Alston & Bird Consumer Finance Blog

Mortgage Servicing

FAPA Is Here to Stay: Understanding the NY Court of Appeals’ Retroactivity Ruling and Its Impact on Foreclosures

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On November 25, 2025, the New York Court of Appeals—the highest court in the state of New York—issued a decision in Article 13, LLC v. LaSalle National Bank Association, holding that New York’s Foreclosure Abuse Prevention Act (FAPA) applies retroactively to all foreclosure actions in which a final judgment of foreclosure and sale has not been enforced.

What Happened?

In December 2022, New York enacted FAPA to close a perceived loophole under prior case law that allowed the holders of mortgage notes to reset the statute of limitations on foreclosure. Previously, a noteholder could show that that the mortgage was not validly accelerated, or was voluntarily deaccelerated, which would reset the statute of limitations. Under FAPA, however, parties are estopped from asserting that an invalid acceleration or voluntary deacceleration reset the statute of limitations.

Two years before FAPA was enacted, Article 13 LLC—a junior mortgage holder on a property—brought a quiet title action before a federal district court seeking to cancel a senior mortgage as time-barred under the statute of limitations. Relying on pre-FAPA case law, the holder of the senior mortgage argued the statute of limitations had not run because the mortgage had not been validly accelerated. Mid-litigation, New York enacted FAPA, and the district court held that FAPA estopped the senior mortgage holder from making this argument.

The case went on appeal to the U.S. Court of Appeals for the Second Circuit, which certified the question of whether FAPA applied retroactively to the New York Court of Appeals. Based on FAPA’s plain language, the New York Court of Appeals first held that FAPA applies retroactively, at least for foreclosure actions in which a final judgment or foreclosure and sale has not been enforced. It then held that the retroactive application of FAPA does not violate substantive or procedural due process under New York’s constitution. The Court explained that retroactive application does not offend due process because it does not impair the vested rights of holders, which in the typical situation, are aware for years of the invalid acceleration and have every opportunity to take timely action to enforce their rights.

Why is it Important?

The New York Court of Appeal’s decision is significant because in cases where a prior foreclosure action was commenced (triggering the statute of limitations) but later discontinued without an express judicial determination that acceleration was invalid, lenders are now estopped from reviving the loan after the limitations period has expired. This puts an end to an old practice and represents a major shift in the mortgage foreclosure industry.

For mortgage servicers, this means that before proceeding with a foreclosure, they must first evaluate aged or delinquent loans to reassess whether pursuing foreclosure is viable. This is particularly true when prior foreclosures have been voluntarily discontinued, dismissed, or left dormant. Attempting to re-file may now lead to outright dismissal under FAPA.

For participants in the secondary market, it is now important to employ heightened diligence to determine whether mortgages held in trust are still enforceable. Mortgages or entire portfolios that were previously viewed as recoverable through renewed foreclosure actions may now be worth only their collateral value or even nothing at all.

What Do You Need to Do?

Mortgage servicers should review their foreclosure strategies, including their allocation of litigation resources, as time-barred loans may require alternative resolution strategies such as settlements or charge-offs.

Meanwhile, RMBS trusts and other holders of distressed mortgage portfolios should consider whether to audit their portfolio to identify mortgages with prior foreclosure actions that may now be time barred under FAPA. Or, in the case that they are junior lienholders, they should consider whether they can leverage FAPA in quiet title actions to cancel more senior mortgages that are now time-barred.

Ohio Mortgage Rules Have Changed: Servicing Now Covered

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What Happened?

Effective September 19, 2025, the Division of Financial Institutions (“Division”) of the Ohio Department of Commerce adopted amended rules (the “Amended Rules”) under the Ohio Residential Mortgage Lending Act (“RMLA”) to add and clarify obligations for mortgage servicers.

Why Does it Matter?

The Amended Rules are largely intended to provide clarity to mortgage servicers regarding the application of the RMLA to mortgage servicing businesses, and to implement procedures to prevent servicing problems. For entities licensed under the RMLA, the Amended Rules address registration of offices, unlicensed activity, recordkeeping, prohibited practices, servicing transfers, escrow payments, payment processing, error resolution, borrower requests for information, and a servicer’s obligations upon loss of license. The Amended Rules largely mirror the CFPB’s mortgage servicing rules (i.e., 12 C.F.R. Part 1024, Subpart C (Regulation X) and, to some extent, 12 C.F.R. Part 1026 (Regulation Z)).

