1

Rachel Labush, Esquire Attorney for Defendant Attorney ID No.: 200285 Susie Cue rlabush@clsphila.org COMMUNITY LEGAL SERVICES, INC. 1424 Chestnut Street Philadelphia, PA 19102 Tel.: (215) 981-3739 ____________________________________________________________

CITIMORTGAGE, INC., Plaintiff, vs. SUSIE CUE, Defendant

:

:

:

:

:

:

:

:

PHILADELPHIA COUNTY COURT OF COMMON PLEAS CIVIL DIVISION AUGUST TERM 2014 No. MOTION CONTROL NO.

___________________________________________________________

DEFENDANT’S BRIEF IN OPPOSITION

TO PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT

I. Matter Before the Court

Plaintiff has moved for summary judgment in this residential mortgage foreclosure case,

and Defendant opposes. Plaintiff incorrectly claims that there are no genuine issues of material

fact and that the Defendant fails to assert any defenses to the foreclosure. In fact, Defendant

asserted valid defenses: that Plaintiff failed to properly service the mortgage in compliance with

FHA requirements, that Plaintiff violated the mortgage contract and failed to satisfy a condition

precedent by foreclosing in violation of FHA regulations that require pre-foreclosure loss

mitigation attempts, and that Plaintiff has unclean hands in this matter.

No scheduling order has been set in this case, and therefore the discovery period is not

concluded. Defendant has promulgated interrogatories and document requests seeking

2

information within Plaintiff’s control that goes to the heart of these disputed issues, and

responses have not yet been provided. In addition, Plaintiff violated the CFPB’s prohibition on

dual tracking by moving for summary judgment while Defendant’s application for a loan

modification was pending.

Because material facts are in dispute, discovery is ongoing, and Plaintiff filed this Motion

while Defendant’s application for a loan modification was pending, Plaintiff is not entitled to

summary judgment and its Motion should therefore be denied.

Facts supporting Defendant’s defenses are provided in the accompanying affidavits of

Rachel Labush, Esq., Michelle Brix, and Defendant Susie Cue, along with their attached

exhibits.

II. Statement of Questions Involved

A. QUESTION: Should Plaintiff be denied summary judgment when there

are there disputed issues of material fact regarding Plaintiff’s right to a foreclosure judgment and

Defendant offers evidence that Plaintiff has not complied with FHA servicing requirements, as is

required by federal regulations and the express terms of the mortgage before a foreclosure may

be commenced?

ANSWER: Yes.

B. QUESTION: Should Plaintiff be denied summary judgment while

discovery as to material facts is ongoing, and Plaintiff has not yet provided responses to

Defendant’s discovery requests?

ANSWER: Yes.

3

C. QUESTION: Should Plaintiff be denied summary judgment when it filed

its motion for summary judgment while Defendant’s loan modification application was pending,

in violation of the Consumer Financial Protection Bureau (CFPB) regulations against dual

tracking?

ANSWER: Yes.

III. Statement of Facts

Defendant Susie Cue (“Ms. Cue”) lives in 100 South Broad Street, Philadelphia, PA (“the

Property”) with two of her children and one grandchild. (Ex. A ¶ 1.) Ms. Cue has lived in the

Property since she bought it in July of 1999. (Id. ¶ 2.)

It is uncontested that on July 30, 1999, Ms. Cue executed a Promissory Note with Aako,

Inc. doing business as Boulevard Mortgage Company of Pennsylvania in the principal amount of

$72,955.00 secured by a Mortgage on the Property. The Mortgage, which is attached to

Plaintiff’s Motion as Exhibit B, is insured by the Federal Housing Administration (“FHA”) and

bears an FHA Case Number. Paragraph 9 of the mortgage states that “[l]ender may, except as

limited by regulations issued by the Secretary [of Housing and Urban Development]1, in the case

of payment defaults, require immediate payment in full of all sums secured by this Security

Instrument…” and that “[i]n many circumstances regulations issued by the Secretary will limit

Lender’s rights, in the case of payment defaults, to require immediate payment in full and

foreclose if not paid. This Security Instrument does not authorize acceleration or foreclosure if

not permitted by regulations of the Secretary.” (Mortgage pp. 4, ¶ 9(a) and (d)) (Emphasis

added). 1 Paragraph 2 of the Mortgage specifies that the “Secretary” is the Secretary of Housing and Urban Development.

4

In August of 2012, Ms. Cue executed a loan modification with CitiMortgage. (Cue Aff.

