HSBC Bank USA, N.A. v IPA Asset Mgt., LLC
Annotate this CaseDecided on May 16, 2023
Supreme Court, Suffolk County
HSBC Bank USA, N.A., AS TRUSTEE ON BEHALF OF ACE SECURITIES CORP. HOME EQUITY LOAN TRUST AND FOR THE REGISTERED HOLDERS OF ACE SECURITIES CORP. HOME EQUITY LOAN TRUST, SERIES 2007-HE2, ASSET BACKED PASS THROUGH CERTIFICATES, Plaintiff,
against
IPA Asset Management, LLC, et. al., Defendant(s).
Index No. 208848/2022
ROBERTSON, ANSCHUTZ, SCHNEID, CRANE & PARTNERS, PLLC
Attorneys for Plaintiff
900 Merchants Concourse, Suite 310
Westbury, NY 11590
MCKINLEY LAW, P.C.
Attorneys for Defendant IPA Asset Management, LLC
30 Forrest Drive
Lloyd Harbor, New York 11743
Robert F. Quinlan, J.
Upon the papers submitted(notice of motion with supporting papers, opposition with supporting papers and service upon the NYS Attorney General's office and reply), it is
ORDERED that the motion to dismiss is granted and the action is dismissed.
It is uncontroverted that the plaintiff commenced a foreclosure action involving property located at 8 Herson Path, Coram, New York in 2008. That action was discontinued based upon a settlement in 2011. The plaintiff commenced a second foreclosure action in 2012, which was discontinued by order dated July 28, 2017. The plaintiff has now commenced this present action on December 28, 2022 seeking to foreclosure on the property based upon default on payment of the note. The defendant has moved to dismiss the action as barred by the statute of limitation.
Defendant argues that pursuant to the Foreclosure Abuse Prevention Act(FAPA), effective December 30, 2022, which applies to all pending actions, a voluntary discontinuance is not a de-acceleration of the prior acceleration of the full payment of the loan and does not reset the statute of limitation (CPLR 3217[e]). Therefore, either of the two earlier commencements of the action would be an acceleration of the loan and the accrual of the action (CPLR 203[a]). As the statute of limitation for a foreclosure is six years(CPLR 213[4]), the defendant argues that the action is time-barred.
The plaintiff argues that the two prior discontinuances did de-accelerate the loan and reset the statute of limitation as established by the New York Court of Appeals (Freedom Mortg. Corp. v. Engel, 37 NY3d 1 [2021]). The plaintiff argues that FAPA should be interpreted to apply prospectively. If the statute would apply retroactively, the statute would be unconstitutional.
Initially, the plain statement of the legislature in the enactment states that " [t]his act[FAPA] shall take effect immediately and shall apply to all actions commenced on an instrument described under subdivision four of section two hundred thirteen of the civil practice law and rules in which a final judgment of foreclosure and sale has not been enforced"(2022 Sess. Law News of NY Ch. 821 §10). The plaintiff argues that the failure to use "prior action" in section CPLR § 3217(e) indicates legislative intent not to apply the statute of limitations defense to this action.[FN1] Besides the clear language of section 10, the committee report indicates that this statute"will restore longstanding law that made it clear that a lenders' discontinuance of a foreclosure action that accelerated a mortgage loan does not serve to reset the statute of limitations" (2021 NY A.B. 7737 [committee report]). As the section was to restore the longstanding law, the legislative intent clearly was to apply to all pending cases. The longstanding law was, as the Second Department's jurisprudence pre-Engel required, an [*2]affirmative act to revoke its election to accelerate, and the discontinuance of an action, without more, was insufficient (see, e.g. U.S. Bank Trust, N.A. v. Aorta, 167 AD3d 807 [2nd Dept. 2018]). Similarly, the Senate indicated that the law was to stop the lenders from actions that "manipulate statutes of limitation to their advantage; and that the purpose of the present legislation is to clarify the meaning of existing statutes, and to rectify these erroneous judicial interpretations thereof" (2021 NY S.B. 5473 [committee report]). Therefore, the clear intention of the legislature was to quickly clarify application of the statute of limitations in foreclosure actions, which had been recently misapplied according to the legislature, indicating retroactive application.(See Matter of Gleason, 96 NY2d 117 [2001]). Therefore, applying the provisions, the six-year statute of limitations is a bar to the action (cf. U.S. Bank National Association v. Fox, _ AD3d _, 2023 WL 3236027 [1st Dept. May 4, 2023]).
