Opinion
Bankruptcy No. 02-15197DWS, Adversary No. 03-0197.
July 27, 2004
MEMORANDUM OPINION
Before the Court is the Complaint filed by the debtor Warren Jones ("Debtor" or "Plaintiff") against LaSalle National Bank as trustee for the registered holders of Salomon Brothers Mortgage Securities VII, Inc., Series 1997-HUD2 ("Defendant"). The Plaintiff seeks this Court to, inter alia, (1) declare a "deed poll" issued following a sheriff's sale of the Debtor's residence at 1621 S. 53rd Street, Philadelphia, PA void ab initio as having been obtained in violation of the automatic stay of 11 U.S.C. §§ 362(a) and 1301; (2) void the transfer memorialized by the deed poll as an unauthorized post-petition transfer; (3) avoid the mortgage foreclosure and resultant sheriff sale pursuant to 11 U.S.C. § 544(a) and preserve the benefit for Plaintiff under 11 U.S.C. §§ 551 and 552; (4) disallow Defendant's filed claim and either avoid or limit the amount of its lien; (5) find Defendant in contempt for violating the automatic stay and award damages in connection therewith. After trial of the Complaint, the parties submitted post-trial briefs and the matter is ripe for disposition.
Edward Sparkman, the former Chapter 13 trustee, is a nominal plaintiff but never participated in the litigation. Since the estate has no interest in the outcome of this adversary proceeding, he was presumably named to enhance standing to invoke certain avoiding powers of the trustee. During the pendency of the pretrial stage of this case, Sparkman resigned but his replacement, William Miller, Esquire, was not substituted and also has had no involvement in the case. Since, as discussed above, I find that state law regarding void judgments, not the trustee's avoiding powers, provides the Debtor with his ability to set aside the sheriff's sale of the Property, this procedural omission is not dispositive.
The stay violation as relates to the co-debtors involves the same conduct as relates to the debtor, and it is addressed at section D infra. I question how Debtor has standing to advance any separate claims on behalf of the co-debtors who did not appear and indeed appear to have no notice of these proceedings. In any event, as the § 1301 claim adds nothing additional to this matter, I will not address it further.
The findings herein are based on the record made at the trial of this matter as well as the findings made after an evidentiary hearing conducted in connection with Defendant's motion for relief from stay. In re Jones, 2003 WL 22843162, at *1-2 (Bankr. E.D. Pa. Nov. 14, 2003). The parties have incorporated the record of that proceeding herein.
On or about June 26, 1981 Plaintiff and his putative wife Joanne Jones ("Joanne") and his father Kenneth Jones ("Father") purchased certain residential real property located at 1621 South 53rd Street, Philadelphia, Pennsylvania (the "Property"). The purchase was financed with the proceeds of a mortgage loan, Exhibit P-2, which was subsequently assigned to LaSalle pursuant to an Assignment of Mortgage and Other Collateral Loan Documents. Exhibits P-3 to P-6. The mortgage granted a lien and security interest in the Property as well as, inter alia, in "any and all appliances, machinery, furniture and equipment (whether fixtures or not)." Exhibit P-2.
The deed reads "Warren Kenneth Jones and Joanne Jones, his wife and Kenneth W. Jones, a married man." Exhibit P-1.
The mortgage was assigned to LaSalle by Brokers Mortgage Service ("Brokers"). The original note and mortgage dated June 26, 1981 between Brokers and Warren Kenneth Jones and Joanne Jones, husband and wife, and Kenneth W. Jones, co-mortgagor, is attached to the Complaint and introduced as Exhibit P-2.
Plaintiff testified regarding the settlement of the purchase of the Property which he attended. He could not recall receiving a Truth in Lending Act ("TILA") disclosure statement nor upon review of his file from the transaction could one be located. On cross examination, he acknowledged that he was not sure what a TILA disclosure statement looked like and that his records, which he retained in a bag and brought to his attorney, were not well organized.
In April 2001, LaSalle commenced a complaint in mortgage foreclosure ("State Court Action") against "Warren Kenneth Jones and Joanne Jones, his wife and Kenneth W. Jones, a married man," naming the parties as they are named in the deed and mortgage. Exhibit P-7. Notably while the Property was titled to Plaintiff and Joanne as husband and wife, they were never married. Rather they lived together with their three children and held themselves out to LaSalle's predecessor in interest as husband and wife. Ultimately their relationship soured, and, according to Debtor's testimony, at his request she vacated the Property and Debtor's life at the end of April 1981. Also complicating matters was the death of Father. Learning this when the Complaint was returned unserved on Father, LaSalle took steps to remove him from the State Court Action. While Debtor has challenged the validity of the service on Father as well as on Joanne and himself, LaSalle concedes that it erred in not naming and serving Father's heirs. As noted below, it also acknowledges that such omission is fatal to the efficacy of the steps it took in furtherance of the State Court Action.
Debtor testified that he was advised by the broker that to qualify for a mortgage he needed to misrepresent his marital status as a prior application had been denied when he stated otherwise. Given his intention to marry Joanne in July following the home purchase in February and the birth of their third child in March, he did not believe this statement to be improper. From this testimony I conclude that it was Debtor's intention that Joanne own the Property as his wife with the attributes attendant to a tenancy by entireties notwithstanding the fact that they had not yet been married. While Debtor offers that explanation defensively to justify his misrepresentation, he is bound by that statement in all respects.
Debtor contended that Joanne lived in the Property at that time. However, the deed and the seller's signature thereon were dated June 26, 1981 after the date she left Debtor. Exhibit P-1. The mortgage is likewise dated, signed and notarized June 26, 1981. Exhibit P-2. While Debtor recollects purchasing the Property in February or March, the documents suggest otherwise. Thus, if Joanne was requested to leave in April 1981, she could not have ever lived in the Property. In any event, even accepting Debtor's recollection of the chronology, she could have only lived in the Property a month or two.
As Joanne had not lived in the Property for twenty years at the time that the State Court Action was commenced, service of the Complaint on her at the Property on May 12, 2001, Exhibit P-9, appears to be another basis for invalidating the foreclosure judgment. Pa.R.Civ.P. 402(a)(2), (requiring service at the defendant's residence). Debtor also disputes that service was properly made upon him. The return of service was admitted into the record, and it evidences service of the Complaint made at the Property at which Debtor resided having been received by an adult male, Mr. Williams who identified himself as a friend. Exhibit P-10. Debtor testified that he does not know who Mr. Williams is. I find that Debtor's self serving disclaimer that he does not know who this individual is did not credibly negate that proper service was made on him. However, as LaSalle conceded that the judgment is void for failure to join Father's heirs, the parties agreed at my suggestion, that it was unnecessary to call the process server that LaSalle had proffered to testify as to the service of the complaint on Mr. Williams.