Notably, an entity that violates the Amended Rules may be subject to penalties under the RMLA, which are up to $1,000 per day for each day a violation of law or rule is committed, repeated, or continued (and up to $2,000 a day of there is a pattern of repeated violations of law or rule).

Below, we highlight some of the most impactful provisions of the Amended Rules.

Amended Rules

  • Registration Requirements: The Division amended Section 1301:8-7-02 of the Ohio Administrative Code (the “OAC”) to require entities subject to the RMLA (mortgage brokers, lenders and servicers) to register each office location at which it transacts business.
  • Standards for Applications, License, and Registration: The Division amended Section 1301:8-7-03 of the OAC, to clarify that a mortgage broker, mortgage servicer, or loan originator cannot conduct business if they fail to renew their registration on or before December 31. (The Division indicated that it was amending the renewal date to correct a drafting error that incorrectly identified January 31 as the renewal date.)
  • Recordkeeping: The Division amended Section 1301:8-7-06 of the OAC, which relates to recordkeeping, to require a mortgage servicer to retain records that document actions taken with respect to a borrower’s account for four years following the date the loan is discharged or transferred to another servicer; and to maintain specified documents and data in a manner that facilitates compiling the documents and data into a servicing file within five days. (The rule does not expressly address maintenance of records of telephone calls with borrowers.) While the rule requires retention of the same records required under Regulation X (12 C.F.R. § 1024.38(c)), note that the retention period is much longer than Regulation X’s and does not exempt small servicers under Regulation X.
  • Prohibited Practices: The Division amended Section 1301:8-7-16 of the OAC, to add a list of actions specific to servicing that constitute improper, fraudulent, or dishonest dealings under Ohio Revised Code section 1322.40.  Specifically, the rule prohibits a servicer from, among other things:
    • assessing a borrower any premium or charge related to force-placed insurance unless the servicer: (i) has a reasonable basis to believe that the borrower has failed to comply with the residential mortgage loan contract’s requirement to maintain hazard insurance; and (ii) delivers or mails to the borrower a written notice at least 45 days before assessing such charge or fee;
    • misrepresenting or omitting any material information in connection with the servicing of a residential mortgage loan, including misrepresenting the amount, nature, or terms of any fee or payment due or claimed to be due on a residential mortgage loan, the terms and conditions of the servicing agreement, or the borrower’s obligations under the residential mortgage loan;
    • failing to apply payments in accordance with a servicing agreement or the terms of a note; (d) making payments in a manner that causes a policy of insurance to be canceled or causes property taxes or similar payments to become delinquent;
    • failing to credit a periodic payment to the borrower’s account as of the date of receipt, except when a delay in crediting does not result in any charge to the borrower or in the reporting of negative information to a consumer reporting agency (except where the servicer specifies in writing requirements for the borrower to follow in making payments, but accepts a payment that does not conform to the requirements, where the servicer has five days to credit the payment);
    • requiring any amount of money to be remitted by means which are more costly to the borrower than a bank or certified check or attorney’s check from an attorney’s account to be paid by the borrower;
    • charging a fee for handling a borrower dispute, facilitating routine borrower collection, arranging a forbearance or repayment plan, sending a borrower a notice of nonpayment, or updating records to reinstate a loan; or
    • pyramiding late fees.
  • Mortgage Servicing Definitions: The Division added Section 1301:8-7-35 to the OAC, which defines terms relevant for the provisions of other new sections (as discussed below), including: (a) “confirmed successor in interest,” “escrow account,” and “qualified written request,” which are consistent with Regulation X; and (b) “federal lending law” and “residential mortgage loan,” the latter of which is defined to limit the Amended Rules’ application to closed-end loans, consistent with Regulation X and Regulation Z.
  • Mortgage Servicing Transfers: The Division added Section 1301:8-7-36 to the OAC, to prohibit a transferee servicer from treating an on-time payment made to the old servicer within the 60-day period following the transfer of servicing. It also requires the old servicer to either forward the payment to the new servicer, or return it to the borrower and notify the borrower of the proper recipient. This rule generally mirrors 12 C.F.R. § 1024.33(c).
  • Escrow Accounts: The Division added Section 1301:8-7-37 to the OAC, which requires a mortgage servicer to: (i) make all required escrow payments in a timely manner, and (ii) timely return any payments due to the borrower. It also allows a servicer, if the borrower agrees, to credit any amount remaining in a borrower’s account to a new escrow account for a new loan. This rule generally mirrors 12 C.F.R. §§ 1024.34 and 1024.17(k).
  • Error Resolution Procedures: The Division added Section 1301:8-7-38 to the OAC, which establishes error resolution procedures that mirror the requirements of the CFPB mortgage servicing rules (12 C.F.R. § 1024.35).
  • Requests for Information: The Division added Section 1301:8-7-39 to the OAC, which establishes information request procedures that mirror the requirements of the CFPB mortgage servicing rules (12 C.F.R. § 1024.34).
  • Mortgage Servicer Obligations upon Loss of License: Finally, the Division added Section 1301:8-7-40 to the OAC, which provides that the revocation, suspension, or failure of a servicer to obtain or maintain a license does not affect a servicer’s obligations under a preexisting contract with a lender or borrower.

