Opinion
Index No. 516578/2018
11-02-2023
195-197 HEWES LLC, Plaintiff, v. CITIMORTGAGE INC, Defendant.
Unpublished Opinion
At an IAS Term, Part 29 of the Supreme Court of the State of New York, held in and for the County of Kings, at 360 Adams Street, Brooklyn, New York, on the 2nd day of November 2023.
MS #6 and MS #7
PRESENT: Hon. Wayne P. Saitta, Justice.
DECISION AND ORDER
Wayne Saitta Judge:
The following papers numbered on this motion: NYSCEF Doc Numbers
Notice of Motion/Order to Show Cause/ Petition/Cross Motion and Affidavits (Affirmations) Annexed 129-130,155,158-160
Answering Affidavit (Affirmation) 169
Reply Affidavit (Affirmation); 171-172
Supplemental Affidavit (Affirmation)
Pleadings -Exhibits 131-154,161-166,173-175
Stipulations - Minutes __
Filed Papers__
Plaintiff moves for a default judgment against Defendant and an Order canceling and discharging the mortgage encumbering 197 Hewes Street, Brooklyn, New York ("the Property").
Defendant cross-moves for leave to renew its motion to dismiss Plaintiffs Complaint or, in the alternative, for a stay pending Defendants' appeal.
Plaintiff is the current fee owner of the Property. Plaintiff acquired ownership to the Property from Joseph Berkowitz by deed dated March 19, 2018. The mortgage at issue in this action was assigned to Defendant Citimortgage, Inc on December 20, 2010.
On January 31, 2012, Defendant commenced a foreclosure action seeking to foreclose the mortgage. Defendant's 2012 Complaint against Plaintiff accelerated all payments under the mortgage, demanding payment of the entire unpaid balance of principal due on the mortgage. Defendant moved to voluntarily discontinue the 2012 action on January 30, 2018 and an Order was issued on March 19,2018, and entered April 13, 2018, discontinuing the action and canceling the notice of pendency. The order discontinuing the action did not state that the acceleration of the mortgage was revoked.
On August 15, 2018, Plaintiff commenced this action to quiet title and discharge the mortgage held by Defendant on the property, and filed a notice of pendency against the Property.
Defendant failed to file an Answer and Plaintiff moved for a default judgment against Defendant. Defendant cross-moved to compel Plaintiff to accept its late Answer. In a decision and order dated March 22, 2021, the Honorable Robin K. Sheares, J.S.C., granted Defendant's cross-motion to compel acceptance of its late Answer, and denied Plaintiffs motion for a default judgment. Plaintiff appealed.
In a decision and order dated August 31, 2022, the Appellate Division, Second Department reversed that part of the March 22, 2021 order compelling acceptance of Defendant's answer thereby reinstating Defendant's default but affirmed that part of the order dated March 22, 2021 denying Plaintiffs motion for a default judgment on the basis that Plaintiff failed to establish that the six-year statute of limitations had expired under Freedom Mortgage Corp. v. Engel, 37 N.Y.3d 1 (2021), which was the ruling precedent at the time of the decision.
On December 30, 2022, New York enacted the Foreclosure Abuse Prevention Act ("FAPA") which amended certain CPLR provisions including CPLR §§ 213(4) and 3217, nullifying Engel.
Plaintiff now seeks a default judgment against Defendant based on the FAPA.
Plaintiff argues they are entitled to a default judgment because the statute of limitations on Defendant's enforceability of the subject mortgage has expired, as FAPA applies retroactively.
Defendant opposes, arguing that the FAPA can only be applied prospectively, not retroactively. Defendant also argues that the retroactive application of FAPA is unconstitutional pursuant to the Due Process Clause, the Takings Clause, and the Contract Clause.
Defendant also cross-moves for leave to renew its motion to dismiss under Engel, and not under the FAPA, or, in the alternative, for a stay pending the appellate courts' determination of the scope and constitutionality of the FAPA.
THE FAPA'S APPLICABILITY
"In determining whether a statute should be given retroactive effect ... [a]mendments are presumed to have prospective application unless the Legislature's preference for retroactivity is explicitly stated or clearly indicated . . . [and] remedial legislation should be given retroactive effect in order to effectuate its beneficial purpose" (Matter of Gleason [Michael Vee, Ltd.], 726 N.Y.S.2d 45, 47 [2001]). "Other factors in the retroactivity analysis include whether the Legislature has made a specific pronouncement about retroactive effect or conveyed a sense of urgency; whether the statute was designed to rewrite an unintended judicial interpretation; and whether the enactment itself reaffirms a legislative judgment about what the law in question should be" (id.).
The Legislature clearly intended the FAPA to be retroactive as evident by the express language of the statute. Section io of the FAPA states:
"This act shall take effect immediately and shall apply to all actions commenced on an instrument described under subdivision four of section two hundred thirteen of the civil practice law and rules in which a final judgment of foreclosure and sale has not been enforced".
