In an effort to provide greater protection to borrowers as foreclosures rise, the Pennsylvania Legislature recently enacted two laws, which amend existing pre-foreclosure requirements and increase regulatory oversight of mortgage lenders.
Senate Bill 483, which became effective Sept. 7, 2008, amends Pennsylvania’s Act 6 by broadening the definition of “residential mortgage obligation” to include all mortgages up to and including a base figure – currently $217,873 – adjusted annually to account for inflation. Prior to the amendment, the term “residential mortgage obligation” included only mortgages of $50,000 or less. The amendment eliminates prepayment penalties up to the base figure and mandates application of the state’s usury law to a greater number of mortgages. More important, however, the amendment expands the scope of the law’s pre-foreclosure protections by requiring mortgage lenders to provide notice of intent to foreclose and an opportunity to cure to a greater number of borrowers.
Even for mortgage lenders who already adhere to the new pre-foreclosure requirements as a result of the 1998 amendments to Pennsylvania’s Act 91 (which require lenders to provide notice pursuant to Act 6 even for mortgages that exceed the $50,000 limitation), the amendments are still significant in that they also increase regulatory oversight by the Pennsylvania Department of Banking. The amendments establish enhanced investigatory mechanisms, which allow the Department to enforce the Act’s provisions and impose fines of $10,000 per offense.
In addition to the amendments to Act 6, Senate Bill 486, which also became effective Sept. 7, 2008, amends Pennsylvania’s Act 91 by requiring that lenders serve all notices required pursuant to the Act on the Pennsylvania Housing Finance Agency simultaneous with service upon the borrower or in a report format sent quarterly to the agency. The amendments also require that the Act 91 notice contain an itemized breakdown of all delinquent amounts and increase the notice period to allow three days for mailing.
If Homeowner’s Emergency Mortgage Assistance Program (HEMAP) assistance is approved, the amendments require lenders to provide the agency with an itemized statement of the amounts due under the mortgage and copies of the HUD-1 settlement statement, the mortgage and note and any appraisal performed during the previous five years. Lenders who fail to comply with these requirements may forfeit any late fees, attorneys’ fees and court costs to which they are otherwise entitled. The amendments also permit the agency to fund a compromise pay-off of the balance of the mortgage as opposed to funding only arrearages or providing ongoing assistance.
Finally, the amendments allow for the stay of a foreclosure proceeding where the borrower has filed a late HEMAP application upon approval of the application by the agency.
Whether these amendments will help reduce the level of foreclosures within Pennsylvania remains to be seen. What is certain is that mortgage lenders should carefully review their own pre-foreclosure procedures in light of the amendments to determine whether they require updating.