FAPA Retroactivity Does Not Effect a Taking Absent a Final Foreclosure Judgment

Introduction

Federal Natl. Mtge. Assn. v. Marshall (Appellate Division, Third Department, Feb. 19, 2026) addresses whether the Foreclosure Abuse Prevention Act (FAPA) may be applied retroactively to bar a mortgagee’s foreclosure claim without violating the Takings Clauses of the United States and New York Constitutions.

The dispute arises from a 2007 note and mortgage executed by defendant Lawrence C. Marshall. A first foreclosure action was commenced in 2009 by plaintiff’s predecessor, Greenpoint Mortgage Funding Inc., and voluntarily discontinued in 2013. Plaintiff Federal National Mortgage Association commenced a second foreclosure action in 2018. Marshall asserted that the action was time-barred and counterclaimed for discharge of the mortgage under RPAPL 1501 (4).

After Supreme Court initially granted plaintiff summary judgment (2022), FAPA was enacted in 2022, including CPLR 3217 (e) and CPLR 203 (h), providing—among other things—that a voluntary discontinuance of a foreclosure action does not “waive, postpone, cancel, toll, extend, revive or reset” the limitations period. In 2024 motion practice, Supreme Court vacated its earlier order, applied FAPA retroactively, but then held that retroactivity violated the Contract Clause and the Takings Clauses, and again granted plaintiff relief. Marshall appealed.

Summary of the Opinion

The Third Department reversed. In light of the Court of Appeals’ intervening decisions in Article 13 LLC v Ponce De Leon Fed. Bank and Van Dyke v U.S. Bank, N.A., the only question the court treated as remaining was whether retroactive application of FAPA violates the Takings Clauses. The Third Department held it does not.

The court reasoned that the mortgagee had no vested property interest protected by the Takings Clause because it had not obtained a final judgment of foreclosure and sale (and the judgment at issue remained subject to appeal). Even assuming some cognizable vested interest in the right to foreclose under pre-FAPA law, the court found no unconstitutional taking when considering the regulatory context and expectations in mortgage foreclosure litigation. The court denied plaintiff’s foreclosure relief and granted defendant’s request to cancel and discharge the mortgage.

Analysis

Precedents Cited

  • Article 13 LLC v Ponce De Leon Fed. Bank and Van Dyke v U.S. Bank, N.A.: Although not Takings Clause cases, these Court of Appeals decisions framed the appeal by confirming that FAPA applies retroactively and rejecting (among other challenges) substantive/procedural due process claims. Van Dyke also rejected a Contract Clause challenge, emphasizing that FAPA is “sensibly tailored” to curb litigation practices and operates in a “highly regulated” area. The Third Department relied on these holdings to narrow the constitutional inquiry to takings.
  • American Economy Ins. Co. v State of New York: Supplied the threshold takings principle: a claimant must first identify a vested property interest. The Third Department quoted this as the “threshold step” and used it to reject the premise that plaintiff held a vested interest sufficient to trigger compensation.
  • Gleason v Gleason: Defined “vested right” as an “immediate fixed right of present or future enjoyment,” anchoring the court’s conclusion that an inchoate foreclosure claim is not the kind of fixed property right protected as “vested.”
  • Matter of Hodes v Axelrod: Supported the proposition that vested-right protection is at its apex once a final judgment becomes “inviolable” after appeals are exhausted. The Third Department used this to emphasize that the absence of a final, unappealable foreclosure judgment defeats a takings claim premised on “vested rights.”
  • Deutsche Bank Natl. Trust Co. v Dagrin, Deutsche Bank Natl. Trust Co. v Vista Holding, LLC, and Weininger v Deutsche Bank Natl. Trust Co.: These cases reinforced the court’s specific application of vested-right doctrine in the foreclosure setting: a mortgagee does not hold a vested interest “subject to compensation” until it secures a final judgment of foreclosure and sale, and a judgment on appeal is not final in the constitutional sense.
  • James Sq. Assoc. LP v Mullen: Provided the court’s takings framework for regulatory action—economic impact, interference with reasonable investment-backed expectations, and the character of the governmental action—applied here as an alternative holding even if a vested interest were assumed.
  • Connolly v Pension Benefit Guaranty Corp.: The court invoked this U.S. Supreme Court authority for the principle that participants in a regulated field cannot fairly object when the legislature “buttresse[s]” the regulatory scheme by later amendments to meet legislative ends—supporting the conclusion that FAPA’s retroactive adjustment is not confiscatory.
  • Rochester Gas & Elec. Corp. v Public Serv. Commn. of State of N.Y.: Used to stress that investment-backed expectations in heavily regulated industries include the possibility of significant regulatory change, undercutting plaintiff’s claim that it reasonably relied on pre-FAPA discontinuance/limitations rules.
  • Deutsche Bank Natl. Trust Co. v Testa, US Bank N.A. v Levy, and Ditech Fin. LLC v Naidu: Cited as post-FAPA authorities rejecting similar Takings Clause arguments, demonstrating that the Third Department’s approach aligns with a developing consensus across departments and trial courts.

