MORTGAGE FORECLOSURE: Act 6 Notices are required after August 27, 2011.

Posted By Cliff Tuttle | February 10, 2012

No. 809

In the case of Beneficial Consumer Discount Co. v. Vukmam, 2012 Pa. Super 18, the Superior Court held that a sheriff sale must be vacated due to a defective form of notice promulgated by the Pennsylvania Housing Finance Agency (PHFA) under Act 91 0f 1983.  The underlying statute gave mortgagors the choice to have a face-to-face meeting with either the mortgagee or a consumer credit counselor in order to attempt to resolve the delinquency.  This created a jurisdictional problem, since the notice failed to inform the mortgagor of the choice of meeting with the mortgagee. The facts and holding in the Vukmam (probably actually “Vukman”) case are discussed at length in the immediately preceding post, No. 808.

However, the story of Act 91 does not end here.  The primary mission of PHFA,was to administer the emergency loan program that was created through Act 91 in response to the widespread foreclosures during the recession of the early 1980’s.  On July 21, 2011, after drastic state budget cuts put PHFA out of the lending business, the Agency and the Department of Banking announced in a bulletin that foreclosing lenders would no longer be required to send Act 91 notices after August 27, 2011.  However, the bulletin noted, formal notices under Act 6 of 1974 would be required.

Section 409C of the Act provides that the Act is inapplicable to any mortgages that become delinquent when the fund is out of money. The State Treasurer must inform the PHFA quarterly of the amount in the fund.  If the funding becomes insufficient, PHFA must publish an announcement of that fact and lenders would thereafter become free from the notice requirements. Thus, borrowers becoming delinquent after August 27, 2011 should receive an Act 6 Notice, if applicable, but not an Act 91 Notice.

Act 6 had, over the years, been almost forgotten.  Act 6 was similar to Act 91 in some respects, but each had aspects not covered by the other. Act 6 required certain disclosures to be given to owners of residential properties at least 30 days prior to the filing of a complaint.  The definition of residential properties was broader in Act 6 — the property only had to be used for residential purposes, but not be owner-occupied. That could include rental properties with multiple units. Thus, landlords renting to residential tenants were entitled to Act 6 Notices.

Because Act 6 was not repealed by the adoption of Act 91, many lenders initially sent both notices or the Act 6 only when Act 91 did not apply.  Eventually, however, case law validated the practice of sending an Act 91 notice to cover both statutes.  Then, a joint Act 6-Act 91 notice was created by PHFA.  Moreover, the jurisdictional limitation of Act 6 to loans of $50,000 or less made it less of a factor with every passing year.

In 2008, the jurisdictional limit of Act 6 was vastly increased to reflect inflation over the years. The current jurisdictional limit for Act 6 is $221,540.  Amazingly,  the buying power of $50,000 in 1983, requires $221,500 today. Today, a borrower who takes out a $500,000 home mortgage is not covered by Act 6.  Click this link to see the  suggested form of an Act 6 Notice as set forth in the regulations.

That does not mean, however, that properties outside the jurisdiction of Act 6 can be foreclosed without any notice.  Most mortgage forms used in Pennsylvania contain a provision regarding notice of acceleration prior to foreclosure.  Thus, in most cases, giving some kind of notice may be a contractual requirement, if not a statutory one.

Going forward, the task of mediation of delinquencies prior to foreclosure seems to have fallen upon the courts.  “Diversionary” programs have been established in a number of counties through the courts of Common Pleas.  Allegheny, Butler, Fayette and Washington Counties are among this group. The Philadelphia program has reported substantial success in facilitating default cure agreements and the Allegheny County program, after getting off to a slow start, seems to be showing results.  However, the vast majority of the 67 counties do not have such mediation programs.

It wasn’t that long ago that home mortgage lending was a strictly local phenomenon.  It was primarily done by local banks and thrifts and, to a lesser extent, credit unions. The rise of mortgage brokers and the mass securitization of home loans changed that.  Increasingly, it was no longer possible to walk into the loan department of the neighborhood savings and loan association and work out a payment arrangement.  Although the national lenders had customer service by phone, the person on the other end had no authority and was frequently reading from a script.  When securities trustees became owners of a vast number of home mortgages, an additional barrier was created.  They were not lenders and had no interest in accommodating anyone.  The accounts were administered by loan servicers, who were given very limited authority.

The diversionary programs have re-established the lines of communication, at least in part. The judge is a member of the community and shares the common belief that its members must be treated fairly.   Diversionary programs have also provided a  buffer of time and an agenda of events that create an opportunity for the delinquent borrower to come to grips with the realty of the situation and do something constructive about it.  By working with the consumer credit counselor on a budget, the borrower is given the opportunity to propose a workable recovery plan.  The diversion program is not as effective as a face-to-face workout with the neighborhood thrift, but those days are (sadly) unlikely to return. Although the diversion system is quite imperfect, in more times than we might expect, it actually works.

CLT

Welcome

CLIFF TUTTLE has been a Pennsylvania lawyer for over 45 years and (inter alia) is a real estate litigator and legal writer. The posts in this blog are intended to provide general information about legal topics of interest to lawyers and consumers with a Pittsburgh and Western Pennsylvania focus. However, this information does not constitute legal advice and there is no lawyer-client relationship created when you read this blog. You are encouraged to leave comments but be aware that posted comments can be read by others. If you wish to contact me in privacy, please use the Contact Form located immediately below this message. I will reply promptly and in strict confidence.

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