Mortgage Foreclosure Defense

Many lawyers and judges have long assumed that if a mortgage company seeks to foreclose, the defendant probably owes the money and has no defense. In fact, as recent publicity concerning the widespread problem of predatory lending has made clear, many mortgage lenders overreach. In a substantial portion of residential mortgage foreclosures, the homeowner has a valid defense to at least part of the claim. Either they are not in default at all, or the extent of the default is significantly less than claimed, or the mortgage is subject to attack, most likely under the Truth in Lending Act, 15 U.S.C. §1601 et seq. (“TILA”), as amended by the Home Ownership & Equity Protection Act of 1994, 15 U.S.C. §§1602(aa) and 1639 (“HOEPA”), and implementing Federal Reserve Board Regulation Z, 12 C.F.R. part 226.

Santillán Law, P.C. has gained insight to properly understand your opposition, the judge, and the peculiarities of the county, in order to counsel you on how best to determine whether procedural or substantive irregularities are evident which would allow for a successful defense to an action in Mortgage Foreclosure.

ALTHOUGH it has been our experience that the easiest and most economical way of staying Foreclosure Proceedings is to file for Chapter 13 bankruptcy, we recognize that certain individuals may not desire to enter bankruptcy to save their home but, would rather litigate their state rights and defend the foreclosure action in State Court.

ACCORDINGLY, we are providing the following synopsis of the law. After reading the below, if you believe that your circumstances show that a material irregularity exists, contact us should you desire assistance in saving your home from the Sheriff’s gavel.

Introduction: Dealing With the Homeowner in Foreclosure

In dealing with the homeowner in foreclosure, it is important to remember that a person’s investment in a home usually is substantial from both an emotional and a financial standpoint. The prospect of foreclosure can be a traumatic event. Even the client whose situation is hopeless may not want to admit, at least initially, that they must give up their residence. Thus, it is important for the attorney representing the homeowner to give the client an opportunity to sort things out.

In the meantime, in order to prevent the arrearage from growing too large and also to allow the client to come to grips with the reality of their situation, it is usually prudent to ask the client to begin escrowing monthly mortgage payments. If an individual cannot make full payment due to a loss of income or other circumstances, the individual must escrow what they can afford on a monthly basis. The attorney needs to review the client’s monthly budget in order to arrive at a realistic escrow payment. Going through this exercise may, at some point, help the individual to decide whether they are able to save their home.

In the meantime, it is important to ascertain where the individual is in the foreclosure process. To assist the attorney in defending the mortgage foreclosure, the individual must gather certain documents in order to properly the situation:

a) all documents involved with obtaining the mortgage, including the mortgage in question, plus any additional mortgages on the property, the property deed, disclosure statements including the truth in lending disclosure, the note, the loan agreement and settlement sheet;

b) all written communications received from the original mortgage company, its assignee, servicing agent or any other party purporting to represent the mortgage company; and

c) any legal documents that have been served on the mortgagor by posting personal service or by mail.

In reviewing the mortgage document, the attorney should first ascertain whether the mortgage is conventional, federally insured or whether the transaction actually involves a land installment contract. It is important to quickly ascertain whether the individual has received a “Notice of Intention to Foreclose Mortgage” pursuant to Pennsylvania Act 6, (41 P.S. §403), and whether your client has also received a “Notice of Homeowners Emergency Mortgage Assistance,” (35 P.S. §1680.402c). These important notices may be combined into one notice to the homeowner. (35 P.S. §1680.403c(b)). In case of HUD insured FHA mortgage, the notice of homeowners assistance does not need to be sent; nor does such a notice have to be sent in the case of Rural Housing Service (Farmers Home Administration) mortgage loan.

Act 6 Notice

Pennsylvania Act 6 gives the delinquent homeowner/mortgagor certain important rights. Among them is the right to cure the mortgage default and reinstate the mortgage at any time up to one hour before a Sheriff Sale. But the defaulting mortgagor must tender the missing payment but also late fees, interest, attorneys’ fees and costs as specified in 41 P.S. §404(b). The cure must be effected by tendering a cashier’s check or certified check in the proper amount.

Under Act 6, 41§101 et seq., this provision only applies to mortgages of less than $ 50,000. Obviously, under today’s market condition, there are many mortgages for which this provision will have no applicability. However, counsel should carefully review the mortgage documents to see if the mortgage itself provides for notice similar to that mandated by Act 6 or if such a notice has actually been sent to the homeowners despite a loan for more than $50,000.

The Key Provisions of Act 6

The mortgagee must give 30 days written notice before accelerating the loan maturity and before bringing any legal action to the loan obligation. (41 P.S. §403(a)).

