Property Rehab Trust, L.L.C. v. Clarke Star Group ( 2018 )

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
PROPERTY REHAB TRUST, L.L.C. : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
Appellant :
:
:
v. :
:
:
CLARKE STAR GROUP, LLC AND : No. 3552 EDA 2017
PHILIP M. CLARKE :
Appeal from the Order September 21, 2017
In the Court of Common Pleas of Philadelphia County Civil Division at
No(s): 003512 October Term, 2008
BEFORE: SHOGAN, J., NICHOLS, J., and PLATT*, J.
MEMORANDUM BY SHOGAN, J.: FILED MAY 01, 2018
Property Rehab Trust, L.L.C. (“Property Rehab”) appeals from the order
denying its petition for correction of an April 14, 2010 order that fixed the fair
market value of property in Philadelphia, Pennsylvania and established
deficiency against Clarke Star Group, LLC (“Clarke Star”), but did not include
Philip M. Clarke (“Mr. Clarke”) as also liable for the deficiency. Upon review,
we vacate and remand.
The trial court provided the following factual and procedural summary:
This mortgage foreclosure action was initiated by Complaint
against [Clarke Star] only. Clarke Star, as well as its co-borrower
[Mr. Clarke], borrowed the sum of $53,249.79 from Brookview
Rehab Funding, LLC (“Brookview”) on or about October 13, 2006.
In connection with the loan and note, Clarke Star executed a
mortgage on the property known as 2056 East Stella Street,
Philadelphia, [Pennsylvania].
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* Retired Senior Judge assigned to the Superior Court.
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Subsequently, Clarke Star defaulted under the terms of the
note and mortgage in failing to make timely payments due
thereunder. Brookview assigned all rights with respect to the loan
and note to Property Rehab. Thereafter, Property Rehab filed a
Complaint against Clarke Star requesting judgment in its favor
and foreclosure on the mortgaged property pursuant to the
mortgage held by [Property Rehab]. Defendant Clarke Star failed
to respond and judgment by default was entered solely against
Defendant Clarke Star. Thereafter Property Rehab filed a Praecipe
for Writ of Execution and the property was sold at sheriff’s sale
[on September 1, 2009, to Property Rehab].
On March [5], 2010, [Property Rehab] filed a Petition to Fix
Fair Market Value and Establish Deficiency Judgment, which not
only requested that fair market value be set and the deficiency be
established against Defendant Clarke Star, but also requested that
[Property Rehab] be permitted to proceed against “Respondent,
[Mr. Clarke] for the deficiency [due] and owing.” [The trial] court
scheduled a hearing on April 14, 2010. [Mr. Clarke] failed to
appear and the court accepted from [Property Rehab] a proposed
Order, which the court entered that same date, which read as
follows:
IT IS FURTHER ORDERED that the amount of the
deficiency due and owing in connection therewith is
Twenty-Four Thousand Three Hundred Twenty-One
and 50/100 ($24,321.50) Dollars as of September 1,
2009, with continuing interest thereon following that
date; and
IT IS FURTHER ORDERED that [Property Rehab]
is permitted to proceed against Defendant for the
deficiency due and owning.”
Over seven years later, on August 30, 2017, [Property
Rehab] filed a Petition Requesting Correction of the court’s April
14, 2010 Order. [Property Rehab] alleged that because the
Petition “clearly requested” an order establishing the deficiency
judgment against both [Clarke Star] and [Mr. Clarke] and the
Petition was “properly and timely served” on both entities,
[Property Rehab] should be permitted to proceed against both
entities for the deficiency due and owing. Throughout said Petition
and Memorandum, [Property Rehab] refers to the court’s wording
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in the April 14, 2010 Order as a “clerical error” requiring
correction.
Upon review, the court denied the Petition Requesting
Correction of [its] April 14, 2010 Order by Order dated September
21, 2017. This appeal followed.
Trial Court Opinion, 12/8/17, at unnumbered 1–3 (emphasis in original).
Property Rehab and the trial court complied with Pa.R.A.P. 1925.
On appeal, Property Rehab presents the following issue:
Did the trial court err as a matter of law in denying Property
Rehab’s Petition requesting modification of the trial court’s prior
Order, particularly given Property Rehab’s compliance with the
Pennsylvania Deficiency Judgments Act, 42 Pa.C.S. Section 8103?
Property Rehab’s Brief at 5. We note that neither Clarke Star nor Mr. Clarke
has fled a responsive brief.
Property Rehab’s issue arises under the Deficiency Judgment Act, 42 Pa.
