaint within six months of the dismissal. See CPLR §205(a).
But here’s a wrinkle: the plain language of §205(a) says the plaintiff who is saving their claim has to be the plaintiff whose claim was dismissed.
Well, as we all know, lenders love to assign mortgages (and the underlying notes, when they are doing it properly) over and over again. So by the time a foreclosure action is dismissed, the lender who filed the action is sometimes a totally different lender (meaning, a completely unrelated corporate entity).
Though the meaning of “plaintiff” in the savings provision was made clear by the Court of Appeals through precedent decisions spanning decades (ask me for citations if you are interested), the Appellate Division, Second Department concluded in a landmark decision—Wells Fargo Bank v. Eitani, 148 A.D.3d 193 (2nd Dept 2017)—that a lender who is an assignee of the mortgage counts as the “plaintiff” under the savings provision.
As you can imagine, this led to many decisions in the Second Department allowing a lender to recommence a foreclosure action that was started by a different lender and dismissed years after the expiration of the statute of limitations. And it meant that borrowers could not benefit from the statutory right to discharge a mortgage when it could no longer be enforced under the law.
If you think it is only fair for a mortgage assignee to recommence a foreclosure action any time it is dismissed, consider this: since 2008/2009, when the foreclosure crisis began, lenders routinely dawdled and lingered as their lawyers made mistake after mistake all while exorbitant amounts of interest accrued making it impossible to work out a solution through modification, short sale, or even payoff (in another post I will rant about how the onus for unenforceable mortgages should be on the lenders’ lawyers, whose incompetence is the reason for so many dismissals).
Back to the point here. The savings provision as interpreted by the Second Department was a barrier to borrowers achieving a fair outcome. The unfairness was not lost on the Legislature, so they made a clear change.
The Act changes a bunch of laws applicable to foreclosures, but a big one is this: it enacted a new “savings statute” as CPLR §205-a. The savings statute will apply to all foreclosure actions, effective immediately. And it contains a specific requirement in cases where the plaintiff seeking to take advantage of the six-month window is an assignee of the mortgage or the original lender’s successor-in-interest: it must “plead and prove that it is acting on behalf of the original plaintiff.”
In a legislative smackdown that I have never seen before, the Sponsor Memo for the Act explains exactly what the new savings statute is meant to do: overrule Eitani and stop appellate courts from allowing a lender to invoke the six-month window to save a claim for which the statute of limitations has expired. Only the original lender—not a subsequent assignee of the mortgage—can recommence an action under the savings statute. Lenders now have to prosecute their actions efficiently or risk losing their foreclosure claim.
The brief I wrote on this issue just filed this week. It is a case where the borrower is seeking to quiet title and the only issue is whether the lender can save its untimely foreclosure claim. It remains to be seen what arguments the lender will raise to fight back. I will keep you posted on it.
Stay tuned for Parts II and III of this blog series, where I will tell you about two other important changes in the Act. If you are an attorney fighting a foreclosure case and need help structuring your arguments, get in touch.