¶5.) Around November of 2012 Ms. Cue’s job reduced the number of overtime hours she was

allowed to work. (Id. ¶ 7.) Around the same time, her car, which she needed to commute to and

from work, broke down and had to be replaced. (Id. ¶8.) In September 2013, Ms. Cue and her

husband separated and he stopped contributing income to Ms. Cue’s household. (Id. ¶9.) The

loss of income and increased travel expenses put a strain on Ms. Cue’s budget, and by January of

2014 Ms. Cue was no longer able to keep up with her mortgage payments. (Id. ¶10.)

In May or June of 2014, Ms. Cue received an Act 91 notice from CitiMortgage stating

that if she worked with a housing counselor and filed for HEMAP, her lender would be stopped

from filing for foreclosure. She began working with housing counselor Martin Lewis at The

Partnership Community Development Corporation. (Id. ¶11-12.) Together they filed a loss

mitigation application which Ms. Cue believed would mean she would be considered for

HEMAP. The application was complete in March of 2015. (Id. ¶13.) In a letter dated 4/8/2015,

CitiMortgage denied Ms. Cue an FHA Formal Forbearance Plan because she was more than 12

months delinquent on her mortgage. CitiMortgage also denied Ms. Cue an FHA Home

Affordable Modification Plan because it claimed her circumstances had not changed since her

last loan modification. (Id. ¶14.) A copy of the letter is attached to Ms. Cue’s Affidavit as

Exhibit A1.

In August of 2014, a foreclosure complaint was filed against Ms. Cue. (Id. ¶15.) Ms. Cue

attended conciliation conferences on November 13, 2014, January 8, 2015, February 19, 2015,

and May 14, 2015. (Id. ¶17.) In the summer of 2015 Ms. Cue began to work with Community

Legal Services, Inc. to try to save her home. (Id. ¶18.) Ms. Cue and Community Legal Services,

Inc. assembled a new loan modification application which was submitted on October 7, 2015.

5

(Id. ¶19; Ex. C ¶ 5.) In a letter dated October 13, 2015, CitiMortgage requested more

information, specifically a 710 Uniform Borrower Assistance Form, a child support award letter

and details of child support payments made, a birth certificate for my minor dependents, and an

annual teacher’s contract. (Id. ¶20.) A copy of the letter is attached to Ms. Cue’s Affidavit as

Exhibit A2.

Ms. Cue is employed as a dental assistant at the University of Pennsylvania. She has

never been an instructor of any kind. (Id. ¶21.) She did not submit an annual teacher’s contract,

because that contract does not exist. (Id. ¶22.) Community Legal Services informed

CitiMortgage’s counsel that that paperwork did not exist. (Ex. C1.) Ms. Cue and Community

Legal Services, Inc. submitted a 710 Uniform Borrower Assistance Form, and a child support

award letter to complete the loan modification. Ms. Cue did not submit the birth certificate of the

minor child in her household because the child support award letter had the same information

contained in the birth certificate. (Ex. A ¶22.)

On December 18, 2015, before Ms. Cue and the undersigned heard anything further about

the loan modification application, Plaintiff filed this Motion for Summary Judgment. Upon

receiving this Motion, Ms. Cue’s attorney immediately contacted Plaintiff’s attorney for an

update, but did not hear anything until December 29, 2015, when Plaintiff’s counsel sent an

email to her and paralegal Michelle Brix requesting information to complete the application by

January 4, 2016. (Ex. C3.) Ms. Cue never received a request for more information, nor did she

receive a written denial from CitiMortgage. (Ex. A ¶¶ 23-24; Ex C.) Because she did not receive

a notice of denial, she has not had the opportunity to appeal any decision made about her loan

modification.

Ms. Cue’s income has recently gone up compared to her income when she had her last

6

loan modification. She now makes more per hour than she used to, works regular overtime, and

receives regular child support payments from her estranged husband. (Id. ¶23.) Ms. Cue believes

that she would be eligible for a FHA loan modification to save her home. (Id. ¶24.)

A case management conference has not yet been held or scheduled in this case. No

discovery or other case management deadlines have been ordered by the Court. Defendant’s

counsel has served Plaintiff’s counsel with Defendant’s First Set of Interrogatories and Requests

for the Production of Documents on December 21, 2015. (Ex. B ¶6; Ex. B1.) The

Interrogatories and Document Requests seek information within Plaintiff’s control relevant to the

defenses pleaded in Defendant’s Answer and New Matter. (Id. ¶7.) The discovery requests are

outstanding. (Id. ¶8.) Responses are due January 20, 2016. (Id. ¶8.)

IV. Argument

A. Summary judgment must be denied because there are genuine issues of material fact.

Plaintiff is not entitled to summary judgment as a matter of law, because Defendant has

raised colorable defenses to this foreclosure action which she has supported with the attached

affidavits and other evidence.

The court may grant summary judgment only if there is no genuine issue of material fact

in dispute and the moving party is entitled to judgment as a matter of law.

An entry of summary judgment may be granted only in cases where the right is clear and free from doubt. The moving party has the burden of proving the nonexistence of any genuine issue of material fact. Further, the record must be viewed in the light most favorable to the non-moving party, and all doubts as to the existence of a genuine issue of material fact must be resolved against the moving party.

