On Wednesday, September 25, 2013, the Supreme Court of Pennsylvania overturned a 2012 Superior Court decision which had long-standing implications for past, present and future foreclosure actions across the state.
The Pennsylvania Supreme Court’s opinion in Beneficial Consumer Discount v. Vukman, No. 29 WAP 2012 (Pa. 2013), in combination with the recently enacted Homeowner Assistance Settlement Act (also known as “Act 70”), effectively settled the issue that a defective notice of default would not divest a court’s jurisdiction over a foreclosure proceeding.
The Vukman case involved a challenge to a foreclosure judgment and sheriff’s sale. After the Sheriff’s sale of her property, Pamela Vukman filed a Petition to Set Aside Sheriff’s Sale, arguing that the pre-foreclosure notice of default/intention to foreclose provided to her by Beneficial (a state-mandated prerequisite to suit imposed under the terms of the Homeowner’s Emergency Mortgage Act, 35 P.S. §§1680.401c et. seq. [also known as “Act 91”]) was fatally defective, in that it failed to apprise her of her right to have a face-to-face meeting with Beneficial, the mortgagee, or a consumer credit counseling agency. Because the notice she received was defective, Vukman argued, the foreclosure suit lacked jurisdiction before the court, and the ensuing foreclosure judgment and sheriff’s sale were invalid. The trial court ruled in favor of Vukman in an unpublished opinion, holding that a defective notice would deprive the court of jurisdiction.
The Superior Court of Pennsylvania affirmed the decision of the trial court in Beneficial Consumer Discount v. Vukman, 259 WDA 2011 (Pa. Super. 2012). At the outset, the Superior Court affirmed the lower court’s finding that the state-required notice of intent to foreclose, under Act 91, was defective due to the failure to include a provision advising the debtor of her right to a face-to-face meeting with the mortgagee or a consumer credit counseling agency. The Superior Court further held that such a defect was not a merely “procedural” as argued by Beneficial (which could be waived if not timely raised by the mortgagor) but rather was jurisdictional and could not be waived; therefore, it divested the court from having jurisdiction over the foreclosure. In reaching this decision, the Superior Court explained that it was constrained by its earlier precedent holding that the notice requirements pertaining to foreclosure proceedings are jurisdictional. See Philadelphia Housing Authority v. Barbour, 592 A.2d 47, 48 (Pa. Super 1991), affirmed per curiam, 615 A.2d 339 (Pa. 1992). As a result, the Superior Court ordered that the foreclosure sale be set aside and the judgment vacated.
The Superior Court’s decision cast a pall over all foreclosure proceedings throughout the state. Because the Superior Court had found a foreclosure invalid when the lender had used the state-provided model Act 91 notices, all such proceedings involving those model notices — foreclosure cases dating back to 1998 — were potentially subject to review in light of the Vukman decision. Additionally, because jurisdiction is an essential element to a court proceeding and can never be waived, virtually every sheriff’s sale and foreclosure judgment within the state since 1998 could come under collateral attack and could possibly be set aside, regardless of the passage of time. The decision had even further far-reaching implications, as it threatened to call into question the status of good title to nearly fifteen years worth of real estate subsequently bought and sold post-foreclosure sale.
In response to the Superior Court’s ruling, the Pennsylvania legislature passed the Homeowner Assistance Settlement Act (“Act 70”).
Instead of any defects being automatically fatal to a foreclosure action, Act 70 allows the trial judge to determine if a defective notice prejudiced the mortgagor and, if so, how it should be corrected. Also, if the defect in the Act 91 notice is not raised prior to the recording of the Sheriff’s deed, a mortgagor would be considered to have waived the right to object based on an alleged improper notice. Although Act 70 squarely addressed and corrected the issues presented in the Vukman case, many members of defense bar continued to raise challenges to the court’s jurisdiction based on improper Act 91 notices under Vukman in court pleadings and motions.
The Pennsylvania Supreme Court’s decision, in as much as there may have been lingering doubts over Act 70 abrogation of the Vukman decision, has ended any questions. In reaching its decision, the Pennsylvania Supreme Court held that it was not bound by Superior Court precedent established in Philadelphia Housing v. Barbour as that decision reflected a divided panel of the Superior Court, as reflected in the per curiam decision. In summation, the Supreme Court ruled that:
It was the failure of the Mortgagor to pay the mortgage debt or otherwise comply with the terms of the mortgage, which gave rise to Beneficial’s cause of action, not compliance with the terms of Act 91.
The statutory notice requirement, as set forth in Act 91, is a procedural requirement as a precursor to an action in mortgage foreclosure. In order to act on its cause of action, Beneficial had to first comply with the procedural requirements of Act 91.
As the notice provided to Vukman failed to meet the requirements of Act 91, it was defective. Vukman could have raised a challenge based on such a defect prior to the entry of judgment. However, by failing to challenge the defect prior to the entry of judgment, Vukman had waived the right to mount such a procedural challenge. Any such defect in the Act 91 notice did not deprive the court of jurisdiction to hear the matter.
As such, and because Vukman had failed to timely object to the defective Act 91 notice, the foreclosure judgment and resulting sale of the mortgage premises was proper under the court’s jurisdiction.
In reaching its decision to have the Vukman foreclosure judgment and sale reinstated, the Pennsylvania Supreme Court established conclusively that a defective Act 91 notice will not deprive a Court of jurisdiction in a foreclosure action.
