“Timing is Everything with Act 91 Notice Challenges”
COPYRIGHT. 2013. ALM. ALL RIGHTS RESERVED. UNAUTHORIZED REPRODUCTION IS PROHIBITED.
This past summer, our Superior Court filed a noteworthy opinion highlighting just how strictly statutory timing requirements can be construed. The facts in the Nationstar Mortgage, LLC decision (2013 PA Super 233, No. 802 EDA 2012, 8/13/13) are straightforward enough. Back in February of 2007, a borrower executed and delivered a mortgage on the Philadelphia County property to AAKO, Inc; that mortgage was recorded the same month. The mortgage was eventually assigned to Mortgage Electronic Recording Systems and then again to GMAC Mortgage, Inc. (“GMAC”) about a year later.
The borrower defaulted on the subject loan, prompting GMAC to commence a foreclosure action on December 4, 2007. An Answer was never filed and accordingly default judgment was entered in favor of the lender. Subsequent to the entry of the judgment, the Mortgage was assigned yet again to National Mortgage LLC, the Appellee in the present matter. As the property was a primary residence, the matter made its way into Philadelphia County’s Foreclosure Diversion Program. At some point, a conciliation conference was held and the parties achieved an agreement to postpone the sheriff’s sale, affording them some additional time to strike a deal. Ultimately though, a settlement could not be reached, resulting the property being relisted for sheriff’s sale, compelling the borrower to file a petition to postpone the sale.
The trial court granted the requested relief with the caveat that there would be no further postponements without agreement of the parties. Eventually, on September 13, 2011 (nearly four years at the commencement of the underlying foreclosure action), the property was sold at sheriff’s sale; it went back to the lender. After the sale, the borrower filed what were entitled Motions to Dismiss and to which the Appellee responded. Both Motions were denied. On November 15, 2011, the Sheriff delivered and recorded the new deed, prompting the Appellant to file yet another motion, this time a Motion to Set Aside the Sheriff’s Sale, in which the theory that the Act 91 notice was somehow defective was raised for the very first time in the litigation. The Appellee tendered its Opposition and eventually a hearing was conducted on February 3, 2012, more than two months after recording of the new deed; the trial court denied said Motion.
In ruling, the lower court determined that the pre-complaint Act notice was not defective and thus could not constitute a basis for setting aside the sale. The Appellant contended that the notice was defective as it omitted the name of the original lender and listed GMAC as the “current lender/servicer” although the mortgage had not technically been assigned to GMAC until after the default judgment has been entered. Yet, at least in the trial court’s estimation, the borrower’s conduct seemed to belie the claim that the notice had been insufficient. For instance, subsequent to receiving the notice, the borrower entered into a negotiation with GMAC, even participating in the Mortgage Foreclosure Diversion Program. So in the lower court’s view, notice of the foreclosure action was both adequate and in conformity with the law.
The single issue on appeal was whether the trial court erred in denying the motion to set aside the sale for a defective notice. The Superior Court easily affirmed and utilized a slightly different approach. It concentrated on the question of whether the borrower’s defect theory had been timely raised. More specifically, section 1681.5(2) of the Homeowner Assistance Settlement Act, 35 P.S. §§ 1681.1-1681.7 provides in pertinent part that the “failure of a mortgagee to comply with the requirements of sections 402-C and 403-C of the Housing Finance Agency Law must be raised in a legal action before the earlier delivery of a sheriff’s or marshal’s deed in the foreclosure action or delivery of a deed by the mortgagor.” In the instant case, Appellant’s first mention of this defect theory came nearly two weeks after delivery of the sheriff’s deed. Essentially, for the Superior Court, it was just too little too late, with the Act’s unequivocal language easily empowering it to reach such a conclusion.
Despite the end result, the Appellant’s argument is still worth considering, especially as it relates to standing and where a litigant might have the ability to raise such an argument in the future. Under the Appellant’s logic, GMAC was not even the “true loan holder” at the time the default judgment had been entered and hence was not in a position to assign an interest to the Appellee. As such, the new lender would have been “without authority to proceed to a sheriff’s sale.” Going even one step further, the lower court would have been without jurisdiction even to order that a sale be permitted to occur in the first place. The problem with the borrower’s theory, in addition to being asserted too late statutorily speaking, was that there was still the matter of a default judgment having been taken. By permitting such a result, the Appellant essentially admitted to all of the bank’s allegations.
Critically, in paragraph 3 of the underlying foreclosure complaint, GMAC specifically alleged that it was “now the legal owner of the mortgage and is in the process of formalizing an assignment of same.” Thus, having admitted that GMAC was the “legal owner” of the mortgage in the foreclosure action, the Appellant should not now be permitted to allege the opposite merely for the sake of avoiding an unfavorable result. The Nationstar Mortgage, LLC decision is important for practitioners as is underscores the importance of raising critical defenses and issues as early on in the litigation process as possible. Once that gavel falls, new theories will be much harder to introduce.
Harper J. Dimmerman is also an adjunct professor at Temple University’s Fox School of Business. His office represents clients in various litigation and real estate law matters and they may be reached at email@example.com or 215-545-0600.
James M. Lammendola is an Instructor at Temple University’s Fox School of Business who was in private practice for twenty years. He may be reached via e-mail at firstname.lastname@example.org or telephone 267-254-3324.