7

Kilgore v. City of Philadelphia, 553 Pa. 22, 25, 717 A.2d 514, 515 - 516 (1998), citing Marks v.

Tasman, 527 Pa. 132, 134-35, 589 A.2d 205, 206 (1991). In this case, Plaintiff has not disproven

the facts in Ms. Cue’s affidavit. Viewing the record in the light most favorable to Ms. Cue, she

has shown that Plaintiff failed to comply with FHA pre-foreclosure loss mitigation requirements,

and any doubts as to the facts sworn to by her must be resolved against Plaintiff by denying

summary judgment.

1. Plaintiff Failed to Comply with HUD/FHA Pre-Foreclosure Loss Mitigation

Requirements.

The loan transaction that is the subject of this foreclosure action was federally insured by

the FHA under Title II of the National Housing Act (12 U.S.C. § 1715 et seq.). Accordingly,

Plaintiff’s rights are subject to the regulations of the Secretary of the United States Department

of Housing and Urban Development (“HUD”) and it must administer and service the mortgage in

accordance with all relevant FHA regulations and contract, including but not limited to 24 C.F.R.

§ 203.500 et seq. and the HUD handbook, 4330.1.

As detailed in Ms. Cue’s attached affidavit, she worked with a housing counselor to

attempt to resolve her payment delinquency when she fell behind in 2014. Ms. Cue began

working with a housing counselor in order to pursue HEMAP, for which she was not eligible,

because the Act 91 notice she received said that a HEMAP application would stop a lender from

filing foreclosure. Defendant was denied a loan modification because, according to the denial

letter, her circumstances had not changed since her last loan modification. (Ex. A1.) In fact, Ms.

Cue’s income and family situation had changed drastically since she was approved for her first

loan modification in 2012. Contrary to HUD regulations and policy, Plaintiff did not consider

8

Ms. Cue for any other FHA loss mitigation before it filed this foreclosure action. Therefore, as

explained further below, Plaintiff is not entitled to Summary Judgement.

a. Plaintiff’s failure to properly service the mortgage is a legal, equitable and contractual defense to foreclosure.

(i) Equitable Defense

The Pennsylvania Superior Court has held, in two controlling decisions, that a mortgage

lender’s failure to “service” a federally insured mortgage is an equitable defense to foreclosure,

notwithstanding a default in payments. Fleet Real Estate Funding Corp. v. Smith, supra, 366 Pa.

Super. 116, 530 A.2d 919 (1987); accord Union National Bank of Little Rock, Assignee vs.

Cobbs, 389 Pa. Super. 509, 567 A.2d 719 (1989) (V.A. Mortgage Program). In Smith the court

found that summary judgment in foreclosure for the plaintiff was inappropriate, even though the

lender, as in this case, had submitted affidavits of the default and the amount due and owing.

In Cobbs, the Superior Court again reversed an order entering summary judgment for the

plaintiff, and extended the equitable servicing defense to V.A. insured mortgage loans, although

the obligations of lenders under the V.A. program were arguably less extensive than under the

FHA Handbook. As the Superior Court explained: “Whether the Bank properly serviced

[defendant’s] mortgage therefore remains as a genuine issue of material fact which renders

improper the award of summary judgment by the trial court.” Cobbs, 389 A.2d at 518. Both of

these cases specifically support denying summary judgment in cases where the servicing of the

loan is at issue.

More recently, in Green Tree Consumer Discount Co. v. Newton, supra, 909 A.2d 811,

2006 Pa. Super 284 (Pa. Super. 2006), the Superior Court again affirmed the validity of the

holding in Smith: “[C]ase law indicates that it is not beyond the power of the courts to exercise

9

their powers of equity in foreclosure actions. In [Smith], our Court allowed the Smiths to raise an

equitable defense to foreclosure based on the mortgagee’s failure to follow HUD guidelines,

even though those guidelines do not have the force of law.” Green Tree Consumer Discount Co.

v. Newton, supra, 909 A.2d at 816. Clearly summary judgment in this case would be

inappropriate, in light of the Smith, Cobbs, and Newton decisions.

Here, as in Smith, Plaintiff does not hold a conventional mortgage, but rather a mortgage

guaranteed by the FHA, an office of HUD. When HUD guarantees a mortgage, it reduces the

risk of loss to the lender, thereby encouraging lenders to grant mortgages to families which

would otherwise be unable to afford the market rates and terms. See Federal National Mortgage

Association v. Ricks, 372 N.Y.S.2d 485, 83 Misc.2d 814 (Sup. Ct. N.Y. 1975). In return for this

protection, HUD requires all lenders with guaranteed loans to adequately “service” the

mortgagee, including to review a borrower for all FHA loss mitigation options prior to filing

foreclosure.