What To Do Now?

The Amended Rules significantly expand the requirements applicable to mortgage servicers subject to the RMLA. While many of the Amended Rules mirror those under the CFPB’s mortgage servicing rules, certain provisions impose additional obligations on mortgage servicers and/or apply to servicers that may otherwise be exempt from certain requirements under the CFPB’s mortgage servicing rules (e.g., small servicers). Accordingly, mortgage servicers should carefully review the Amended Rules and ensure that their policies, procedures, and controls are updated as appropriate to ensure compliance. Alston & Bird’s Consumer Financial Services Team is actively engaged and monitoring these developments and can assist with any compliance concerns regarding the changes imposed by the Amended Rules.

AVM Quality Control Rule Takes Effect October 1, 2025: Are You Ready?

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Mortgage originators, servicers, and secondary market participants should take note that the October 1 implementation date for the Interagency AVM Quality Control Rule (the “Rule”)  is fast approaching.

What Happened?

As mandated by the Dodd-Frank Act, on June 20, 2024, the Consumer Financial Protection Bureau, Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve Board, Federal Deposit Insurance Corporation, National Credit Union Administration and the Federal Housing Finance Agency (collectively, the Agencies) adopted a rule addressing the use of AVMs in mortgage origination and secondary market transactions. At a high level, the Rule (mirroring the language of Section 1125 of FIRREA) requires that mortgage originators and secondary market issuers that engage in credit decisions or covered securitization determinations, themselves or through or in cooperation with a third-party or affiliate, must adopt and maintain policies, practices, procedures, and control systems to ensure that automated valuation models used in [subject] transactions adhere to quality control standards designed to:

  1. Ensure a high level of confidence in the estimates produced;
  2. Protect against the manipulation of data;
  3. Seek to avoid conflicts of interest;
  4. Require random sampling testing and reviews; and
  5. Comply with applicable nondiscrimination laws.

Why Does it Matter?

Please see our prior blog post for a more fulsome summary of the Rule.

What To Do Now?

With implementation fast approaching, we have been fielding a lot of implementation questions, such as:

  • How does the rule apply to secondary market issuers, sponsors, or underwriters?
  • Do I need to comply if I rely on a GSE’s property inspection waiver?
  • More broadly, what do I need to do to comply given that the Rule is not prescriptive, but provides entities with flexibility to set quality control standards for AVMs based on the size, complexity, and risk profile of the entity and the transactions covered by the Rule?

Our team is happy to assist companies in prepare and to ensure that your entity has appropriate policies, practices, procedures, and controls in place to ensure compliance with the Rule’s requirements.

Servicers Take Note: Louisiana Now Allows Insurers to Offer Borrowers Stated Value Property Insurance Policies

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What Happened?

Mortgage servicers should take note that on June 30, 2025, Louisiana Governor Jeff Landry signed into law HB 356 (2025 La. Acts 480) creating the Stated Value Policy Act (the “Act”) which allows insurers to offer residential property owners an insurance policy based on the total debt of a mortgage loan. While the Act is not directly applicable to residential mortgage servicers, its implications will impact residential mortgage servicers. This law is effective as of June 30th.