Father died on September 19, 1993 prior to the commencement of the State Court Action without a will and his wife, who is alive, has remarried. Debtor did not know whether Father's estate had been probated. However, under Pennsylvania law, title to real property passed to his heirs immediately upon his death. 20 Pa. § C.S.A. 301. Learning of Father's demise, LaSalle filed a petition to discontinue the State Court Action as to him, Exhibit P-11, but failed to join or take any other action against his estate, his personal representative or any beneficiary with an interest in the Property arising at Father's death. While the State Court docket indicates that the petition was granted, the judge took LaSalle's form of Order and deleted the language that this "action is dismissed as to defendant Kenneth W. Jones only" and hand interlineated the following: "is DISMISSED without prejudice to plaintiff's right to refile with proof of defendant's demise." Exhibit D-3. LaSalle neither sought clarification, reconsideration or appellate review of the order and proceeded with the State Court Action as to Debtor and Joanne for reasons set forth below. Debtor contends that the Order dismissed the State Court Action and as such, the subsequent judgment in mortgage foreclosure entered in that proceeding is void. I had initially believed based on the docket and the lack of clarity in the order as to the judge's intention that the parties might have to return to state court to seek a determination of the validity of the judgment. However, LaSalle has admitted that the foreclosure judgment is void and as such that the State Court did not have jurisdiction to enter it. As a bankruptcy court is not bound to honor a judgment void for want of jurisdiction, this dispute may be resolved in this forum. See Soto v. PNC Bank (In re Soto), 221 B.R. 343, 348-49 (Bankr. E.D. Pa. 1998) (bankruptcy court is not bound by a prior judgment which is rendered by a court lacking proper jurisdiction over the parties or subject matter).
On July 6, 2001, a judgment was entered by default in the State Court Action in the amount of $29,446.18, and a writ of execution was issued on August 2, 2001 in that amount against the Property. Exhibits P-13, P-14. On February 5, 2002, the Property was sold at sheriff's sale with LaSalle purchasing the Property in an amount equal to its costs of $4,100. Included in this sum were amounts necessary to discharge senior liens on the Property for unpaid utilities. On March 21, 2002 LaSalle forwarded a check in the amount of $1,189.99 for the balance of the sheriff's costs, Exhibit D-16, which the Sheriff credited on April 17, 2003, Exhibit P-21, and deposited on April 18, 2002 in Commerce Bank. Id.; Exhibit P-24. However, on April 5, 2002 this current bankruptcy case was filed, advice of which was provided to LaSalle's counsel and the Sheriff on April 9, 2002. Exhibit P-22. Notwithstanding the bankruptcy filing, LaSalle expected to receive a Sheriff's deed based on the fact that it had paid the remaining costs of the sale prior to the bankruptcy filing. When it was not received by July 11, 2002, Faucher called the Sheriff's office. Her notes of that conversation state that "Donna @ Sheriff's office deed was acknowledged in April not sure where deed is c/b in an hour."Id. A follow-up call with the Sheriff on August 7, 2002 generated further notes: "Per Lori @ Sheriff's office acknowledged 4/8/02 mailed to Caplan Luber; $85 with aff. of lost deed must be notarized." Exhibit D-16. On August 8, 2002 Weisberg prepared an Affidavit of Lost Deed, Exhibit P-25, and the $85 fee was deposited with the Sheriff on September 9, 2002. Exhibit P-21. A Sheriff's deed was issued to LaSalle on October 15, 2002, Exhibit P-29. Due to the pendency of the bankruptcy case, the deed has not been recorded.
Exhibit P-13 is the Praecipe to Enter Default Judgment with the accompanying required certifications and affidavit. A copy of the actual judgment entered is not provided although Debtor concedes the entry of the judgment, if not its validity.
The Debtor states that sum to be $2,317.09, Debtor's Pretrial Brief at 30, and avers that they have been discharged by payment after April 17th. Id. at 38. The only evidence proffered of these liens is Exhibit P-21 which reflects water rents of $389.31 and PGW charges of $1,120.48 (totaling $1,509.79).
The transmittal letter is dated March 6, 2002 and the check is dated March 19, 2002. However, Rachel Faucher, a paralegal at Shaffer Scerni, who handled the tasks associated with the securing of the sheriff's deed, testified from her notes that she prepared a letter for foreclosure attorney Martin Weisberg's ("Weisberg") signature and mailed it to the Sheriff accompanied by a check for settlement costs on March 21. Exhibit D-16. The $1,189.99 payment supplemented the original $2,000 deposited with the writ on August 16, 2001. Exhibit P-21.
While the Affidavit of Lost Deed also recites that upon investigation with the Sheriff, the office learned that the deed was mailed to Robert Murtaugh, Esquire of Caplan Luber, no inquiry appears to have been made of that attorney as to the whereabouts of the deed.
LaSalle sought relief from stay to perform that step. LaSalle did not ground its Motion on any default under the confirmed Plan but rather contended that because the Debtor had no equitable interest in the Property which has been purchased by LaSalle (i.e., Debtor had only bare legal title to the Property), relief from stay was warranted. Given the pendency of the Complaint challenging that premise, stay relief was denied.
The Plan, a copy of which was served on LaSalle prior to confirmation, provides that LaSalle will have a claim in the amount of the unpaid balance of less than $12,000 secured by the Debtor's interest in the Property which claim will be paid by the Debtor directly to LaSalle. It also provides that by failing to object, a creditor may not collect its claim from any co-debtor during the pendency of the Plan. Exhibit P-27, Plan ¶ 13. Debtor is making monthly payments of $5.00 to the Chapter 13 trustee consistent with the Plan. The Plan is silent as to the Debtor's payment obligation to LaSalle pending allowance of its claim. LaSalle did not object to the Plan, and it was confirmed by Order dated October 31, 2002. Exhibit P-28.