(ii) Legal Defense

FHA/HUD regulations and corresponding handbook provisions are both an equitable and

a legal defense to foreclosure. The FHA/HUD regulations contain language mandating

compliance with servicing regulations prior to initiating a foreclosure: “It is the intent of the

Department that no mortgagee shall commence foreclosure or acquire title to a property until the

requirements of this subpart have been followed.” 24 C.F.R. § 203.500. Accordingly, failure to

comply with FHA/HUD regulations is also a legal defense to a foreclosure.

Plaintiff’s basic duty in “servicing” a FHA-insured mortgage is to work with the

homeowner to avoid foreclosure. Their duty as a lender is set forth in federal regulations codified

at 24 C.F.R. § 203.500 et seq. HUD has also promulgated internal regulations which notify

10

lenders of the methods, procedures and forms to be used in servicing a loan. These internal

regulations are compiled in a Lenders Handbook, HUD Handbook 4330.1 (REV-5, Revised

September 29, 1994).2

The Handbook sets forth the requirements of servicing. These include: accepting

forbearance agreements; accepting partial payments; and initiating direct contact with the

mortgagor to discuss the reasons for default and the alternatives to foreclose until every

reasonable effort has been made to arrive at some solution which would permit the borrower to

retain his or her home. As the HUD Handbook states at Ch. 8, § 8.1:

Mortgagees are expected to make a concerted effort to avoid the foreclosure or assignment of HUD-insured mortgages, and to utilize acceptable methods of forbearance relief, wherever feasible and when:

A. it is reasonable for the mortgagee to believe that the mortgagor can and will resume the mortgage payments; B. the forbearance plan entered into is made up of set “reasonable” monthly payments (i.e, one that has provided for specific monthly payments based on the mortgagor’s ability to pay); and C. compliance with the terms of the forbearance plan will bring the mortgage completely current paid in full.

Mortgagees are expected to refrain from foreclosure where it is determined that the case may be salvaged through the use of one or more of these procedures.

In order to ensure that the lender has not rushed to foreclose without considering relief,

HUD specifically requires the lender to have a face-to-face meeting with the homeowner to try to

resolve payment problems: “The mortgagee must have a face-to-face interview with the

mortgagor, or make a reasonable effort to arrange such a meeting, before three full monthly

mortgage installments due on the mortgage are unpaid.” 24 C.F.R. § 203.604(b).

2 The Handbook is available online at HUD’s website: http://www.hud.gov/offices/adm/hudclips/handbooks/hsgh/4330.1/ . A new electronic handbook was released in September 2015 but is not effective until March 2016. http://portal.hud.gov/hudportal/documents/huddoc?id=40001HSGH.pdf

11

24 C.F.R. § 203.604(d) specifically states that a reasonable effort to arrange a face-to-

face meeting consists not only of a letter but also includes “at least one trip to see the mortgagor

at the mortgaged property.” In this case, Defendant does not recall any face-to-face meeting with

Plaintiff. Nowhere does Plaintiff aver that it sent someone to see Ms. Cue at the property, nor

does it aver that it sent a letter to Plaintiff attempting to set up a face-to-face meeting. Ms. Cue

has stated that she was not reviewed for loss mitigation prior to the foreclosure being filed.

Discovery addressed to Plaintiff on this issue is outstanding. Assuming Defendant’s facts to be

true, then as a matter of law, Plaintiff is not entitled to summary judgment in its favor.

(iii) Contractual Defense

In addition, Plaintiff’s failure to properly service the mortgage gives rise to a contractual

defense to foreclosure. Under the terms of the mortgage, Plaintiff’s rights are subject to the

Regulations of the Secretary of HUD and it must administer and service this mortgage in

accordance with all relevant FHA regulations and contract, including but not limited to 24 C.F.R.

203.550 et. seq. and HUD handbook, 4330.1 (relating to servicing FHA-insured loans).

Paragraph 9(d) of the mortgage provides that compliance with HUD regulations is a prerequisite

to foreclosure:

Regulations of HUD Secretary. In many circumstances regulations issued by the Secretary will limit Lender’s rights, in the case of payment defaults, to require immediate payment in full and foreclose if not paid. This Security Instrument does

not authorize acceleration or foreclosure if not permitted by regulations of the

Secretary.

(Mortgage ¶ 9(d), emphasis added). In addition, the Note, attached as Plaintiff’s Exhibit

“A”, “does not authorize acceleration when not permitted by HUD regulations.” (Note ¶

6(B)). The regulations of the HUD Secretary require that a servicer attempt loss

mitigation before a foreclosure is filed.

