Alert

Under FAPA: Dismissal of Prior Foreclosure for Lack of Standing Does Not Estop Lender

August 9, 2024

On July 31, 2024, the New York Supreme Court, Appellate Division: Second Department affirmed the dismissal of a quiet title action, which sought to discharge a mortgage as time-barred under the Foreclosure Abuse Prevention Act (FAPA), because the prior foreclosure was dismissed upon the court’s finding that plaintiff lacked standing.

In Cohen, the lender commenced a foreclosure in 2009, which was dismissed in 2017 after the court found it lacked standing to foreclose. In 2018, borrowers commenced an action to discharge the mortgage as time-barred and moved for summary judgment. The lender, however, cross-moved for dismissal, arguing that the foreclosure claim was not time-barred as the foreclosure was dismissed for lack of standing and, thus, did not result in acceleration of the loan and accrual of the claim.

The court observed that FAPA amended CPLR § 213(4) by adding the following provision:

(b) [i]n any action seeking cancellation and discharge of record of an instrument described under RPAPL 1501(4), a defendant shall be estopped from asserting that the period allowed by the applicable statute of limitation for the commencement of an action upon the instrument has not expired because the instrument was not validly accelerated prior to, or by way of commencement of a prior action, unless the prior action was dismissed based on an expressed judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated.

Although borrowers demonstrated that the debt was accelerated upon commencement of the foreclosure action in 2009 and that the quiet title action was commenced more than six years later, the court held that the lender demonstrated that “the debt was never validly accelerated, as the foreclosure action was dismissed upon the Supreme Court’s determination after trial that [lender] lacked standing to commence that action.” Accordingly, the trial court’s order was affirmed by the court under FAPA.

Cohen makes clear that the Second Department will rely upon its pre-FAPA body of case law in applying new provisions under FAPA. Thus, consistent with prior rulings, the court equated the trial court’s finding in the foreclosure that plaintiff lacked standing with FAPA’s requirement for an “expressed judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated.”