Why is it Important?

 Under the Act, a “stated value policy” is a “residential insurance policy under which the insured has the option to declare a stated value for the insured residential property, which is agreed upon by the insurer as the amount of insurance coverage, irrespective of the current market value of the property.”

Insurers are required to provide a coverage limit for residential property in an amount not less than the total assessed fair market value of the property, based on the most recent assessment of the parish in which the property is located. However, if the property doesn’t have any mortgage, then the homeowner can insure the property for any stated amount of insurance. If there is a mortgage on the property, an insurer can also provide a stated value policy for a sum not less than the “verified outstanding balance of any mortgage on the homeowner’s property, ensuring that the insurance coverage adequately reflects the financial obligations associated with the property.”  To satisfy the verification requirements, the homeowner electing a stated value policy must submit to his insurer a written accurate payoff statement from the entity holding the mortgage along with a mortgage certificate from the clerk of court indicating the presence or absence of a mortgage on the property.

It is also worth noting that before issuing any policy that limits coverage on the residential property equal to the unpaid principal balance of all mortgage loans on the policy, the insurer must obtain a signed statement from all insureds which contains a notice in boldfaced 18 point font  that provides “YOU ARE ELECTING TO PURCHASE COVERAGE AT A LIMIT THAT IS EQUAL TO ONLY THE UNPAID PRINCIPAL BALANCE OF THE MORTGAGE LOAN ON YOUR HOME.  ACCORDINGLY, IN THE EVENT OF TOTAL LOSS OF YOUR HOME OR A LOSS FOR WHCH THE COST TO REPAIR YOUR HOME EXCEEDS THE UNPAID BALANCE ON YOUR MORTGAGE LOAN, YOU WILL INCUR SIGNIFICANT FINANCIAL LOSSES INCLUDING THE POTENTIAL LOSS OF SOME OF YOUR HOME EQUITY.”

Depending on the investor of the borrower’s loans, a borrower’s election to obtain a stated value policy could conflict with investor requirements.   For example, Freddie Mac imposes insurance limits that must at least equal the higher of: (i) The unpaid principal balance (UPB) of the mortgage, or (ii) 80% of the full replacement cost value (RCV) of the insurable improvements as of the current insurance policy effective date.  Moreover, insurance policies must provide for claims to be settled on a replacement cost basis. As Freddie Mac states, if during the term of the mortgage, the mortgaged property is not covered by the minimum property insurance requirements, the servicer must comply with Freddie Mac’s lender placed insurance requirements.  On the other hand, Fannie Mae requires that lender or servicer verify that the property insurance coverage amount for a first mortgage secured by one- to four-unit property is at least equal to the lesser of: (i) 100% of the RCV of the improvements as of the current property insurance policy effective date, or (ii) the UPB of the loan, provided it equals no less than 80% of the RCV of the improvements as of the current property insurance policy effective date.

What to Do Now?

Now may be a good time to educate Louisiana borrowers of the applicable insurance requirements applicable to their loans so that borrowers don’t obtain a policy inconsistent with investor requirements.

Georgia Legislation Expands Consumer Financial Protections

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What Happened?

On May 13 and 14, Georgia Governor Brian Kemp signed into law three measures that amend or expand existing consumer financial protections for Georgians, and impact mortgage lending and servicing as follows:

  • HB 240, effectively immediately upon approval on May 13, prohibits unfair and deceptive practices related to mortgage trigger leads.
  • HB 241, effective July 1, clarifies allowable convenience fees applicable to loans made under the Georgia Residential Mortgage Act (“GRMA”) (as well as laws applicable to installment loans, retail installment and home solicitation sales contracts, motor vehicle sales financing contracts, and insurance premium finance companies).
  • HB 15, effective July 1, in addition to certain licensing amendments, amends the GRMA to impose capital, net worth, liquidity and corporate governance obligation on mortgage lenders and servicers. Noteworthy, the measure requires mortgage lenders and brokers to prepare an annual risk assessment delivered to its board of directors and make it available to the regulators upon request.

Why Is It Important?