On December 12, 2002 LaSalle filed a secured proof of claim in the amount of $29,446.86. Exhibit D-7. Debtor responded by filing this adversary proceeding objecting to the proof of claim and seeking affirmative relief with regard to the loss of the Property through the foreclosure proceeding.
On September 18, 2002, Debtor had filed a secured proof of claim on behalf of LaSalle in the amount of "at most $13,000." Exhibit D-9 to Exhibit P-37. The document acknowledged the entry of judgment in mortgage foreclosure on July 6, 2001 in the amount of $29,446.18 but stated that "the judgment is void, or voidable in whole or in part." No objection was lodged by LaSalle to the claim filed by the Debtor. However, it filed its own proof of claim thereafter and based on a stipulation with Debtor's counsel, its untimeliness was waived. Jones, supra, 2003 WL 22843162, at *1. Thus, this proof of claim supercedes the one filed by Debtor.
LaSalle had objected to the proof of claim, inter alia, as not evidencing Debtor's liability to LaSalle. William Barber of Wilshire Credit, which services the mortgage loan, was called to, among other things, establish LaSalle's mortgage through a series of assignments made part of the record. However, Debtor stipulated without the need for that testimony and therefore that objection is overruled. Debtor's other objections, i.e., that the claim states that it is for "taxes" and the attached copies of the note and mortgage do not evidence Debtor's signature, have been remedied by the record made at the trial, including complete copies of the note and mortgage. Those objections, to the extent still maintained, are likewise overruled.
At the trial, Barber testified in support of the proof of claim stating that it was asserted in the amount of $29,446.18, and that it was based on the default judgment entered in the State Court Action. Exhibit P-13. Debtor does not contest the amount of the total claim but rather contends that LaSalle has failed to establish it. While not conceding the amount of the claim, the thrust of Debtor's Complaint, however, is not the total claim but what amount of the claim is secured and whether there are offsets to the claim by reason of the Defendant's alleged violation of TILA and the bankruptcy automatic stay.
DISCUSSION
A.
I begin with the admission by LaSalle that its failure to join and serve the heirs of the deceased co-mortgagor renders the judgment in foreclosure invalid. LaSalle's Post-Trial Brief at 1-2. Giving effect to that admission, the subsequent sheriff sale would likewise be flawed, the consequence of which is that the Property did not pass to LaSalle when it paid the purchase price and costs, and the deed, whenever issued, has no force and effect.
Afer consulting with his client, LaSalle's attorney stated that it "was prepared to agree that it was a bad foreclosure, insomuch as — only on the basis of the failure to join the heirs [of Father]." N.T. at 23, lines 7-10. He also agreed that I need not therefore reach the other issues Debtor raised (Act 91 violation, service on Debtor and Joanne, etc.), because of the admission that the foreclosure judgment was invalid. Finally he responded affirmatively to my following statement:
I am by agreement finding that the foreclosure judgment is invalid, and as a result the sheriff's sale is invalid, and as a result the deed shouldn't have been issued.
Id.
While LaSalle notes its agreement at trial to set aside the sheriff's sale and its foreclosure judgment based on its failure to join father's heirs as defendants to the foreclosure proceeding, it attributes its flawed legal position to Debtor's misrepresentation of his marital status. Apparently LaSalle had concluded that Father and Debtor and Joanne were joint tenants with a right of survivorship so that when Father died, the Property would have passed to Debtor and Joanne. LaSalle complains that had Debtor and Joanne actually been married, its service of the Complaint would have been sufficient as only they would have been the sole owners of the Property by reason of their right of survivorship. Because of the misrepresentation which it contends was the cause of the failed judgment, it urges the court to consider providing it some form of equitable relief. However, as Debtor correctly points out, Father's heirs were required to be served even had Debtor and Joanne been married as represented. Pennsylvania Rule of Civil Procedure 1144(a)(2) requires the heirs of a deceased mortgagor to be named in an action of mortgage foreclosure. Rule 1144(b) excuses service on the heirs if they are released in the complaint. As the Complaint was not amended indicating such release, the failure to serve Father's heirs rendered the judgment invalid without regard to the misrepresentation about which LaSalle complains. Meritor Mortgage Corp. East v. Henderson, 421 Pa. Super. 339, 617 A.2d 1323 (1992).
It is undisputed that where a judgment is void as it would be when the court had no jurisdiction, the sheriff's sale which follows is a nullity. Dime Savings Bank, FSB v. Greene, 813 A.2d 893, 895 (Pa.Super. 2002). In such case, title will not pass to any purchaser, innocent or otherwise. Harris v. Harris, 428 Pa. 473, 475, 239 A.2d 783, 784 (1968). While LaSalle does not contest Debtor's view that ownership of the Property therefore remains in the Debtor, it strenuously rejects Debtor's contention that the Property is now owned free of the mortgage. Rather it argues that avoidance of the foreclosure judgment and sale places the parties in the same position as before these events occurred and accordingly, LaSalle holds a secured claim in this bankruptcy case. For the reasons that follow, I agree with LaSalle.
When a mortgagee obtains a judgment of foreclosure, the terms of the mortgage are merged into the judgment. Stendardo v. Federal Nat'l Mortgage Ass'n (In re Stendardo), 991 F.2d 1089, 1095 (3d Cir. 1993). The judgment, in turn, provides the basis for determining the obligations of the parties. Id. If a judgment is found to be void, then it is treated as if it never existed. First Seneca Bank v. Greenville Distributing Co., 533 A.2d 157, 162 (Pa.Super. 1987). In other words, when a judgment is set aside, the matter stands precisely as if there had been no judgment. Consequently, the mortgage must be treated as never having merged into the judgment, and the parties to the foreclosure action are left in the same position they were in prior to the judgment being taken. Id. Why then would the mortgage be extinguished when the judgment is found void? Debtor, in a comprehensive discussion of the various provisions of the Bankruptcy Code relating to the avoidance of transfers, finds support in §§ 544 and 549 for the remedy he seeks. However, I agree with LaSalle that these provisions do not provide a basis to void LaSalle's mortgage.