In enacting the FAPA, the Senate explained:
"The Legislature finds that there is an ongoing problem with abuses of the judicial foreclosure process; that the problem has been exacerbated by court decisions which, contrary to the intent of the Legislature, have given mortgage lenders and loan servicers opportunities to avoid strict compliance with remedial statutes and manipulate statutes of limitation to their advantage; and that the purpose of the present remedial legislation is to clarify the meaning of existing statutes, codify correct judicial applications thereof, and rectify erroneous judicial interpretations thereof.
Accordingly, this bill amends certain statutes and rules to clarify the existing law and overturn those decisions that have strayed from legislative prescription and intent. These amendments and clarifications will ensure the laws of this state apply equally to all litigants, including those currently involved in mortgage foreclosures and related actions. The remedial aim of the bill is to thwart and eliminate abusive and unlawful litigation tactics that have been employed by foreclosure plaintiffs to the prejudice of homeowners throughout New York. That some of these tactics have been sanctioned by the judiciary has resulted in perversion of longstanding law and created an unfair playing field that favors the mortgage banking and servicing industry at the expense of everyday New Yorkers" (2021 NY S.B. 5473D).
Therefore, the FAPA is intended to apply to all pending actions in which a judgment of foreclosure and sale has not been enforced. Accordingly, the Second Department has been applying the FAPA retroactively to mortgage foreclosure actions (see GMAT Legal Title Trust 2014-1 v. Kator, 213 A.D.3d 915 [2d Dept 2023]; MTGLQ Investors, L.P. v. Singh, 216 A.D.3d 1087 [2d Dept 2023]; U.S. Bank Nat'l Ass'n v. Outlaw, 217 A.D.3d 721 [2d Dept 2023]; SYCP, LLC v. Evans, 217 A.D.3d 707 [2d Dept 2023]; U.S. Bank Nat'l Ass'n v. Simon, 216 A.D.3d 1041 [2d Dept 2023]; Bank of New York Mellon v. Stewart, 216 A.D.3d 720 [2d Dept 2023]; U.S. Bank Nat'l Ass'n v. Onuoha, 216 A.D.3d 1069 [2d Dept 2023]).
Since the FAPA is retroactive, Engel does not apply and Defendant's motion, relying on Engel, must be denied.
This Court must now determine whether Plaintiff established that the six-year statute of limitations has expired under the FAPA.
The recently enacted Foreclosure Abuse Prevention Act (L 2022, ch 821; hereinafter FAPA) amended CPLR 213(4) by adding, among other things, paragraph (a), which provides that "[i]n any action on an instrument described under this subdivision, if the statute of limitations is raised as a defense, and if that defense is based on a claim that the instrument at issue was accelerated prior to, or by way of commencement of a prior action, a plaintiff shall be estopped from asserting that the instrument was not validly accelerated, 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" (GMAT Legal Title Trust 2014-1 v. Kator, 213 A.D.3d 915, 916 [2d Dept 2023]).
Plaintiffs mortgage was accelerated, and the statute of limitations began to run, on January 31, 2012, when Defendant commenced a foreclosure action seeking to foreclose the mortgage. No judgment of foreclosure and sale has been enforced in the 2012 action. Defendant moved to voluntarily discontinue the 2012 action and an Order was issued discontinuing the action and canceling the notice of pendency. Pursuant to CPLR § 3217, as amended by the FAPA, Defendant's voluntary discontinuance of the 2012 action did not serve to revive or reset the statute of limitations (see CPLR § 3217[e]). Since the 2012 action was commenced more than six years ago, the statute of limitations for Defendant to foreclosure upon its mortgage against the Property has expired.
CONSTITUTIONALITY OF THE FAPA'S RETROACTIVE APPLICABILTY
Due Process Clause
"To comport with the requirements of due process, retroactive application of a newly enacted provision must be supported by 'a legitimate legislative purpose furthered by rational means'" (U.S. Bank Trust, NA. as Trustee for LSF9 Master Participation Trust v. Miele, 2023 NY Slip Op 23186, *8 [Sup Ct, Westchester County 2023], quoting American Economy Ins. Co. v. State of New York, 30 N.Y.3d 126, at 157-158 [2017]). "As with prospective elements of legislation, legislative direction concerning the scope of a statute carries a presumption of constitutionality, and the party challenging that direction bears the burden of showing the absence of a rational basis justifying retroactive application of the statute" (Miele at *8). "Nevertheless, the Supreme Court has made clear that 'retroactive legislation does have to meet a burden not faced by [purely prospective] legislation,' which is satisfied when 'the application of the legislation is itself justified by a rational legislative purpose'" (id., quoting Pension Benefit Guaranty Corporation v. R. A. Gray & Co., 467 U.S. 717, 730 [1984]).
