Fair Warning: State Supreme Court Rules on Foreclosure Notices

The Pennsylvania Supreme Court issued its long-anticipated decision on a question concerning notices of intent to foreclose in Pennsylvania – a question that has perplexed lenders and servicers for some time.  The issue involved situations where a foreclosure is pending and then either voluntarily withdrawn by the lender or dismissed by a court. If the lender chooses to proceed with another case after termination of a prior proceeding, and no new payments are tendered by the borrower, a question existed whether a lender was legally required to tender new Act 6 notice of intent to foreclose before commencing the second action.

The Pennsylvania Supreme Court has answered this question, and now it is clear: upon termination of a foreclosure proceeding in Pennsylvania if the lender or servicer wishes to proceed with another case, and the action is governed by Pennsylvania Act 6, new notice must be tendered.  The state Supreme Court issued its Opinion on February 20, 2019, in the matter of JP Morgan Chase Bank N.A., by its successor Great Ajax Operating Partnership, LP v. Taggart, No. 6 EAP 2018 (Pa. 2019).

In the decision, the Supreme Court reviewed several key statutes governing notice as well as the consequences of voluntary withdrawal of a case or dismissal by a court.  By way of background, Pennsylvania has two main statutes regulating notices of intent to foreclose, Act 6 and Act 91. Under Act 6, enacted in 1974, there is a specific notice that mortgagees must send to borrowers prior to imitation of foreclosure.  In 1983, the state adopted Act 91, and various amendments to that act have resulted in a new form of notice to be sent to borrowers prior to initiation of foreclosure. However, Act 91 has certain exceptions where it does not apply, specifically if the loan is insured by the FHA, or the loan is greater than 24 months delinquent, the arrears exceed $60,000.00 or the premises is not the principal residence of the borrower.

In Taggart, Act 91 did not apply as the property was not the borrower’s principal residence. Hence, Act 6 governed initiation of the foreclosure process.  The lender sent the notice and commenced a foreclosure action. The borrower moved to dismiss the foreclosure action, and the lender did not reply to the motion, resulting in dismissal of the foreclosure action by the trial court.  The lender chose to file a new action and did not send any new notices prior to initiation of the new action.

Taggart challenged the second proceeding, saying that the lender was required to send new notices before filing a new action.  The Supreme Court agreed with the borrower, and now the issue is clear in this state. If a foreclosure case is either withdrawn voluntarily or dismissed by a court, before starting a new action, if the case is governed by Act 6, a lender must send new notices of intent to foreclose. The Supreme Court stated, “A lender may not recycle a stale pre-foreclosure notice that it issued in connection with a prior complaint in mortgage foreclosure.”  Opinion at pp. 1-2. The Court concluded that “[i]n view of the statutory language, the occasion and necessity for Act 6, the mischief to be remedied, and the object to be attained, . . . Act 6 requires a new pre-foreclosure notice each time the lender initiates a mortgage foreclosure action.” Opinion at p. 14.

Stephen M. Hladik, Esquire, is a principal in Hladik, Onorato & Federman, LLP. Formerly the youngest Deputy Attorney General in charge of the Harrisburg office of the Pennsylvania Bureau of Consumer Protection, Hladik brings a broad range of experience to his mortgage foreclosure, bankruptcy, tax sale, and UDAP legal practice.