In Cole v. Sovran Mortgage Corp. (In re Cole), 89 B.R. 433 (Bankr. E.D. Pa. 1988), cited by LaSalle, the court considered the effect of a voided sheriff sale on a valid mortgage responding to the same argument made here (indeed by the same attorney) that the mortgage that was foreclosed upon could not be resuscitated when the sale was set aside. In that case, the sheriff sale had been set aside as a fraudulent transfer. The court held that the avoidance of the sale had no impact on the validity of the initial transaction giving rise to the mortgage. Like here, none of the cases cited by the debtor had stated or even suggested that a sheriff's sale that has been set aside has any impact on otherwise valid liens and judgments. I quote from that opinion:
In Cole, only the sale was set aside; the judgment remained valid. However, that fact and the fact that the avoidance was effected under § 548 are irrelevant to the principle articulated by the court. Nor am I persuaded by Debtor's other arguments against adoption of Cole, i.e., that it was premised on the law of the case doctrine and failed to consider § 550(e). The Court's reference to the law of the case doctrine was to remind the debtor that she had already made this argument and it was rejected. Cole then proceeded to elaborate given the debtor's continuing, "despite the previous Opinion," fallacious reasoning. Id. Section 550 deals with a transferee's liability where a transfer has been avoided under §§ 544, 548, 547, 548, 549, 553(b) or § 724(a), none of which are applicable here. As no property has ever been transferred given the invalidity of the judgment and sale, there has been no transfer of the estate's interest to avoid under either § 544 or § 549. Section 550 simply does not come into play. The cases cited by Debtor at pp. 24-25 of his Pretrial Brief are inapposite. Retail Clerks Welfare Trust v. McCarty (In re Van Kamp's Dutch Bakeries), 908 F.2d 517 (9th Cir. 1990) actually dealt with a lien avoided as a fraudulent conveyance under § 548 as did In re Jones, 20 B.R. 995 (Bankr. E.D. Pa. 1982) whereas Research Planning Inc. v. Segal (In re First Capital Mortgage Loan Corp.), 917 F.2d 424 (10th Cir. 1990) dealt with the disposition of proceeds of a preference recovery. Neither conferred upon an estate the benefit of the value of a valid lien as Debtor urges here.
The principal fallacy in the Debtor's reasoning is continuing, despite the quoted passage in our previous Opinion, to confuse the Mortgagee's rights as a judgment creditor with its rights as a purchaser at the sale. However, once again: the transfer effected by the sheriff's sale of October 6, 1986, was quite distinct from the initial transaction of February 26, 1971, by which the Debtor acquired her property and the Mortgagee obtained its mortgage as security for the payment of the purchase price. The setting aside of the October 6, 1986, sale, had no impact on the validity of the February 26, 1971, transaction. The mortgage and the judgment arising from the 1971 transaction are therefore restored to their prior position by our Order avoiding the October 6, 1986, sheriff's sale.
Id. at 436-37. Laws v. New York Guardian (In re Laws), 163 B.R. 449 (E.D. Pa. 1994), is also instructive. In Laws, the district court affirmed the bankruptcy court's order allowing a debtor to bifurcate a mortgage under § 506(a). The mortgagee had argued that as it had obtained a foreclosure judgment, the security interests from the mortgage merged into the judgment and the debtor could not rely on the additional security in the mortgage to prevent application of the anti-modification clause of § 1322(b). The court concluded that the debtor is not allowed to use the fact that a foreclosure judgment has been entered to deny a mortgagee the protection of § 1322(b) nor is a mortgagee who is not entitled to use § 1322(b)(2) protection allowed to use a foreclosure judgment as a means of obtaining such protection. "In other words, the entry of a foreclosure judgment does not change the fact that New York Guardian took a security interest in more than just the debtor's residence and therefore cannot get the protection of section 1322(b)." Id. at 452. See also In re Klein, 106 B.R. 396 (Bankr. E.D. Pa. 1989). These cases demonstrate that notwithstanding the entry of a foreclosure judgment, the judgment creditor still has the right to assert a secured claim under § 506(a), albeit consistent with § 1322(b).
See also Vitelli v. Cheltenham Fed. Sav. and Loan Ass'n (In re Vitelli), 93 B.R. 889, 898 (Bankr. E.D. Pa. 1988). The Vitelli Court noted that when courts in Pennsylvania have found technical violations of Act 6 (which sets forth requirements for foreclosure of residential mortgages) by the mortgagee, it was not clear whether the mortgagee was required to file an entirely new foreclosure action or allow the mortgagor time to cure the default before the mortgagee could proceed further in the same action. What is clear from the two alternatives considered is that a mortgage is not voided when the sheriff's sale is set aside.
In short, I find that LaSalle has a claim secured by its valid mortgage. I must next determine the amount of the secured claim as it dictates the mandated payment to LaSalle under Debtor's confirmed plan.
B.
LaSalle argues that its proof of claim is prima facie evidence of the amount of the claim, and in the absence of any evidence to refute it, it has met its burden for allowance of the claim as filed. LaSalle's Post-Trial Brief at 9. While LaSalle correctly states the burden of proof in claim litigation, Debtor disputes that the proof of claim, the deficiencies of which were identified above, should be accorded that presumption. As noted at note 17 supra, the Debtor has conceded a mortgage obligation to LaSalle and the documents evidencing same are part of this record. The Debtor also filed a proof of claim on behalf of LaSalle asserting a secured claim "at most of $13,000." His confirmed Plan provided for the payment of LaSalle's secured claim in the amount of the unpaid balance of less than $12,000. As Debtor does not contest liability to LaSalle on the mortgage debt, I view the unproven issue to be the amount of the total claim in excess of $12,000-$13,000 and the amount of the secured proof of claim. The precise amount of the total claim is not material if Debtor is able to bifurcate the claim since his Plan only pays the secured claim and is not funded to pay any unsecured claims. As I find that he may do so and that the secured claim as determined below does not exceed the amount of Debtor's proof of claim, any deficiencies in the proof of claim are not material to the outcome of this dispute.
LaSalle had attempted but had difficulty getting its loan history admitted into evidence through Barber as a business record and ultimately abandoned the effort. However, LaSalle argues that as Debtor did not present any evidence to refute the amount of its claim, it did not even need Barber's testimony to support it.
Without regard to the foreclosure judgment which will no longer evidence the amount of the debt, the record does establish a total amount of $28,926.38 owed to LaSalle as of of March 30, 2001. Exhibit P-7. That allegation, made in the Complaint, was never answered by Debtor and stands as an admission of the claim amount as of that date. Pa.R.Civ.P. 1029(b). However, as noted in n. 8 supra, Debtor challenges the service on him of the Complaint, an issue that was not fully tried for the reasons stated above.