The provisions of the Act apply to all residential mortgages including installment land contracts. (41 P.S. §403(a)).

A “residential mortgage” subject to Act 6 is defined as one in the amount of $50,000 or less secured by a lien on real property on which there are two or fewer residential units or on which two fewer residential units are to be constructed. (41 P.S. §101).

The foreclosing mortgagee must send its Act 6 notice with intention to foreclose by registered or certified mail to the mortgagor’s last known address. In the event the last know address is different from the address of the residence, the notice must be sent to both places. (41 P.S. §403(b)).

The notice of intention to foreclose must clearly and conspicuously state:

a) the particular obligation or security interest involved;

b) the nature of the default (it may be non-monetary);

c) the debtor’s right to cure and what performance, including the amount of money, that must be tendered in order to cure;

d) the allotted time for the debtor to cure;

e) method by which the debtor’s ownership or interest may be terminated; and

f) the debtor’s right to refinance the debt or transfer the real estate subject, of course, to the security interest.

As mentioned previously, even in the case where the original principal amount of the debt exceeds $50,000, the terms of the mortgage document itself may require the foreclosing mortgagee to give the Act 6 notice or a notice that closely approximates it to the homeowner. In one case where an Act 6 notice was mistakenly given a mortgagor with an original principal loan balance exceeding $50,000, the court permitted the mortgagors to cure the default because the had tendered the amount the bank had demanded in its Act 6 letter.

The Pennsylvania Superior Court has said that the principle function of the Act 6 notice requirements is to “make the mortgagor aware of the existence of a default and his right to cure it”.

The failure to give the defaulting mortgagor a proper Act 6 notice has therefore been held to deny subject matter jurisdiction to the foreclosure court. In re: Sharp, 14 B.R. 817 (Bkrtcy. E.D. Pa. 1982). In Sharp, the mortgagee’s failure to give a proper Act 6 notice led to bankruptcy court to set aside the sheriff sale and to order a reconveyance of property to the debtor/homeowner. In Bankers Trust v. Foust, 424 Pa. Super. 89, Pennsylvania Superior Court called the delivery of a correct Act 6 notice a prerequisite to the court’s subject matter jurisdiction.

Act 91 Notice

Pennsylvania’s foreclosure crisis of the late 1970s and early 80s led to the passage of Act 91, the Homeowners’ Emergency Assistance Act in 1983. (35 P.S. §1680.401(c) et seq.) This legislation established the HEMAP (Homeowners’ Emergency Mortgage Assistance Program) which offers mortgage assistance in the form of a special loan to homeowners who have found themselves in foreclosure due to circumstances beyond their control. Briefly stated, HEMAP offers emergency loan assistance to qualified mortgagors for up to 24 months.

The Act 91 statute defines mortgages to include any obligation evidenced by a security document and secured by a lien upon real property located within this Commonwealth including, but not limited to, a deed of trust and land sale agreement. The terms shall also include an obligation evidenced by a security lien on real property upon which an owner occupied mobile home is located. 35 P.S. §1680.401c(a).

Where Act 91 Does Not Apply:

There are several situations where Act 91 does not apply. These include situations where:

a) The property is not the principal residence of the mortgagor.

b) The property is not a one or town family owner-occupied residence.

c) The mortgage is a FHA insured mortgage under Title II of the National Housing Act.

d) The mortgage was given by a non-corporate entity (someone not a bank, S&L, mortgage bank, consumer discount company or other entity in the mortgage business).

e) The mortgagor is more than 24 months delinquent or otherwise in default for that period of time. The 24 months in arrears need not be consecutive.

f) The aggregate amount of unaccelerated arrearages including principal, interest, taxes, assessments, ground rents, hazard insurance, mortgage insurance or credit insurance premiums exceeds $ 60,000.

g) There are more than two mortgages on the property (excluding a HEMAP mortgage.)

Notice Requirements of Act 91 are as Follows:

a) The mortgagor must be at least 60 days contractually delinquent in payments or be in violation of any other provision of the mortgage.

b) The notice shall be in plain language and contain the telephone number and address of a local consumer credit counseling agency and be in lieu of an Act 6 notice.

c) The notice must be sent by registered or certified mail and by 1st class mail to the last know address of the mortgagor and if different, to the residence which is subject to the mortgage in question. (12 Pa. Code §31.203(a)(1)).

d) The notice must advise the mortgagor of his delinquency or other default and notify the mortgagor that he has 30 days to have a face-to-face meeting with the mortgagee or the consumer credit counseling agency to resolve the problem. The notice must be given at least 30 days before acceleration before any legal action is taken.

e) The notice must conform to the model form published by HEMAP agency. (See appendix A, 12 Pa. Code §31.202 et seq.).

f) The notice must contain the time deadlines (See below) for loan application; attendance at a face-to-face meeting with the mortgagee or HUD approved counseling agency determination of eligibility for assistance.

