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In January 2006, 103,540 properties nationwide entered some stage of foreclosure. This was a 27 percent increase from the month prior and a 45 percent increase from January 2005. By end of year 2007, more than 1 percent of all homes nationwide will be in foreclosure with 2.5 percent of foreclosures nationally involving properties valued in excess of $750,000.

In mid-2005, Philadelphia had the second highest foreclosure rates of any metropolis — more then two times the national average and 2.8 times the average within the commonwealth. In 2000, the Philadelphia Sheriff’s Office auctioned about 300 to 400 properties monthly; now, that monthly count has increased to more than 1,000.

To date, more than 50 subprime lenders have folded, filed for bankruptcy, or “closed their doors” by liquidating their inventory (mortgages).

Debtors counsel propound that despite the clear need for enabling debtors — at the very least with greater access to the courts — the opposite has been the case. Lenders counsel similarly complain that while their volume has increased, their profits have decreased due to the introduction of outsourcers, class actions against law firms, uniform all-inclusive low flat foreclosure fees, required cost advances, competition for clients, and increasing disparity between federal and state, county-to-county rules mandating more overhead.

Debtors themselves complain about their inability via foreclosing lenders’ bureaucratic obstacles to, in fact, work out their delinquency, which their lender (as a false pretext) solicits. Lenders counter that foreclosure volume, great procedural disparities and related reduced gross income mandates a monolithic approach overlooking already defaulting debtors’ claims to mutual beneficial resolution via workout as well as a uniform litigation approach.

In the meantime, parties’ qualified counsels’ legal abilities are restricted by volume’s financial needs compounded by their clients’ limited fee payment. Judicial abilities are likewise stretched in the age of mass torts, discovery disputes and class actions to effectively manage, let alone adjudicate, often emergency filings predicated on narrow, fact-intensive and case-specific needs.

As real estate values fall below secured mortgage payoffs, unemployment rises and bankruptcy has become essentially non-viable given the new bankruptcy reform act, something’s got to give – to everyone’s detriment.

Other than much-discussed but equally much-delayed judicial and legislative overhauls during a time when war, white collar crime and terrorism are at the forefront, the only conceivable solution is through greater collective post-default, foreclosure specific academic knowledge enabling greater efficiency and efficacy.

Herein provides no relief, merely analysis.

Initial Process: State

In a residential foreclosure where the principal balance is $50,000 or less, notice of intent to foreclose (Act 6 notice) must be sent by certified mail to the mortgagor (debtor) 30 days prior to initial process. If the delinquency is less than 24 months and $60,000, notice (Act 91) of debtor’s Homeowners Mortgage Assistance Program (HEMAP) rights to seek a hardship loan must likewise be sent. An application to HEMAP stalls the foreclosure for 60 days while pending, after which the mortgagee (lender) may presume denial.

The failure of Act 6/91 strict statutorily complaint notice renders the foreclosure without jurisdiction. Sending of the notice when otherwise not required estops the mortgagee from denying its necessity for strict compliance therewith.

Along with the itemized amount due, description of the land subject, averment of default, and names, address and interest of the defendants, a foreclosure complaint must contain the parties to and date of the mortgage and assignments and statement of the place of record of the mortgage and assignments. As many mortgages are assigned multiple times at or before the commencement of the foreclosure or thereafter, there may exist want of record assignment, venue mandated attachments and required party verification rendering the mortgagee without standing or complaint defective, respectively.

Contemporaneous with default judgment, the writ of execution upon which the ultimate sheriff’s foreclosure sale is predicated issues. The aforesaid failings should render the default stricken upon petition, as opposed to being opened, which is granted upon promptly filing, providing a meritorious defense and offering a legitimate excuse for the delay. Most local rules require a proposed answer to be attached.

Upon filing a petition to strike/open, the mortgagee’s foreclosure will not stop until favorable adjudication, and sale will be scheduled within 90 days regardless. Local rules’ noncompliance risks the petition sitting until, for example, argument praecipe or being rejected outright by the prothonotary.

With the parties’ financial abilities and need for time-consuming though emergent strict procedural compliance becoming inversely related, substantive pleading becomes even more grueling.

In all but unique circumstances, a counterclaim is prohibited. Therefore, almost all origination, servicing and fraud contests must, counterintuitively, be raised in a separate action, especially if the proposed counterclaim seeks in personam relief within the in rem foreclosure. For example, a claim under truth in lending may be entirely prohibited causing an otherwise rescindable and defective mortgage to transform into an ultimately proper judgment.

Offense: Federal Jurisdiction

Named for two separate cases, the U.S. Supreme Court created the Rooker-Feldman doctrine rendering a federal court without jurisdiction to review an adjudicated state court matter. Superannuated claim/issue preclusion, essentially federal courts may not sit as an appellate body per resolved state court issues.

