On December 30, 2022, New York Governor Kathy Hochul signed into law the Foreclosure Abuse Prevention Act (FAPA) after the bill’s passage by both the New York state senate and the assembly. FAPA is a direct response to a New York Court of Appeals decision, Freedom Mortg. Corp. v Engel, 37 N.Y.3d 1, reargument denied, 37 N.Y.3d 926 (2021) that seemingly gave lenders the right to unilaterally restart foreclosures and avoid a statute of limitations bar. FAPA seeks to curb a lender’s right to toll or extend the limitations period by amending existing state laws that affect the tolling of the limitations period for foreclosure actions and a lender’s use of New York’s saving statute to preserve the statute of limitations on an otherwise time-barred debt.

FAPA amends provisions of the Real Property Actions and Proceedings Law, General Obligations Law, and Civil Practice Law and Rules as addressed below.

Changes to Section 1301 of the Real Property Actions and Proceedings Law

Under FAPA, Section 1301, as revised, bars a lender from prosecuting two foreclosure actions simultaneously without court permission. If a lender commences one foreclosure action, it cannot start a second (or more) while the first is pending unless it first obtains an order permitting it to do so from the court presiding over the first foreclosure action. A borrower can raise any failure to obtain judicial permission as a defense to a subsequent proceeding. Also, if the lender fails to obtain consent from the court presiding over the first-filed action, then the first action will be deemed dismissed unless the defendant moves to dismiss the second action or invokes this procedural defect as a defense in the second action before a final judgment is entered.

The revised statute will also give preclusive effect to any prior orders determining that the statute of limitation bars recovery of the debt. Such orders would apply to bar any future actions seeking recovery of the same debt.

Changes to the General Obligations Law

Under the new law, private agreements to toll, waive, or restart the time to file a foreclosure action are subject to the same limitations as Section 1 of 17-105 of the General Obligations Law, meaning the agreement must be in writing and signed by the person to be charged before it will be given effect. Thus, a claim that a borrower impliedly promised to alter a limitations period or that an agreement to alter the limitations period exists in law will not otherwise be recognized.

Changes to Civil Practice Law and Rules

FAPA adds a new subsection (h) to N.Y. C.P.L.R. 203 and subsection (e) to N.Y. C.P.L.R. 3217. Under the new Rules, lenders will no longer be able to avoid a statute of limitations bar through unilateral acts, such as discontinuing and restarting foreclosure actions (unless allowed by statute).

N.Y. C.P.L.R. 205, known as New York’s “saving statute”, can toll the statute of limitations following an involuntary dismissal of a foreclosure action if (subject to certain restrictions) the plaintiff refiles the foreclosure action within six months from dismissal. FAPA created a new N.Y. C.P.L.R. 205-a, which applies strictly to actions upon an instrument (such as foreclosure actions). N.Y. C.P.L.R. 205-a is far more stringent than 205. Under 205-a, lenders can only avail themselves of the saving statute once. In addition to this limitation, a lender may use the saving statute only if:

  • The lender did not voluntarily discontinue the action.
  • The action was not dismissed (involuntarily) because of neglect.[1]
  • The action was not dismissed for violation of court or part rules, failure to comply with scheduling orders, to appear at scheduled hearings, or to timely submit any order or judgment.
  • The action was not dismissed upon a final judgment upon the merits.

In the event a foreclosure action is dismissed for any of the foregoing reasons, N.Y. C.P.L.R. 205-a cannot be used to revive the case and extend the limitations period. Even if the foreclosure action qualifies as one that may be revived under N.Y. C.P.L.R. 205-a, successor lenders (typically entities that are assigned the note after a foreclosure action is commenced) will still not be able to use the saving statute unless the assignee pleads and proves it is acting on behalf of the plaintiff that filed the first action.

Under the revised N.Y. C.P.L.R. 213, if, in a pending foreclosure action, the defendant raises a defense that the debt was previously accelerated, including by the filing of a prior action, then the lender cannot claim it did not accelerate the debt unless the court in the prior action expressly determined that the debt was not validly accelerated.

FAPA applies not only to future-filed foreclosure actions but also to those currently pending if a final judgment of foreclosure and sale has not yet been enforced. Given its retroactivity, lenders in active foreclosure actions should anticipate challenges by borrowers who may seek to dismiss on grounds that the lender failed to comply with the newly enacted statutes.

[1] Pursuant to N.Y. C.P.L.R. 205-a, neglect includes but is not limited to a dismissal because (1) the plaintiff did not comply with a court order to disclose information during deposition or inspection or the plaintiff did not willfully disclose information that the court determined it should have disclosed (see N.Y. C.P.L.R. 3126(3)), (2) the case was ordered abandoned because the plaintiff did not seek entry of judgment within one year after taking the defendant’s default (see N.Y. C.P.L.R. 3215(c)), (3) the plaintiff failed to prosecute the case (see N.Y. C.P.L.R. 3216), and (4) the case was abandoned after failure to restore (see N.Y. C.P.L.R. 3404).