Debtor has also submitted a proposed form of Order which provides that Defendant shall have an allowed secured claim in the amount of $8,500 and an unsecured claim in the amount of $18,946.18.
Section 506(a), upon which Debtor relies, provides that an allowed claim of a creditor secured by a lien in which the estate has an interest is a secured claim to the extent of the value of the estate's interest in the property. 11 U.S.C. § 506(a). However, § 506(a) is limited by § 1322(b) which provides that a plan may not modify the rights of holders of claims secured only by a security interest in real property that is the debtor's principal residence. 11 U.S.C. § 1322(b). The application of § 1322(b), commonly referred to as the anti-modification provision, has not been discussed by either party. Debtor assumes the claim may be bifurcated, and without calling attention to the issue, points out that the mortgage granted an interest in the Property as well as in "any and all appliances, machinery, furniture and equipment (whether fixtures or not)." Debtor's Pretrial Brief at 6. The issue of what is additional collateral for the purpose of overcoming the anti-modification clause has been the subject of considerable judicial debate. However, as to the personal property collateral contained in this mortgage, the law in this circuit is clear that such grant impairs the protection of the anti-modification clause. Hammond v. Commonwealth Mortgage Corp. (In re Hammond), 27 F.3d 52, 56 (3d Cir. 1994) (bifurcating claim where additional security interest in "appliances, machinery, furniture and equipment (whether or not fixtures)." Presumably recognizing the settled state of the law in this case, LaSalle, while not conceding bifurcation, does not contest it.
In order to bifurcate the total claim into its secured and unsecured components, I need to determine the value of the Debtor's interest in the Property. While the parties have stipulated that the value of the Property is $30,000, they disagree as to the extent of the Debtor's interest in it. The determination of the Debtor's interest is made by applying state law. Butner v. United States, 440 U.S. 48, 54, 99 S.Ct. 914, 918 (1979). Debtor contends that his is a 25% interest worth $7,500 (based on the stipulated value of $30,000). Although Debtor covers this issue at considerable length, Debtor's Pretrial Brief at 61-64, LaSalle does not respond in kind but rather merely assumes without any discussion that the Debtor has a 50% interest in the Property. LaSalle's Post-Trial Brief at 10 and n. 13. Thus, I do not construe LaSalle's concession as to the avoidance of the foreclosure judgment to dictate my determination as to the value of the Debtor's interest which is disputed by LaSalle.
I begin, as did Debtor, with the language in the deed which reads "Warren Kenneth Jones and Joanne Jones, his wife and Kenneth W. Jones, a married man" (as opposed to "Warren Kenneth Jones, Joanne Jones, his wife and Kenneth Jones, a married man"). Debtor's Pretrial Brief at 27. Debtor relies on that granting language as evidence that the parties intended that Father would have a 50% interest as tenant in common with Debtor and Joanne who would share equally in the remaining 50%. He finds support for his contention in the double "and" in the grantee language, citing Margarite v. Ewald, 252 Pa. Super. 244, 381 A.2d 480 (1977). In that case, as here, there was a conveyance to husband and wife and a third person. The Court noted that a conveyance to three parties, two of whom are husband and wife but neither designated as such, shall in the absence of any contrary intention be deemed a conveyance of one third shares. However, because of the express marital entity in the deed and the use of the double "and," the interests of the husband and wife were as tenants by entireties held in common with the interest of the third person, there being no evidence that a right of survivorship was intended as to the married persons and the third party.
Needless to say, there are a significant distinctions betweenMargarite v. Ewald and the facts herein. First, the deed in this case expresses the intention that a survivorship interest be created. The printed form ("No. 335P-DEED-SURVIVORSHIP") itself so states: "grant . . . unto the said Grantees and the survivor of them." Grantees are Debtor, Joanne and Father. Added to the form by the parties was the expressed intention that Debtor and Joanne hold their shares as tenants by entireties and not as joint tenants and "that an estate by survivorship is to be created as to the whole thereof." Exhibit P-1. While Debtor finds that language ambiguous, the most natural reading is that it refers to a survivorship as to the entire Property, embracing the interests of all three parties.
The second distinction is that Debtor and Joanne were not married. Because there was no marriage, Debtor and Joanne could not hold the Property as tenants by entireties. In Maxwell v. Saylor, 359 Pa. 94, 58 A.2d 355 (1948), Raymond Maxwell and Emma Maxwell, holding themselves to be married but not in fact, purchased property as tenants by entireties. The Pennsylvania Supreme Court recognized that they could not hold the property as such since that form of ownership was restricted to grantees who are legally husband and wife and asked then what form of tenancy was created. The answer "depends entirely upon the intention of the parties, which is the ultimate guide by which all deeds must be interpreted." Id. at 96, 58 A.2d at 356. The Court construed their declared intention to own the property as tenants by entireties as the "equivalent to stating in so many words that they desired to establish a right of survivorship and found that a joint tenancy with right of survivorship most nearly resembled the tenancy by the entireties held by married persons "since in both instances the survivor takes the whole." Id.
Debtor appears to acknowledge that he holds his interest in the Property with Joanne as joint tenants with a right of survivorship. Debtor's Pretrial Brief at 63. It is clear to me that such is the case. The deed that conveyed an interest in the Property to Debtor and Joanne expresses their intention to hold as tenants by entireties and that an estate by survivorship is to be created as to the whole thereof. Exhibit P-1. While they are legally foreclosed from holding the tenancy by entireties, their right of survivorship is nonetheless preserved inter se. The contemplated survivorship vis a vis Father is another matter.