Act 91 Time Deadlines

The following are the time deadlines set forth in the HEMAP statute (35 P.S. §1680.403c(b).

They are as follows:

a) Thirty days to have a face-to-face meeting with the mortgagee or consumer credit counseling agency to attempt to resolve the delinquency or default by restructured loan payments.

b) If the mortgagor is unable to resolve the delinquency or default within the first 30 days after meeting with mortgagee or counseling agency, the mortgagor may apply for emergency mortgage assistance through the program. This is usually done through a local counseling agency. (Must be done within original 30 days).

c) Upon meeting with consumer credit counseling agency, the counseling agency is required to promptly notify all mortgagee of said meeting. Any mortgagee so notified may not commence legal action for a period of 30 days from the date that the mortgagor first meets with the consumer credit counseling agency.

d) If an application is made for mortgage assistance, the agency will again notify the mortgages. HEMAP agents must make a determination of eligibility within 60 days of receipt of the application for assistance. During this time period, the mortgages are precluded from commencing legal action.

Needless to say, if your client is within the time limit for application, and has received an Act 91 letter, have him make application for assistance immediately through one of the counseling agencies listed in the letter.

Act 91 Eligibility
(35 P.S. §1680.404c)

To be eligible for Act 91 benefits the most important facts the mortgagor must show are:

a). The property in question is one or two family owner-occupied Pennsylvania residence (May be a condo or co-op unit).

b). The mortgagee has indicated its intention to foreclose and the mortgagor is at least 60 days delinquent.

c). The mortgage in question is not an FHA/HUD insured Title II mortgage.

d). The mortgagor is not suffering financial hardship due to circumstances beyond his control and is a Pennsylvania resident. (See below)

e). The mortgagor has had, up to the point of the delinquency, a favorable credit history of the previous five years. (If the mortgagor has been more than three consecutive months in arrears within the last five years, he will be ineligible unless due to circumstances beyond his control). To be considered are current income, employment record and credit history.

f). The mortgagor is not more than 24 months delinquent and there are not more than two mortgages on the property excluding a HEMAP mortgage.

g). Money is not available in the State HEMAP fund for assistance payments.

Needless to say, if your client is within the time limit for application has received an Act 91 letter, have the client make application for Assistance immediately through one of the counseling agencies in the letter.

Circumstances Beyond the Mortgagor’s Control

The following are considered to be circumstances beyond the Mortgagor’s control, which could result in a financial hardship that may be grounds for assistance (See 12 Pa. Code §31.205).

a). Unemployment or underemployment through no fault of the homeowner.

b). Loss of other income due to death or disability of the person who contribute to the household income.

c). Loss of other income sources including government benefits or pension benefits.

d). Unanticipated increases in mortgage escrow payments.

e). Expenses incurred to repair uninsured damages to the residence to render it habitable.

f). Loss of income or a substantial increase in housing expense due to spousal separation, divorce or failure to support.

g). Loss of income due to participation in a “recognized” labor action.

During the pendency of the Act 91 process, there is a stay on the foreclosure proceedings so long as a deadlines for application and processing are met. However, in the not uncommon situation where the application for assistance is initially rejected, mortgagee may proceed with its foreclosure action.

HEMAP Appeals

Where the homeowner’s application for assistance has been denied, counsel should carefully consider an appeal of the initial decision. The appeal must be taken within 15 days of the postmark date of the agency’s decision. The appeal must be made in writing and must be sent by first class registered, or certified mail to:

Chief Counsel, Appeal Requests
Pa. Housing Finance Agency
2101 North Front Street
P.O. Box 15628
Harrisburg, PA 17105

The appeal must assert the reason that a hearing is requested. With careful preparation and marshaling the facts, counsel may be able to convince the Hearing Officer that the initial decision should be reversed. Virtually all appeals are conducted via telephone hearing.

Many times, the homeowner will have reasonable success with their appeal at the agency level.

On the other hand, an appeal from the agency to Commonwealth Court will have a much slimmer chance of success given the difference accorded to agency decisions. Commonwealth Court will only reverse the agency if there has been an error of law, constitutional violation or if the findings of fact below are not supported by substantial evidence.

