On October 6, the U.S. Supreme Court declined to review the Fox judgment, leaving open issues regarding the Foreclosure Abuse Prevention Act’s (FAPA) retroactive application. This was a major development for both lenders and borrowers. The New York State Court of Appeals, where oral arguments were heard on October 16, and possibly the U.S. Court of Appeals for the Second Circuit are now the main focus of this judgment.
The defendant’s 2008 mortgage was the starting point of the issue. The plaintiff bank filed a fresh action under fresh York Civil Practice Law and Rules (CPLR) Section 205(a), which permits a six-month opportunity to refile a lawsuit following a non-merits dismissal, after the plaintiff bank’s predecessor’s foreclosure action was dismissed.
The New York Legislature passed FAPA in December 2022, which placed more stringent restrictions on reopening foreclosure proceedings following a dismissal, while the second foreclosure case was still underway.
According to the Appellate Division of the First Department of the New York State Supreme Court, the bank’s foreclosure was banned by the new FAPA rules. The bank petitioned the U.S. Supreme Court after the Court of Appeals denied the appeal, claiming that the retroactive application of FAPA infringed upon due process rights and the Fifth Amendment’s Takings Clause.
Legalities & Trends Going Forward
State and federal courts will have to assess whether FAPA applies retroactively if the Supreme Court denied certiorari. Among the primary legal concerns are:
- Takings Clause Concerns: The bank argues that retroactively applying FAPA extinguished its mortgage lien without just compensation, potentially violating the Fifth Amendment.
- Due Process Rights: The bank contends that imposing new legal burdens without fair notice or a legitimate legislative purpose infringes upon its due process rights.
Legislative changes to foreclosure law are complicated, as seen by the ongoing legal dispute over the retroactive application of FAPA. The ramifications for lenders, borrowers, and the larger financial sector are still unknown as the courts consider the case. Experts in the field and legal professionals will be intently monitoring any developments that might change the foreclosure law landscape in New York and elsewhere.
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