C.S. § 8103 (“the Act”), which provides, in relevant part, as follows:
§ 8103 Deficiency Judgments
(a) General rule.—Whenever any real property is sold, directly
or indirectly, to the judgment creditor in execution proceedings
and the price for which such property has been sold is not
sufficient to satisfy the amount of the judgment, interest and costs
and the judgment creditor seeks to collect the balance due on said
judgment, interest and costs, the judgment creditor shall petition
the court having jurisdiction to fix the fair market value of the real
property sold. The petition shall be filed as a supplementary
proceeding in the matter in which the judgment was entered. . . .
42 Pa.C.S. § 8103(a). The Act defines “judgment” as follows:
“Judgment.” The judgment which was enforced by the execution
proceedings referred to in subsection (a), whether that judgment
is a judgment in personam such as a judgment requiring the
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payment of money or a judgment de terris or in rem such as a
judgment entered in an action of mortgage foreclosure . . . .
Id. at (g). Furthermore, the Act defines “debtor” as follows:
“Debtor.” A debtor, obligor, guarantor, surety and any other
person liable directly or indirectly to a judgment creditor for the
payment of a debt.
Id.
The Act was enacted in the 1940s to protect debtors after their property
was foreclosed. The Act aimed to shield the mortgagor-debtor from the
mortgagee who would purchase the mortgaged property for less than fair
market value, usually for cost, and then reduce the debt only by the purchase
price. PNC Bank, National Association v. Balsamo, 634 A.2d 645 (Pa.
Super. 1993).
We recently summarized application of the Act, as follows:
The Deficiency Judgment Act applies whenever real property of
the debtor has been sold in execution to the judgment creditor for
a sum less than the amount of the judgment, interest and costs.
Under the Deficiency Judgment Act, the creditor’s judgment
against the debtor is reduced by the fair market value of the
property purchased by the creditor rather than by the
actual sale price of the property. The objective of the
Deficiency Judgment Act is to relieve a debtor from further
personal liability to the judgment creditor when the real property
taken by the judgment creditor on an execution has a fair market
value on the date of sale sufficient so that the judgment creditor
can dispose of the property to others without a further loss.
Devon Serv., LLC v. S & T Realty, 171 A.3d 287, 291 (Pa. Super. 2017)
(quoting Horbal v. Moxham Nat’l Bank, 697 A.2d 577, 581–582 (Pa. 1997))
(emphasis supplied). The plain language of the Act requires that petitions to
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fix fair market value be filed in the docket of a foreclosure action. Home Sav.
& Loan Co. of Youngstown, Ohio v. Irongate Ventures, LLC, 19 A.3d
1074, 1079–1080 (Pa. Super. 2011).
The scope of our review of deficiency judgment proceedings is limited
to a determination of whether there is sufficient evidence to sustain the
holding of the trial court, or whether the court committed reversible error of
law. Devon Serv., LLC, 171 A.3d at 291 (citations omitted). “[I]nsofar as
the resolution of this appeal requires the interpretation and application of
[Section] 8103, that statutory interpretation is a question of law, for which
our standard of review is de novo, and our scope of review is plenary.” Id. at
292.
In the case at hand, the trial court concluded that Section 8103(a):
provides judgment creditors the ability to petition the court to fix
the fair market value of the real property sold as a supplementary
proceeding in the matter in which the judgment was entered.
However, [Property Rehab] does not constitute a judgment
creditor of Mr. Clarke. According to 42 Pa.C.S. §8103(g), a
judgment creditor is defined as “the holder of the judgment which
was enforced by the execution proceedings.” Here, [Property
Rehab] has not obtained a judgment against Mr. Clarke, rather,
[Property Rehab] obtained a judgment against Clarke Star, which
was enforced by the execution proceedings.
* * *
In order to obtain a deficiency judgment against Mr. Clarke,
[Property Rehab] should have named Mr. Clarke as a defendant
in the underlying mortgage foreclosure Complaint and then listed
him as a respondent in the Petition to Fix Fair Market Value and
Establish Deficiency Judgment.
* * *
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Here, [Property Rehab] has provided no justification as to
why it is entitled, as a matter of law, to relief against Mr. Clarke.
[Property Rehab] failed to name Mr. Clarke as a defendant in the
underlying mortgage foreclosure Complaint pursuant to which
judgment was granted, nor did [Property Rehab] amend the
Complaint in order to add Mr. Clarke as a defendant. This was not
a “clerical” error as alleged by [Property Rehab]. Seven years
have elapsed since the entry of judgment, which found in favor of
[Property Rehab] and against Clarke Star. [Property Rehab] took
no action until now. Although [Property Rehab] frames the issue
as adding Mr. Clarke simply in the deficiency complaint, it is in the
underlying mortgage foreclosure action that [Property Rehab]
chose to proceed against the corporate entity only. [Property
Rehab] may have an action against [Mr. Clarke] on the Note, but
[the] action [at hand] involves only the foreclosure, the judgment,
and subsequent sale of the mortgaged property, pursued against
the corporate entity only. Under these circumstances, the court
found it could not grant [Property Rehab] the relief requested, to
amend the mortgage foreclosure action to add the individual [Mr.
