New Pennsylvania Act 32 of 2018 Has Impact on Mortgagee Fees and Costs

Pennsylvania Act 32 of 2018, also known as the Vacant and Abandoned Real Estate Foreclosure Act, became effective December 16, 2018. It is designed to create a fast-track foreclosure process for abandoned and vacant real estate and, more importantly, to clarify what attorney fees and sheriff’s costs are recoverable under state law.

Similar fast-track statutes have been passed in other states. Like many of those, Pennsylvania’s sets forth a process for certifying the abandoned and vacant status of properties. However, given the time, cost, and effort involved in obtaining that certification, the expedited process’s value is questionable. In addition, the mortgagee must assume liability and responsibility for a property well before obtaining title. Consequently, the act’s greatest benefit is likely to be reduced costs to foreclosing creditors.

First, it provides that the sheriff’s poundage, or 2 percent commission on the first $250,000 and 0.5 percent on the amount above that are now payable only if a property is sold at sheriff’s sale to either the plaintiff or a third party. Previously, if the case settled after the writ of execution was filed but before the scheduled sheriff’s sale, the sheriff's office was entitled to a commission. All such pre-sale occurrences, including bankruptcy, are now exempt from poundage costs.

In addition, a foreclosing mortgagee’s attorney fees are also now statutorily presumed reasonable and recoverable if they conform to the rates established by Fannie Mae, Freddie Mac, the Federal Housing Administration, or the U.S. Department of Veterans Affairs. This is also the case as long as they were actually incurred and paid by the mortgagee, and that Act 6 of 1974 applies to the foreclosed mortgage.

Act 6 applies to any loan in Pennsylvania that is secured by a one-to-four family residential property and at the time of origination was in the amount of $250,324 or less, which is the "base amount" as defined in Act 6. The "base amount" changes each year as set by the Department of Banking and will be $256,023 for 2019. While the reasonableness of the fees can still be challenged in the foreclosure action, the presumption that the flat fee charged was reasonable must be overcome. For mortgages that don’t qualify under Act 6, this statute wouldn’t restrict recoverable legal fees to government-sponsored enterprise (GSE) allowables, although the expectation is that the courts will lean heavily on GSE rates as a guide.

From its onset 44 years ago, Act 6 provided that if a mortgage is reinstated after the pre-foreclosure 30-day Act 6 notice (or combined Act 6/91 notice) has expired, but before the foreclosure complaint is filed, the mortgagee’s recoverable legal fees are limited to $50. Act 32 finally amends that amount to 0.1 percent of the base amount or, for this year, roughly $250.

It is important to note that the fee rules are limitations on what the mortgagee can recover from the mortgagor in terms of actually incurred legal fees. This is separate from legal fees charged or paid between law firms and mortgagees, which are governed by their engagement contracts. Nevertheless, an increase in the recoverable fees, a presumption that widely-used GSE fee rates are reasonable, and a substantial reduction in the occurrence of sheriff's commissions represent a long-needed statutorily-imposed fees and costs update and are encouraging recognition of existing industry standards.