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Pennsylvania: Two Important Judicial Rulings for Lenders

Posted By USFN, Tuesday, March 4, 2014
Updated: Monday, October 12, 2015

March 4, 2014


by Louis P. Vitti
Vitti & Vitti & Associates. P.C. – USFN Member (Pennsylvania)

A recent Pennsylvania case, Hirsch v. Citimortgage, 2:13-cv-1344, involved allegations of breach of contract and the Unfair Trade Practices and Consumer Protection Law (UTPCPL) against Citimortgage. The lender raised res judicata as a defense, asserting that the claims could no longer be made by virtue of the judgment entered in the foreclosure action.

As background in Hirsch, the borrowers had been in a Chapter 7 proceeding, were discharged from the bankruptcy, and were making their monthly mortgage payments continuously. After determining that there were tax liens on the property, the lender required satisfaction of those items and refused to accept payments until such liens were removed.

In a rather lengthy, well-thought opinion, the court indicated that since defenses to mortgage foreclosure in Pennsylvania may only arise at the time of the loan being made and counterclaims are otherwise not permitted, the prior judgment in a foreclosure could not act as a bar to the claims made in the instant case for bad faith and breach of contract. (Pennsylvania Rules of Civil Procedure provide that a party in foreclosure may plead a counterclaim only when the cause of action is part of, or incident to, the creation of the mortgage itself.)

The borrowers were unable to identify a specific contractual provision that was breached. The court looked to whether there was a breach of the implied covenant of good faith and fair dealing, holding that there is such an implied covenant in every Pennsylvania contract. The implied covenant breach was not properly pled, and the court dismissed the claim. In its final ruling, however, the court permitted an amendment of the complaint to cure the deficiency.

Additionally, the court reviewed the UTPCPL claim, holding that in accordance with Pennsylvania law the borrower-plaintiffs must establish that they “justifiably relied on the information (or misinformation) presented by” the lender, “that they engaged in some detrimental activity based on the Defendant’s conduct. Moreover, they must show that they suffered damages as a proximate result of such reliance.” The court ruled that the complaint failed to sufficiently allege the violation because the borrowers did not sufficiently plead all of the elements of the violation of the UTPCPL-catchall provision. This second count of the borrowers’ complaint was dismissed as well, with the court also granting leave to amend.

Act 91 Notice & Assignment Recording
Another case in Pennsylvania, Citimortgage v. Smiler, 61 Chester County Law Reporter 433, clears up a procedural matter facing lenders in foreclosure proceedings and allows some positive relief. The required Act 91 notice sent to borrowers before initiating foreclosure may be sent to the borrowers prior to the recording of the assignment of mortgage to the plaintiff-lender; such recording of assignment after issuance of the Act 91 notice to the borrowers does not invalidate the notice.

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