"The Court of Appeals has acknowledged that 'retroactive legislation presents problems of unfairness that are more serious than those posed by prospective legislation'. In order to comport with due process, there must be a persuasive reason for the potentially harsh impacts of retroactivity. 'Consideration of the scope of the legislation is critical to a rational basis analysis ...'. In particular, the relationship between the length of the retroactivity period and its purpose must be considered. Generally, the courts have found statutory retroactivity that - even if more substantial - is integral to the fundamental aim of the legislation to be constitutional" (Miele at *8, quoting R. A. Gray & Co. at 730).
"New York's statutes of limitations serve the 'objectives of finality, certainty, and predictability that New York's contract law endorses. Statutes of limitation not only save litigants from defending stale claims, but also express[ ] a societal interest or public policy of giving repose to human affairs'" (Miele at *8, quoting ACE Sec. Corp., Home Equity Loan Trust, Series 2006-SL2 v. DB Structured Prods., Inc., 25 N.Y.3d 581, 593-594 [2015]).
"The legislature's intent in enacting the FAPA was 'to clarify the meaning of existing statutes, codify correct judicial applications thereof, and rectify erroneous judicial interpretations thereof (2021 NY S.B. 5473D). The Legislature had a rational legislative purpose and 'persuasive reason' for the 'potentially harsh' impact of retroactive application of the FAPA - to prevent lenders and loan servicers from manipulating the statute of limitations and abusing the judicial foreclosure process, and ensure equal application of state laws to all litigants currently in foreclosure actions and related actions.' Further, statutory retroactivity is integral to the fundamental objective of the FAPA. The plaintiff has failed to show the absence of any of the foregoing and failed to meet its burden to establish the FAPA is unconstitutional" (Miele at *8).
Here, the Defendant's reliance on Ruffolo v. Garbarini & Scher, P.C., 239 A.D.2d 8 (1st Dept 1998) is misplaced. Ruffolo involved the dismissal of claims based on the retroactive application of an amendment to the CPLR. The issue in Ruffolo was whether the claim was rendered time-barred by the then-recent amendment to the CPLR, which applied a three-year statute of limitation to the claims. That amendment shortened the six-year statute of limitations that was in effect at the time the action was commenced. In Ruffolo, the First Department determined that the retroactive application of the CPLR amendment was impermissible because it would render the action time barred even though the action had already been timely commenced.
The FAPA did not shorten the six-year statute of limitations within which to commence a foreclosure. The issue here is whether the statute of limitations has tolled or expired, rendering any further foreclosure action against Plaintiff as time-barred based on Defendant's commencement of the 2012 action, which was voluntarily discontinued. As a judgment of foreclosure and sale has not been entered against the Property, Defendant does not have any vested property rights. Therefore, Defendant's due process rights will not be violated by the retroactive application of the FAPA.
Takings Clause
Defendant argues that applying the FAPA amendments would eliminate "all economically beneficial and productive use" of CitiMortgage's Operative Mortgage lien and would be a regulatory taking.
"While property may be regulated to a certain extent, if a regulation goes too far it will be recognized as a taking" (Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 415 [1922]). Since Pennsylvania Coal, the United States Supreme Court has developed an analytical framework for determining when a regulation goes so far as to constitute a taking.
A regulation constitutes a taking per se, only in the extraordinary circumstance where no productive or economically beneficial use of property is permitted (see Lucas v. South Car. Coastal Council, 505 U.S. 1003,1014 [1992]; Tahoe-Sierra Pres. Council, Inc. v. Tahoe Reg'l Planning Agency, 535 U.S. 302 [2002]).
A property owner must suffer a literal total loss in value to trigger liability on the part of the government for a categorical taking (see id. at 1019, n. 8).
However, even if the regulations do not eliminate all of the economic value of a property, they may constitute a taking under the doctrine set forth by the United States Supreme Court in Penn Central Transp. Co. v. City of New York, 438 U.S. 104 (1978). This analysis is an "essentially ad hoc, factual inquiry," in which the court considers: (1) "[t]he economic impact of the regulation on the claimant," (2) "the extent to which the regulation has interfered with distinct investment-backed expectations," and (3) "the character of the governmental action" (id. at 124; see also Palazzolo, 533 U.S. 617 [2001]. A court must make an ad hoc determination whether a regulation constitutes a taking based upon the particular circumstances of the case (see Tahoe-Sierra at 322; Yee v. City of Escondido, 503 U.S. 519 [1992]). The determination depends upon the magnitude of the regulation's economic impact and the degree to which it interferes with legitimate property interests (see Lingle v. Chevron USA Inc, 544 U.S. 528 [2005]).
