Date: Aug 1, 2025

FAPA Retroactively Bars Post-Discontinuance Foreclosures: Voluntary Discontinuance Does Not Reset Limitations Period

1. Introduction

In U.S. Bank N.A. v Craft (2025 NY Slip Op 04510 [240 AD3d 1140] [3d Dept 2025]), the Appellate Division, Third Department addressed two recurring issues in New York mortgage foreclosure litigation: (1) what evidentiary showing is sufficient to establish a foreclosing plaintiff’s standing via possession of the note and an allonge, and (2) whether the Foreclosure Abuse Prevention Act (FAPA) applies retroactively to make a later foreclosure action untimely when an earlier foreclosure action accelerated the debt and was voluntarily discontinued.

The mortgage originated in 2003. A first foreclosure action was commenced in 2007 (accelerating the debt) and discontinued by stipulation in 2012. A second foreclosure action was filed in 2019. The estate’s administrator (defendant) asserted lack of standing and, critically, sought discharge of the mortgage as time-barred.

2. Summary of the Opinion

Standing: The plaintiff established standing as a matter of law by demonstrating possession of the note (with an allonge) prior to commencement; proof explaining how it obtained possession was not required.
Statute of limitations: The action was time-barred because the 2007 action accelerated the debt and started the six-year clock; under FAPA, the 2012 voluntary discontinuance did not reset or toll the limitations period; thus the limitations period expired in 2013 and the 2019 action was untimely.
Retroactivity/constitutional challenges: The Third Department reaffirmed that FAPA applies retroactively to pending matters where a final judgment has not been enforced, and rejected due process, vested-rights, and Contracts Clause challenges.
Remedies/counterclaims: The court directed discharge of the mortgage under RPAPL 1501 (4), reinstated the defendant’s sanctions counterclaim for further consideration, and declined to reinstate the emotional distress counterclaim.

3. Analysis

3.1. Precedents Cited

A. Standing to Foreclose: Possession of the Note, Allonges, and Proof Burdens

Goldman Sachs Mtge. Co. v Mares and U.S. Bank Trust, N.A. v Moomey-Stevens: The court relied on these Third Department decisions for the rule that standing is shown if the plaintiff was the “holder or assignee of the underlying note” when the action commenced, and that a properly supported showing shifts the burden to the defendant to raise a triable issue of fact.
Bank of Am., N.A. v Kyle: Used as a comparator on whether the opposing party raised a factual dispute once standing evidence is presented.
Aurora Loan Servs., LLC v Taylor: Central to the court’s rejection of defendant’s argument that plaintiff had to detail the chain of transfers. The Third Department reiterated that where possession prior to commencement is shown, “how” possession was obtained is not a necessary element of the standing showing.
UCC 3-204 (1): Cited to support the legal significance of the allonge specially indorsed to the plaintiff.

B. Acceleration and Limitations: FAPA’s Override of Discontinuance-as-Deacceleration

U.S. Bank N.A. v Lynch (appeal dismissed 43 NY3d 985 [2025]): The Third Department treated Lynch as its leading articulation of (i) the acceleration-by-foreclosure-commencement rule and (ii) FAPA’s retroactive application to prevent “resetting” limitations through discontinuance.
Maneri v Residential Funding Co., LLC: Cited for the straightforward application of CPLR 3217 (e): voluntary discontinuance does not reset the clock, rendering later actions untimely.
U.S. Bank N.A. v Outlaw: Used to reinforce dismissal as time-barred and to support the RPAPL 1501 (4) discharge remedy when the limitations period has expired.