Defending the Foreclosure Action

Mortgage foreclosure proceedings in state court are governed by PA RCP 1141-1150. Keep in mind that an action in mortgage foreclosure is a quasi-in rem proceeding directed to foreclosing upon the property. It is not an in personam action to enforce personal liability. Pa RCP 1148 limits a Defendant’s counterclaim to those claims that arise from the same transaction or occurrence from which the mortgagee’s cause of action arose.

Homeowner’s counsel may find the effect of Rule 1148 extremely limiting. Therefore, it is important to keep in mind that the Bankruptcy Code may provide a more extensive forum for litigations of counterclaims during Chapter 13 reorganization without Rule 1148’s restrictions. This is so because bankruptcy makes no distinction between in rem and in personam actions. All issues surrounding the mortgage may be dealt within the context of claims litigation. Therefore, if the homeowner wishes to save his house and has sufficient regular income to make a plan work, counsel might find it wiser to forego state court litigation and move the client directly into Chapter 13 bankruptcy. On the other hand, if the client is or will soon be able to afford to cure the default and reinstate the mortgage pursuant to Act 6 (41 P.S. §404), bankruptcy should probably be avoided.

Preliminary Objections

Preliminary objections are available under Pa. RCP 1141(b) and 1027. Some typical occasions for preliminary objections include:

a). A defective Act 6 or Act 91 notice which may give rise to a preliminary objection claiming lack of subject jurisdiction. (Rule 1028(a)(1)).

b). A defective affidavit to foreclosure complaint signed by the attorney rather that a representative of the mortgage company or mortgage servicer. (Rule 1028(a)(2)). See Pa. RCP 1002 and 1024.

c). A complaint seeking a personal judgment as well as an in rem judgment in foreclosure. (Rule 1028(a)(1).

Defenses to Foreclosure

Pa RCP 1141 (b) makes the normal Pennsylvania assumpsit rules of civil procedure to the defendant in a foreclosure action. There are several areas where defenses are sometimes raised. These include:

a). Failure to service – Pennsylvania Courts have established in the case of FHA & HUD insured mortgage, the mortgages failure to properly service the loan by offering a realistic forbearance plan or a recasting particularly when the default is due to circumstances beyond the mortgagor’s control, may constitute an equitable defense to foreclosure.

In its 1987 publication, Foreclosure Prevention, Fannie Mae suggested five types of workout plans for its servicers to implement in appropriate circumstances to avoid foreclosure. A servicer’s failure to offer one of these alternatives ma afford the homeowner an equitable defense.

b). Improper attorney fee request – In those cases where Act 6 applies, 41 P.S. §406(2) limits attorney’s fees to those that are reasonable and actually incurred.

It may be that a defendant/Mortgagor will be able to challenge even a request for reasonable fees actually incurred. If, for example, the mortgage document itself claims a right to attorney’s fees based on a percentage of the principal due, courts have enforced the contractual provision where the amount due under that calculation is for less than would be allowed under the “reasonable and actually incurred” standard.

Special Situations

1) FHA/HUD Mortgages

Although the Act 6 notice requirement does not apply to Title II FHA/HUD insured mortgages, Act 91 does not. 35 P.S. §1680.401c(a)(3). When Act 91 was passed in 1983, HUD had its own program for mortgagor assistance, which included forbearance and recasting provisions. Since that time, however, HUD has discontinued its former program and instituted a new and less effective one call “loss mitigation”. See HUD Handbook 4330.01, Revision 5. Nevertheless, the attorney representing the defaulting mortgagor with a HUD mortgage should urge his client to apply to the local HUD office for loss mitigation assistance.

2) Rural Housing Service/Farmers Home Administration Mortgages

The Third Circuit Court of Appeals has held that the RHS (former FmHA) is not required to comply to Pennsylvania’s Act 6 and Act 91. The court held that RHS has preempted this area by offering its own program for dealing with mortgagors who are in financial distress. The lawyer representing a defaulting homeowner with a RHS mortgage should consult 7 C.F.R. §3550 et seq. in order to advise his client of the possible remedies available.

Staying a Sheriff Sale

PARCP 3183(b) permits a court to say a sheriff sale in the event there is a defect in the writ or for any other legal or equitable reason. Frequently courts will grant a stay in order to permit the mortgagor to have more time to gather enough money to cure an arrearage and reinstate the mortgage.


As previously mentioned, bankruptcy may provide the ultimate safe haven for mortgagor in default and for litigating certain issues that would other wise be foreclosed by PARCP 1148. Chapter 13 is available for the mortgagor with regular income that is adequate to effect a cure of the default while making regular monthly payments over a period of up to 60 months.