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PA Supreme Court Holds Borrower Not Entitled to Atty’s Fees for Aff Def Under Act 6

The Supreme Court of Pennsylvania recently held that a borrower is not entitled to attorney’s fees under the Pennsylvania Loan Interest Law (“Act 6”) relating to an affirmative defense raised in a mortgage foreclosure action that was subsequently discontinued without prejudice.

A copy of the opinion in Bayview Loan Servicing, LLC v. Lindsay is available at:  Link to Opinion.

The borrower defaulted on his mortgage loan, and the mortgagee filed a foreclosure action. Thereafter, the borrower answered the foreclosure complaint and asserted as an affirmative defense an alleged violation of § 403(a) of Act 6, which, according to the Court, is an “extensive program designed to avoid mortgage foreclosures” and requires in relevant part that:

Before any residential mortgage lender may accelerate the maturity of any residential mortgage obligation, commence any legal action including mortgage foreclosure to recover under such obligation, or take possession of any security of the residential mortgage debtor for such residential mortgage obligation, such person shall give the residential mortgage debtor notice of such intention at least thirty days in advance as provided in this section. 41 P.S. § 403(a).

The mortgagee moved for summary judgment.  The trial court denied the mortgagee’s motion for summary judgment based upon unresolved factual issues surrounding in part the borrower’s affirmative defense under § 403(a) of Act 6. The mortgagee dismissed the foreclosure action without prejudice a week later.

The borrower then filed a motion for attorney’s fees pursuant to § 503(a) of Act 6, which provides:

If a borrower or debtor, including but not limited to a residential mortgage debtor, prevails in an action arising under this act, he shall recover the aggregate amount of costs and expenses determined by the court to have been reasonably incurred on his behalf in connection with the prosecution of such action, together with a reasonable amount for attorney’s fee. 41 P.S. § 503(a).

The trial court denied the borrower’s motion, holding that because the mortgagee dismissed the foreclosure complaint without prejudice to refile, the borrower was not a “prevailing party” under § 503(a) of Act 6.

The Superior Court affirmed, relying on its recent opinion in Generation Mortgage Co. v. Nguyen, 138 A.3d 646 (Pa. Super 2016), which had near identical facts, and held that a mortgage foreclosure action does not “arise under” § 403(a) of Act 6 for purposes of § 503(a)’s applicability and thus the borrower could not be a prevailing party thereunder and entitled to attorney’s fees.

On appeal, the Pennsylvania Supreme Court, disagreeing in part with the Superior Court’s reasoning, identified that the issue to be resolved was “what constitutes ‘an action under [Act 6].’”

The Supreme Court noted that the borrower’s position was that the assertion of an affirmative defense was an “action” sufficient to permit attorney’s fees, while the mortgagee argued that an affirmative defense pursuant to § 403(a) raised in a foreclosure action was not an “action” arising under Act 6 as contemplated by § 503(a) for purposes of awarding attorney’s fees.

Agreeing with the mortgagee, the Pennsylvania Supreme Court held that, as used in Act 6, the term “action” was “a term of art with a precise and settled meaning, namely a judicial proceeding, i.e., a civil action in which the plaintiff seeks some form of relief.”

In contrast, the Court also held, “an affirmative defense is not an action, but rather is the statement of new facts and arguments that, if true, will defeat plaintiff’s action.” Consistent with this reasoning, the Court further held that “no language in Act 6 states, or even suggests, that the assertion of an affirmative defense by a residential mortgage debtor in a civil proceeding instituted by another party (i.e., a creditor) constitutes an ‘action’ under Act 6.”

As a result, the Court concluded that pleading a violation of section 403(a)’s notice requirement as an affirmative defense in a residential foreclosure action neither constitutes ‘an action arising under [Act 6],’ nor (as the borrower argued) transforms the foreclosure action into ‘an action arising under [Act 6].’ In the present case, the borrower asserted the violation of § 403(a) by affirmative defense and obtained no judicial determination that the mortgagee violated §403(a)’s notice requirement.

Thus, the Pennsylvania Supreme Court ruled, the borrower did not establish a basis for an entitlement to attorney’s fees under Act 6.  Accordingly, the rulings of the lower courts in favor of the mortgagee were affirmed.

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Shannon Miller is based in Maurice Wutscher's Pennsylvania office, where he focuses his practice on various aspects of financial services law, with an emphasis on consumer financial services litigation. He has successfully represented financial institutions and law firms throughout the country for claims filed under the Fair Debt Collection Practices Act, Fair Credit Reporting Act, and various state consumer protection statutes. Shannon has first-chaired more than 100 jury trials. He is a former prosecutor for the Delaware County Office of the District Attorney, where he investigated and prosecuted white collar crimes, and other felonies.