C. Retroactivity and Constitutional Constraints

Freedom Mtge. Corp. v Engel: The court framed FAPA as the Legislature’s direct response to Engel, which had held that voluntary discontinuance of an accelerated foreclosure action constituted an affirmative revocation of acceleration as a matter of law absent a contemporaneous statement to the contrary—thereby creating a new six-year period upon a later re-acceleration. Craft treats FAPA as repudiating that mechanism.
Bank of N.Y. Mellon v Richards: Cited as part of the Third Department’s recent line applying FAPA retroactively.
Grady v Chenango Val. Cent. Sch. Dist.: Invoked to justify adherence to stare decisis and refusal to overrule the Third Department’s own post-FAPA precedents absent a compelling justification.
Deutsche Bank Natl. Trust Co. v Goldwasser (quoting U.S. Bank N.A. v Lynch) and FV-1, Inc. v Palaguachi: These decisions are used to reject due process objections, reasoning that retroactive application is rationally related to legitimate legislative purposes (finality and protection from serial foreclosure litigation).
Wilmington Trust, N.A. v Farkas and Van Dyke v U.S. Bank, N.A.: Cited on the “vested rights” and acceleration/de-acceleration context; the court emphasized that retroactive FAPA did not impair a vested right because, on these facts, the limitations period had already expired before the 2019 filing.
Ruffolo v Garbarini & Scher: Used by comparison for the proposition that an action that is not viable when commenced cannot be sustained.

D. Contracts Clause Analysis

Deutsche Bank Natl. Trust Co. v Dagrin and Matter of Buffalo Teachers Fedn., Inc. v Elia: Cited for the Contracts Clause framework and “substantial impairment” threshold inquiry.
General Motors Corp. v Romein: Quoted for the three-part impairment test (contractual relationship; impairment by change in law; substantiality).
Milone v US Bank N.A.: Used to explain that acceleration clauses are often discretionary and revocable, but the key question is the method by which revocation may occur.
Specialized Loan Servicing Inc. v Nimec and Federal Land Bank of Springfield, Mass. v Shoemaker: These anchor the court’s historical point: prior to Engel, discontinuance “without more” was insufficient to revoke acceleration; thus, FAPA did not rewrite an established contractual “term,” but rather restored/clarified the procedural rules governing foreclosure litigation.
Ballentine v Koch and Consumers Union of U.S., Inc. v State of New York: Cited for the conclusion that where “there is no existing contractual agreement regarding the terms changed,” Contracts Clause analysis effectively ends.

E. Sanctions and Other Claims

22 NYCRR 130-1.1 and U.S. Bank N.A. v Nunez: The sanctions counterclaim was reinstated because it had been dismissed only as a byproduct of the trial court’s timeliness ruling; the Third Department remitted for evaluation under the frivolous-conduct standards and procedures.
LePore v Shaheen: Reinforces that discharge is available when the foreclosure is time-barred.
Freihofer v Hearst Corp. and Associates First Capital v Crabill: Support denial of the intentional inflection of emotional distress claim on the record presented.

3.2. Legal Reasoning

A. Standing

The plaintiff’s standing proof combined: (1) a copy of the note, (2) an undated allonge specially indorsed to plaintiff, and (3) a servicer affidavit attesting to possession of the note with the allonge stapled to it as of June 1, 2017—before the 2019 filing. This satisfied the “holder” theory of standing. Critically, the court treated the method of acquisition as irrelevant once possession prior to commencement is established, aligning with Aurora Loan Servs., LLC v Taylor.

B. Limitations and Acceleration Under FAPA

The court applied the orthodox rule: when a foreclosure complaint accelerates the mortgage debt, the six-year limitations period begins immediately. The 2007 foreclosure action accelerated the debt; therefore, absent a legally effective de-acceleration, the deadline to sue expired in 2013.

FAPA’s pivotal change—codified in CPLR 3217 (e)—is that a voluntary discontinuance “shall not” waive, postpone, toll, extend, revive, or reset the limitations period unless a statute expressly says otherwise. On that basis, the 2012 stipulation discontinuing the 2007 action did not rescue the claim. The 2019 foreclosure was therefore untimely as a matter of law, requiring dismissal and mortgage discharge.

C. Retroactivity and Constitutionality

The Third Department treated retroactivity as necessary to FAPA’s stated remedial purpose: preventing “start-and-stop” foreclosure litigation that would otherwise allow lenders to repeatedly reset limitations periods. The court relied heavily on the Legislature’s express instruction that FAPA take effect immediately and apply to all actions where a final foreclosure judgment has not been enforced, concluding this necessarily reaches earlier discontinued actions affecting borrowers still in litigation.

