The Loan Interest and Protection Act, which prohibits residential mortgage lenders from collecting excessive fees and charges, does not provide a plaintiff a cause of action to sue a lender’s attorney for allegedly collecting excessive fees, the state Superior Court has ruled.
On April 23, a split three-judge panel upheld a decision from the Allegheny County Court of Common Pleas tossing two borrowers’ claims seeking recovery against Washington Mutual, Wells Fargo and the attorney offices that helped the companies enforce and collect the debt obligations. The plaintiffs had argued that counsel for the lenders had violated the act, and therefore should have been allowed to recover for damages.
According to Judge Christine L. Donohue, who wrote the majority opinion, the use of the term “residential mortgage lender” in the statute indicated that attorneys cannot violate the act, which is referred to as Act 6.
“By using the specific term ‘residential mortgage lender’ in Section 406 [of the act], the legislature has expressed its intention to control the conduct of residential mortgage lenders as defined under Act 6 when the residential mortgage lenders contract for attorney’s fees and receive those fees from borrowers,” Donohue said. “The use of this term makes clear that only residential mortgage lenders can commit a violation of Section 406 by contracting for or receiving fees in excess of those specified therein. As [a law firm] is not a residential mortgage lender, it cannot violate Section 406.”
Judge David N. Wecht, in a concurring and dissenting opinion, said the General Assembly had intended to include proxies of lending companies in the act.
“It cannot reasonably be disputed that, as the legislature surely was aware when it last amended Act 6 in 2008 … residential mortgage lenders, at least large institutional ones, sometimes delegate responsibility for collections to conventional debt collectors or to law firms serving in the hybrid role of debt collector and, when necessary, foreclosure counsel,” Wecht said. “I believe that the legislature intended that no one associated with the violation of those provisions should be beyond the reach of Act 6 enforcement for the misconduct proscribed therein. The definition of ‘person,’ so broadly crafted, reinforces my belief in this regard.”
Donohue’s opinion addressed the cases Glover v. Udren Law Offices and Johnson v. Phelan Hallinan & Schmieg, which both alleged the same violations of the same laws. The opinion focused on the Glover case, as the Johnson plaintiffs had agreed that the ruling in Glover would control their case.
According to Donohue, plaintiff Mary E. Glover entered into a mortgage agreement with Washington Mutual. By August 2005, Glover was in default and owed $551. In December 2005, Glover and Washington Mutual entered into a forbearance agreement, in which the bank would reevaluate Glover’s application for assistance. In March 2006, the lender denied Glover’s loan modification.
Udren, acting as counsel for Washington Mutual, filed a complaint in mortgage foreclosure, which asked for court costs and attorney fees of more than $1,500.
Washington Mutual later ordered Glover a loan modification agreement, which was to begin in August 2006. Glover alleged that the modification included additions to the principal balance, as well as additional charges and fees.
The loan was transferred to Wells Fargo in December 2006. Glover and Wells Fargo entered into another loan modification agreement.
In June 2008, Glover filed suit against Washington Mutual, Wells Fargo and Udren Law Offices, alleging violations of the Loan Interest and Protection Act, the Uniform Trade Practices and Consumer Protection Law, the Fair Credit Extension Uniformity Act and the Fair Debt Collection Practice Act.
The case was moved to the U.S. District Court for the Western District of Pennsylvania, where the parties agreed to dismiss Glover’s claims under Act 6 and the UTPCPL without prejudice to her right to pursue them in state court. She filed the statutory claims in the Allegheny County Court of Common Pleas in August 2011. However, the trial court dismissed the complaint following Udren’s preliminary objections.
On appeal to the Superior Court, Glover argued that Udren, as foreclosure counsel, violated Section 406 of the act by collecting costs and fees prohibited by the provision. Glover conceded that the act regulates attorney fee provisions contained in contracts entered into by homeowners and residential mortgage lenders, and not their counsel, but argued that only regulating the mortgage lenders would not protect homeowners in the way the law intended.
Donohue said the legislature could have specifically included law firms, but intentionally used the term “residential mortgage lender” in the act. She added that the act limits the amount of attorney fees that residential lenders and borrowers can contract, and that a law firm is not a part of the agreement between the lender and the borrower.
“We reiterate that this court may not disregard the words of a statute in an attempt to give effect to what we presume the purpose of the statute to be,” Donohue said. “This is exactly what Glover asks us to do, and so her argument is unavailing.”
Wecht, however, said that holding otherwise gave unscrupulous lenders a way to circumvent the act.
“In my view, the majority’s ruling moves the law incrementally toward a result not only at odds with Act 6′s undisputedly remedial objective, but also one that is unreasonable, if not absurd, allowing residential mortgage lender proxies to run roughshod over the rights and privileges provided to borrowers while hiding behind the fact that they are not, themselves, residential mortgage lenders,” Wecht said.
Pittsburgh attorney Michael Malakoff, who represented Glover, said he will likely petition the Superior Court to rehear the case en banc, and, if necessary, appeal to the state Supreme Court. Malakoff noted that potential plaintiffs could seek a remedy through a similar federal statute; however, he said that the one-year statute of limitations on the federal law often expires before homeowners reach out to attorneys. Act 6 has a four-year statute of limitations.
“Under this opinion, as Wecht succinctly noted, there is no remedy for homeowners that have suffered various foreclosure violations, as long as the lender doesn’t do it directly, but does it through debt collecting counsel,” Malakoff said. “It affects a great number of people that participate in the homeownership process and foreclosure process, but it extends beyond that. Act 6 is our primary usury law. It extends to credit sales, and it extends to a wide range of consumer transactions and protections.”
Attorney Jonathan Bart Udren did not return a call for comment.
(Copies of the 37-page opinion in Glover v. Udren Law Officesand Johnson v. Phelan Hallinan & Schmieg, PICS No. 14-0678, are available from Pennsylvania Law Weekly. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.)