Taken together, these pieces of legislation signal Georgia’s intent to enhance consumer protections with respect to mortgage lending and servicing.

Trigger Lead Legislation: HB 240 amends the state’s unfair and deceptive trade law, called the Fair Business Practices Act (“FBPA”).  First, the measure specifies that use of a mortgage trigger lead to solicit a consumer who has applied for a loan with a different mortgage lender or broker (as those terms are defined in the GRMA) is considered unfair or deceptive when it (1) fails to clearly state in the solicitation that the solicitor is not affiliated with the mortgage lender or broker the consumer initially applied with; (2) fails to comply with state and federal requirements to make a firm offer of credit to the consumer; (3) uses the information of consumers who have opted out of being contacted; or (4) offers rates, terms, or costs with the knowledge that they will subsequently be changed to the detriment of the consumer.  For purposes of this provision, a “mortgage trigger lead,” in accordance with the federal Fair Credit Reporting Act, is defined as a “consumer report triggered by an inquiry made with a consumer reporting agency in response to an application for credit.” Second, the measure amends the GRMA to include a new paragraph prohibiting mortgage lenders and brokers form engaging in unfair or deceptive practices as outlined in Section 10-1-393.20 of the Georgia Code.

Banking and Finance Laws: HB 15 implements a variety of changes to Georgia’s banking and finance laws. The measure amends requirements for mortgage lenders related to licensing, reporting to the Nationwide Multistate Licensing System and registry, quarterly and annual reporting obligations, and calculating liquidity and net worth. The measure also requires mortgage brokers and lenders to have a board of directors and outlines their responsibilities including designing governance frameworks, monitoring licensee compliance, accurately reporting, conducting internal audits, and establishing risk management programs. The measure creates two new sections of the GRMA of particular  relevance to mortgage lenders and mortgage brokers:

  • Section 7-1-1022 outlines capital, liquidity, and net worth requirements, to be reported in accordance with generally accepted accounting principles. If a licensed mortgage lender is a covered servicer (meaning that it has a servicing portfolio of 2,000 or more residential mortgages serviced or subserviced as reported in its most recent mortgage call report), it must maintain the requisite the capital, liquidity, and net worth outlined in the Federal Housing Finance Agency Eligibility Requirements for Enterprise Single-family Seller/Servicers. All other lenders must maintain a minimum net worth of $100,000 and evidence of $1 million of liquidity (which may include a warehouse line of credit).
  • Section 7-1-1023 mirrors the corporate governance requirements in the Model Capital, Liquidity and Risk Management Framework for non-bank lenders created by the Conference of State Bank Supervisors. Every mortgage lender and broker must establish a board of directors responsible for establishing a written corporate governance framework, monitoring the licensee’s compliance with said framework, reporting regularly, developing internal audit requirements, creating risk management programs and assessments, and conducting formal reviews. The adoption of financial and corporate governance standards for servicers also follows similar legislation in other states (including Connecticut and Maryland, and Iowa) on which we have previously reported.

Convenience Fees: HB 241 revises the general provisions of Georgia contract law to amend requirements for merchants and lenders seeking to utilize convenience fees when processing electronic payments. The measure sets a floor for convenience fees, allowing merchants to charge whichever is greater — $5.00 or the average actual cost (defined as the amount paid by a lender to a third party or the amount incurred by a third party) of a specific type of payment made by electronic means. These provisions apply to banking and financial institutions, as well as lenders of retail installment loans, home solicitation sales contracts, vehicle financing contracts, and insurance premium finance agreements.

What To Do Now?

Licensed mortgage lenders and mortgage brokers should familiarize themselves with the requirements under the newly amended GRMA and FBPA, particularly the prohibitions on deceptive or unfair practices when using mortgage trigger leads or extending credit.

Mortgage lenders and mortgage brokers should also understand the newly updated licensing, reporting, governance, and liquidity requirements to ensure compliance with Georgia’s updated banking and finance regulations.

When utilizing convenience fees, lenders and merchants should verify that such fees do not exceed the maximum amount and should implement the requisite payment processing options. The $5.00 minimum may allow changes in pricing structures for some lenders and merchants.

*We would like to thank Summer Associate Elise Hall for her contribution to this blog post.