Court Opinion

ID: 4407896
Source: CourtListenerOpinion
Date Created: 2019-06-18 20:00:21.522345+00
Date Added: 2024-06-11T14:52:46.605240
License: Public Domain

NOT PRECEDENTIAL

                    UNITED STATES COURT OF APPEALS
                         FOR THE THIRD CIRCUIT
                            ________________

                                     18-1911
                                ________________

 DEUTSCHE BANK NATIONAL TRUST CO, as Trustee for MORGAN STANLEY
 CAPITAL INC. TRUST 2006-HE2 Mortgage Pass-Through Certificates, Series 2006-
                                HE2,
                                                                   Appellant

                                         v.

                          BENDEX PROPERTIES LLC;

               LACKAWANNA COUNTY TAX CLAIM BUREAU
                      (Intervenor in District Court)
                           ________________

                        On Appeal from the District Court
                     for the Middle District of Pennsylvania
                          (M.D. Pa. No. 3-16-cv-00432)
              Honorable Joseph F. Saporito, Jr., U.S. Magistrate Judge
                               ________________

                             Argued: January 23, 2019

             Before: JORDAN, KRAUSE, and ROTH, Circuit Judges

                           (Opinion filed: June 18, 2019)

Kelly K. Huff
Brett L. Messinger
Brian J. Slipakoff [ARGUED]
Duane Morris
30 South 17th Street
United Plaza
Philadelphia, PA 19103

     Counsel for Appellant Deutsche Bank National Trust Co.
John J. Brazil
Suite 200
310 Adams Avenue
Scranton, PA 18503

       Counsel for Appellee Bendex Properties LLC

Christopher Harrison
Joseph J. Joyce, III [ARGUED]
Joyce Carmody & Moran
9 North Main Street
Suite 4
Pittston, PA 18640

       Counsel for Appellee Lackawanna County Tax Claim Bureau

                                   ________________

                                      OPINION*
                                   ________________
KRAUSE, Circuit Judge.

       Appellant Deutsche Bank National Trust Company appeals the District Court’s

ruling that the mortgage it held on a property was extinguished when that property was

purchased by Appellee Bendex Properties LLC in a judicial tax sale. Because we

conclude that Appellee Lackawanna County Tax Claim Bureau failed to meet its

statutory obligations when it conducted the sale, we will reverse.

I.     Background

       In 2005, Tiffany Buck bought a home in Scranton, PA. Her purchase was

financed through a standard mortgage arrangement with Decision One Mortgage

*
 This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.

                                             2
Company, wherein Buck received cash to purchase the property in exchange for a note

secured by a mortgage on the home. Though Decision One originated the mortgage, the

mortgagee was listed as the Mortgage Electronic Recording Systems, Inc. (MERS), as

nominee for Decision One and its successors and assigns.1 Deutsche Bank came into

possession of the note in 2011.

       Buck failed to pay her real estate taxes owed on the property for 2012 and 2013,

and in 2014, she defaulted on her mortgage. The Lackawanna County Tax Claim Bureau

then initiated judicial tax sale proceedings by petitioning the Lackawanna County Court

of Common Pleas to issue a Rule to Show Cause, which is a requirement under the

Pennsylvania Real Estate Tax Sale Law (RETSL). See 72 Pa. Cons. Stat. § 5860.610.

Before a judicial tax sale can be held, all parties with an interest in the property must be

served with a “rule . . . to appear and show cause why a decree should not be made that

said property be sold, freed and cleared of their respective tax and municipal claims,

liens, mortgages, charges and estates.” Id. The required manner of service depends on

the location of the interest holder. Those residing in Pennsylvania must be served in

person, while those residing elsewhere need only be served with a copy of the Rule to

Show Cause through “registered mail, return receipt requested[ and] postage prepaid,” at

their “last known post office address.” Id. § 5860.611.

       1
         “MERS is a national electronic loan registry system that permits its members to
freely transfer, among themselves, the promissory notes associated with mortgages, while
MERS remains the mortgagee of record in public land records as ‘nominee’ for the note
holder and its successors and assigns.” Montgomery Cty. v. MERSCORP Inc., 795 F.3d
372, 374 (3d Cir. 2015).
                                              3
       The Court granted the Tax Claim Bureau’s petition and issued a Rule to Show

Cause on January 22, 2015 (the “Rule”). Both the petition and the Rule correctly

identified Buck as the property owner and included the correct tax map number for the

property. But both documents also included an incorrect street address: Instead of 727

North Lincoln Avenue, the address was listed as 747 North Lincoln Avenue.

       The error in the street address became apparent on February 9, 2015, when the

Lackawanna County Sheriff attempted to serve Buck in person at 747 North Lincoln

Avenue and learned that “there [wa]s no 747 North Lincoln.” App. 121. He noted the

“bad address” in his return-of-service forms, App. 119, 121, but by that time, the Sheriff

had already sent a copy of the Rule via certified mail to MERS, which was located out of

state. The Tax Claim Bureau took no corrective action, and as a consequence, the only

copy of the Rule served on MERS contained the incorrect address. And apparently as a

further consequence, MERS did not notify Deutsche Bank, as successor to Decision One,

about the Rule.

