Second Circuit Certifies FAPA § 7 Retroactivity and State Due Process Questions to the New York Court of Appeals

Introduction

In Article 13 LLC v. LaSalle National Bank Association (U.S. Bank, as successor trustee), the U.S. Court of Appeals for the Second Circuit confronted a recurring and highly consequential question in New York mortgage litigation: whether the Foreclosure Abuse Prevention Act (FAPA) applies retroactively to estop mortgage holders from avoiding statutes of limitations by contesting the validity of prior accelerations. The case arises from a quiet title action in which Article 13 LLC, the junior lienholder, seeks to cancel and discharge a senior mortgage as time-barred based on a 2007 foreclosure filing that allegedly accelerated the debt.

After the district court initially denied cross-motions for summary judgment on the ground that there was a triable dispute about whether the 2007 foreclosure validly accelerated the note (because the filer allegedly lacked standing), New York enacted FAPA. Section 7 of FAPA, now codified at CPLR § 213(4)(b), limits a lender’s ability to argue that a prior foreclosure filing did not validly accelerate the mortgage unless a court previously dismissed that action with an “expressed judicial determination” on a timely raised defense. On reconsideration, the district court applied FAPA and granted summary judgment for Article 13 LLC.

On appeal, U.S. Bank argues that Section 7 does not apply retroactively and, if it does, retroactive application violates the New York Constitution (and also raises federal constitutional concerns). Recognizing that these questions are both unsettled and potentially market-shaping, the Second Circuit certified two questions to the New York Court of Appeals and deferred decision:

Whether, and to what extent, Section 7 of FAPA applies to foreclosure actions commenced before its enactment; and
Whether retroactive application of FAPA violates substantive and procedural due process under the New York Constitution (Art. I, § 6).

Summary of the Opinion

The panel (Judges Kearse, Raggi, and Kahn, opinion by Judge Maria Araújo Kahn) does not resolve the merits. Instead, it certifies two determinative state-law questions to the New York Court of Appeals, retaining jurisdiction pending that court’s response.

The court explains that whether U.S. Bank is estopped from disputing the validity of the 2007 acceleration turns on FAPA’s retroactivity, and—if retroactive—whether that application comports with New York’s due process guarantees. These are novel and policy-laden questions better addressed by the state’s highest court, particularly given FAPA’s intent to respond to the Court of Appeals’ decision in Freedom Mortgage Corp. v. Engel and the significant potential effects on New York’s mortgage market.

Applying established certification principles, the court finds:

No controlling Court of Appeals precedent directly answers the retroactivity or state due process questions.
The statutory text (including FAPA § 10’s “effect immediately” and “apply to all actions … in which a final judgment of foreclosure and sale has not been enforced”) does not conclusively resolve retroactivity, particularly in light of competing New York interpretive presumptions about retroactivity and remedial statutes.
The questions implicate significant value judgments and public policy choices (mortgage markets, owner protections, litigation reliance), making certification appropriate.
The answers will control the outcome of the appeal: if retroactive and constitutional, the district court’s disposition likely stands subject to any remaining federal constitutional challenges; if not, the quiet title action would fail.

Case Background

The property at issue is 53 Van Buren Street, Brooklyn. A 2006 consolidation produced a single senior mortgage and note (the “Consolidated Loan” and “Senior Mortgage”) in the amount of $645,000, with a junior mortgage of $215,000 recorded the same day. The Consolidated Loan was sold into a Morgan Stanley trust with U.S. Bank as trustee.

The borrower defaulted in February 2007. In August 2007, the servicer, Central Mortgage Company (CMC), filed a foreclosure action in Kings County Supreme Court. That action was voluntarily discontinued in 2017. In 2020, Article 13 LLC acquired the junior mortgage and filed this quiet title action (EDNY) to cancel and discharge the Senior Mortgage as time-barred. The district court initially denied cross-motions for summary judgment due to factual disputes about whether CMC had standing to file the 2007 foreclosure, which would determine whether the debt was validly accelerated and thus whether the six-year limitations period had run.