Debtor argues that no survivorship could obtain with respect to Father's interest because the interest granted to Father was not identical to the interest granted to Debtor and Joanne. In order to create a survivorship interest, the deed must not only express an intention that one exist but the "four unities" must be present. Edel v. Edel, 283 Pa. Super. 551, 553, 424 A.2d 946, 948 (1981). While three of those unities, i.e., title, time and possession, are present, the unity of interest required Debtor, Joanne, and Father to have identical interests to create a survivorship between them. That would have been the case had the Property been purchased by Warren Kenneth Jones, Joanne Jones, his wife and Kenneth Jones, expressing an intention that each have an identical 1/3 interest. However, as noted above, that was not the nature of the conveyance, the double "and" indicating the parties' intention that Father be granted a 50% interest.Margarite v. Ewald, supra. Had Debtor and Joanne been married and held their interests as tenants by the entireties, that identity of interest would exist. A tenancy by entireties is a single interest in the entire estate. Ladner, Conveyancing in Pennsylvania § 1.08, at 16-17 (Rev. 4th Ed. 2004). With such an interest, both they and Father would hold a 50% interest in the Property. The distinction as to that interest and a joint tenancy where the tenants own an undivided share of the whole was made clear by the Pennsylvania Supreme Court long ago:
The Edel Court explained this fundamental principle of Pennsylvania real property law as follows:
Initially, it is appropriate to observe that the hallmark distinguishing the joint tenancy from the tenancy in common is the right of survivorship, ("jus accrescendi"). Thus, on the death of a joint tenant, the entire estate goes to the survivor or survivors free from the claims of the heirs or creditors of the deceased co-tenant. In a tenancy in common, on the other hand, when one co-tenant dies, his interest descends or passes by will to his heirs or devisees; the remaining co-tenants acquire no additional interest in such an estate. Ladner, Conveyancing in Pennsylvania, §§ 1.06, 1.07 (1979); 20 Am.Jur.2d, Cotenancy and Joint Ownership § 3 et seq. The creation and continued existence of a joint tenancy depends upon the co-existence of the four unities. "`The interests of joint tenants are equal. They own the half or part and the whole, per my et per tout. There is a unity of interest, title, time, and possession.'" Estate of Kotz, 486 Pa. 444, 406 A.2d 524, 531 (1979), quoting Cochrane's Estate, 342 Pa. 108, 111, 20 A.2d 305, 307 (1941); see also, Yannopoulos v. Sophos, 243 Pa. Super. 454, 365 A.2d 1312 (1976). By contrast, a tenancy in common need only contain the unity of possession. Frederick v. Southwick, 165 Pa.Super. 78, 67 A.2d 802 (1949); 14 P.L.E. Estates in Property, § 21; Powell on Real Property, §§ 601, 615 (1979).
Id. at 947-948.
A conveyance to husband and wife creates neither a tenancy in common nor a joint tenancy. The estate of joint tenants is a unit made up of divisible parts; that of husband and wife is also a unit; but it is made up of indivisible parts. In the first case there are several holders of different moieties or portions, and upon the death of either, the survivor takes a new estate. He acquires by survivorship the moiety of his deceased co-tenant. In the last case, although there are two natural persons, they are but one person in law, and upon the death of either, the survivor takes no new estate. It is a mere change in the properties of the legal person holding, and not an alteration in the estate holden. The loss of an adjunct merely reduces the legal personage holding the estate to an individuality identical with the natural person. The whole estate continues in the survivor the same as it would continue in a corporation after the death of one of the corporators: 1 Dana 244; 7 Yerger 319. This has been the settled law for centuries.
Stuckey v. Keefe's Executors, 1856 WL 7101, at *2 (Pa. 1856) (emphasis in original). While the premise regarding a married woman's rights that gave rise to this concept has given way to contemporary views of the role of women in society, the form of ownership nonetheless still retains this characteristic and as such, only a husband and wife may own property in this manner.Ladner, supra, at 17. Because Debtor and Joanne were not married, they own the remaining 50% of the Property equally but in divisible shares. Thus their interests are not identical to that of Father and as to him, a tenancy in common exists. The respective interests of the parties to the deed are as Debtor contends: Debtor-1/4, Joanne-1/4 and Father 1/2. Based on the parties' stipulation as to value of the Property, that interest must be valued at $7,500.
There is no evidence that Joanne has died so I will give effect to the deed as written. I express no opinion on whether the value attributed to Debtor's interest should be greater given Joanne's seeming abandonment of the Property along with Debtor in 1983. This issue was not raised by LaSalle and therefore the presumption that the shares will be of equal values controls my finding. See In re Engel, 413 Pa. 475, 478, 198 A.2d 505, 507 (1964).
Debtor contends that I need not address the issue of the remaining interests in the Property but rather states that they can be sorted out after the bankruptcy is completed. Debtor's Pretrial Brief at 28. I respectfully disagree. Debtor has admitted that he is one of eight children of Father and that if Father's estate exceeds $30,000 and/or Father's surviving spouse does not elect to retain Father's interest in the Property as part of her right to the first $30,000, he would have a further interest in the Property. Debtor's Pretrial Brief at 26 n. 16. The value of that interest as an heir would increase the amount of LaSalle's secured claim. While Debtor indicated that the evidence at trial would show that the value of father's estate was less than $30,000 or that the surviving spouse elected to retain the demised interest in the Property as part of the first $30,000, id., no evidence was presented on this issue. Rather the Debtor testified that he was not familiar with Father's assets or income at the time of his death.
Because I am unable to quantify the additional interest Debtor suggests he may own in the Property, I cannot fix with precision the amount of LaSalle's secured claim. Accordingly, unless the parties can reach some agreement with the benefit of this decision on all other issues, I will schedule a further hearing to supplement the record on this limited issue only. Thus, for now, I find that LaSalle's secured claim is equal to $7,500 plus the value of Debtor's interest, if any, as an heir to Father's $15,000 interest in the Property. In so determining, I reject Debtor's urging for a further reduction in the secured claim equal to the amount of the prior liens on the Property. The problem with that contention is that LaSalle has paid off those liens as a cost of the foreclosure sale. According to Debtor, the sheriff has disbursed the funds to the respective creditors. Debtor's Pretrial Brief at 38. There is nothing in this record that indicates that LaSalle intends to seek recovery of those payments with the invalidation of the sheriff's sale. So long as it fails to do so, it would be inequitable to reduce the value of its secured claim. LaSalle has disbursed the funds and has stepped into the position of those lien creditors. Accordingly, there will be no further reduction of the secured portion of LaSalle's claim for these formerly prior liens.