Clarke] as a party post judgment and post sheriff sale. . . .
Trial Court Opinion, 12/8/17, at unnumbered 3–5. Upon review, we conclude
that the trial court erred by misconstruing and misapplying the Act.
In resolving this matter, we consider the reasoning of Commonwealth
Bank and Trust Co. v. Hemsley, 577 A.2d 627 (Pa. Super. 1990),
instructive. Therein, Mr. and Mrs. Hemsley (the “Hemsleys”) borrowed
$60,000 from Commonwealth Bank and Trust Co. (“the Bank”). As security
for the loan, the Hemsleys pledged their residence and business property.
Additionally, a third party, Lara Thomas (“Mrs. Thomas”), pledged her
residence as security for the loan.
When the Hemsleys defaulted on their mortgage, the Bank filed a
foreclosure action against them; it did not name Mrs. Thomas in that action.
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Although the Hemsleys filed for bankruptcy, the bankruptcy court released
one of the Hemsley properties subject to the mortgage agreement from the
debtor estate, which the bankruptcy trustee sold; the proceeds were applied
to the loan. The bankruptcy court then released the other Hemsley property
to the Bank, which began marketing it for sale. In the meantime, the bank
released its mortgage on Mrs. Thomas’ property, so the property could be
sold; the net proceeds of that sale were “placed in escrow to be distributed
once the remaining Hemsley property was sold and the balance of the
outstanding business loan determined.” Id. at 629. Eventually, the Bank
obtained a foreclosure judgment against the Hemsleys and bought their
unsold property at sheriff’s sale for $22,000.
The Bank did not file a petition under the Act to recover the deficiency
owed on the loan. Accordingly, Mrs. Thomas filed a petition pursuant to
Section 8103(d)1 to have the foreclosure “judgment marked satisfied and the
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1 42 Pa.C.S. § 8103(d) provides:
(d) Action in absence of petition.—If the judgment creditor
shall fail to present a petition to fix the fair market value of the
real property sold within the time after the sale of such real
property provided by section 5522 (relating to six months
limitation), the debtor, obligor, guarantor or any other person
liable directly or indirectly to the judgment creditor for the
payment of the debt, or any person interested in any real estate
which would, except for the provisions of this section, be bound
by the judgment, may file a petition, as a supplementary
proceeding in the matter in which the judgment was entered, in
the court having jurisdiction, setting forth the fact of sale, and
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funds from the escrow account released to her.” Hemsley, 577 A.2d at 629.
The trial court granted Mrs. Thomas relief because the Bank’s “failure to
pursue the deficiency owed on the loan in accordance with [the Act] resulted
in the satisfaction of the Hemsley obligation to [the Bank].” Id.
The question presented on appeal was whether a mortgagor against
whom the mortgagee has not acquired a personal judgment may invoke the
protections of the Act. Hemsley, 577 A.2d at 628. Upon review of the
statutory language, we agreed with the trial court that Mrs. Thomas was
entitled to the protections of the Act. We explained the process as follows:
There is no dispute that [the Bank], the judgment creditor
herein, acquired the property owned by the Hemsleys at a sheriff’s
sale and that the price was not sufficient to satisfy the full amount
of the foreclosure judgment. Consequently, [the Bank] could have
petitioned the trial court to fix the fair market value of the property
sold pursuant to section 8103(a) in an effort to collect the
deficiency from [Mrs. Thomas].
Id. at 630. We specifically rejected the Bank’s argument that because Mrs.
Thomas “was not named in the foreclosure judgment it acquired against the
Hemsleys, she lacks the necessary standing to utilize the procedure provided
in section 8103(d).” Id.
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that no petition has been filed within the time limited by statute
after the sale to fix the fair market value of the property sold,
whereupon the court, after notice as prescribed by general rule,
and being satisfied of such facts, shall direct the clerk to mark the
judgment satisfied, released and discharged.