12

The regulations of the Secretary set forth numerous requirements a lender or mortgagee

must perform prior to accelerating the debt or instituting foreclosure. 12 U.S.C. § 1715u(a)

(“Upon default of any mortgage insured under this title, mortgagees shall engage in loss

mitigation actions for the purpose providing an alternative to foreclosure”); 24 C.F.R § 203.500

(“It is the intent of the department that no mortgagee shall commence foreclosure or acquire title

to a property until the requirements of this subpart have been followed.”); 24 C.F.R § 203.606

(“[b]efore initiating foreclosure, the mortgagee must ensure that all servicing requirements of

this subpart have been met”), see also Countrywide Home Loans v. Wilkerson, 2004 WL

539983 (N.D. Ill. Mar. 12, 2004) (lender not entitled to judgment in foreclosure action where it

had not established that it complied with 24 C.F.R. 203.604, requiring face-to-face meeting with

mortgagor, or reasonable efforts to arrange a meeting).

Thus, if the regulations of the Secretary [of Housing and Urban Development], i.e. HUD

or FHA regulations, do not authorize acceleration and foreclosure, then neither does the

mortgage and the note. The applicable regulations prohibit a mortgage lender from foreclosing

without first complying with FHA servicing requirements. If Plaintiff did not comply with these

requirements, then Plaintiff was not authorized by the mortgage or the note to accelerate the

obligation and commence this foreclosure action. Assuming Defendant’s facts to be true, then as

a matter of law, Plaintiff is not entitled to summary judgment in its favor.

b. The evidence in the record, viewed in the light most favorable to Defendant, establishes that plaintiff failed to comply with HUD servicing requirements, including the requirement for a face-to-face meeting.

In order to determine whether Plaintiff has met its servicing obligation, this Court must

evaluate the evidence of Plaintiff’s conduct in light of the servicing requirements set forth by

HUD. In J.P. Morgan Chase v. Hodge, 2014 Phila. Ct. Com. Pl. LEXIS 129 (4/15/14), the Hon.

13

Ellen Ceisler noted that “the mortgage contract predicates acceleration and foreclosure upon

compliance with HUD regulations,” and that “noncompliance with HUD regulations can provide

an equitable defense to mortgage foreclosure.” (Id. at *5-*6.) Because the homeowners denied

that the mortgage company had offered them a face-to-face meeting, summary judgment was

inappropriate.

Defendant has presented evidence -- in the form of her Affidavit and Plaintiff’s own

letters denying her assistance -- that Plaintiff failed to comply with the applicable HUD

requirements. There is ample evidence the servicer failed to comply with requirements for a

face-to-face meeting with the homeowner before the mortgage is three full months behind “and

at least 30 days before foreclosure is commenced,” as required by 24 C.F.R. § 203.604(b).

Plaintiff has offered no evidence showing that it attempted to or had a face-to-face meeting with

Ms. Cue other than the conciliation conferences with Plaintiff’s attorney after the foreclosure

was filed. Appropriate FHA loss mitigation such as a partial claim (putting the arrears to the

back of the loan) or a modification (capitalizing and reamortizing arrears) could have prevented

or remedied a default in this case. Considering the evidence in the light most favorable to Ms.

Cue, CitiMortgage failed to service her loan according to FHA/HUD requirements and did not

adequately review her for loss mitigation prior to filing this foreclosure.

In order to obtain summary judgment, Plaintiff has the burden of establishing the absence

of genuine issues of material fact and that it is entitled to summary judgment as a matter of law.

Plaintiff has not met that burden. The evidence in the summary judgment record now before the

Court, taken in the light most favorable to Defendant, establishes a defense to foreclosure based

on the Plaintiff’s failure to comply with HUD servicing requirements. Discovery related to

14

Plaintiff’s servicing of the loan is outstanding. Plaintiff’s motion for summary judgment should

therefore be denied.

c. Plaintiff was not entitled to accelerate the mortgage or assess foreclosure fees and costs against Defendant.

Because the federal regulations and the terms of the mortgage and note prohibit Plaintiff

from foreclosing without first complying with the HUD servicing requirements, Plaintiff was not

entitled to accelerate the mortgage and assess foreclosure fees and costs, including attorney’s

fees, against the Defendant prior to compliance with the servicing requirements. Had the

servicing requirements been followed, Defendant may have qualified for one of the specified

alternatives to foreclosure and if so, Plaintiff would never have incurred these fees and costs.

Similarly, had Defendant been considered for and qualified for one of the alternatives to

foreclosure, Plaintiff would not have had a basis to accelerate the mortgage obligation.

Plaintiff’s failure to comply with HUD’s prerequisites to foreclosure forms the basis for a valid

defense to Plaintiff’s claims that the entire principal balance of the mortgage is now due and that

Defendant is liable for foreclosure fees and costs.

d. Defendant’s Facts Taken in the Light Most Favorable to Her Support the Equitable Defense of Unclean Hands

Ms. Cue has pled facts in support of the equitable defense of unclean hands, and has

further supported them with her affidavit. It is a settled principle of Pennsylvania law that a trial

court may consider equitable defenses raised by a defendant in a foreclosure case. In Fleet Real

Estate Funding Corp. v. Smith, 366 Pa. Super. 116, 530 A.2d 919 (Pa. Super. 1987), discussed

above, the Superior Court expressly affirmed the trial court’s ability to exercise its equitable

powers in a foreclosure case: “[W]e believe that trial courts in Pennsylvania may exercise their

15

equity powers to restrict a mortgagee who has not, within the reasonable expectations of good

faith and fair dealing, followed or applied the forbearance provisions of the HUD regulations and

Handbook.” Smith, 366 Pa. Super. at 123, 530 A.2d at 923.

