Federal National Mortgage Association v. Marshall
Attorneys and Parties
Brief Summary
Mortgage foreclosure; whether the Foreclosure Abuse Prevention Act (FAPA) bars lenders from resetting the statute of limitations by voluntarily discontinuing a prior foreclosure and whether FAPA’s retroactive application is an unconstitutional taking.
Upon renewal post-FAPA, Supreme Court applied FAPA retroactively but held its retroactive application violated the Contract Clause and the Takings Clauses, and therefore granted plaintiff summary judgment and denied defendant’s request to cancel and discharge the mortgage.
The determinations that retroactive FAPA is unconstitutional under the Takings and Contract Clauses and the grant of summary judgment, order of reference confirmation, and judgment of foreclosure and sale in favor of plaintiff.
Guided by Court of Appeals precedent confirming FAPA’s retroactivity and rejecting due process and Contract Clause challenges, and because no vested property right attaches to a mortgagee absent a final judgment of foreclosure and sale, and the Penn Central factors weigh against a taking in a highly regulated foreclosure arena. FAPA codifies that voluntary discontinuance does not reset the limitations period (CPLR 3217[e] [voluntary discontinuance of a foreclosure action does not waive, toll, or reset the statute of limitations]; CPLR 203[h] [companion timing rule implementing FAPA’s limitations reforms]); borrowers may seek discharge when the claim is time-barred (RPAPL 1501[4] [authorizes an action to cancel and discharge a mortgage when the statute of limitations has expired]).
Background
Defendant executed a $343,000 note and mortgage in 2007. The lender’s predecessor filed a 2009 foreclosure, accelerating the debt, then voluntarily discontinued in 2013. Plaintiff filed a second foreclosure in 2018. Defendant answered, asserting the action was time-barred and seeking discharge under RPAPL 1501(4) [authorizes an action to cancel and discharge a mortgage when the statute of limitations has expired]. In 2022, Supreme Court (Koweek, J.) granted plaintiff summary judgment and struck defendant’s defenses. After enactment of the Foreclosure Abuse Prevention Act (FAPA) (L 2022, ch 821) — which codified that a voluntary discontinuance does not reset the statute of limitations (CPLR 3217[e] [voluntary discontinuance of a foreclosure action does not waive, toll, or reset the statute of limitations]; see CPLR 203[h] [companion timing rule implementing FAPA’s limitations reforms]) — plaintiff moved in 2024 to confirm the referee’s report and for a judgment of foreclosure and sale; defendant cross-moved to vacate the 2022 order, dismiss as time-barred, and discharge the mortgage.
Lower Court Decision
Supreme Court (Daniel Lynch, J.) granted defendant’s motion to vacate the 2022 order, applied FAPA retroactively, but then held retroactive FAPA unconstitutional under the Contract Clause and the Takings Clauses (though not due process), thereby granting plaintiff summary judgment, confirming the referee’s report, and denying discharge.
Appellate Division Reversal
Reversing, the Appellate Division denied plaintiff’s motions and granted defendant’s cross‑motion to cancel and discharge the mortgage as time‑barred. Relying on the Court of Appeals decisions in Article 13 LLC v Ponce De Leon Fed. Bank and Van Dyke v U.S. Bank, N.A., the court held FAPA applies retroactively and does not violate due process or the Contract Clause. Addressing the remaining Takings Clause issue, the court held no vested property interest exists absent a final judgment of foreclosure and sale; even assuming arguendo some interest, the Penn Central factors (economic impact, interference with investment‑backed expectations, character of government action) show no taking in this highly regulated field. Therefore, retroactive application of FAPA is constitutional, rendering the foreclosure untimely and warranting discharge under RPAPL 1501(4).
Legal Significance
Confirms in the Third Department that FAPA’s retroactive application is constitutional, including against Takings Clause challenges, aligning with statewide precedent rejecting due process and Contract Clause attacks. Reinforces that lenders cannot use voluntary discontinuances to reset the foreclosure statute of limitations and that time‑barred mortgages may be canceled and discharged.
After FAPA, lenders cannot reset the foreclosure limitations period by discontinuing earlier actions (CPLR 3217[e]; CPLR 203[h]); retroactive enforcement is constitutional and does not effect a taking absent a final foreclosure judgment. Borrowers can obtain cancellation and discharge of time‑barred mortgages under RPAPL 1501(4).