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PHFA Model Notice – No Safe Harbor – The Extensive Implications of Beneficial Consumer Discount Co. v. Vukmam

By: Kristen Wetzel Ladd

The Pennsylvania Superior Court issued a recent decision which may impact many pending mortgage foreclosure actions and cause lenders to look more closely at notices that are sent. The case involved the question of whether the Act 91 Notice (required under 35 P.S. § 1680.403c) sent by Beneficial to a mortgagor – the same notice promulgated by the Pennsylvania Housing Finance Agency (“PHFA”) prior to September 8, 2008 – was deficient under the Act. Although the notice advised of the right to have a meeting with a credit counseling agency it did not advise of the right to have the same meeting with the mortgagee. The statutory language required that the notice should provide notice regarding one or the other. Again, the notice used by Beneficial was the notice promulgated by the PHFA. The trial court specifically held that the Act 91 Notice was deficient because it omitted language informing of the right to seek a face-to-face meeting with the mortgagee within 30 days of issuance of the Notice. The trial court ordered the sheriff sale set aside and dismissed the action.

The moral of the story is that the model notices promulgated by an agency do not provide a safe harbor. The statute controls and when in doubt, provide as much and as expansive of a notice as possible.

The courts of this Commonwealth have long held that a deficient Act 91 notice strips the court of subject matter jurisdiction to entertain the action. Act 91 provides, in pertinent part, as follows:

Before any mortgagee may accelerate the maturity of any mortgage obligation covered under this article, commence any legal action including mortgage foreclosure to recover under such obligation, or take possession of any security of the mortgage debtor for such mortgage obligation, such mortgagee shall give the mortgagor notice as described in section 403-C. Such notice shall be given in a form and manner prescribed by the [Pennsylvania Housing Finance Agency (“agency”) ]…

… The agency shall prepare a notice which shall include all the information required by this subsection and by section 403 of the act of January 30, 1974 (P.L. 13, No. 6), referred to as the Loan Interest and Protection Law. This notice shall be in plain language and specifically state that the recipient of the notice may qualify for financial assistance under the homeowner’s emergency mortgage assistance program. This notice shall contain the telephone number and the address of a local consumer credit counseling agency. This notice shall be in lieu of any other notice required by law. This notice shall also advise the mortgagor of his delinquency or other default under the mortgage 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 or default by restructuring the loan payment schedule or otherwise. (emphasis added).

Again, the Notice received by the mortgagor informed her that she had thirty days to have a face-to-face meeting with a consumer credit counseling agency, but did not inform her that she could meet face-to-face with the mortgagee within those thirty days. The trial court interpreted the language highlighted above to mean that the Act 91 notice sent by Beneficial to the mortgagor had to inform of the right that the mortgagor had thirty days either to have a face-to-face meeting with Beneficial or to have a face-to-face meeting with a consumer credit counseling agency. Because the Act 91 notice Beneficial sent to the mortgagor failed to inform of the right to meet with Beneficial, the trial court concluded that the notice was deficient and that the court thus lacked subject matter jurisdiction to entertain the matter.

Beneficial argued to the Superior Court that the trial court’s interpretation of Section 1680.403c failed to give effect to the word “or.” Beneficial further argued that the PHFA was vested with the discretion to decide whether the notice sent from a mortgagee to a mortgagor should include the option of the mortgagor meeting face-to-face with the mortgagee or the alternate option of the mortgagor meeting face-to-face with a consumer credit counseling agency, and that Beneficial was entitled to rely on the notice promulgated by the PHFA.

However, the Superior Court refused to provide a “safe harbor” based on Beneficial’s reliance on the form notice and affirmed the trial court’s finding that Subsection 1680.403c(b)(1) clearly and unambiguously required a mortgagee to provide to a mortgagor notice that the mortgagor had a choice of whether to meet face-to-face with the mortgagee or a consumer credit counseling agency. Since Beneficial’s Act 91 Notice – and the form notice provided by the PHFA – did not include the language regarding the right to meet face-to-face with the mortgagee, the notice was defective, which deprived the court of jurisdiction to hear the matter, relating back to the filing of the original complaint.

On May 28, 2011, the PHFA provided notice in the Pennsylvania Bulletin (41 Pa.B. 2789) that it had insufficient money available in the Homeowner’s Emergency Mortgage Assistance Program to accept new applications for emergency mortgage assistance on or after July 1, 2011. By supplemental notice published in the Pennsylvania Bulletin (41 Pa.B. 3943), PHFA established the date of August 27, 2011, after which mortgagees shall no longer be subject to the notice provisions of the Act. Thus, at any time on or after August 27, 2011, mortgagees may take legal action to enforce a mortgage without any further restriction or requirement of the Act (i.e., the Act 91 notice) without respect to the date upon which a mortgage obligation becomes delinquent. However, mortgagees are still required to issue the notice as provided by Section 403 of the Act of January 30, 1974 (P.L. 13, No. 6), 41 P.S. § 403, (the “Act 6 Notice”) under the provisions of that Act. The Act 6 Notice is required before accelerating the maturity of residential mortgage obligations of $221,540* or less, commencing any legal action including mortgage foreclosure to recover under such obligations, or taking possession of any security of the residential mortgage debtor for such residential mortgage obligations.

Since Act 91 Notices are no longer required, this is not an issue that creditors need to be concerned going forward unless and until the funding is restored or the ACT 91 Notice is otherwise reinstated. An en banc re-argument of the Vukmam decision has been requested. Stay tuned for more developments in this interesting case.

* The dollar figure applicable to the Act 6 Notice changes annually as published by the Department in the Pennsylvania Bulletin, typically in November of each year. See, e.g., 40 Pa.B. 6537.

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