The plaintiff argues that applying FAPA retroactively would be unconstitutional under several provisions of the United States Constitution.[FN2] Initially, in addressing any constitutional attack, "[i]t is well settled that the acts of the Legislature are entitled to a strong presumption of constitutionality"(American Economy Ins. Co. v. State of New York, 30 NY3d 136, 149 [2017]).[FN3] The plaintiff initially claims that to apply the statute retroactively would be an unconstitutional taking of their property [FN4] , i.e. a lienhold established by Engel (U.S. v. Security Indus. Bank, 459 U.S. 70 [1982])( exempt household items from the property included within debtors' estates). However, the plaintiff has not established any vested interest which was taken. FAPA continues to provide, as the law was at the time the plaintiff discontinued, that protection of their lien could be obtained by agreement. As noted, the Second Department's jurisprudence required an affirmative act to revoke its election to accelerate, and the discontinuance of an action, without more, was insufficient to revoke the acceleration (U.S. Bank Trust, N.A. v. Aorta, supra.). FAPA only disallowed unilateral action to reset the statute of limitation(see GOL 17-105). However, as both of the plaintiff's discontinuance were pre-Engel, the statute, as applied, did not take any vested rights from the plaintiff. Therefore, there was no abrogation of the plaintiff's lien as there was no reasonable reliance upon Engel when the plaintiff discontinued [*3]this action.[FN5]
The plaintiff further argues that applying FAPA retroactively would violate due process, both substantive and procedural, under the Fourteenth Amendment to the United States Constitution. Therefore, to withstand constitutional scrutiny, "the retroactive application of the legislation [must be] justified by a rational legislative purpose" (Pension Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717730 [1984]). Here, the legislative purposes, as noted, was to correct an erroneous interpretation of the law. Furthermore, due to the gravity of the situation, the legislature sought "finality and repose that statutes of limitations are meant to ensure"(2021 NY S.B. 5473 [committee report]). The legislation is rationally related to legitimate governmental interest to satisfy substantive due process ( see Forti v. New York State Ethics Commn., 75 NY2d 596 [1990]; Deutsche Bank National Trust Company as Trustee for Registered Holders of Morgan Stanley ABS Capital I Inc. Trust 2006-HE5 v. Dagrin, _ Misc 3d _, 2023 WL 294142 [Sup. Ct. Queens Co., Apr. 12, 2023] ).
As to procedural due process, the plaintiff argues that there should be a "grace period" where a statute enactment shortens the existing statute of limitation. However, at the time of the first discontinuance, the plaintiff was on notice of the law that such action alone was not a de-acceleration without more specific evidence of a separate affirmative act. Moreover, as for the authority cited by the plaintiff(Brothers v. Florence, 95 NY2d 290 [2000]) the statute involved an amendment to the statute of limitations provision. FAPA does not effect the statute of limitations nor the time the cause of action accruals. It limits the methods which a plaintiff in a foreclosure action can reset the accrual date. Therefore, the plaintiff has not established a basis for finding a procedural due process violation nor a basis for a "grace period" (cf. Matter of County of Chemung v. Shah, 28 NY3d 244[2016]).
The plaintiff argues also that the FAPA violates the contract clause of the United States Constitution which hold that "No State shall...pass any...Law impairing the Obligation of Contracts...(U.S. Const.,art 1§10). To establish a violation of the contract clause, there must be a substantial impairment of a contractual right. However, the plaintiff does not point to any clauses in the mortgage agreement that has been impaired. There existed no right to de-accelerate the loan in either the mortgage or the note. Therefore, there has been no constitutional violation of contractual rights (East Fork Funding LLC v. U.S. Bank, N.A., _ F.Supp.3d _. 2023 WL 2660645 [ E.D.NY, Mar. 23, 2023], appeal filed [Apr. 21, 2023]).
The plaintiff has failed to overcome the presumption of constitutionality of the application of FAPA to this action. Consequently, the motion to dismiss must be granted.
The foregoing constitutes the order of the Court.
Dated: May 16, 2023
________________________________
HON. ROBERT F. QUINLAN, J.S.C. Footnotes
Footnote 1:. Also, CPLR 3217(e) states that in "any action on an instrument," which the prior discontinued actions were, so that linguistically there was no requirement that the statute states "prior action" as the section only discusses the effect of the discontinuance in the pending action. In the other sections of FAPA, the statute is discussing the present action and the prior action, which would require the adjective "prior".
Footnote 2:. The plaintiff does not argue that any similar section of the New York State Constitution provide greater protection.
Footnote 3:. It is understood, as the Court of Appeals stated in Majewski v. Broadalbin-Perth Cent. School Dist., 91 NY2d 577 [1998], that prospective application is favored unless there is legislative intent to apply the statute retroactively, which is the clear intent of the statute here. The Court of Appeals did note a "settled maxim is that 'remedial' legislation or statutes governing procedural matters should be applied retroactively" (id. at 584).
Footnote 4:. Of course, the Fifth Amendment applies to the Federal government and is not directly applicable. The taking challenge under the Fifth Amendment is applied through the Fourteenth Amendment. All the constitutional analysis are both for facial challenges, and , as applied to the plaintiff.
Footnote 5:In Engel, the Court noted the 1905 case Kilpatrick v. Germania Life Ins. Co., 183 NY 163 [1905] where it held that a borrower who changes their position due to the commencement of the action would be able to use equitable estoppel (Freedom Mortgage Corporation v. Engel, 37 NY3d 1, 28 [2021]). The court specifically stated that it "never addressed what constitutes a revocation in this context(what is an affirmative act to de-accelerate)" (id. at 28-29). Therefore, there was no statewide precedent prior to Engel .
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