Debtor cites to my prior decision in In re Abruzzo, 249 B.R. 78, 88-89 (Bankr. E.D. Pa. 2000), to conclude that the amount of the prior liens would be deducted from Debtor's partial interest. Recognizing the divergence of views on this issue, I held that the clear language of the statute and the Third Circuit Court of Appeals' plain language approach to statutory interpretation convinced me to subtract the liens from the debtor's interest, albeit only a partial one. I concluded that such reading did not lead to an absurd result because the creditor retained its lien on the non-debtor's interest. However, since Abruzzo, the Third Circuit has decided Miller v. Okmi Sul (In re Miller), 299 F.3d 183 (3d Cir. 2002), in which it recognized the same type of divergent views on the application of liens in calculating whether an exemption was impaired under § 522. Rejecting the literal reading of the statute, it opted to allocate the liens among the property interests proportionately. It stated that a literal interpretation of the statute would lead to an absurd result. The Miller decision, although arising under § 522 not § 506 as here, puts into question one of my basic assumptions in Abruzzo, i.e., that the Circuit would apply the statute literally. However, as I have found that there are no prior liens to LaSalle's mortgage, I need not reconsider this issue further.
C.
I next must consider whether LaSalle committed a TILA violation by failing to deliver a disclosure statement to the Debtor. Only if one has occurred, will a $2,000 penalty be applied to further reduce LaSalle's claim.
The parties agree that it is Debtor who must come forward with a prima facie case that he did not receive a disclosure statement. Joint Pretrial Statement ¶ 13. He may prove this by either providing credible testimony or documentary evidence to that effect. E.g., Cobb v. Mortgage Default Services (In re Cobb), 122 B.R. 22, 26 (Bankr. E.D. Pa. 1990); Pinder v. Lomas Nettleton Co. (In re Pinder), 83 B.R. 905 (Bankr. E.D. Pa. 1988). The resolution of this issue is fact intensive. Cole v. Cenlar Federal Savings Bank (In re Cole), 122 B.R. 943, 947 (Bankr. E.D. Pa. 1991).
At trial, Debtor testified that he did not recall receiving a TILA disclosure statement but never stated that the original lender failed to provide one. In other words, he could have received one but had no recollection of the fact. Since Debtor acknowledged that he did not even know what a TILA disclosure statement looked like, his failure to recall receiving one has even less, if any, probative effect than such a statement would otherwise inspire. His sole evidence is that he turned over all his papers concerning the loan transaction to his counsel and there was no disclosure statement in his file. This leaves open the possibility that he never was provided one or he lost it. His testimony suggests the latter possibility to be more likely. While he stated that he saves all his important papers and generally places them in his black bag, he also acknowledged that he is not very good with paperwork, not organized and while he saves his "stuff," he doesn't know where he puts it and has to look. Given his lack of recollection and his admitted unreliable record-keeping, I do not find that Debtor has met his burden to establish a prima facie violation of TILA. Compare Pinder, supra (debtor had some understanding of the nature of a TILA disclosure statement and stored her loan papers in a safety deposit box). As there has been no TILA violation proven, there shall be no further reduction in LaSalle's secured claim.
LaSalle did not on its own volition place a copy of a disclosure statement into the record. I do not find this failure, alone, probative that a disclosure statement either was never prepared and never provided or that it was lost as the loan filed passed from servicer to servicer. It is not LaSalle's burden to provide evidence that it did provide a disclosure unless Debtor has met his initial burden. He has not.
D.
Finally I address Debtor's contention that LaSalle violated the automatic stay of § 362(a) when with knowledge of the Debtor's bankruptcy case, it sought the delivery of a replacement deed from the Sheriff. It is well established law that the purchaser at a foreclosure sale of real property acquires a vested equitable interest in the property at the fall of the hammer. In re Moore, 267 B.R. 111, 117 (Bankr. E.D. Pa. 2001) (citing cases). However, it is generally stated that legal title does not pass to the purchaser until acknowledgment and delivery of the sheriff's deed. Id.
Moore did not present the factual scenario at issue here where the purchaser had fully performed the conditions of sale prior to the bankruptcy filing. Rather in Moore, later in the day that property was sold at sheriff's sale, a bankruptcy petition was filed. The sheriff upon learning of the filing postponed the sale to allow the creditor to obtain relief from stay to complete the process. The court found that the sale had been concluded pre-bankruptcy and granted relief to allow the creditor to settle with the sheriff, obtain a deed and secure possession of the property. On the contrary, In re Rouse, 48 B.R. 236 (Bankr. E.D. Pa. 1985), relied upon by Moore, presents the precise situation as here, albeit the creditor requested stay relief rather than act without it. The sheriff's sale and settlement with the sheriff occurred prepetition. Before the deed could be delivered, the debtor filed a Chapter 13 case. The court found that until the acknowledgment and delivery of the deed, the debtor had a "scintilla" of an interest but notwithstanding his possession of the property, the creditor, having settled with the sheriff in accordance with Pennsylvania law, was entitled to relief from stay. In In re Townsville, 268 B.R. 95 (Bankr. E.D. Pa. 2001), I considered the extent of a debtor's interest in property post-sheriff sale. I noted that at the time of a sale a purchaser acquires equitable ownership of the property and the right to compel delivery of the deed upon settling with the sheriff. "Furthermore, while additional steps must be taken to make the sale effective and conclude the foreclosure process (i.e., preparation of a schedule of distribution, distribution of proceeds of sale, execution and delivery of the deed), the rules establishing such steps also recognize that a sale has taken place." Id. at 118. When the sale process is concluded, complete title vests in the buyer retroactively to the date of sale. However, until that occurs, it is fair to state that the debtor still retains some vestige of an interest in the Property that requires relief from stay to impair.
LaSalle relies on In re Pulcini, 261 B.R. 836 (Bankr. W.D. Pa. 2001), to argue that the Debtor had no remaining interest in the Property on the date that the bankruptcy case was filed since it had done everything it was required to do to comply with the terms of sale. It looks to the court's reliance on Pennsylvania Companies for Insurances v. Broad Street Hospital, 354 Pa. 123, 47 A.2d 281 (1946), for the principle that the "purchaser's equitable interest becomes a `complete title' upon complying with the terms of the sale. . . . The subsequently acknowledged and delivered sheriff's deed is merely evidence of the purchasers's title; it relates back to and takes effect as of the sale date." Id. at 841. Because the sheriff had no discretion and no judgment to exercise before acknowledging and delivering the deed to the buyer, the court viewed his acts to be ministerial and as such, not violative of the stay.