The Superior Court further explained the basis for the trial court’s equitable authority as

follows: “We note that an action of mortgage foreclosure is an action at law in Pennsylvania, see Pa.

R.C.P. 1141. Equitable relief is available in an action at law where such relief can be granted

consistently with principles of law. Std. Pa. Prac. 2d § 79:4.” Smith, 366 Pa. Super. at 124 n. 3, 530

A.2d at 923 n. 3. Unclean hands is one equitable defense available in foreclosure. Unclean hands is

far more than a mere banalty. It is a self-imposed ordinance that closes the doors of a court of equity to one tainted with inequitableness or bad faith relative to the matter in which he seeks relief, however improper may have been the behavior of the defendant. That doctrine is rooted in the historical concept of court of equity as a vehicle for affirmatively enforcing the requirements of conscience and good faith. . . . Thus while 'equity does not demand that its suitors shall have led blameless lives' . . . as to other matters, it does require that they shall have acted fairly and without fraud or deceit as to the controversy in issue. . . .

Jacobs v. Halloran, 551 Pa. 350, 359-360, 710 A.2d 1098, 1103, (Pa. 1998), quoting Shapiro v.

Shapiro, 415 Pa. 503, 506-507, 204 A.2d 266, 268 (1964); see also County of Luzerne v.

Luzerne County Retirement Bd., 882 A.2d 531,536 (Pa. Cmwlth., 2005), Terraciano v. Dept. of

Transp., Bureau of Driver Licensing, 562 Pa. 60, 69, 753 A.2d 233, 237-38 (Pa. 2000).

In this case, Plaintiff failed to review Ms. Cue for FHA loss mitigation options prior to

filing the foreclosure, as it was supposed to do according to the mortgage, federal regulation, and

HUD guidance. Instead, Plaintiff sent an Act 91 pre-foreclosure notice to Ms. Cue advising her

to apply for HEMAP to save her home, even though HEMAP is not available for FHA-insured

loans such as Ms. Cue’s. When Plaintiff finally reviewed Ms. Cue for assistance under the

supervision of the conciliation program, it denied her a forbearance because she was over twelve

16

months behind by that point, even though she would have been eligible if she had been reviewed

properly before the foreclosure was filed. Plaintiff also denied Ms. Cue a loan modification for

the spurious reason that her circumstances had not changed, which was not true because her

husband had left the household and withdrawn his financial support. Taken in the light most

favorable to Ms. Cue, these facts support the equitable defense of unclean hands, and summary

judgment is inappropriate.

2. Defendant’s Denials of Amounts Due are Not General and Do Not Support Summary Judgment in Plaintiff’s Favor Given Defendant’s Affirmative Defenses

Plaintiff incorrectly argues that Defendant makes only general denials of her claims.

Plaintiff ignores Defendant’s affirmative defenses based on Plaintiff’s failure to service her

mortgage in accordance with FHA regulations. The cases Plaintiff cites in support of its

argument regarding general denials are not applicable to this foreclosure action because

Defendant has raised affirmative defenses. Moreover, there are genuine issues of material fact

concerning the amounts claimed by Plaintiff that also preclude entering summary judgment in

Plaintiff’s favor.

a. Plaintiff waived objections to the sufficiency of Defendant’s pleading

Because Plaintiff did not file timely preliminary objections, it waived the defense of

insufficient specificity of Pleadings that it claims against Defense’s Answer and New Matter.

Insufficient Specificity in a Pleading is a Preliminary objection under Pa. R.C.P. 1028(a)(3). A

party waives an objection of insufficient specificity in a pleading when it does not present it in a

preliminary objection, answer or reply. Pa. R.C.P. 1032(a); Lang v. City of Philadelphia, 31 Pa.

Commw. 537 (1997).

17

Defendant filed her Answer with New Matter on June 25, 2015. Plaintiff filed a Reply to

Defendant’s New Answer on July 6, 2015. Before filing its Reply, Plaintiff did not file

Preliminary Objections. Plaintiff now, in a Motion for Summary Judgment, attempts to assert

that several of Defendant’s denials are general, and are therefore admissions.

Plaintiff did not timely assert its objection to the specificity of Defendant’s Answer.

