Opinion
No. 884 C.D. 2011
03-15-2012
City of Philadelphia v. Philadelphia Transload & Logistics, LLC, f/k/a Southwest Demolition Recovery, LLC, Carmine Franco and Mary Franco, Appellants
BEFORE: HONORABLE BONNIE BRIGANCE LEADBETTER, Judge HONORABLE RENÉE COHN JUBELIRER, Judge HONORABLE ROBERT SIMPSON, Judge OPINION NOT REPORTED
MEMORANDUM OPINION BY JUDGE LEADBETTER
Appellants, Philadelphia Transload & Logistics, LLC (Transload), f/k/a Southwest Demolition Recovery, LLC, (Southwest) and Carmine Franco and Mary Franco, appeal from the order of the Court of Common Pleas of Philadelphia (trial court), which granted summary judgment in favor of the City, holding that Transload was not a purchaser pursuant to Section 1 of the Act of September 23, 1959, P.L. 955, as amended (1959 Act), 53 P.S. § 7432, and, therefore, a municipal lien for gas service reattached to the property in question.
In March 2008, the City of Philadelphia (City) filed a municipal lien in the amount of $117,580.72 for unpaid gas service to property located at 1620 South 49th Street, Philadelphia (the Property), for the period of February 19, 2002, through October 19, 2004. The claim named Southwest Demolition Recovery, LLC (Southwest) t/a Philadelphia Waste Services, Inc. (Waste Services) and Mary and Carmine Franco as defendants. In February 2010, Transload filed a praecipe for the issuance of a writ of scire facias. In response, the City filed the writ against all named defendants. Upon issuance of the writ, Mary and Carmine Franco and Transload each filed affidavits of defense. The City filed a motion for summary judgment contending that the affidavits were not sufficient to establish their defense. Appellants responded and the trial court heard oral argument.
"A writ of scire facias is a writ used to enforce payment of a municipal claim out of the real estate upon which such claim is a lien." Fox Chapel Sanitary Auth. v. Abbott, 384 A.2d 1012, 1013 n.1 (Pa. Cmwlth. 1978). The purpose of a writ of scire facias is to determine the sum due on a lien of record and to give the defendant an opportunity to show cause why the municipality should not have execution. Shapiro v. Center Twp., 632 A.2d 994, 997 n.3 (Pa. Cmwlth. 1993).
The parties stipulated to the following facts. On September 28, 1999, Mary Franco loaned David and Nancy Della $2,600,000, which is evidenced by a promissory note from the Dellas to Mary Franco. On that same day, Waste Services delivered a $2,600,000 mortgage on the Property, which was executed by David Della as president of the mortgagor, to Mary Franco. The mortgage was duly recorded. In February 2004, Mary Franco filed a complaint in mortgage foreclosure in federal court. The federal court granted summary judgment in favor of Mary Franco on April 26, 2004. On July 16, 2004, she assigned "all of her rights and remedies under the [m]ortgage and the Order of Foreclosure" to Southwest for $1. Reproduced Record (R.R.) at B315. On July 20, 2004, Waste Services granted a deed in lieu of foreclosure to mortgagee's assignee, Southwest. In October 2007, Southwest changed its name to Transload. Mary Franco was the sole member of Southwest and the sole member of Transload. The parties do not dispute that gas service was supplied during the period in question. Mary Franco and Carmine Franco never had an ownership interest in the Property as individuals, as they were the mortgagee and transferred the mortgage to a company in which Mary Franco was the sole owner.
Deed in lieu of foreclosure is defined as: "[a] deed by which a borrower conveys fee-simple title to a lender in satisfaction of mortgage debt and as a substitute for foreclosure." Black's Law Dictionary p. 476 (9th Edition 2009). A deed in lieu of foreclosure does not extinguish junior liens as a sheriff's sale or judicial sale would have. This manner of conveyance is exempt from the Philadelphia Realty Transfer Tax. R.R. at B113. Further, we note that the Buyer's Affidavit signed and dated July 20, 2004, by Mary Franco on behalf of Southwest in obtaining title insurance for the Property states that "affiant(s) is taking possession subject to the outstanding judgments, PGW balance and UCC financing, statements and lien outstanding in the amount of $500,000.00 ..." R.R. at B310 (emphasis added).
The trial court determined that the only issue before it was whether or not Transload was a "purchaser" of the Property under Section 1 of the 1959 Act. Pursuant to Section 1, where a municipality has failed to file a municipal lien, the lien will not reattach to the property following revival proceedings if it has been transferred to a purchaser prior to the time the municipality revived its lien. The trial court granted judgment in favor of the City, concluding that Transload was not a purchaser under Section 1 and, consequently the City's lien against the Property is enforceable This appeal followed.