Two days later, New York enacted FAPA, including Section 7’s estoppel rule. On reconsideration, the district court treated FAPA as an intervening change in controlling law, applied it retroactively, and entered summary judgment for Article 13 LLC. U.S. Bank appealed, challenging retroactivity and raising state and federal constitutional objections.

Analysis

Precedents Cited and Their Influence

53rd St., LLC v. U.S. Bank Nat'l Ass'n, 8 F.4th 74 (2d Cir. 2021): The panel cites this case for the uncontroversial baseline: in New York, the six-year statute of limitations for mortgage foreclosure under CPLR 213(4) runs from acceleration, which may occur by filing a foreclosure action or otherwise making the full debt immediately due.
Freedom Mortgage Corp. v. Engel, 37 N.Y.3d 1 (2021): Although not a retroactivity case, Engel held that a voluntary discontinuance of a foreclosure action generally revokes acceleration as a matter of law. The Legislature expressly sought to overrule Engel in several respects through FAPA. The panel highlights legislative history identifying Engel as a target and treats the Court of Appeals as best positioned to reconcile FAPA’s text with its own precedents.
Appellate Division decisions on FAPA retroactivity: Three departments (First, Second, Third) have held that FAPA applies retroactively: Genovese v. Nationstar Mortg. LLC, 199 N.Y.S.3d 513 (1st Dep’t 2023); Wells Fargo Bank, N.A. v. Edwards, 222 N.Y.S.3d 90 (2d Dep’t 2024); U.S. Bank Nat’l Ass’n v. Lynch, 218 N.Y.S.3d 854 (3d Dep’t 2024). The Fourth Department has not yet spoken. While persuasive indicators, these are not controlling, especially on the separate constitutional question under the New York Constitution, which no department or the Court of Appeals has yet addressed.
East Fork Funding LLC v. U.S. Bank, N.A., 118 F.4th 488 (2d Cir. 2024), and the Court of Appeals’ refusal of certification, 42 N.Y.3d 981 (2024): The Second Circuit underscores that FAPA interpretation has far-reaching implications but notes that the Court of Appeals declined certification there due to the “particular circumstances” of that case. Here, the panel stresses that different provisions of FAPA are implicated (Section 7 and Section 10) and that a state constitutional due process question is presented—factors that distinguish this certification request.
Certification and statutory construction principles:
- Allstate Ins. Co. v. Serio, 261 F.3d 143 (2d Cir. 2001), and Corsair Special Situations Fund, L.P. v. Pesiri, 863 F.3d 176 (2d Cir. 2017): The panel grounds its decision in federalism and comity, favoring state-court interpretation of novel and determinative state-law issues.
- CIT Bank N.A. v. Schiffman, 948 F.3d 529 (2d Cir. 2020): Supplies the four-factor framework the panel applies for certification, including the presence of policy choices best left to the Court of Appeals and whether the answer will control the outcome.
- Town of Aurora v. Village of East Aurora, 32 N.Y.3d 366 (2018): Under New York law, legislative intent is the primary consideration; the statute must be read as a whole.
- Majewski v. Broadalbin-Perth Cent. Sch. Dist., 91 N.Y.2d 577 (1998): New York disfavors retroactivity absent clear expression or necessary implication—tempered by the countervailing principle that remedial statutes may be applied retroactively.
Additional authorities:
- DiBella v. Hopkins, 403 F.3d 102 (2d Cir. 2005) (Appellate Division decisions as helpful indicators, but not controlling).
- Commodity Futures Trading Comm’n v. Walsh, 618 F.3d 218 (2d Cir. 2010) (certification appropriate where the state’s high court has not addressed analogous issues).
- Rupp v. Buffalo, 91 F.4th 623 (2d Cir. 2024) (summary judgment standard; context rather than core to the certification issues).

Legal Reasoning: Why Certification Was Warranted

The court proceeds under the Schiffman framework, emphasizing that FAPA’s retroactivity and the New York Constitution’s due process constraints involve unsettled questions whose answers will control the case.

