Opinion ID: 517606
Heading Depth: 3
Heading Rank: 3

Heading: Unfair or deceptive conduct.

Text: 36 Having concluded that Smith may properly allege a private cause of action under section 9.2, we next turn to the issue of whether Fidelity's conduct constitutes an unfair or deceptive act under the UDAP. 37 As initially drafted, the UDAP prohibited unfair and deceptive practices generally. However, in 1976 it was amended so as to make unlawful only unfair and deceptive practices as defined by subclauses (i) through (xvii) of clause (4) of section 2 of this act. 73 Pa.Stat.Ann. Sec. 201-3 (Purdon Supp.1988). As noted above, the only subclause relevant to the case at bar is the catch-all provision, which makes it unlawful to engage in any other fraudulent conduct which creates a likelihood of confusion or of misunderstanding. Id. at Sec. 201-2(4)(xvii) (emphasis added). Smith argues that this subsection bans conduct which is unfair and deceptive but does not rise to the level of fraud. We reject that interpretation because we think it ignores the plain language of the subsection and the language of the 1976 amendment, which restricted the UDAP so that it bans only the enumerated activities. We thus agree with the district court that in order to evaluate whether Fidelity has violated this subsection of the UDAP, we must measure its conduct against the elements of common law fraud, which require that a party make a material misrepresentation that another reasonably relies upon to his or her detriment. However, we will nonetheless reverse the district court's decision because we conclude that Smith has demonstrated that Fidelity's conduct was fraudulent. 38 According to Smith, Fidelity's conduct here included (1) the improper service of the foreclosure action, (2) the failure to give her at least thirty days' notice of intention to commence foreclosure proceedings, (3) the creation of unnecessary costs and expenses to cure default, and (4) the refusal to accept partial payment in violation of federal regulations. The district court, concluding that Smith failed to state a cause of action, found that (1) the improper service of process, 6 and the failure to give notice of intention to foreclose, even if material omissions, were not deceptive, misleading, or fraudulent because the thirty-day postponement of the foreclosure sale cured any damage to Smith; (2) even if Fidelity improperly insisted on payment of fees and costs, there was no recovery under UDAP because the conduct did not involve any misrepresentations or omissions upon which Smith relied; and (3) Fidelity had no obligation to accept partial payment under the HUD regulations because plaintiff tendered such payment after the filing of the foreclosure complaint. The court's conclusion, however, is fatally flawed in that it fails to acknowledge the confusion, misunderstanding, and oppressiveness created by Fidelity's conduct, and the damages incurred by Smith due to the improper service of process and the absence of pre-foreclosure notice. 39 The district court held that the failure to make proper service of the foreclosure complaint was not actionable under the UDAP because Fidelity's actions were neither deceptive, misleading, or fraudulent. The court erred, however, in its failure to focus upon Fidelity's earlier actions which misled or lulled Smith into a false sense of reliance, ultimately permitting Fidelity to obtain a default judgment and to foreclose on the property. 40 Specifically, in June 1980, Smith informed Fidelity of her indefinite stay in Germany and requested that all future communications regarding the property be forwarded to her in Germany. In direct response to her request, Fidelity sent an accounting to her in Germany in July 1980, less than thirty days prior to commencement of the foreclosure action. Fidelity did not, however, mention or intimate in that letter any plans to foreclose on the property, nor did it even intimate that it would refuse to send further communications to her at her address in Germany. Rather, the prompt response supplying the requested information could certainly have led Smith reasonably to believe that any future correspondence or notices regarding the property would be similarly directed to her in Germany. Fidelity's summary institution of the foreclosure proceedings, especially in light of its recent accounting and correspondence with Smith in Germany, and the failure to give her the required thirty day pre-foreclosure notice, see note 7 infra, therefore contradicted its implicit representation to her that all future communications regarding the status of the property would be sent to her in Germany. 41 A borrower of money, especially the owner of a residential property mortgaged to a lending institution, may reasonably expect that he or she will receive fair and above-board treatment in their dealings and that no undue advantage will be taken by the lender. Here, Fidelity did not accord Smith such fair treatment. Despite an apparently satisfactory relationship spanning approximately seventeen years, and resulting in almost full satisfaction of the debt, and despite Smith's conveyance of her intent to cure any delinquency on the loan, Fidelity swiftly and silently commenced foreclosure and soon thereafter obtained a snap default judgment against an unwary and unsuspecting borrower. 42 Although the failure properly to serve the foreclosure complaint may not by itself be an unfair practice, here we have considerably more. Fidelity's conduct effectively deprived Smith both of an opportunity to cure the default before imposing additional and unnecessary costs and expenses on her, and of her opportunity to defend in court. We hold that such conduct is unfair in the most basic sense of the word and fraudulent within the meaning of the UDAP. 43 The district court further erred in concluding that postponement of the foreclosure sale rectified any injury which Smith would otherwise have sustained by the failure to make proper service of the foreclosure complaint. As the Supreme Court has recognized, the failure to give notice, reasonably calculated, under the circumstances, to apprise interested parties of the pendency of the action and afford them the opportunity to present their objections, offends the  'most rudimentary demands of due process of law.'  Peralta v. Heights Medical Center, Inc., --- U.S. ----, 108 S.Ct. 896, 899, 99 L.Ed.2d 75 (1988) (quoting Armstrong v. Manzo, 380 U.S. 545, 550, 85 S.Ct. 1187, 1190, 14 L.Ed.2d 62 (1965)). The Court went on to note that, even where the defendant does not have a meritorious defense, the defendant suffers harm from the mere failure to receive notice. For example, had there been proper service, the defendant might have impleaded third parties, worked out a settlement, paid the debt, or sold the property to raise the needed funds. Id. --- U.S. at ----, 108 S.Ct. at 899. 44 Here, Smith also may have selected a more favorable resolution of the dispute than suffer foreclosure of the mortgage when the debt had almost been liquidated, had she received proper notice of the intended proceedings. For example, prior notice may have enabled Smith to work out a settlement with Fidelity, or to make partial payment, or Smith may have chosen to sell the property herself. Moreover, if Smith had received notice prior to the initial filing of the complaint, as required by 41 Pa.Stat.Ann. Sec. 403, 7 her options potentially would have been even greater. For example, as the district court implicitly recognized, at that stage the mortgagee would not have incurred substantial attorneys' fees and costs so that Smith's initial offer to pay the debt would have been sufficient to cover the mortgage deficiency. See In re Schwartz, 68 B.R. 376, 378 (Bankr.E.D.Pa.1986) (41 Pa.Stat.Ann. Sec. 406 prohibits mortgagee from recovering attorneys' fees and costs incurred prior to or during the thirty-day notice provided in 41 Pa.Stat.Ann. Sec. 403). 45 Even if her offer had still been insufficient, it is arguable that Fidelity would have been obligated to accept partial payment in accordance with the internal regulations of the United States Department of Housing and Urban Development (HUD), assuming such an offer was made prior to the filing of the complaint. 8 As the district court noted, however, once foreclosure proceedings have begun, the lender is no longer obligated to accept such partial payments. 46 All these options, however, were foreclosed to Smith because of Fidelity's failure to provide proper notice of its intent to foreclose as well as its failure to make proper service of the foreclosure complaint. It is error, therefore, to conclude that Smith suffered no injury as a result of the improper service of the complaint. We conclude, accordingly, that Fidelity's failure to properly serve the foreclosure complaint, particularly in the absence of providing the thirty-day pre-foreclosure notice as required by Act 6, infra part B, and its conduct prior to the commencement of the foreclosure proceedings, constituted a violation of the UDAP.