Court Opinion

ID: 4271563
Source: CourtListenerOpinion
Date Created: 2018-05-01 19:46:00.595881+00
Date Added: 2024-06-11T14:06:11.220099
License: Public Domain

J-S19001-18

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37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].

____________________________________
* 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

____________________________________________

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.

____________________________________________

       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

____________________________________________

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

____________________________________________

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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