Novelty and absence of controlling state law: The Court of Appeals has not directly ruled on FAPA’s retroactivity or New York due process limits in this context. While several Appellate Division decisions endorse retroactivity, those intermediate decisions do not resolve the state constitutional question or bind the state’s high court.
Statutory text not dispositive: Section 10 says FAPA “shall take effect immediately” and “shall apply to all actions … in which a final judgment of foreclosure and sale has not been enforced.” Under Majewski, “take effect immediately” does not itself compel retroactivity. The broader “apply to all actions … not enforced” language could imply retroactivity, but New York interpretive rules point in different directions: (i) a presumption against retroactive application versus (ii) a willingness to construe remedial legislation retroactively. Moreover, even clear legislative intent would not itself answer the separate question whether retroactive application violates the state constitution.
Policy-laden questions: The panel underscores the market-wide consequences of whatever rule emerges—affecting lenders, servicers, trustees, securitization trusts, and homeowners; the reliance interests of litigants; and the post-Engel litigation landscape. These are precisely the kinds of value judgments that New York’s high court should make for New York law.
Case-dispositive: If the Court of Appeals holds that Section 7 applies retroactively and that such application is constitutional, then U.S. Bank would be estopped from disputing the 2007 acceleration’s validity in this quiet title action, thereby removing the only material factual dispute identified by the district court and leaving only federal constitutional challenges for the Second Circuit to consider. Conversely, if FAPA is not retroactive or its retroactivity violates the state constitution, Article 13 LLC’s quiet title claim would fail.

How FAPA § 7 Operates in This Case

Section 7, codified at CPLR § 213(4)(b), provides that in actions seeking cancellation and discharge of record of an instrument, a defendant is estopped from asserting that the statute of limitations has not expired because a prior action did not validly accelerate the debt—unless the prior action was dismissed on an “expressed judicial determination,” made upon a timely interposed defense, that there was no valid acceleration. Here, the 2007 foreclosure was voluntarily discontinued without prejudice in 2017, with no such judicial determination. If Section 7 applies and is validly retroactive, U.S. Bank cannot argue that the 2007 foreclosure failed to accelerate the debt due to lack of standing or other defects. That would mean the six-year limitations period began in 2007, long before Article 13 LLC’s 2020 quiet title filing, and the senior mortgage would be time-barred and dischargeable.

Potential Impact

The stakes extend beyond the parties:

Mortgage enforcement and litigation strategy: A retroactive reading of Section 7 would curtail lenders’ ability—often invoked post-Engel—to avoid time bars by arguing that earlier foreclosure filings were nullities (e.g., due to lack of standing). Lenders would face heightened risk that pre-FAPA filings started the limitations clock even if later discontinued.
Market effects: The panel recognizes the implications for New York’s mortgage market, property owners, and case backlogs. If more senior mortgages are held time-barred due to earlier accelerations, junior lienholders (like Article 13 LLC) and homeowners may benefit; lenders and trust investors may confront increased losses and recalibrated risk pricing for New York-originated loans.
Doctrinal realignment after Engel: The Legislature’s intent to displace Engel’s acceleration/deceleration rule suggests a broader rebalancing toward finality and against serial foreclosure practices. The Court of Appeals’ interpretation will determine the reach and limits of that legislative response.
Constitutional guardrails: If the Court of Appeals finds retroactivity but imposes state due process limits (for example, based on reliance or vested-rights concerns), it could announce a calibrated rule that preserves some lender defenses in defined circumstances (e.g., where lenders demonstrably relied on pre-FAPA law or where retroactivity would be particularly harsh), or it could uphold FAPA’s broad retroactive sweep as a reasonable, remedial response to systemic litigation dynamics.