       The Lackawanna County Court of Common Pleas issued an Order for Judicial

Sale on March 17, 2015, setting April 16, 2015 as the final deadline for all interested

parties to show cause and April 20, 2015 as the date of the sale. Neither MERS nor

Deutsche Bank objected to the sale, which occurred as scheduled, and on May 29, 2015,

the deed was transferred to the purchaser, Bendex Properties, free and clear of all

encumbrances.

       A couple of months later, Deutsche Bank began foreclosure proceedings, at which

point it apparently learned for the first time about the sale and the termination of its

                                              4
interest. It filed an action against Bendex in the Middle District of Pennsylvania seeking

a declaratory judgment voiding the sale (Count I), and, in the alternative, a declaratory

judgment that its mortgage survived the sale (Count II).2 After discovery, both sides

moved for summary judgment, and the District Court ruled for the Defendants on both

Counts, holding that the sale was valid and that Bendex received the property free and

clear of Deutsche Bank’s mortgage. Deutsche Bank Nat’l Trust Co. v. Bendex Properties

LLC, 2018 WL 1532796, at *10 (M.D. Pa. Mar. 29, 2018). This timely appeal followed.

II.    Discussion3

       On appeal, Deutsche Bank argues that its mortgage was not extinguished by the

judicial tax sale because the Rule served on MERS4 suffered from multiple fatal defects:

it contained an incorrect street address; it was sent via certified mail, not registered mail;

and it was not sent to MERS’s “last known post office address,” Appellant’s Br. 14

       2
       The Tax Claim Bureau was granted leave to intervene as an additional defendant.
Deutsche Bank Nat’l Trust Co. v. Bendex Properties LLC, 2018 WL 1532796, at *1
(M.D. Pa. Mar. 29, 2018).
       3
         The District Court had diversity jurisdiction under 18 U.S.C. § 1332. We have
jurisdiction under 28 U.S.C. § 1291. We review the District Court’s grant of summary
judgment de novo. Faush v. Tuesday Morning, Inc., 808 F.3d 208, 215 (3d Cir. 2015).
To prevail at this stage, the moving party must establish that “there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(a).
       4
        MERS assigned the mortgage to Deutsche Bank in March 2015. As assignee,
Deutsche Bank stands in the shoes of MERS and may assert defenses related to notice
that were available to MERS. See Kepler v. Kepler, 199 A. 198, 203 (Pa. 1938).

                                               5
(quoting 72 Pa. Const. Stat. § 5860.611).5 The incorrect address, by itself, compels us to

conclude that the Rule sent to MERS failed to provide adequate notice of the judicial

sale.6

         If a “mortgagee is not provided adequate notice of the judicial tax sale,” the sale

will not extinguish her lien, “and the purchasers at the judicial tax sale take the property

subject to that mortgage.” Plank v. Monroe Cty. Tax Claim Bureau, 735 A.2d 178, 182

n.10 (Pa. Commw. Ct. 1999). Adequate notice generally requires strict compliance with

the RETSL’s “notice requirements,” In re Sale of Real Estate by Lackawanna Tax Claim

Bureau, No. 2027 C.D. 2013, 2014 WL 3805796, at *3 (Pa. Commw. Ct. Aug. 1, 2014),

but strict compliance is not required if the party challenging a judicial sale had actual or

inquiry notice of the sale, see In re Sale of Real Estate by Lackawanna Cty. Tax Claim

Bureau, 986 A.2d 213, 217–18 (Pa. Commw. Ct. 2009); Sabbeth v. Tax Claim Bureau of

Fulton Cty., 714 A.2d 514, 517–518 (Pa. Commw. Ct. 1998). Though both parties agree

that the Rule sent to MERS contained conflicting information about the property’s

location, they disagree over whether the error in the street address was sufficient to

prevent MERS, and hence Deutsche Bank, from obtaining adequate notice.

       Deutsche Bank does not appeal the District Court’s determination that the sale to
         5

Bendex was valid.
         6
         Because the incorrect address is dispositive, we need not reach the other defects
asserted by Deutsche Bank. We note, however, that Deutsche Bank conceded at oral
argument that serving the Rule via certified mail satisfies the RETSL’s registered mail
requirement in light of 1 Pa. Cons. Stat. § 1991, which defines registered mail, “[w]hen
used in any statute finally enacted before or after September 1, 1937, [to] include[]
certified mail,” “unless the context clearly indicates otherwise.”
                                               6
       Pennsylvania courts have evaluated notice documents with similar defects under

the RETSL and concluded that “absolute accuracy in spelling of names in notices

published pursuant to [the RETSL] is not required when . . . the party is not prejudiced by

the misspelling.” In re Moskowitz, 447 A.2d 1114, 1115 (Pa. Commw. Ct. 1982)

(discussing notice requirements for an upset tax sale under the RETSL).7 The

Pennsylvania Supreme Court has reached similar conclusions when addressing analogous

situations outside the RETSL. See Shimkus v. Klimatis, 105 A.2d 592, 593 (Pa. 1954)

(rejecting the argument that “notices posted by the sheriff were insufficient . . . for failure

to give the street address” when the party challenging the sale suffered no prejudice);

Somerville v. Hill, 104 A. 62, 63 (Pa. 1918) (determining that a property description

containing an incorrect street address did not invalidate a sheriff’s sale because “no

allegation appear[ed] in the petition that any buyers were deterred” by the error).

