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Mortgage Foreclosure: Act 6 Provision Changing Definition of Residential Mortgage May Not Be Applied to Mortgages Created Before the Effective Date of the Amendment, Even Though Foreclosure Action was Initiated After Amendment.

Posted By Cliff Tuttle | November 29, 2018

No. 1,588

JOHNSON v. PHELAN HALLINAN & SCHMEIG, 2018 Pa. Super. 141 (2018).

Om May 23, 2002, EdElla and Eric Johnson executed a mortgage secured by their residence in the amount of $74,000.00. After a 2008 default, a complaint in mortgage foreclosure was filed against the Johnsons in behalf of the mortgage lender by the law firm of Phelan Hallinan & Schmeig, LLP.

The foreclosure complaint included attorneys fees in the amount of $1,300.00, which Johnsons assert, in a subsequent class action suit, were assessed in violation of Section 406 of the Pennsylvania Loan Interest and Protection Law 41 P.S. §§ 101 et seq., popularly known as Act 6.

While the foreclosure was pending, on March 23, 2012 the Johnsons initiated a class action against Phelan alleging that the firm was claiming fees in connection with foreclosure actions in excess of the amount they were entitled to under Act 6 from the Johnsons and members the class. The Johnsons claimed treble damages and attorney’s fees under the statute for themselves and members of the putative class.

Phelan filed preliminary objections, asserting that under the language in the statute, Section 406 could be applied only to “residential mortgage lenders, ” which it was not.  Preliminary objections were sustained and the case was consolidated on appeal with Glover v. Udren Law Offices, PC,92 A.2d 24 (Pa.Super. 2014). The Superior Court affirmed, but the Supreme Court reversed at  139 A.3d 195 (2016), holding that the legislature did not intend to limit application to mortgage lenders only, but to other persons, including the attorneys who bring the foreclosure actions.

However, the case was remanded for further determination regarding whether Phelan”collected” the allegedly excessive fees.

On remand, Phelan raised a wholly new issue: whether the Johnson Mortgage was a “residential mortgage” under Act 6.  Phelan observed that Act 6, enacted in 1974, had originally defined the term “residential mortgage” as one securing a loan of $50,000 or less.  Over the years, this limitation had made Act 6 increasingly irrelevant. Then, in 2008, the Pennsylvania legislature increased the defined term to the inflation-adjusted amount of $217,873, with provisions for further administrative escalation over time.

Phelan argued that the mortgage was executed before the amendment and therefore the $74,000 principal amount made it not a residential mortgage under Act 6.  Johnsons argued that the foreclosure was commenced after the effective date of the amendment and that the larger amount applied.

The trial court agreed with Phelan, placing the issue before the Superior Court.

Under the Statutory Constructive Act, writes Judge Bowes for the Court, there is a presumption against retroactive application of statutes.  However, there is an exception. While substantive law may not ordinarily be applied retroactively, procedural law can.

She stated that “our review of the 2008 amendment to Act 6 reveals no indication by the General Assembly that the increased monetary limit for ‘residential mortgages’ was ‘clearly and manifestly’ intended to apply retroactively to mortgages executed prior to its effective date. See 1 Pa.C.S. § 1926. Accordingly, section 1953 requires that we construe the amendment as taking effect on the date selected by the General Assembly, i.e., September 8, 2008. See 1 Pa.C.S. § 1953.”



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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