Certification of FAPA Retroactivity and Due Process Questions to the New York Court of Appeals

1. Introduction

In Article 13 LLC v. LaSalle National Bank Association (No. 23-7247-cv, 2d Cir. Mar. 25, 2025), the United States Court of Appeals for the Second Circuit confronted a challenge to the retroactive application of New York’s Foreclosure Abuse Prevention Act (FAPA) and its compatibility with the New York Constitution’s due process guarantees. Article 13 LLC, as owner of a junior mortgage, sought a quiet title decree discharging a senior mortgage as time-barred, arguing that an earlier 2007 foreclosure action had accelerated the debt and begun the six-year statute of limitations. U.S. Bank (as successor to LaSalle National Bank) defended on the ground that the 2007 action was invalid to accelerate because the servicer lacked standing. After the district court denied summary judgment on that issue, New York enacted FAPA, barring certain defenses based on invalid accelerations. The district court applied FAPA retroactively, granted summary judgment to Article 13 LLC, and U.S. Bank appealed. The Second Circuit held that two novel questions of state law—FAPA’s retroactive reach and its compatibility with New York’s due process clause—must be answered by the New York Court of Appeals. The Second Circuit therefore certified those questions under principles of federalism and comity.

2. Summary of the Judgment

The Second Circuit reviewed the parties’ dispute over whether Section 7 of FAPA (codified at N.Y. C.P.L.R. § 213(4)(b)) applies to foreclosures initiated before FAPA’s enactment, and whether retroactive application violates New York’s constitutional guarantee of substantive and procedural due process. Applying the four-factor test for certification—(1) absence of controlling state precedent; (2) inconclusive statutory language; (3) need for state court policy judgments; and (4) dispositiveness of the state-law questions—the Second Circuit concluded that the New York Court of Appeals is best suited to resolve these issues. It therefore certified two questions:

1. To what extent does Section 7 of FAPA apply to foreclosure actions commenced before its enactment?
2. Does FAPA’s retroactive application violate substantive or procedural due process under the New York Constitution (Art. I, § 6)?

The court stayed further proceedings pending the New York Court of Appeals’ responses.

3. Analysis

3.1 Precedents Cited

• Allstate Ins. Co. v. Serio, 261 F.3d 143 (2d Cir. 2001) – establishes federal-state comity and preference for state courts to construe state law.
• Corsair Special Situations Fund, L.P. v. Pesiri, 863 F.3d 176 (2d Cir. 2017) – endorses certifying unsettled questions of state law.
• CIT Bank N.A. v. Schiffman, 948 F.3d 529 (2d Cir. 2020) – articulates the four-factor certification test.
• Majewski v. Broadalbin-Perth Central School District, 91 N.Y.2d 577 (1998) – outlines presumptions against statutory retroactivity unless clearly intended or remedial.
• Freedom Mortgage Corp. v. Engel, 37 N.Y.3d 1 (2021) – engendered FAPA by holding that a voluntary discontinuance undoes acceleration as a matter of law.
• East Fork Funding LLC v. U.S. Bank, N.A., 118 F.4th 488 (2d Cir. 2024) – previously addressed FAPA’s retroactivity under Section 8 and declined certification.

3.2 Legal Reasoning

The Second Circuit’s certification analysis proceeded in four steps:

1. Lack of Controlling Precedent: No New York Court of Appeals decision has definitively interpreted Section 7’s retroactivity or its state-constitutional limitations.
2. Plain-Language Ambiguity: Although FAPA § 10 directs that the statute “take effect immediately” and apply to foreclosures without enforced judgments, New York law disfavors retroactivity absent clear legislative intent and balances that against the remedial-statute presumption.
3. Policy and Value Choices: Determining retroactivity and due-process constraints involves evaluating legislative purpose, economic consequences for lenders and borrowers, and constitutional guarantees—questions best resolved by New York’s highest court.
4. Dispositive Effect: Answers to these two state-law questions will control the outcome of the quiet title dispute, since a ruling that FAPA does not apply or is unconstitutional would end Article 13 LLC’s claim.

3.3 Impact

The certification will guide:

• Foreclosure Litigation: Lenders, servicers, and property owners across New York will gain clarity on whether pre-FAPA accelerations are insulated from challenge and how to adjudicate statutes of limitations in quiet title suits.
• Mortgage Market Stability: Retroactive application could invalidate countless post-2007 quiet title defenses and force remedial adjustments in securitization practices, loan servicing, and risk analysis.
• Federalism and Comity: The Second Circuit’s careful certification reinforces respect for state-law interpretation by the New York Court of Appeals, preserving uniformity in state legal standards.

4. Complex Concepts Simplified

• Quiet Title Action: A lawsuit to resolve competing claims and clear a title defect—here, to remove a senior mortgage lien alleged to be time-barred.
• Mortgage Acceleration: A lender’s declaration that the entire unpaid principal and interest are immediately due, starting the statute of limitations for foreclosure.
• Retroactive vs. Prospective Law: A retrospective statute changes legal rights based on past events; a prospective statute governs only future conduct.
• Due Process (State Constitution): Article I, § 6 of the New York Constitution guarantees fair treatment in legal processes (procedural due process) and protection against arbitrary legislative deprivation of rights (substantive due process).
• Certification: A procedure by which a federal court submits unresolved state-law questions to the state’s highest court for authoritative interpretation.

5. Conclusion

Article 13 LLC v. LaSalle National Bank Association exemplifies the intersection of new state legislation, constitutional safeguards, and federal-state comity. By certifying two pivotal questions about FAPA’s reach and its compliance with New York’s due process protections, the Second Circuit ensures that the New York Court of Appeals will speak first on the contours of its own statute and constitution. The forthcoming state-law determinations will shape foreclosure practice, protect property-owner rights, and reinforce the principle that state-law interpretation belongs primarily to the state’s highest tribunal.