Sunday, October 13, 2013

FYI: PA Sup Ct Holds Defective Pre-Foreclosure Notice Not Sufficient to Undo Foreclosure

The Supreme Court of Pennsylvania recently held that a mortgagee's failure to comply with a state statute requiring pre-foreclosure notice to a mortgagor of her option to meet face-to-face with the mortgagee or a consumer credit counseling agency did not divest the trial court of jurisdiction over the mortgagee's foreclosure.


After a mortgagor defaulted on her mortgage loan, the mortgagee commenced foreclosure.  Prior to filing its foreclosure complaint, and in an effort to comply with the Pennsylvania's Homeowner's Emergency Mortgage Act, 35 P.S. §§ 1680.401c et seq. ("Act 91"), the mortgagee provided the mortgagor with notice of her option to arrange a face-to-face meeting with a consumer credit counseling agency to attempt to resolve the delinquency.  The mortgagor and mortgagee eventually agreed to a settlement providing the mortgagee with a judgment for the accelerated amount due on the mortgage, which the mortgagee agreed not to execute so long as the mortgagor made regular payments.


Following the mortgagor's default on her obligations under the settlement agreement, the mortgagee executed its judgment and purchased the mortgagor's property at a foreclosure sale.  The mortgagor moved to set aside the judgment and sale on the basis that the mortgagee's notice prior to its initial foreclosure action was deficient. 


Specifically, the mortgagor relied on the language of Act 91 as enacted at the time of the initial foreclosure action, which "required a mortgagee who desired to foreclose to send notice to the mortgagor 'advis[ing] the mortgagor of his delinquency . . . and that such mortgagor has thirty (30) days to have a face-to-face meeting with the mortgagee who sent the notice or a consumer credit counseling agency to attempt to resolve the delinquency . . . by restructuring the loan payment schedule or otherwise.'"  Slip Op. at 5 (citation omitted) (alterations and emphasis in original).  Because the mortgagee's notice only provided her with the option of meeting with a consumer credit counseling agency, and not the alternative choice of meeting with the mortgagee, the mortgagor argued that the notice was deficient, thereby preventing the mortgagee from now foreclosing.


The trial court agreed with the mortgagor that the mortgagee's notice was deficient, and further held that the defective notice stripped the court of jurisdiction.  The trial court thus set aside the judgment and sale, and dismissed the mortgagee's original foreclosure complaint.  The intermediate appellate court affirmed.


The Supreme Court of Pennsylvania reversed the dismissal of the mortgagee's original foreclosure complaint, and remanded the matter for further proceedings.


On appeal before the Supreme Court of Pennsylvania, the mortgagee argued that Act 91's notice provisions did not implicate the trial court's jurisdiction, but instead were procedural requirements that went to the power of the court to act and were thus waivable.  Conversely, the mortgagee argued that the statutory notice requirements were mandatory, and that the legislature intended them to be met before a foreclosure action could be commenced.


In Pennsylvania, "'[c]laims relating to a tribunal's power are, unlike claims of subject matter jurisdiction, waivable.'"  Slip Op. at 7 (citation omitted).  Moreover, "[i]n the absence of a clear legislative mandate, laws are not to be construed to decrease the jurisdiction of the courts."  Slip Op. at 8.


On appeal, the Pennsylvania Supreme Court observed that whether Act 91 notice implicates subject matter jurisdiction was an issue of first impression.  However, the Court found persuasive a recent opinion by the New Jersey Supreme Court "reject[ing] a mortgagor's argument that a defect in a pre-foreclosure notice violates a 'jurisdictional precondition' and renders any resulting judgment void" on the basis that the statute at issue lacked any explicit statement by the legislature indicating that the notice requirements implicated jurisdiction.   Slip Op. at 7 (citing U.S. Bank Nat'l Assoc. v. Guillaume, 38 A.3d 570, 587 & n.4 (N.J. 2012)). 


The Pennsylvania Supreme Court then distinguished subject matter jurisdiction, which concerns a party's ability to commence a cause of action that sets forth "'a factual situation [entitling] one person to obtain a remedy in court from another person,'" from procedural law, which are "'the rules that prescribe the steps for having a right or duty judicially enforced . . . .'"  Slip Op. at 9 (citations omitted). 


Applying this distinction, the Court concluded that "the Act 91 notice requirements appear to fit comfortably in the procedural realm, as they set forth the steps a mortgagee with a cause of action must take prior to filing for foreclosure," and "do not sound in jurisdiction, as they do not affect the classification of the case as a mortgage foreclosure action."  Slip Op. at 9. 


Finally, the Court emphasized that "the lack of explicit language in Act 91 prescribing that such requirements are jurisdictional cautions against this Court treating them as such."  Slip Op. at 9.





Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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