Legal Reasoning

  1. Issue narrowing after Court of Appeals precedent. With Article 13 LLC v Ponce De Leon Fed. Bank and Van Dyke v U.S. Bank, N.A. controlling the retroactivity question and rejecting key constitutional objections (including Contract Clause), the Third Department treated the appeal as turning solely on takings.
  2. Threshold takings step: no vested property interest. The court held plaintiff lacked the “vested property interest” required to even begin a Takings Clause analysis. Supreme Court’s error, in the Third Department’s view, was treating plaintiff’s foreclosure claim (or the mortgage itself) as an “entire interest” already vested. The appellate court drew a firm line: a vested interest “subject to compensation” arises only upon a final judgment of foreclosure and sale, which was absent here—especially because the judgment was on appeal.
  3. Alternative holding: even assuming a vested interest, no taking under regulatory factors. Applying James Sq. Assoc. LP v Mullen, the court found:
    • Investment-backed expectations were weak because mortgage foreclosure litigation is “highly regulated” (as emphasized in Van Dyke v U.S. Bank, N.A.), and regulated actors must anticipate legislative change (Connolly v Pension Benefit Guaranty Corp.; Rochester Gas & Elec. Corp. v Public Serv. Commn. of State of N.Y.).
    • No protected entitlement to static law: The court reiterated that there is no vested right in the Legislature’s “lack of legislation” or the continuation of favorable rules (Article 13 LLC v Ponce De Leon Fed. Bank), characterizing plaintiff’s position as a reliance interest in prior doctrine rather than a constitutionally protected property right.
    • Character of governmental action: FAPA was treated as a targeted adjustment to foreclosure litigation practices (e.g., preventing a voluntary discontinuance from effectively manipulating limitations), rather than a physical appropriation or confiscation of property.
  4. Disposition consistent with FAPA’s purpose. Having rejected the takings challenge, the court denied plaintiff’s foreclosure relief and granted defendant’s cross-motion canceling and discharging the mortgage—implementing the statute’s finality and repose objectives in the time-barred foreclosure setting.

Impact

  • Takings Clause challenges to FAPA retroactivity face a steep barrier. The decision confirms that, absent a final judgment of foreclosure and sale, mortgagees will struggle to identify the vested property interest necessary to mount a takings claim.
  • Finality and repose are reinforced in discontinued-and-refiled foreclosure scenarios. By applying FAPA to prevent voluntary discontinuance from affecting limitations, the decision increases the likelihood that older loans with long gaps in enforcement will be discharged under RPAPL 1501 (4).
  • Strategic consequences for lenders/servicers. The ruling further incentivizes timely prosecution of foreclosures and discourages procedural moves that, in prior practice, were used to manage (or attempt to reset) limitations risks.
  • Interdepartmental alignment. The Third Department’s reliance on cases such as US Bank N.A. v Levy and Ditech Fin. LLC v Naidu signals convergence among departments in rejecting constitutional attacks on FAPA’s retroactive application.

Complex Concepts Simplified

FAPA (Foreclosure Abuse Prevention Act)
A 2022 statute designed to curb certain foreclosure litigation tactics and clarify that actions like a voluntary discontinuance do not extend or restart the six-year statute of limitations for foreclosure. In this case, FAPA’s key effect is that the 2009 action’s discontinuance in 2013 cannot be used to avoid a limitations bar in the 2018 action.
Voluntary discontinuance (CPLR 3217)
A plaintiff’s withdrawal of its lawsuit. Under CPLR 3217 (e), in foreclosure cases, discontinuance does not change the limitations clock “in form or effect.”
Acceleration
A lender’s act of declaring the entire mortgage debt immediately due (often by commencing foreclosure). Acceleration can start the six-year limitations period for the full debt, making timing critical.
RPAPL 1501 (4) discharge
A mechanism allowing a property owner to seek cancellation/discharge of a mortgage when the lender’s foreclosure action is time-barred, clearing title from an unenforceable lien.
Takings Clause (U.S. & N.Y.)
Constitutional protections requiring just compensation when the government takes private property for public use. A key first step is identifying a vested property interest that has been taken.
Vested right
A fixed, legally protected entitlement—not merely an expectation that existing rules will remain unchanged. The court emphasized that a mortgagee’s interest is not “vested” for takings purposes until a final judgment of foreclosure and sale is obtained and no longer subject to appeal.

Conclusion

Federal Natl. Mtge. Assn. v. Marshall establishes, in the Third Department, that retroactive application of FAPA does not violate the Takings Clauses where the mortgagee has not obtained a final judgment of foreclosure and sale, and that even a claimed reliance on pre-FAPA foreclosure timing rules is not a vested property interest insulated from legislative adjustment in a heavily regulated field. The decision strengthens FAPA’s practical force: time-barred foreclosure rights cannot be revived by procedural maneuvers such as voluntary discontinuance, and the consequence may be discharge of the mortgage under RPAPL 1501 (4).