Second Department Confirms Retroactive Reach of FAPA: Voluntary Discontinuance Cannot De‑Accelerate or Reset the Mortgage Foreclosure Limitations Period

Introduction

In GITSIT Solutions, LLC v. Azcuy, the Appellate Division, Second Department reaffirmed a transformative shift in New York foreclosure law brought about by the Foreclosure Abuse Prevention Act (FAPA) (L 2022, ch 821). Addressing a recurring pattern in mortgage litigation, the court held that a lender’s voluntary discontinuance of an earlier foreclosure action no longer revokes acceleration or resets the six-year statute of limitations for mortgage foreclosures. The court also rendered significant holdings on procedural defaults to counterclaims, the timeliness of proposed amendments to add equitable subrogation and unjust enrichment claims, and the application of the voluntary payment doctrine.

The case arises from a 2005 residential mortgage executed by defendants Christopher Azcuy and Susan Gayle Cohen. Following a 2012 foreclosure action that expressly accelerated the debt, a 2016 voluntary discontinuance, and a 2016 refiling that was dismissed without prejudice in 2019 for failure to prove RPAPL 1304 compliance, the plaintiff (GITSIT Solutions, LLC) commenced a new foreclosure action in 2022. Defendants counterclaimed under RPAPL 1501(4) to cancel and discharge the mortgage as time-barred. The Supreme Court (Rockland County) granted the borrowers summary judgment on the statute of limitations defense, permitted a default judgment on their RPAPL 1501(4) counterclaim, and denied the lender’s cross-motion for time to reply and for leave to amend to add equitable subrogation and unjust enrichment claims. The Second Department affirmed in all respects.

Summary of the Opinion

• Statute of Limitations and FAPA: The court held the 2022 foreclosure action was time-barred because the six-year limitations period began in 2012 when the first foreclosure complaint elected to accelerate the debt, and—under FAPA’s amendment to CPLR 3217(e)—the 2016 voluntary discontinuance did not revoke acceleration or reset the limitations period. The action filed in 2022 came more than six years after the 2012 acceleration.
• Default on Counterclaim and CPLR 3012(d): The court upheld the denial of plaintiff’s request to extend time to reply to defendants’ RPAPL 1501(4) counterclaim. The lender’s bare assertion of “law office failure” (not recognizing the counterclaim) was an undetailed, conclusory explanation and thus not a reasonable excuse; no meritorious defense need be reached.
• Leave to Amend (CPLR 3025[b]): The court affirmed denial of leave to amend to add equitable subrogation and unjust enrichment causes of action. The equitable subrogation claim was untimely, having accrued no later than the 2005 loan closing and being subject to a six-year statute. The unjust enrichment claim was either time-barred or, insofar as premised on taxes and insurance allegedly paid between 2012 and 2023, defeated by the voluntary payment doctrine.
• RPAPL 1501(4) Relief: With the foreclosure claim time-barred and plaintiff in default of replying to the counterclaim, the borrowers were entitled to judgment canceling and discharging the mortgage of record.

Analysis

Key Precedents and Statutes Cited and Their Influence

• Statute of Limitations for Mortgage Foreclosure (CPLR 213[4]):
  • Lubonty v U.S. Bank N.A., 34 NY3d 250, 261 – confirms foreclosure actions are governed by a six-year limitations period.
  • U.S. Bank N.A. v Unger, 230 AD3d 827, 828, and BHMPW Funding, LLC v Lloyd-Lewis, 194 AD3d 780, 782 – once a mortgage is accelerated, the entire debt is due and the six-year period runs on the whole debt; acceleration occurs by filing a foreclosure complaint electing to call the full amount due.
• Acceleration, Discontinuance, and FAPA:
  • Freedom Mtge. Corp. v Engel, 37 NY3d 1 (pre-FAPA) – had held that a voluntary discontinuance of a foreclosure action could revoke acceleration. The legislature responded to Engel with FAPA.
  • FAPA’s amendment to CPLR 3217(e) – “In any action on an instrument described under [CPLR 213(4)], the voluntary discontinuance of such action... shall not... waive, postpone, cancel, toll, extend, revive or reset the limitations period...” The Second Department deems FAPA effectively to have nullified Engel’s de-acceleration-by-discontinuance regime.
  • Retroactive application: L 2022, ch 821 § 10 provides that FAPA “shall apply to all actions commenced on an instrument described under [CPLR 213(4)] in which a final judgment of foreclosure and sale has not been enforced.” The court cites Deutsche Bank Natl. Trust Co. v Dagrin, 233 AD3d 1065, 1067–1068; 97 Lyman Ave., LLC v MTGLQ Invs., L.P., 233 AD3d 1038, 1041–1042; U.S. Bank N.A. v Lynch, 233 AD3d 113, 116–117; Genovese v Nationstar Mtge. LLC, 223 AD3d 37, 45, to confirm retroactivity.
• Defaults and CPLR 3012(d):
  • U.S. Bank N.A. v Gordon, 202 AD3d 871; Vujanic v Petrovic, 103 AD3d 791; Wilmington Sav. Fund Socy., FSB v Helal, 211 AD3d 991; OneWest Bank, FSB v Singer, 153 AD3d 714 – a party seeking to vacate a default in serving a reply must show both a reasonable excuse and a potentially meritorious defense; mere “law office failure” that is conclusory or undetailed is insufficient.
  • Wilmington Sav. Fund Socy., FSB v Rodriguez, 197 AD3d 784; Bank of N.Y. Mellon Trust Co., N.A. v Talukder, 176 AD3d 772 – conclusory law office failure is not a reasonable excuse.
• Leave to Amend and Time-Barred Claims:
  • Myung Hwa Jang v Mang, 164 AD3d 803; Lucido v Mancuso, 49 AD3d 220 – amendments should be freely granted absent prejudice unless palpably insufficient or patently devoid of merit.
  • Deutsche Bank Natl. Trust Co. v McAvoy, 188 AD3d 808; Schwartz v Walter, 171 AD3d 969 – leave to add a time-barred theory is patently devoid of merit.
  • Equitable subrogation limitations and accrual: Wells Fargo Bank, N.A. v Burke, 155 AD3d 668, 670; Deutsche Bank Natl. Trust Co. v Weinfeld, 227 AD3d 662, 663 – six-year limitations; accrues no later than the loan closing.
  • Unjust enrichment limitations and accrual: U.S. Bank N.A. v Salem, 164 AD3d 1289, 1290; Williams-Guillaume v Bank of Am., N.A., 130 AD3d 1016 – six-year limitations beginning at the wrongful act that creates the restitution duty.
  • Voluntary payment doctrine: Dillon v U-A Columbia Cablevision of Westchester, 100 NY2d 525, 526 – bars recovery of payments voluntarily made with full knowledge, absent fraud or mistake. Applied with Daldan, Inc. v Deutsche Bank Natl. Trust Co., 188 AD3d 989, 991–992, and contrasted with Suntrust Mtge., Inc. v Mooney, 113 AD3d 836.