Section 1 of the 1959 Act provides in relevant part:
Whenever ... any ... city... has failed to file in the office of the prothonotary of the county, any tax claim or municipal claim assessed against any property within the time limit required by law for such filing. whereby the lien of such tax or municipal claim is lost, ... then, in any such case heretofore or hereafter occurring, any such ... city ... may ... file such tax or municipal claim ... and such claim ... so entered ... shall be a valid claim ... and be a lien upon the real estate upon which it was a lien at the time the claim was filed ...: Provided, That the lien of any such claim or judgment shall not reattach against any real estate transferred to any purchaser before such claim is filed or during the time when the lien of any such tax or municipal claim ... was lost, nor shall the lien of any such claim or judgment impair or affect the priority of the lien of any mortgage or other lien which gained priority because of the failure of the ... city ... to file such claim ... nor shall any such lien so revived impair or affect the priority of the lien of any mortgage or other lien which was entered prior to the tax or municipal claim or which gained priority during the time such lien was not revived or was not effective. (Emphasis added).
Appellants argue that the trial court erred in holding that Section 1 of the 1959 Act protects only bona fide purchasers of property from the reattachment of a municipal lien. Appellants assert that Section 1 prevents the municipal lien from reattaching where the property has transferred to a different mortgagee prior to perfection. Appellants also argue that the trial court erred by entering judgment against Mary and Carmine Franco individually because neither individual was an owner of the Property. The City counters that Transload, which took ownership pursuant to a deed in lieu of foreclosure transaction, is not a purchaser and that the transaction did not create a mortgage lien with a claim of priority over the reattached municipal lien.
Pennsylvania courts have never addressed whether a property owner who takes title to real estate pursuant to a deed in lieu of foreclosure is a "purchaser." In the context of 42 Pa. C.S. § 8103, commonly known as the Deficiency Judgment Act, the courts of common pleas have opined that a bank, which accepts a deed in lieu of foreclosure, is not a purchaser, the conveyance is not a sale and the Deficiency Judgment Act does not apply. First Pa. Sav. Ass'n v Wilcap Inv. Ltd., 17 Pa. D. & C.4th 335 (1992); Gettysburg Nat'l Bank v. Saxe, 29 Pa. D. & C.3d 165 (1983). As appellants do not assert before this court that they are purchasers, we need not answer this question.
A lien is created (and by definition perfected) when a tax or assessment is levied in conformity with 53 P.S § 7102. A municipal lien generally takes priority over all mortgage claims. 53 P.S. § 7103. A lien is continued by timely filing a claim within three (3) years after the year in which it is first payable. 53 P.S. § 7143. If a municipal lien is lost by failure to timely file, it can be revived by late filing under Section 1 of the 1959 Act. Section 1 also provides protection for mortgagees who held or obtained an interest in a property during the time that a municipal lien was lost. If a municipal lien reattaches pursuant to Section 1 of the 1959 Act, the municipal lien does not take priority over any mortgage or other lien attached to a property. 53 P.S. § 7432.
Section 1 of the Act of March 21, 1945, P.L. 47.
Section 2 of the Act of May 16, 1923, P.L. 207.
Section 9 of the Act of May 16, 1923, P.L. 207, as amended.
Appellants argue that this Court must determine whether a mortgagee who took ownership by a deed in lieu of foreclosure is protected from the reattachment of the municipal lien as provided by the Section 1 exception to the statute of limitations period. Appellants rely upon several cases from both Pennsylvania state courts and federal court interpreting Section 1 of the 1959 Act. See Ransom v. Marrazzo, 848 F.2d 398 (3d. Cir. 1988); Chartiers Valley Sch. Dist. v. Virginia Mansion Apartments, Inc., 489 A.2d 1381 (Pa. Super. 1985); Sanft v. Borough of Westgrove, 437 A.2d 1332 (Pa. Cmwlth. 1981). Appellants cite Sanft and Chartiers for the propositions that 53 P.S. § 7143 and Section 1 of the 1959 Act together protect both the public's interest in the municipality's receipt of payment of its claims and the rights of intervening purchasers and lienors. Neither Sanft nor Chartiers decided the question at issue in this case. In Ransom, the Third Circuit found that under Section 1 of the 1959 Act, municipal "liens can be filed or, where improperly filed, refiled at any time except as against bona fide purchasers and mortgagees to whom property is transferred prior to perfection." 848 F.2d at 405 (quoting Sanft, 437 A.2d at 1333-34) (emphasis added). The Third Circuit determined that plaintiffs who obtained their interests in properties through inheritance or as marital property shared with a spouse, who was the owner of record, were neither purchasers nor mortgagees and that the municipal liens could reattach. Id.
Appellants argue that these cases recognize that a lien would not reattach to any property transferred to a mortgagee such as Transload before the lost municipal lien is revived by late filing. Appellants contend that it could not have been the General Assembly's intent to provide protection to purchasers but not to an owner who obtains an interest in the property by deed in lieu of foreclosure.