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Viewing the evidence of record at hand in accordance with the
established standard of review and construing Section 8103 of the Act
consistently with Hemsley, we conclude that Property Rehab could seek relief
against Mr. Clarke personally. The Hemsley Court acknowledged that a
guarantor’s status affords her standing to petition the court for relief under
Section 8103(d), i.e., in the event the judgment creditor did not file a timely
petition to fix the fair market value. Hemsley, 577 A.2d at 630. Even more
relevant to the case at hand, however, the Hemsley Court acknowledged that
a judgment creditor may petition the trial court pursuant to Section 8103(a)
in an effort to collect a deficiency foreclosure judgment from a guarantor, even
where the creditor did not obtain a personal judgment against the guarantor.2
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2 We reiterate, “Mortgage foreclosure in Pennsylvania is strictly an in rem or
‘de terris’ proceeding. Its purpose is solely to effect a judicial sale of the
mortgaged property. The holder of a mortgage note can decide whether to
file a foreclosure action or to file an in personam assumpsit action on the note,
but the actions are not usually combined.” Nicholas v. Hofmann, 158 A.3d
675, 696 (Pa. Super. 2017) (emphases in original; citations omitted). One
exception to the typical procedure is where a lender petitions the court to fix
fair market value of real property following sale in a mortgage foreclosure
execution proceeding, as mandated by the Act. Id. at n.34 (citing Home Sav.
& Loan Co., 19 A.3d at 1079).
With these principles in mind, our review of the record reveals facts not
included in the trial court’s analysis that favor consideration of Mr. Clarke as
a judgment debtor of Property Rehab. Specifically, Mr. Clarke is an obligor on
the note attached to Property Rehab’s mortgage from Clarke Star. Petition to
Fix Fair Market Value and Establish Deficiency, 3/5/17, at ¶¶ 3, 4. When
Clarke Star and Mr. Clarke failed to make payments, Property Rehab filed two
lawsuits: (1) a mortgage foreclosure action for an in rem judgment against
Clarke Star on October 28, 2008, at Civil Action No. 003512 October Term
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Id. In other words, both a mortgagor/judgment debtor and a
mortgagee/judgment creditor may use the Act to protect their interests. In
doing so, the judgment creditor or the judgment debtor must file their petition
in a proceeding supplementary to the foreclosure action. Home Sav. & Loan
Co., 19 A.3d at 1080.
Like the judgment creditor in Hemsley, Property Rehab filed a
foreclosure action against the mortgagor Clarke Star and obtained a
judgment. Property Rehab did not name the guarantor, Mr. Clarke, in the
foreclosure action. Property Rehab obtained the real property owned by
Clarke Star at a sheriff’s sale, but the price paid was not sufficient to satisfy
the entire foreclosure judgment against Clarke Star. Unlike the judgment
creditor in Hemsley, Property Rehab filed a separate action and obtained a
personal judgment against Mr. Clarke, thereby making him a judgment debtor
of Property Rehab. Property Rehab then sought to collect the deficiency from
Clarke Star and Mr. Clarke by filing a timely petition as a supplementary
proceeding to the foreclosure action. Accord Home Sav. & Loan Co., 19
A.3d at 1080 (“When read together, sections 8103(a) and 8103(g) of the [Act]
now mandate that the petition to fix fair market value “shall” be filed as a
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2008, and (2) an action on the underlying promissory note for an in personam
judgment against Mr. Clarke on October 27, 2008, at Civil Action No. 003243
October Term 2008. Id. at ¶ 5. Like Clarke Star, Mr. Clarke did not file a
responsive pleading; therefore, default judgments were entered against
Clarke Star and Mr. Clarke on January 20, 2009. Id. at ¶ 6.
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supplementary proceeding in the matter in which the real property was sold
to the judgment creditor in execution proceedings (i.e. in the foreclosure
action).”).
Applying Hemsley to a judgment creditor’s petition for relief under the
Act, we conclude that even though the foreclosure judgment obtained against
Clarke Star did not name Mr. Clarke, he remained liable on the note he co-
signed for the full amount of the mortgage received from Clarke Star.
Hemsley, 577 A.2d at 630. If Property Rehab had not complied with the Act
by filing a timely petition to fix fair market value, Mr. Clarke—like Mrs.
Thomas—would have had standing to petition the court for relief under Section
8103(d) of the Act. Id. However, Property Rehab did comply with the Act by
filing a timely valuation/deficiency petition in a supplementary proceeding to
the foreclosure matter, naming Mr. Clarke therein and serving him with notice
pursuant to Section 8103. Therefore, despite the overlooked omission of Mr.
Clarke’s name from the deficiency judgment order furnished by Property
Rehab for the trial court’s signature, Mr. Clarke was liable to Property Rehab
for payment of the deficiency. Accordingly, we vacate the order denying
Property Rehab’s request for correction of the deficiency judgment order and
remand for correction of the deficiency judgment order to include Mr. Clarke.
Order vacated, and case remanded with instructions. Jurisdiction
relinquished.
Judge Platt joins the Memorandum.
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Judge Nichols concurs in the result.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 5/1/18
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