This past summer, the Pennsylvania Superior Court filed a noteworthy opinion highlighting just how strictly statutory timing requirements can be construed. The facts in the Nationstar Mortgage LLC v. Lark decision, (2013 PA Super 233, No. 802 EDA 2012, 8/13/13), are straightforward enough. Back in February 2007, a borrower executed and delivered a mortgage on the Philadelphia County property to AAKO Inc.; that mortgage was recorded the same month. The mortgage was eventually assigned to Mortgage Electronic Registration Systems and then again to GMAC Mortgage Inc. about a year later.
The borrower defaulted on the subject loan, prompting GMAC to commence a foreclosure action December 4, 2007. An answer was never filed and accordingly default judgment was entered in favor of the lender. Subsequent to the entry of the judgment, the mortgage was assigned yet again to Nationstar Mortgage LLC, the appellee in the present matter. As the property was a primary residence, the matter made its way into Philadelphia County’s Foreclosure Diversion Program. At some point, a conciliation conference was held and the parties achieved an agreement to postpone the sheriff’s sale, affording them some additional time to strike a deal. Ultimately though, a settlement could not be reached, resulting in the property being relisted for a sheriff’s sale, compelling the borrower to file a petition to postpone the sale.
The trial court granted the requested relief with the caveat that there would be no further postponements without agreement of the parties. Eventually, on September 13, 2011 (nearly four years at the commencement of the underlying foreclosure action), the property was sold at a sheriff’s sale; it went back to the lender. After the sale, the borrower filed what were entitled motions to dismiss and to which Nationstar Mortgage responded. Both motions were denied. On November 15, 2011, the sheriff delivered and recorded the new deed, prompting the appellant, Lauren Lark, to file yet another motion, this time a motion to set aside the sheriff’s sale, in which the theory that the Act 91 notice was somehow defective was raised for the very first time in the litigation. Nationstar Mortgage tendered its opposition and eventually a hearing was conducted February 3, 2012, more than two months after the recording of the new deed; the trial court denied said motion.
In ruling, the lower court determined that the pre-complaint act notice was not defective and thus could not constitute a basis for setting aside the sale. Lark contended that the notice was defective as it omitted the name of the original lender and listed GMAC as the “current lender/servicer” although the mortgage had not technically been assigned to GMAC until after the default judgment had been entered. Yet, at least in the trial court’s estimation, Lark’s conduct seemed to belie the claim that the notice had been insufficient. For instance, subsequent to receiving the notice, Lark entered into a negotiation with GMAC, even participating in the Mortgage Foreclosure Diversion Program. So, in the lower court’s view, notice of the foreclosure action was both adequate and in conformity with the law.
The single issue on appeal was whether the trial court erred in denying the motion to set aside the sale for a defective notice. The Superior Court easily affirmed and utilized a slightly different approach. It concentrated on the question of whether Lark’s defect theory had been timely raised. More specifically, Section 1681.5(2) of the Homeowner Assistance Settlement Act, 35 P.S. §§ 1681.1-1681.7, provides in pertinent part that the “failure of a mortgagee to comply with the requirements of Sections 402-C and 403-C of the Housing Finance Agency Law must be raised in a legal action before the earlier delivery of a sheriff’s or marshal’s deed in the foreclosure action or delivery of a deed by the mortgagor.” In the instant case, Lark’s first mention of this defect theory came nearly two weeks after delivery of the sheriff’s deed. Essentially, for the Superior Court, it was just too little, too late, with the act’s unequivocal language easily empowering it to reach such a conclusion.
Despite the end result, Lark’s argument is still worth considering, especially as it relates to standing and where a litigant might have the ability to raise such an argument in the future. Under Lark’s logic, GMAC was not even the “true loan holder” at the time the default judgment had been entered and hence was not in a position to assign an interest to Nationstar Mortgage. As such, the new lender would have been “without authority to proceed to a sheriff’s sale.” Going even one step further, the lower court would have been without jurisdiction even to order that a sale be permitted to occur in the first place. The problem with Lark’s theory, in addition to being asserted too late statutorily speaking, was that there was still the matter of a default judgment having been taken. By permitting such a result, Lark essentially admitted to all of the bank’s allegations.
Critically, in paragraph 3 of the underlying foreclosure complaint, GMAC specifically alleged that it was “now the legal owner of the mortgage and is in the process of formalizing an assignment of same.” Thus, having admitted that GMAC was the “legal owner” of the mortgage in the foreclosure action, Lark should not now be permitted to allege the opposite merely for the sake of avoiding an unfavorable result. The Nationstar Mortgage decision is important for practitioners as it underscores the importance of raising critical defenses and issues as early on in the litigation process as possible. Once that gavel falls, new theories will be much harder to introduce.
Harper J. Dimmerman is an adjunct professor at Temple University’s Fox School of Business. His office represents clients in various litigation and real estate law matters and he can be reached at firstname.lastname@example.org or 215-545-0600. Bradley J. Osborne is an attorney at the Law Office of Harper J. Dimmerman. James M. Lammendola is an instructor at Temple University’s Fox School of Business and was in private practice for 20 years. He can be reached via email at email@example.com or 267-254-3324.