Complex Concepts Simplified

Acceleration: The act of making the entire mortgage debt immediately due (rather than just past-due installments). In New York, filing a foreclosure action typically accelerates the debt. Once accelerated, the six-year statute of limitations for foreclosure begins to run.
Statute of limitations (SOL) for foreclosure (CPLR 213(4)): A foreclosure action must be commenced within six years of acceleration. If time expires, the mortgage may be cancelled and discharged as time-barred.
Quiet title action to cancel a mortgage: An action (commonly under RPAPL 1501(4)) to judicially declare that a mortgage is unenforceable—here, because the SOL has expired—and to cancel and discharge it of record.
Standing in foreclosure: The plaintiff must be the holder or assignee of the note at the time the action is filed. Historically, lenders sometimes argued that a filer’s lack of standing made a prior foreclosure a nullity, preventing acceleration and avoiding an SOL bar.
FAPA § 7 estoppel rule (CPLR § 213(4)(b)): In a cancellation/discharge action, a defendant lender is estopped from arguing that a prior acceleration was invalid unless a court previously dismissed the earlier action with an explicit, timely raised determination of invalid acceleration.
Retroactivity: Application of a new law to events or actions that occurred before the law was enacted. Under New York law, retroactivity is disfavored absent clear legislative intent or necessary implication, though remedial statutes may be applied retroactively.
“Expressed judicial determination” and “timely interposed defense”: Section 7’s carveout allows a lender to contest acceleration only if, in the earlier case, a court explicitly determined (on a defense raised in time) that acceleration was invalid.
“Final judgment of foreclosure and sale has not been enforced” (FAPA § 10): Language signaling the statute’s reach beyond cases filed after enactment, but whose precise retroactive effect is the subject of this certification.

How the Second Circuit Weighed the Text and Legislative Intent

The court reads FAPA’s text with established New York canons:

“Take effect immediately” is not enough to show retroactivity under Majewski.
“Apply to all actions … in which a final judgment of foreclosure and sale has not been enforced” could suggest the Legislature contemplated pending and past matters, yet this language must be reconciled with the presumption against retroactivity and the possibility FAPA is remedial legislation, which New York courts sometimes apply retroactively.
Legislative history signals an intent to overrule Engel and curb serial foreclosure abuses, but the Court of Appeals is best positioned to gauge the scope of that intent and how it interacts with constitutional constraints and reliance interests.

What Happens Next

The panel retains jurisdiction. After the New York Court of Appeals answers the certified questions:

If Section 7 applies retroactively and that retroactivity is constitutional under the New York Constitution, the Second Circuit will then address U.S. Bank’s remaining federal constitutional challenges (Due Process, Contracts, and Takings Clauses).
If the Court of Appeals answers either that Section 7 is not retroactive or that its retroactive application violates the state constitution, the Second Circuit indicates it would remand for dismissal of Article 13 LLC’s quiet title action.

Key Takeaways

This opinion establishes no merits holding on FAPA’s retroactivity or constitutionality; it channels those questions to the Court of Appeals.
The case spotlights Section 7’s estoppel rule as a central mechanism by which FAPA seeks to end lenders’ reliance on alleged defects in prior foreclosures to reset the statute of limitations clock.
The panel’s careful balancing of New York’s interpretive presumptions (anti-retroactivity vs. remedial-statute retroactivity) underscores that the statutory text alone does not settle the matter, especially given the state constitutional dimension.
The outcome will significantly influence foreclosure litigation strategy and risk allocation in New York’s residential mortgage market.

Conclusion

Article 13 LLC v. LaSalle Nat’l Bank Ass’n marks a pivotal moment in the post-FAPA legal landscape. By certifying whether FAPA § 7 applies retroactively and whether such application is compatible with New York’s due process clause, the Second Circuit has squarely placed with the New York Court of Appeals the task of reconciling legislative reform with longstanding interpretive principles and constitutional protections.

The Court of Appeals’ answers will determine if New York’s estoppel-based response to Engel will reach back to constrain lender defenses in legacy cases and, if so, how far constitutional guardrails limit that reach. For borrowers, junior lienholders, servicers, trustees, and securitization markets alike, the decision promises to define the balance between finality and enforceability in New York mortgage law for years to come.