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MortgagePoint ยป Your Trusted Source for Mortgage Banking and Servicing News 48 July 2024 C O U N S E L ' S C O R N E R A TALE OF TWO MORTGAGES Legal League Chair Stephen M. Hladik details a recent Amicus Curiae filed on whether a "first" mortgage on a property could be divested by a foreclosure and the legal ramifications on the servicing industry. B y E R I C C . P E C K A ttorney Stephen M. Hladik, on behalf of the Legal League and American Legal and Financial Network (ALFN), has filed a Brief of Amicus Curiae in the Superior Court of Pennsylvania Eastern District in the case of Reverse Mortgage Funding LLC v. Foxfield at Naaman's Creek Homeowners Association, Mohamed Ahmadat and Raech- elle Eventoff. The Background T he case of Reverse Mortgage Funding LLC v. Foxfield at Naaman's Creek Homeowners Association, Mohamed Ahmadat and Raechelle Eventoff was com- menced by a homeowners' association (HOA) due to delinquent HOA assess- ments. The HOA initiated a foreclosure action under its HOA liens that proceed- ed to a Sheriff 's Sale of the property. After the sale occurred, the HOA took the legal position that the HOA's Sheriff 's Sale divested the first mortgage from the property, and the Trial Court agreed. Note that the industry has fought this issue on numerous fronts nationwide, with most battles being waged in the state of Nevada, but this was the first decision of its kind rendered in the state of Pennsylvania. According to Hladik, in the trial judge's reading of the applicable statutes, only purchase money mortgages are saved from divestiture, and any mortgage sitting in the first lien position as a result of a refinance would not be saved from divestiture in an HOA foreclosure sale. The Amicus Curiae filed on behalf of the Legal League and ALFN questions whether the Trial Court erred in finding that a "first" mortgage on a property could be divested by the foreclosure and Judicial Sheriff 's Sale for a judgment on unpaid condominium assessments incurred after the recording of subject mortgage. MortgagePoint had a chance to discuss the case with Hladik, a Principal in the law firm of Hladik, Onorato & Federman LLP, who also serves as Chair of Legal League, a professional association of financial services law firms uniquely po- sitioned to drive progress in the mortgage servicing industry. Hladik's Insights Hladik: There are major implications for the mortgage industry if this decision were to be upheld. The Trial Court ruled that only purchase money mortgages survive HOA Sheriff 's Sales. If that legal conclusion is affirmed, then any mortgage in the first lien position as a result of a refinance could be subject to losing its mortgage if an HOA foreclosed. This would be a major change in the law as it is understood, and this will compel lenders to pay delinquent HOA liens or face divestiture. Q: Can you explain a "judicial sale" of real estate? What is the responsibility of the buyer and seller involved, and what rights do they have? Hladik: A "judicial sale" is a sale under the direction of the courts. These are sales that result from mortgage foreclosures, executions of money judgments on real estate, judicial tax sales, or HOAs. Traditionally, judicial sales are "buyer beware," as the buyer is forewarned to check their title to ensure they are getting a marketable title. Q: How does this case differ from your typical foreclosure sale? Hladik: A foreclosure sale is the judicial execution on a property resulting from entry of a judgment in mortgage foreclosure. HOAs can foreclose their liens for assessments, but the underlying procedural practice is very different from a foreclosure until it comes to the setting MortgagePoint Managing Digital Editor E R I C C . P E C K has 25-plus years' experience covering the mortgage industry. He graduated from the New York Institute of Technology, where he received his B.A. in communication arts/media. After graduating, he began his professional career in New York City with Videography Magazine before landing in the mortgage finance space. Peck has edited three published books, and has served as Copy Editor for Entrepreneur.com.