A mere diminution of value is not sufficient to constitute a taking (see Penn Central at 104). The court must bear in mind that "[g]overnment could hardly go on if to some extent values incident to property could not be diminished without paying for every such change in the general law" (Lingle at 538, quoting Pennsylvania Coal Co. at 413).
A reduction in the value of the regulated property is insufficient, standing alone, to establish a compensable regulatory taking (Penn Central at 131). Indeed, the Supreme Court in Penn Central cited two of its previous opinions in which the Court refused to hold that there was a regulatory taking; Euclid v. Ambler Realty Co., 272 U.S. 365 (1926), in which a zoning regulation resulted in a seventy-five percent diminution in value, and Hadacheck v. Sebastian, 239 U.S. 394 (1915), in which the regulation resulted in an 87.5 percent diminution.
However, the Supreme Court has consistently declined to set forth a mathematical formula or specific percentage of loss of value that would constitute a taking under Penn Central (see Kaiser Aetna v. United States, 444 U.S. 164 [1979]). "[T]here simply is no bright line dividing compensable from non-compensable exercises of the Government's power when a regulatory imposition causes a partial loss to the property owner. What is necessary is a classic exercise of judicial balancing of competing values" (Florida Rock Industries, Inc. v. US, 18 F.3d 1560,1570 [1994]).
Here, Defendant has not shown that the FAP A eliminated essentially all of the value of Defendant's property. The FAPA merely barred the unilateral right to revoke an acceleration and amended the law to provide that a voluntary discontinuance of a foreclosure action does not constitute a de-acceleration unless the discontinuance specifically states that it does.
The right to unilaterally revoke an acceleration, or to have a voluntary discontinuance of a foreclosure action constitute a revocation of an acceleration, are not core principals of New York State property law. Thus, the FAPA does not deprive Defendant of protect property rights.
The owner of a mortgage can enforce their interest in the mortgage by seeing a foreclosure action to its completion, or specifically stating in a voluntary discontinuance that it is revoking the acceleration.
Statutes of limitations in general, operate to foreclose valid claims to enforce property rights. However, statutes of limitations are not regulatory takings because a property owner has the opportunity to enforce their rights by filing an action within the limitations period.
Additionally, to establish a regulatory taking claim under the Penn Central analysis, an owner must show that the regulation interfered with reasonable investment backed expectations.
Here, Defendant has not shown that they had any reasonable investments based on the expectation that they could file a foreclosure accelerating the mortgage, and then de-accelerate by moving to discontinue on the last day of the statute of limitations period. For the above reasons, Defendant has not demonstrated that the application of the FAPA constitutes a regulatory taking.
Contract Clause
The Contract Clause of the Constitution "prohibits states from enacting '[l]aw[s] impairing the Obligation of Contracts'" (Raynor v. Landmark Chrysler, 18 N.Y.3d 48, 58 [2011], quoting U.S. Const, art I, § 10 [1]). "The Supreme Court has repeatedly held that this language should not be read literally and that the States retain the power 'to safeguard the vital interests of [their] people'" (Miele at *8, quoting 19th St. Assoc, v. State of New York, 79 N.Y.2d 434, 442, [1992]). "The threshold inquiry is whether the state law has, in fact, operated as a substantial impairment of a contractual relationship" (Miele at *8, quoting American Economy Ins. Co. v. State of New York, 30 N.Y.3d 136, 150-151 [2017]).
The FAPA's retroactive application does not impair Defendant's ability to contract.
"The subject note does not contain an express provision setting forth what a note holder must do to revoke an election to accelerate the debt... prior to the FAPA's enactment, [Defendant's] right to de-accelerate was subject to the constraints of judicial decisions and legislative determinations. The six-year statute of limitations governed foreclosure actions (CPLR 213 [4]), which began to run when an action to foreclose was commenced demanding payment of the entire debt. A note holder could be equitably estopped from revoking its election to accelerate the debt if the borrower had changed their position in reliance on the loan acceleration. A mortgagee's voluntary discontinuance of a mortgage foreclosure action in which the note holder had accelerated the full debt was, prior to [Engel] which holding was nullified by the FAPA, held to be insufficient to de-accelerate the debt and toll the statute of limitations. Second Department precedent held that to revoke the acceleration of the full debt required 'an affirmative act of revocation occurring during the six-year statute of limitations period subsequent to the initiation of the prior foreclosure action', establishment of standing to de-accelerate the debt and establishment that de-acceleration of the debt was not "a mere pretext to avoid the onerous effect of the statute of limitations" (Miele at *8).
Therefore, the retroactive application of the FAPA does not violate the Contract Clause.
WHEREFORE, it is ORDERED that Plaintiffs motion for a default judgment against Defendant on its claims pursuant to RPAPL §1501(4) is GRANTED in its entirety; and it is further
ORDERED that Defendant's motion is DENIED.
Settle judgment of notice.