Supreme Court rejects petition on New York foreclosure law

The Supreme Court has declined to review a challenge to retroactive interpretation of a New York law that applies a new statute of limitations to foreclosures.

The high court turned down without explanation a petition for a writ of certiorari in the case US Bank National Association, Trustee v. Cassandra Fox, marking the end of the road for a lawsuit that otherwise could have been proved decisive for the Foreclosure Abuse Prevention Act.

This leaves the industry and borrowers to follow other New York cases for guidance on FAPA, which Holland & Knight attorneys Joshua Prever and Jonathan Marmo said in a report could affect thousands of foreclosure actions affecting hundreds of millions of dollars worth of loans.

All eyes are on the New York Court of Appeals

With the Supreme Court out of the picture, the question of whether FAPA should be interpreted retroactively or not will largely be in the hands of the New York Court of Appeals. In New York, this is the highest court in the state.

It was the New York Court of Appeals that originally put in place a decision that allowed a clock on the state's six-year statute of limitations to be reset if a servicer took certain "affirmative" actions such as de-accelerating the debt. 

FAPA's passage in the state legislature and Gov. Kathy Hochul's subsequent approval reversed that decision.

That meant foreclosure cases that had extended their timelines under the old rules could face dismissals, creating risk not only for the holder of the loan in question but for the broader secondary market for seasoned mortgages in New York.

"The way FAPA has been interpreted by the New York Court of Appeals has essentially had a huge impact on loans," said Joshua Prever, an attorney with Holland & Knight who represents clients in the financial services industry.

Cases such as Article 13 v. Ponce De Leon Bank, et al., or Van Dyke v. US Bank, calls upon the courts to address individual legal challenges to FAPA that generally revolve around the interpretation of the state statute, the federal constitution or the state's equivalent. 

In Article 13, the United States Court of Appeals for the Second Circuit certified questions in that case around the law's retroactivity, which means it wants to make its own determination on federal constitutional issues, but also directed New York to provide a view to consider.

Industry arguments against retroactive interpretation

Earlier this year, a law firm representing the Mortgage Bankers Association and other trade groups filed a "friend of the court" brief in the Article 13 case. In it they argue against retroactive interpretations based on potential harm to members and on constitutional grounds.

Arguments from the MBA, American Bankers Association and their state affiliates assert conflicts with protections for due process and contracts, and also with the "takings" clause in the U.S. Constitution. The law firm Hinshaw & Culbertson also asserted conflicts with equivalents of the due process and "takings" clauses in the New York Constitution.

The takings clause states that "private property shall not be taken for public use, without just compensation."