Applying this doctrine in Aldhelm, Inc. v. Schuylkill County Tax Claim Bureau, the

Pennsylvania Commonwealth Court upheld the validity of an upset tax sale under the

RETSL in which the notice documents listed the owner as “Aldheim, Inc.” instead of

“Aldhelm, Inc.” 879 A.2d 400, 405 (Pa. Commw. Ct. 2005). The court found that the

error “caused no one to be misled,” id., and noted that the “Bureau had been using th[e

incorrect] spelling . . . in all its communications” with Aldhelm for ten years and that “no

       7
          An upset tax sale is a prerequisite to a judicial tax sale under the RETSL. In an
upset tax sale, the Tax Claim Bureau sets an upset sale price, which is equal to the tax
liability on the property plus various interest and sale cost adjustments. If the Bureau is
unable to sell the property for the upset sale price, it can then hold a judicial tax sale. See
72 Pa. Cons. Stat. §§ 5860.601–5860.609.
                                               7
one at Aldhelm . . . ever alerted the Bureau to th[e] spelling error or lodged an

objection,” id. at 402.

       Here, in contrast, the error in the street address clearly did “cause[] [the

mortgagee] to be misled,” id. at 405, and the Rule was invalid as a result. Deutsche Bank

specifically contends that the Rule contained “extraneous, materially inaccurate and

prejudicial information,” Appellant’s Reply Br. 8 (emphasis added), and that this

information hindered MERS’s and its own ability to identify the property at issue. Cf.

Aldhelm, 879 A.2d at 405 n.12 (plaintiff challenging the tax sale did not claim it was

misled). Appellees point us to no evidence in the record that shows Deutsche Bank had

knowledge of the sale or that otherwise contradicts its claims of prejudice. Furthermore,

unlike the error in Aldhelm, which the plaintiff had “chose[n] to overlook for many

years,” id. at 405, nothing in the record suggests that the error here cropped up before the

petition was filed, so Deutsche Bank had no opportunity to correct it. In fact, the record

shows that the first party to be notified of the error was the Tax Claim Bureau itself, so it

was the defendant-intervenor, not the plaintiff, that “chose to overlook” the issue here.

Id.

       Ultimately, the RETSL “impose[s] duties, not on owners, but on the agencies

responsible for sales . . . . Hence, the inquiry is not to be focused on the neglect of the

owner, . . . but on whether the activities of the Bureau comply with the requirements of

the statute.” Wells Fargo Bank of Minnesota, NA v. Tax Claim Bureau of Monroe Cty.,

817 A.2d 1196, 1200 (Pa. Commw. Ct. 2003) (quoting Return of Tax Sale by Indiana

Cty. Tax Claim Bureau v. Clawson, 395 A.2d 703, 706 (Pa. Commw. Ct. 1979)). Where,

                                               8
as here, a Tax Claim Bureau serves a mortgagee with a Rule to Show Cause that contains

an error and is, at best, ambiguous regarding the location of the property to be sold, and

where the Bureau learns of the error prior to the judicial sale yet takes no corrective

action, the Bureau cannot be said to have fulfilled its duty under the RETSL.8 As a

result, Deutsche Bank was “not provided adequate notice of the judicial tax sale” and

Bendex “t[ook] the property subject to [Deutsche Bank’s] mortgage.” Plank, 735 A.2d at

182 n.10.

III.   Conclusion

       For the foregoing reasons, we will reverse the District Court’s grant of summary

judgment to Bendex and the Tax Claim Bureau on Count II of the complaint and will

remand with instructions to enter judgment on that Count in favor of Deutsche Bank.

       8
        It is for these same reasons that we reject Appellees’ argument that the Tax
Claim Bureau complied with the RETSL because the RETSL does not require that a
“property subject to a judicial sale be identified by street address.” Appellee’s Br. 14.
That the RETSL does not affirmatively require the Tax Claim Bureau to include a street
address in its notice documents does not license the Bureau to include an incorrect street
address. Furthermore, “[t]he primary purpose of service is to give adequate notice of the
pendency of an action,” and the inclusion of an incorrect street address is plainly contrary
to the Rule’s notice function. In re Blount, 898 A.2d 1181, 1184 (Pa. Commw. Ct. 2006).
                                              9