Recent Developments in Pennsylvania Mortgage Foreclosure Law
ALM Media
Updated
In recent months, the Pennsylvania Superior Court issued three important decisions regarding the rights of property owners and lenders in mortgage foreclosure proceedings. The court's decisions touch on several key areas, such as the true definition of a property owner, the rights of lenders seeking to foreclose on a mortgage endorsed in blank and the need for evidence when imposing an equitable lien against a common party's interest in a property.
Ownership Rights
In U.S. Bank National Association as Trustee v. Watters, 2017 Pa. Super. 110 (2017), the court concluded that a nontitled spouse does not have to be named as a defendant in a mortgage foreclosure proceeding. Bryan J. Watters and Diane Watters were a married couple who purchased a home in Erie County. Due to Diane Watters' poor credit rating, title to the property was placed solely in Bryan Watters' name. Bryan Watters assigned a mortgage to the property through American Home Mortgage, which was later assigned to U.S. Bank National Association. On April 16, 2013, Bryan Watters filed for divorce, and moved out of the property, while his ex-wife continued to reside there.
Shortly after moving out, Bryan Watters ceased making payments against the mortgage, and U.S. Bank commenced a foreclosure action against him. Although Diane Watters was served with a copy of the foreclosure complaint as the occupant of the property, she was not named as a defendant. The bank obtained a default judgment against Bryan Watters, and the property was scheduled for Sheriff's Sale.
More than a year later, the Watterses filed a petition seeking to open or strike the default judgment, set aside the Sheriff's Sale, or obtain leave to intervene in the foreclosure action asserting that, since Diane Watters held an equitable interest in the property because of the divorce proceeding, Pa R.C.P. 1144 required that she be named as a party to the foreclosure action. The trial court denied the petition, and the Superior Court affirmed noting that Pa.R.C.P. 1141 through 1150 govern actions in mortgage foreclosure, and Pa.R.C.P. 1144(a)(3) states that defendants in a foreclosure action are defined as "the real owner of the property, or if the real owner is unknown, the grantee in the last recorded deed." Since only Bryan Watters' name appeared on the deed, Diane Watters was not a "real owner" of the property and U.S. Bank was not required to name her as a defendant.
History of Assignments Not Required
In Bank of New York Mellon as Trustee v. Bach, 2017 Pa. Super. 85 (2017), the court concluded that a lender seeking to foreclose on a mortgage evidenced by a note endorsed in blank is not required to establish the history of assignments of the mortgage and note.
Steven E. Bach and Barbara A. Bach assigned a mortgage through Financial Mortgage Corp. against a parcel of property they owned situated in Delaware County. The mortgage was later assigned to First Horizon Home Loan Corp., and then to Bank of New York Mellon as trustee. The Bachs defaulted on the mortgage, and the Bank of New York Mellon commenced a foreclosure action. In response, the Bachs filed an answer denying, inter alia, "the validity of the assignments."
At a nonjury trial, the bank produced the original mortgage note executed by the Bachs, and endorsed in blank. The Bachs did not deny the validity of the mortgage, nor that they had failed to make the requisite payments. Rather, as their sole defense, they asserted that there was a prior assignment of the mortgage by the original lender which rendered the subsequent assignment to the Bank of New York Mellon invalid. The trial court entered a verdict for the bank and the Superior Court affirmed.
In issuing its ruling, the court noted that it has ruled on numerous prior occasions that a note secured by a mortgage is a negotiable instrument, and that the right to enforce the debt evidenced by the note is vested in any party possessing the note. In other words, since the bank produced the original note endorsed in blank, and the Bachs did not challenge its authenticity, or their failure to make payments, the bank had the authority to foreclosure.
Clear Evidence Needed
Finally, in U.S. Bank National Association as Trustee v. Finkel, 2017 Pa. Super. 158 (2017), the court held that an equitable lien could not be imposed upon a party's ownership interest in real property without clear evidence that the parties to the loan transaction had so intended.
Leslie M. Finkel and Alexander Bryan Altieri purchased a parcel of property in Northampton County in March of 2004 as tenants in common. At the time of purchase, Finkel assigned a mortgage against her interest in the property through Wells Fargo, while Altieri paid for his interest in cash. Although both Finkel and Altieri were present at the closing on the purchase of the property, only Finkel executed the mortgage, note and other related loan documents. Finkel and Altieri later married in June 2004.
The mortgage went into default and the lender commenced an action to reform the mortgage to name Altieri as a mortgagor (i.e., the borrower) or, in the alternative, impose an equitable lien on his interest in the property, asserting that a mutual mistake of the parties caused Altieri not to be named as a mortgagor. For his part, Altieri asserted that, since he had paid his portion of the sale price in cash, it was never his intention that his interest could be encumbered by the mortgage. The trial court entered partial summary judgment for the bank and imposed an equitable lien on Altieri's interest.
On appeal, Superior Court reversed, and remanded the matter to the trial court for further proceedings. In issuing its ruling, the court noted that Pennsylvania appellate courts have repeatedly held that, for an equitable lien to be imposed against a particular party's interest in real estate, there must be clear evidence that the parties so intended. In this matter, both Finkel and Altieri denied any such intent, and further asserted the bank purposely omitted Altieri from the mortgage and note due to concerns about his lackluster credit rating.
As significant questions of material fact existed, the trial court's entry of partial summary judgment was inappropriate.