If counterclaims and affirmative defenses to mortgage foreclosures, even on federal rescission grounds, are rule-prohibited, federal like offensive actions are arguably jurisdictionally barred, and state offensive causes of action are res judicata or collaterally estopped, then it would appear the only safe haven would be to contemporaneously defend the state foreclosure and prosecute the federal affirmative action at both their inceptions (and hope the state action, argued by the foreclosing lender as requiring no discovery and on an expedited track, does not beat the complex and fact-intensive federal action to judgment, or the judge does not require Twombly-esque specificity). But see above economic and (unique to foreclosure litigants) social realities.

Sheriff’s Sale and Ejectment

Similar to service of original process, due process requires mortgagee’s service (recorded with prothonotary, not sheriff) of notice 30 days prior to the first and every sale relisting more than 120 days thereafter. Prior to the sheriff’s deed poll being recorded, a sale may be set aside for equitable reasons, thereafter, for “want of authority” or fraud. In most counties, the deed will be recorded 30 to 90 days subsequent to full tender of the sale purchase price.

If the property is purchased by a third-party, that successful bidder may attempt jurisdictionally barred quick eviction via landlord-tenant municipal court. Likewise, the mortgagee may similarly, impermissibly file for ejectment prior to its recorded deed. A procedurally proper uncontested ejectment takes about five months on average following the sale.

Wholly uncontested possession taking about one-and-a-half years subsequent to initial default, mortgagees generally do not grant extensions and the filing of an affirmative claim both procedurally and practically will not stop the underlying foreclosure/ejectment. Like a petition to strike/open having no effect on the listing, a petition to stay will not, prior to adjudication, affect the sale date, nor will a petition to set aside delay the ejectment. In fact, an appeal may not stay either, nor will consolidation likely be granted.

Therefore, it is only proper that foreclosure parties contemporaneously litigate three actions at those parties’ limited fees. Noting recent trial holdings of knowledge mooting jurisdictional failings (i.e., even if service of process has not been effectuated, debtor’s constructive knowledge of the fact of process has been held as enough when circumstantially proven), filing early and often is procedurally required.

What to Do

Being sophisticated, receipt of the statutorily compliant Act 6/91 notice triggers defendant-mortgagor to pay in full before competent counsel’s intervention, instead of seeking HEMAP assistance or lender’s contemporaneously forwarded workout invitation (debtor intuitively knowing that neither relief is ever practically granted).

Realistically, defendant-mortgagor, not comprehending or otherwise, sits on pre-foreclosure notices until service of the complaint, at which point seeks family bail-out and then bankruptcy protection only to be told that both are impossible (not only owing to the reform act, but rather the requirement of ongoing separate pre- and post-petition payments totaling well in excess of barely affordable ongoing monthly mortgage payments). Then, debtor contacts plaintiff-lender who is instead actually foreclosure servicer, and, after tremendous time and patience despite the panic re gravity of the situation, is forwarded an incomprehensible workout application, which, even if completed and returned, is denied for no good reason. All the while, the foreclosure moves toward sale.

Only after judgment is entered and notice of sale is received indicating sale within 30 days does debtor contact prior counsel, who first takes a shot at defense and then refers until competent counsel is found. Once appropriate counsel is contacted, fee payment issues arise. Thereafter, an emergency petition to stay is filed which, if successful, precedes a petition to open. Only then can debtor re-retain counsel to contemporaneously litigate the foreclosure and, separately, any affirmative causes of action, all for the purpose of entering — initially sought by both parties — workout now with payment of debtor’s attorney fees.

Although the court can, perhaps rightfully so, complain about counsel’s last-minute and imperfect filings, and counsel, again correctly, can complain of their clients’ underlying multiple deficiencies, this does not cure the foreclosure epidemic above discussed exploding to all parties’ detriment. Banks do not want to become homeowners via sale, homeowners do not want to be in default and counsel and courts do not want their economies strained. But each are beyond each other’s grasp.

In lieu of a much-discussed judicial overhaul of our nonuniform rules, a commonwealth-wide electronically accessible foreclosure division of our courts and congressional intervention, the only clear solution is to in practice affirm all litigants’ constitutionally guaranteed rights to adjudication on the merits without foreclosing lenders and homeowner-defendants becoming trapped in the self-defeating mire of forms over substance, procedures over due process.

MATTHEW B. WEISBERG concentrates his practice on consumer fraud and financial distress/ injury-based litigation, mortgage foreclosure and creditor’s/lender’s rights with Prochniak Weisberg. Weisberg is alsoc chairman of Matrix Mortgage Corp. and Alternative Abstract Inc. He can be contacted at 610-690-0801 or [email protected] .

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