Legal Reasoning

The Second Department’s reasoning proceeds on three coordinated tracks: timeliness of the foreclosure claim in light of acceleration and FAPA; procedural default on the borrowers’ counterclaim; and the futility of proposed amendments.

1. Acceleration and Limitations Period Under FAPA.

   The court first identifies the date of acceleration: in 2012, HSBC commenced a foreclosure action electing to accelerate the entire mortgage debt. Under longstanding law, acceleration causes the entire debt to become due, starting a single six-year limitations period for the whole balance (CPLR 213[4]; U.S. Bank N.A. v Unger). The lender’s 2016 voluntary discontinuance of that 2012 action does not, after FAPA, revoke the acceleration or reset the clock. CPLR 3217(e), as added by FAPA, expressly bars the use of voluntary discontinuance to “waive, postpone, cancel, toll, extend, revive or reset” the limitations period in mortgage actions. Relying on its own recent precedents (Dagrin; 97 Lyman Ave.; Lynch; Genovese), the court applies FAPA retroactively pursuant to § 10 to the present case, rejecting the plaintiff’s contention that FAPA should not be applied.

   With acceleration in 2012 and no permissible reset of the statute, the 2022 foreclosure action—filed more than six years later—was untimely. The 2016 refiling and the 2019 dismissal without prejudice did not salvage the claim; a “without prejudice” dismissal does not extend or reset the limitations period absent a statute that says so, and FAPA forbids using discontinuances to alter the limitations calculus.

2. Default on RPAPL 1501(4) Counterclaim and Denial of CPLR 3012(d) Relief.

   Defendants interposed a counterclaim under RPAPL 1501(4) seeking cancellation and discharge of the mortgage of record based on the expiration of the statute of limitations. Plaintiff failed to timely reply and sought relief under CPLR 3012(d) to extend time to reply, citing law office failure (“my office failed to recognize the ‘counterclaim’ as such”). The court deemed this explanation conclusory and undetailed. Under controlling authority, such a showing is not a “reasonable excuse.” Because plaintiff failed to carry the threshold burden of showing a reasonable excuse for default, the court had no need to assess whether a potentially meritorious defense existed. The default thus stood, supporting entry of judgment on the counterclaim.

3. Leave to Amend: Equitable Subrogation and Unjust Enrichment.

   The court then addressed plaintiff’s cross-motion for leave to amend to add equitable subrogation and unjust enrichment claims. Although CPLR 3025(b) favors liberal amendment, proposed claims that are time-barred are “patently devoid of merit.”

   • Equitable subrogation carries a six-year limitations period and accrues no later than the date of the transaction to be subrogated—here, no later than the November 22, 2005 loan closing. An equitable subrogation claim made in 2023 is therefore untimely.
   • Unjust enrichment also bears a six-year limitations period that begins at the wrongful act giving rise to restitution. To the extent based on events in November 2005 (e.g., use of the mortgage proceeds to extinguish another lien), the claim is time-barred. To the extent based on later alleged voluntary payments of property expenses (taxes, insurance, etc.) between 2012 and 2023, the voluntary payment doctrine bars recovery absent allegations of mistake or fraud—which the plaintiff did not allege.