Therefore, Plaintiff is unable assert it now. The denials in paragraphs 3, 4, and 8 through 13 of

Defendant’s Answer constitute genuine issues of material fact that make Summary Judgment

inappropriate in this matter.

b. Defendant’s defenses are not general denials of Plaintiff’s averments

Even if Plaintiff had not waived its Preliminary objections, Defendant’s denials under

1029(c) are not general. They do not deny any information that is of public record, or that

Defendant can find out using her own records. A denial under Rule 1029(c) is considered valid

where it is not clear that a Defendant knows that available information is accurate. Com. By

Preate v. Rainbow Associates,138 Pa. Commonwealth Ct. 56, 61-62 (1991). A denial is

considered an admission if the means of obtaining the information are within the control of the

Defendant. Cercone v. Cercone, 254 Pa. Super. 381, 386 A.2d 1 (1978); First Wisconsin Trust

Co. v. Strausser, 439 Pa. Super. 192, 653 A.2d 688 (1995).

In this case, Defendant’s answers do not deny publicly recorded documents, her own

signature, or the existence of documents attached to the Complaint. Defendant is denying

Plaintiff’s implication that those documents allow Plaintiff to bring the present suit, and to

collect payment on the Note. (Ans. ¶3 and 4) Unlike the Plaintiffs in Cercone, who were directly

involved in the transaction but attempted to deny knowledge of payments made, Defendant was

18

not a party to the Assignment of the mortgage. 254 Pa. Super. 381. She does not know if the

assignment is valid. Nor was Defendant involved in any merger between Source One and

CitiMortgage, nor has Plaintiff attached or provided any proof of such merger, or that

Defendant’s particular mortgage was part of any such merger. Defendant does not deny that she

signed the Loan Modification Agreement #52726360, but rather denies Plaintiff’s implication

that the agreement was a new and separate agreement from the one signed earlier in the same

month, and which is otherwise identical. (Ans. ¶8.) Lastly, Defendant does not deny that she

received an Act 91 Notice from Plaintiff, but she does deny that her receipt of the Act 91 notice

met Plaintiff’s legal requirement to provide notice to Plaintiff. (Ans. ¶ 13.)

In her Answer, Defendant denies that the amounts claimed by Plaintiff in paragraph 9 of

its Complaint are due because Plaintiff is not entitled to accelerate and foreclose on the mortgage

without complying with FHA regulations, and because she does not have information about

certain specific charges. Defendant noted that “the remaining principal balance, whether

monthly late fees were in fact charged to the account, and the amount of escrow advance

balance” were all allegations based on writings that the Defendant does not possess. (Ans. ¶ 9).

These denials were specific and detailed, and as supported by evidence are sufficient to defeat

Plaintiff’s Motion for Summary Judgment. Any foreclosure related costs are not properly due

because Plaintiff did not comply with HUD’s servicing requirements. Even if Plaintiff were to

get summary judgment, a hearing would be necessary to determine the amount of the judgment

and/or damages.

Defendant does not deny information that is in her control, or that is part of the public

record. Therefore, her denials are correct under Pa. R.C.P. 1028(c). Her denials constitute

genuine issues of material facts that make summary judgment inappropriate for this case.

19

c. Defendant’s FHA servicing defenses are complete defenses to the foreclosure action

Plaintiff cites no caselaw in support of its bald assertion that Defendant’s FHA servicing

defenses are meritless. In addition to the caselaw discussed at length above, the Superior Court

has endorsed denying summary judgment when there is evidence in support of an FHA servicing

defense. First Wisconsin Trust Co. v. Strausser, 653 A.2d 688, 439 Pa. Super. 192 (1995), the

court discussed its precedent in instructing that summary judgment is precluded when there is an

issue of fact in FHA cases:

In Fleet, this court reversed the granting of summary judgment in favor of a mortgagee and found that a genuine issue of material fact, concerning the mortgagee's alleged failure to adequately service the mortgage in compliance with the Federal Housing Administration, precluded summary judgment. Fleet, supra. … In Fleet and Reggie, as in other cases precluding summary judgment in favor of the mortgagee, summary judgment was not permitted because a genuine issue of material fact existed as to the improper conduct of the mortgagee. Fleet, supra; Reggie, supra; see also Comm. School Employee's Retirement Fund v. Terrell, 399 Pa. Super. 328, 582 A.2d 367 (1990) (holding that a genuine issue of material fact, as to whether mortgagee complied with forbearance provisions of the Department of Housing and Urban Development handbook, precluded summary judgment)…

Id., 439 Pa. Super. at 201. In short, the relevant caselaw does not support granting summary

judgment where Defendant has asserted and supported defenses based on Plaintiff’s failure to

service the mortgage in compliance with FHA regulations and guidance.

B. Summary Judgment Must Be Denied Because Discovery Regarding Essential Facts Is Ongoing

Plaintiff filed this Motion for Summary Judgment before a case management order was

entered and while Defendant was waiting for a decision on her application for a loan

modification. Defendant did not want to run up litigation costs which could be charged to her

account before a decision on her eligibility for a loan modification was made. However, she

immediately served Plaintiff with discovery requests upon the filing of this unexpected and

20

premature motion. As discussed in detail above, Defendant has pled affirmative defenses related

to Plaintiff’s failure to follow the pre-foreclosure servicing requirements of this FHA mortgage.