Assuming without concluding that Pulcini is correct, the facts as elicited at trial present a different picture and issue than addressed by the Pulcini Court. In Pulcini, the purchaser/former mortgagee moved for relief from stay to receive and record the sheriff's deed after the sheriff had acknowledged the issuance of a deed to the buyer post-petition. The court found that the debtor had no legal title to the property because the sheriff's acts to be performed were ministerial, concluding that he had no discretion not to acknowledge and deliver the deed. Alternatively the court stated that even if the acknowledgment and delivery of the sheriff's deed had violated the stay, "this would pose no obstacle to granting [the purchaser] relief from stay on a nunc pro tunc basis." Id. at 842. Finally it concluded that to the extent relief from stay was required under the facts presented, it would be granted to allow the purchaser to take whatever steps were necessary to perfect its title to the property. Moreover the purchaser was also granted relief to evict the debtors who "do not have an equitable interest in the property and who either already do not have legal title or shortly will not have legal title thereto" and are occupying the property without paying rent. Id.
Pulcini relies on Pennsylvania Companies for Insurance, interpreting it differently than prior courts had done. Id. However, as noted by Debtor, the Supreme Court inMarx Realty and Improvement Co., Inc. v. Boulevard Center, Inc., 398 Pa. 1, 156 A.2d 827 (1959), commented on Pennsylvania Companies, stating that for the protection of bidders, the rule is that their rights crystallize with the fall of the hammer but protecting bidders is only part of the picture. Once a successful bid is protected, the sale may fail for a variety of reasons. Accordingly, "no sale to him can be said to have taken place until a deed is delivered." Id. at 5-6, 156 A.2d at 830. Thus,Marx concludes that when the sheriff's hammer falls, the sale occurred to the extent that the mortgagor's equity of redemption was cut off and the garnishee secured the interest and firm status of a successful bidder. "The Pennsylvania Companies case decide[d] no more." Id. at 6, 156 A.2d at 830. The Pulcini court does not discuss Marx Realty, perhaps because it arises in connection with the issue of when the six month period for filing a petition to fix value begins to run, i.e., after the sheriff's vendue or after delivery of the deed. (The court concluded the latter was the dispositive date.) However, Marx Realty puts into question the Pulcini assumption that legal title passes under Pennsylvania law before acknowledgment and delivery of the deed.
Debtor contends that the timing of LaSalle's payment of the Sheriff's costs is the factual distinction. Debtor's Realty Brief at 5. I respectfully disagree. The evidence showed that LaSalle paid those costs prior to the April 5 bankruptcy filing by sending the check on March 21. While the Sheriff did not apply it until April 17 and negotiate it until April 19, those acts were not stay violations by LaSalle. They do raise the question of whether the deed was acknowledged on April 8 as Faucher's notes indicate she was told by the Sheriff's office. Would the sheriff have acknowledged a deed before receiving and applying payment? However, because the only fact relevant for my analysis is that the acknowledgment was post-petition (and therefore void), it is irrelevant if the date was April 8 or later.
Notably the Pulcini Court did not find it necessary to its outcome to rely on the legal principle espoused by LaSalle here,i.e., that the debtor's legal title was lost when the purchaser performed the conditions of sale. Nor do I find that issue dispositive of the Debtor's contention here. Without regard to whether Debtor had legal title to the Property when he filed for bankruptcy relief, he certainly had a possessory interest, and LaSalle was stayed from taking any action in furtherance of his eviction from the Property. Pennsylvania law is clear that acknowledgment and delivery of the deed must precede eviction.Pennsylvania Companies, 354 Pa. at 134, 47 A.2d at 286. If the deed was actually acknowledged, it was done so post-petition and a necessary step toward the eviction of the Debtor was taken. While the acknowledgment was an action taken by the Sheriff who might have had no discretion but to issue the deed once the terms of sale were performed, LaSalle's request and payment for a replacement deed were a violation of the stay and not as it urges, a ministerial act. With knowledge that the acknowledgment of the original deed occurred post-petition, LaSalle nonetheless took further action to improve its position at a time when the Debtor still had an interest in the Property. While that interest (had the foreclosure sale been valid) may have been only bare legal title or merely possession, LaSalle was nonetheless required to seek relief from stay to complete the sale process and evict Debtor, a step taken by the creditor in Pulcini. Given the de minimus nature of the interest being protected and if there were no challenge to the validity of the foreclosure judgment, securing relief nunc pro tunc to validate the acknowledgment and prospectively to complete the foreclosure and eviction process would not have been burdensome and would have likely been granted. See Walker v. PNC Bank, N.A., 2001 WL 1417712 (E.D. Pa. Nov. 9, 2001). However, LaSalle was not permitted to act without leave of court.
As the Sheriff was not informed about the bankruptcy filing until Debtor's counsel facsimile of April 9 was received, his action in acknowledging the deed anytime between the filing date of April 5 and April 9 while a stay violation, was not wilful.
Willfulness in the context of a stay violation has been interpreted by the Third Circuit Court of Appeals to mean "an intentional or deliberate act done with knowledge that the act is in violation of the stay." Cuffee v. Atlantic Business and Community Development Corp. (In re Atlantic Business and Community Development Corp.), 901 F.2d 325, 329 (3d Cir. 1990).
A `willful violation does not require a specific intent to violate the automatic stay. Rather, the statute provides for damages upon a finding that the defendant knew of the automatic stay and that the defendant's actions which violated the stay were intentional.
Id. (quoting In re Bloom, 875 F.2d 224, 227 (9th Cir. 1989)). Since LaSalle was aware of the bankruptcy and aware that the deed had not been acknowledged prepetition, its conduct in seeking a replacement deed to position itself to evict Debtor was willful and triggers the application of § 362(h). That section authorizes actual damages, including attorneys' fees and costs, and in appropriate circumstances punitive damages.
The record fails to evidence any actual damages incurred by Debtor as a result of the stay violation. Indeed until this litigation ensued, it is unlikely that Debtor was even aware of LaSalle's attempt to secure another copy of the deed poll. While Debtor's Brief is fairly strident on the "outrageousness" of LaSalle's conduct in presenting the Affidavit of Lost Deed and paying the $85 fee to acquire the deed post-petition, I find its actions to be more benign given the existence of Pulcini, supra, that appeared to validate the steps it took, its subsequent motion for relief to record the deed and the absence of any demonstrated harm to the Debtor. At best the willful stay violation entitles Debtor to legal fees related to the stay violation which will be considered upon presentation of an itemized bill of costs.
An Order consistent with the foregoing Memorandum Opinion shall be entered.