Though a 2016 Pennsylvania Supreme Court ruling in two consolidated cases said debt collection lawyers can be sued for excessive fees in foreclosure actions, the state Superior Court has now held in one of those cases that the plaintiffs still do not have a cause of action because their mortgage was too large to qualify under the version of the Pennsylvania Loan Interest and Protection Law in effect at the time it was executed.
A three-judge Superior Court panel consisting of Judges Mary Jane Bowes, Victor Stabile and Kate Ford Elliott held in the case of Johnson v. Phelan Hallinan & Schmieg that plaintiffs Edella and Eric Johnson did not have a cause of action because a 2008 amendment to the law, referred to in the opinion as “Act 6,” that increased the limit for what qualifies as a “residential mortgage” did not apply retroactively.
Under the version of Act 6 in effect at the time the Johnsons’ $74,000 mortgage was consummated in 2002, the limit for residential mortgages was $50,000. While the 2008 amendment to Act 6 raised that limit to $217,873, the state legislature never expressly stated an intent for the amendment to apply retroactively.
Therefore, Judge Mary Jane Bowes, writing for the Superior Court panel, said the court was required to find that the amendment applied only prospectively.
“Since the Johnsons’ mortgage is not a ’residential mortgage’ under the act, they are without a predicate violation of Act 6 for which they can recover under Section 502,” said Bowes, joined by Judges Victor Stabile and Kate Ford Elliott.
The Johnsons’ case was previously consolidated with another case called Glover v. Udren Law Offices for the purposes of appeal to the Pennsylvania Supreme Court. In 2016, the justices overturned a Superior Court ruling that held lawyers could not violate Act 6 because the act specifically uses the term “residential mortgage lender.” In the Supreme Court’s majority decision, Chief Justice Thomas G. Saylor said Section 502 of the act provides a broad remedy against anyone who collects excessive fees.
“In the statute at issue here, the legislature’s use of the term ‘person’ in Section 502, which it defined to include actors other than residential mortgage lenders, suggests an intent to hold accountable any of the entities that might have engaged in the abusive practices specifically prohibited in Article IV,” Saylor wrote. “The plain language of the statute does not exempt attorneys, debt collectors, or any other third parties from liability in this regard.”
But after the high court determined that foreclosure firms could be sued for excessive fees, Phelan Hallinan argued that an older version of Act 6 applied in the Johnsons’ case. The plaintiffs countered that the 2008 version controls.
The Superior Court, however, sided with Phelan Hallinan.
“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,” Bowes said.
She continued, “We are mindful that Act 6 is a remedial statute, which should be liberally construed to effectuate its aims … (noting that Act 6 is a usury law, designed to protect borrowers against improper mortgage lending practices). Nevertheless, without express legislative intent that the amendment should apply retroactively, Section 1953 requires that we construe the amendment as taking effect on the date selected by the General Assembly, i.e., September 8, 2008.”
Phelan Hallinan is represented by attorney Jonathan Bart of Wilentz, Goldman & Spitzer.
“We are pleased with the decision, which is consistent with the numerous federal court rulings that the determination of whether Act 6 applies to a mortgage is determined at the time the mortgage is issued,” Bart said in an email. “Subsequent amendments to Act 6 raising the base original mortgage amount were not intended to be retroactive to already-issued mortgages.”
A number for the plaintiffs’ attorney, Michael Malakoff, was disconnected.
(Copies of the 17-page opinion in Johnson v. Phelan Hallinan, PICS No. 18-1496, are available at http://at.law.com/PICS.)