Plaintiff’s servicing records, which Defendant has requested in discovery, are essential to these

defenses and can only be obtained from Plaintiff. See Affidavit of Rachel Labush, Esq.,

attached as Exhibit B to Defendant’s Response to Plaintiff’s Motion for Summary Judgment.

Pennsylvania Rule of Civil Procedure 1035.3 provides that an adverse party in

responding to a motion for summary judgment “may supplement the record or set forth the

reasons why the party cannot present evidence essential to justify opposition to the motion and

any action proposed to be taken by the party to present such evidence.” Pa. R.C.P. 1035.3(b). In

this case, Ms. Cue has produced evidence, in the form of her affidavit and correspondence from

Plaintiff, that she was not properly reviewed by Plaintiff for FHA loss mitigation options prior to

the filing of this foreclosure. However, further details of Plaintiff’s compliance or

noncompliance with the servicing requirements can only be found in Plaintiff’s servicing

records, which have not yet been produced. Therefore entry of summary judgment on

Defendant’s defenses without giving her the opportunity to supplement the record through

pending discovery would be inappropriate.

C. Summary Judgment Must Be Denied Because This Motion Was Filed in Violation of

the CFPB’s Prohibition Against Dual Tracking

This Motion for Summary Judgment was filed in violation of the Consumer Financial

Protection Bureau’s servicing rules (Reg. X) which prohibit moving for judgment while a

complete loss mitigation application is pending. Regulation X provides:

(g) Prohibition on foreclosure sale. If a borrower submits a complete loss mitigation application after a servicer has made the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process but more than 37 days before a foreclosure

21

sale, a servicer shall not move for foreclosure judgment or order of sale, or conduct a foreclosure sale, unless:

(1) The servicer has sent the borrower a notice pursuant to paragraph (c)(1)(ii) of this section that the borrower is not eligible for any loss mitigation option and the appeal process in paragraph (h) of this section is not applicable, the borrower has not requested an appeal within the applicable time period for requesting an appeal, or the borrower's appeal has been denied; (2) The borrower rejects all loss mitigation options offered by the servicer; or (3) The borrower fails to perform under an agreement on a loss mitigation option.

12 C.F.R. § 1024.41(g). The official staff commentary further explains that “The prohibition on

a servicer moving for judgment or order of sale includes making a dispositive motion for

foreclosure judgment, such as a motion for default judgment, judgment on the pleadings, or

summary judgment, which may directly result in a judgment of foreclosure or order of sale.” 12

C.F.R. § Pt. 1024, Supp. I.

In this case, paralegal Michelle Brix submitted Ms. Cue’s application for a loan

modification to CitiMortgage on October 7, 2015. (Ex. C ¶ 5.) A copy was sent to

CitiMortgage’s counsel the same day. (Ex. B ¶ 5.) In response to a letter from CitiMortgage

requesting more documents, Ms. Brix submitted the documents on November 12, 2015. Ms.

(Ex. C ¶ 7.) On November 13, 2015, CitiMortgage’s attorney’s office sent an email confirming

receipt of the documents and that they were forwarded to CitiMortgage. (Ex. C2.) That was the

last communication regarding the loan modification application before this Motion for Summary

Judgment was filed.

The CFPB rules require a mortgage company to send a written notice of decision to a

borrower who has applied for loss mitigation. The notice must state what loss mitigation options

if any will be offered and notify the borrower of the right to appeal any denial and the

requirements for such appeal. 12 C.F.R. § 1024.41(c)(1)(ii). To date neither Ms. Cue nor

22

Community Legal Services has received a denial letter. This Motion should not have been filed

during review of the loan modification application, and should not be granted.

D. Conclusion

In response to Plaintiff’s motion for summary judgment, Ms. Cue has submitted an

affidavit and other documents supporting her valid defenses to the foreclosure action based on

Plaintiff’s failure to service the mortgage according to FHA regulations and guidelines. As

explained herein, Ms. Cue also has the equitable defense of unclean hands. These defenses are

recognized in Pennsylvania law. The defenses presented by Ms. Cue, supported by facts of

record, preclude a grant of summary judgment to Plaintiff. In addition, discovery on these

defenses is still ongoing and Defendant has outstanding discovery requests directed to Plaintiff.

This Motion was also filed in violation of the CFPB’s prohibition against moving for judgment

in a foreclosure while a loss mitigation application is pending.

V. Relief Requested

For the forgoing reasons, Ms. Cue respectfully requests that this Court deny Plaintiff’s

Motion for Summary Judgment.

Respectfully submitted,

1/19/16 /s/Rachel Labush _____ _____________________ Date RACHEL LABUSH, ESQUIRE Counsel for Defendant