On due process, the court followed its own precedent (and other Departments) that retroactive application is rationally related to legitimate state interests—finality and homeowner protection—so it survives constitutional scrutiny. On “vested rights,” the court reasoned that plaintiff had no protected entitlement to prosecute an action that was already untimely on the operative facts once FAPA is applied. On the Contracts Clause, the court concluded that FAPA did not substantially impair contractual obligations because the claimed right—revoking acceleration via discontinuance alone—was not a settled contractual entitlement at the time of contracting and, historically, required more than mere discontinuance.

D. Remedies and Procedural Consequences

Having found the foreclosure untimely, the court awarded defendant summary judgment dismissing the complaint and discharging the mortgage under RPAPL 1501 (4). It also reinstated the sanctions counterclaim because the trial court had dismissed it solely after finding the action timely and meritorious; the Third Department required an independent evaluation under 22 NYCRR 130-1.1.

3.3. Impact

Strengthening FAPA’s borrower-protective force (Third Department): Craft reinforces that FAPA is not merely prospective “cleanup” but a retroactive rule governing pending cases, especially where lenders rely on pre-FAPA discontinuances to argue the clock restarted.
Limiting post-Engel revival theories: The decision constrains the practical afterlife of Freedom Mtge. Corp. v Engel for pending cases by treating discontinuance-based de-acceleration as legally ineffective under FAPA, even if it might have been effective under Engel.
Clear pleading/motion practice incentives: Plaintiffs must scrutinize whether any prior foreclosure accelerated the debt and whether any later conduct constitutes a statutorily recognized basis to affect limitations. Defendants have a clearer path to RPAPL 1501 (4) discharge where an earlier acceleration occurred and the new suit falls outside six years.
Constitutional challenges face headwinds: By aligning due process and Contracts Clause analysis with U.S. Bank N.A. v Lynch and Deutsche Bank Natl. Trust Co. v Goldwasser, Craft makes constitutional objections less likely to succeed in the Third Department absent a materially distinguishable record.
Sanctions exposure may increase in time-barred refilings: Reinstating the sanctions counterclaim signals that filing (or maintaining) a foreclosure that is ultimately found time-barred—particularly amid allegations of delay or unsupported amounts—may trigger scrutiny under 22 NYCRR 130-1.1.

4. Complex Concepts Simplified

Standing (foreclosure context): The plaintiff must show it had the right to enforce the note when it filed the case—commonly by proving it possessed the endorsed note at that time.
Note vs. mortgage: The note is the borrower’s promise to pay; the mortgage is the lien on the property securing that promise. In New York, the right to foreclose generally follows the note.
Allonge: A paper attached to a note used for endorsements when there isn’t room on the note itself. An allonge “specially indorsed” to a party supports that party’s right to enforce.
Acceleration: A lender’s act of declaring the entire loan balance immediately due (often done by filing a foreclosure complaint seeking the full balance).
De-acceleration (revocation of acceleration): An act undoing acceleration so the borrower is again only required to make installment payments. After FAPA, discontinuing a foreclosure case—by itself—does not accomplish this.
Six-year statute of limitations (CPLR 213 [4]): In mortgage foreclosure, once the debt is accelerated, the lender generally has six years to sue on that accelerated debt, unless the limitations period is lawfully affected.
RPAPL 1501 (4) discharge: A property owner (or estate) can obtain an order cancelling/discharging a mortgage lien if the time to foreclose has expired.
Retroactive legislation: A law applied to existing disputes based on earlier events. Courts typically allow this if the Legislature clearly intended it and it is rationally related to legitimate aims.
Contracts Clause: A constitutional rule limiting state laws that substantially impair existing contractual obligations; courts first ask whether the law truly changes an agreed contractual term and whether any impairment is substantial.

5. Conclusion

U.S. Bank N.A. v Craft delivers a clear rule with substantial practical effect: under FAPA, a prior foreclosure’s voluntary discontinuance does not reset or extend the six-year statute of limitations triggered by acceleration, and FAPA applies retroactively to cases where no enforced final foreclosure judgment exists. While the plaintiff met its burden on standing through proof of possession of the endorsed note, the foreclosure nevertheless failed as untimely, resulting in dismissal and discharge of the mortgage. The decision further cements the Third Department’s post-FAPA framework, rejects due process and Contracts Clause objections, and signals that sanctions inquiries may remain live when untimely foreclosures are pursued or prolonged.