   Because both proposed claims were either time-barred or facially barred by the voluntary payment doctrine, leave to amend was properly denied.

Impact and Practical Implications

• Closing the Engel Reset Strategy. FAPA’s CPLR 3217(e) eliminates a practice that had proliferated after Engel: lenders discontinuing prior foreclosure actions to revoke acceleration and restart the six-year period. The Second Department’s opinion underscores that, even where the discontinuance predated FAPA, the statute applies to cases (like this one) in which no final judgment of foreclosure and sale has been enforced. Lenders must therefore treat the first valid acceleration as the fixed anchor for limitations purposes.
• Acceleration Date Discipline. The decision emphasizes the significance of the initial acceleration date. Filing successive actions does not re-accelerate the debt in a way that resets limitations. Lenders must either file within six years of the first acceleration or ensure compliance with any applicable methods of de-acceleration that remain lawful after FAPA (FAPA limits—not at issue here—various revocation mechanisms). The safe harbor of “voluntary discontinuance” no longer exists.
• Borrowers’ RPAPL 1501(4) Remedy Strengthened. Borrowers whose debts were accelerated more than six years ago—and who have no enforced final judgment against them—have a potent remedy to clear title by canceling and discharging the mortgage of record. The court’s affirmance of default judgment here illustrates both the substantive strength of the remedy and the procedural perils for lenders who miss responsive deadlines.
• Pleading and Default Practice. The opinion is a cautionary tale: a vague claim of “law office failure” will not excuse default in replying to counterclaims, especially where the counterclaim is clearly labeled in the answer. Counsel should implement intake protocols for pro se answers to identify defenses and counterclaims promptly and respond within the CPLR’s timelines.
• Equitable Subrogation and Unjust Enrichment are Not Backstops. The Second Department reinforces that equitable subrogation accrues at or near loan origination and is subject to six years; it is not a perpetual equitable safety valve years later. Likewise, unjust enrichment cannot be used to recover voluntary tax and insurance payments absent fraud or mistake. Lenders should evaluate and assert such claims early, or risk forfeiture.

Complex Concepts Simplified

• Acceleration: When a lender declares the entire mortgage debt immediately due and payable (rather than just monthly installments). This usually happens when the lender starts a foreclosure and states in the complaint that it is calling the full balance due. Once accelerated, a single six-year clock starts for suing on the entire debt.
• Voluntary Discontinuance: When a plaintiff ends its own lawsuit, typically by notice, stipulation, or motion. Before FAPA, ending an earlier foreclosure could sometimes “undo” acceleration. After FAPA (CPLR 3217[e]), this tactic no longer affects the statute of limitations for mortgage foreclosures.
• FAPA (Foreclosure Abuse Prevention Act): A 2022 law designed to prevent lenders from manipulating the statute of limitations through acceleration and de-acceleration strategies. Among other things, it added CPLR 3217(e), forbidding voluntary discontinuance from resetting or tolling the foreclosure limitations period, and it applies retroactively to cases where the final foreclosure judgment has not been enforced.
• RPAPL 1501(4): A statute allowing a property owner to sue to cancel and discharge a mortgage of record when the limitations period to foreclose has expired. It is a tool to clear title once the lender’s right to foreclose is time-barred.
• CPLR 3012(d) Relief from Default: A request for extra time to respond after missing a deadline. The movant must show both a reasonable excuse for the delay and a potentially meritorious defense. Bare, conclusory assertions of “law office failure” usually do not qualify as reasonable excuses.
• Equitable Subrogation: An equitable doctrine that can place a new lender in the shoes of a prior lienholder it paid off, preserving priority and avoiding unjust enrichment. In New York, claims to establish such a lien generally have a six-year limitations period accruing no later than the transaction date.
• Unjust Enrichment and Voluntary Payment Doctrine: Unjust enrichment requires that the defendant was enriched at the plaintiff’s expense under circumstances making it unjust to retain the benefit. The voluntary payment doctrine bars recovery for payments made voluntarily with full knowledge of the facts and absent fraud or mistake—commonly defeating attempts to recoup voluntarily paid taxes or insurance.

Conclusion

GITSIT Solutions, LLC v. Azcuy cements, within the Second Department, FAPA’s decisive repudiation of the Engel doctrine allowing lenders to “reset” limitations by discontinuing a prior foreclosure. The court applies FAPA retroactively, holds the 2022 foreclosure action time-barred based on a 2012 acceleration, and grants borrowers the powerful remedy of canceling and discharging the mortgage under RPAPL 1501(4). On the procedural front, the opinion underscores that conclusory “law office failure” will not excuse defaults in replying to counterclaims. Substantively, it warns that equitable subrogation and unjust enrichment are neither timeless nor limitless; they are bounded by statutes of limitations and doctrines like voluntary payment.

The key takeaway is clear: once acceleration occurs, lenders have six years to foreclose, and voluntary discontinuance will not rescue them. Borrowers with aged accelerations have a viable path to clear title. Counsel on both sides must pay close attention to acceleration dates, limitations periods, and responsive pleading obligations, as courts will enforce these rules with rigor in the FAPA era.