Although Section 1 of the 1959 Act does provide protection to both purchasers and mortgagees, it is not intended to protect the interests of all property owners who gain an interest in real estate during the time a municipal lien is lost in the same manner or, in some instances, at all. It seems that Appellants are conflating the types of protection provided to purchasers and mortgagees by Section 1 of the 1959 Act. The clause in Section 1,
[p]rovided, that the lien of any such claim or judgment shall not reattach against any real estate transferred to any purchaser before such claim is filed or during the time when the lien of any such tax or municipal claim ... is lostprotects the interests of purchasers by prohibiting a revived municipal lien from reattaching to a property, which was purchased during the time a lien was lost. On the other hand, the clause in Section 1,
nor shall the lien of any such claim or judgment impair or affect the priority of the lien of any mortgage or other lien which gained priority because of the failure of the ... city ... to file such claim[,]protects mortgagees and lienors by providing that their claims take priority over a municipal lien that has been revived and has reattached to a property. Thus, if this court determines that Transload was a mortgagee, the municipal lien would reattach, but would be junior to any mortgage held by Transload.
In this scenario, the municipality has forever lost its lien against the transferred property, but the municipality is not barred from filing a delayed claim against the prior owners. Keller v. McGowan, 29 A.3d 436 (Pa. Cmwlth. 2011).
Further, the word "purchaser" cannot be read out of Section 1 of the 1959 Act. Black's Law Dictionary p. 1355 (9th Edition 2009) defines purchaser as "[o]ne who obtains property for money or other valuable consideration; a buyer." Thus, the Third Circuit was correct in finding that property owners who obtained their interest in real estate through inheritance or through marriage were not purchasers.
However, neither Mary Franco nor Transload is a mortgagee as argued by Appellants. In as much as a judgment in foreclosure has been entered, the Property is no longer subject to the original mortgage, as the mortgage merged into the foreclosure judgment. PNC Bank, N.A. v. Balsamo, 634 A.2d 645 (Pa. Super. 1993) (discussing the application of the merger doctrine in the context of a deed in lieu of foreclosure conveyance). The Pennsylvania Supreme Court has held that "judgment settles everything involved in the right to recover, not only all matters that were raised, but those which might have been raised. The cause of action is merged in the judgment which then evidences a new obligation." Lance v. Mann, 360 Pa. 26, 28, 60 A.2d 35, 36 (1948) (citations omitted). Thus, under the merger doctrine "the terms of a mortgage are merged into a foreclosure judgment and thereafter no longer provide the basis for determining the obligations of the parties." Stendardo v. Fed. Nat'l Mortg. Ass'n, 991 F.2d 1089, 1094-1095 (3d Cir. 1993). Moreover, as in the current context, if a deed in lieu of foreclosure is executed by the mortgagor to the mortgagee, the unification in the mortgagee of both the property and the mortgage results in the satisfaction of the mortgage unless there is a specific intention on the part of the mortgagee that the mortgage remains valid and enforceable. Balsamo; Golder v. Bogash (First Trust Co. of Phila.), 325 Pa. 449, 188 A. 837 (1937) [(quoting Fair Oaks Building & Loan Ass'n of Leet Twp. v. Kahler, 320 Pa. 245, 181 A. 779 (1935)] (stating that the "[d]ischarge of a mortgage obligation by merger of the legal and equitable titles depends upon the intention of the mortgagor and mortgagee at the time of the alleged merger").
Following the grant of the foreclosure judgment, Mary Franco was no longer a mortgagee as the mortgage and the foreclosure judgment had merged. Even if this court ignored the foreclosure judgment, Transload cannot claim that it was a mortgagee, as its acceptance of the deed in lieu of foreclosure also resulted in merger and the extinguishment of the mortgage as nothing in the conveyance documents prohibits merger.
Finally, Appellants argue that the trial court erred by entering judgment against Mary and Carmine Franco individually because neither was an owner of the Property. In its opinion, the trial court stated "[f]or the foregoing reasons, this court enters the Order below granting Judgment in favor of the City and against Transload." R.R. at B401. The trial court's order provides "[j]udgment is entered against all named Defendant pursuant to the Writ of scire facias issued by the City of Philadelphia." Id. The parties stipulated and the trial court found that neither Mary nor Carmine Franco claimed an ownership interest in the Property. R.R. at B6, B369. The City acknowledges that scire facias proceedings are solely in rem. GLS Capital, Inc. v. Davis, 899 A.2d 371, 374 (Pa. Cmwlth. 2006). In order to clarify the trial court's order, we hold that the judgment reviving the lien runs against the Property and not the individually named defendants, Mary and Carmine Franco.
For all of the foregoing reasons, we affirm.
/s/_________
BONNIE BRIGANCE LEADBETTER,
Judge ORDER
AND NOW, this 15th day of March, 2012, the judgment of the Court of Common Pleas of Philadelphia is hereby AFFIRMED as modified.
/s/_________
BONNIE BRIGANCE LEADBETTER,
Judge