Under a Pennsylvania statute commonly referred to as “Act 6,” a lender must give a residential borrower at least thirty days’ notice before it may commence foreclosure proceedings. If a lender violates Act 6 and the borrower brings and “prevails in an action arising under” Act 6, the borrower may recover his costs, expenses and attorneys’ fees. The Pennsylvania Supreme Court recently held that a borrower who prevails on an affirmative defense alleging a violation of Act 6 is not entitled to recover costs and attorneys’ fees because such an affirmative defense is not an “action arising under” Act 6. The Court’s ruling likely will encourage borrowers to pursue alleged violations of Act 6 in separate lawsuits and/or as counterclaims in foreclosure actions.
In Bayview Loan Servicing, LLC v. Lindsay, a borrower defaulted on his mortgage and his lender commenced a mortgage foreclosure action. The borrower alleged, as an affirmative defense, that the lender violated Act 6 by failing to provide him with thirty days’ advance notice of its intent to commence the foreclosure action. After the trial court denied the lender’s motion for summary judgment, the lender discontinued the foreclosure action without prejudice. Alleging that he had prevailed on his affirmative defense under Act 6, the borrower requested that the trial court award him costs and attorneys’ fees. The trial court denied the request and the Superior Court affirmed.
On appeal, the Pennsylvania Supreme Court also affirmed the trial court’s refusal to award the borrower costs and attorneys’ fees. The Court first noted that the lender’s “foreclosure action did not ‘arise under [Act 6].’” The Court then explained that “[t]he term ‘action’ in [Act 6] clearly refers to the filing of a civil action in a court of competent jurisdiction seeking one or more of the designated forms of relief.” As such, the Court concluded, “the assertion of an affirmative defense . . . in a residential foreclosure action does not constitute ‘an action arising under [Act 6].’”
The Court stated that a “counterclaim would undoubtedly qualify as an action arising under Act 6,” but noted that existing case law may have left it “unclear as to whether an Act 6 violation may be raised as a counterclaim in a mortgage foreclosure action.” Because the borrower in Bayview did not pursue a counterclaim, the Court was “not presented with the opportunity to determine the propriety of such a counterclaim.” It is likely that the Bayview decision will lead borrowers to initiate separate actions and/or plead counterclaims in foreclosure actions to pursue alleged violations of Act 6.
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