Court Opinion

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Opinions of the United
1994 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

8-19-1994

Fleet Consumer Disc. Co. v. Graves
Precedential or Non-Precedential:

Docket 92-2047

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Recommended Citation
"Fleet Consumer Disc. Co. v. Graves" (1994). 1994 Decisions. Paper 118.
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          UNITED STATES COURT OF APPEALS
              FOR THE THIRD CIRCUIT

                    ___________

                    No. 93-1709
                    ___________

          IN RE:   SHIRLEY GRAVES, Debtor

           FLEET CONSUMER DISCOUNT CO.

                         v.

                   SHIRLEY GRAVES

            EDWARD SPARKMAN, ESQUIRE,
                          Chapter 13 Trustee

                       Fleet Consumer Discount Company,
                                                  Appellant

_______________________________________________

On Appeal from the United States District Court
   for the Eastern District of Pennsylvania
        (D.C. Civil Action No. 92-04488)
               ___________________

             Argued February 28, 1994

Before:   STAPLETON and SCIRICA, Circuit Judges
           and SMITH, District Judge*

             (Filed: August 19, l994

                   ROBERT J. WILSON, ESQUIRE (Argued)
                   Lipman, Freiberg, Comroe & Hing
                   1700 Market Street, Suite 1400
                   Philadelphia, Pennsylvania 19103

                     Attorney for Appellant,
                     Fleet Consumer Discount Company
*The Honorable D. Brooks Smith, United States District Judge for
the Western District of Pennsylvania, sitting by designation.
                           F. LEE JONES, ESQUIRE (Argued)
                           Jones & Harrison
                           2003 Fitzwater Street
                           Philadelphia, Pennsylvania 19146

                             Attorney for Appellee,
                             Shirley Graves

                          __________________

                      OPINION OF THE COURT
                       __________________

SCIRICA, Circuit Judge.

          This is an appeal from a judgment of the district court

sitting as an appellate court in bankruptcy.    At issue is

whether, under Pennsylvania law, a non-record interest holder in

real property is entitled to personal service before a

foreclosure sale even though notice was mailed to the record

owners and was posted on the property; and whether a junior

secured creditor can be a bona fide purchaser for value without

notice, if at the time of sale it knew, or should have known, of

the unrecorded interest.

          The bankruptcy court found that Pennsylvania law

requires personal service to non-record interest holders and that

the purchaser's knowledge of the non-record interest prevented it

from being a bona fide purchaser. In re Graves, 142 B.R. 115
(Bankr. E.D. Pa. 1992).    The district court affirmed, holding

that Pennsylvania's Rules of Civil Procedure required the

judgment creditor to give personal notice to all interest holders

and that the purchaser's knowledge of the non-record interest
prevented it from being a bona fide purchaser. In re Graves, 156
B.R. 949 (E.D. Pa. 1993).    We hold that, on these facts,

Pennsylvania law does not require personal service, but that the

purchaser was not a bona fide purchaser because of its actual

knowledge of the unrecorded interest.    We will affirm.
                                  I.

                          FACTS and PROCEDURE

          A. Background

          On October 12, 1983 Thomas Bacon and his grandson,

Duane Bacon,1 purchased a house at 6133 Nassau Road, Philadelphia

as tenants in common, each owning a one-half interest.     They paid

$39,000.00, after obtaining a $24,000.00 mortgage from Liberty

Savings Bank.   Thomas Bacon lived at 6133 Nassau Road with his

wife, three of his children, and Duane until he died intestate on

January 7, 1986.   At the time, no one probated his estate or

notified Liberty Savings Bank of his death.2    Thomas Bacon's wife

died in September, 1990.    One son moved away before her death and

Duane moved away shortly thereafter.    In October, 1990, the house

was occupied by two of Thomas Bacon's children, his daughter,

Shirley Graves, and a son, Andrew Bacon.

1
.   Duane Bacon is the nephew of the appellee, Graves.
2
 . Thomas Bacon's estate was probated in October 1990. Probate
had not been completed as of the time of oral argument before
this court.
            B.   State Proceedings

            In November, 1990, Liberty Savings Bank began

foreclosure proceedings against Thomas and Duane Bacon in

Philadelphia Common Pleas Court.3    Liberty's attempts to serve

notice on Thomas and Duane Bacon personally were unsuccessful, so

on March 4, 1991, after a petition by Liberty, the court

permitted service by regular mail and by posting notice on the

property.   A return of service, signed by a deputy sheriff,

recited that a copy of the complaint was posted on the house on

March 16, 1991.4    On May 3, 1991, after Thomas and Duane Bacon

failed to answer Liberty's complaint, the Common Pleas Court

entered a default judgment, and ordered that notice of the

judgment be sent to Duane and Thomas Bacon at the house.    Liberty

then sent Thomas and Duane Bacon notice of a sheriff's sale by

certified mail.    It also sent notice to all junior creditors,

including Fleet Consumer Discount Company.5   On September 6, 1991

notice was posted at the house pursuant to the Common Pleas

Court's order, as evidenced by a deputy sheriff's return of

service.

3
 . The record does not reflect how long the mortgage had gone
unpaid before Liberty began foreclosure proceedings.
4
 . Graves admits letters addressed to Thomas and Duane (or Mrs.
Duane) Bacon were received at the house, but she denies notice
was ever posted on the house.
5
 . Apparently unbeknownst to his family Duane Bacon took a
$12,049.00 second mortgage against his interest in the house from
Fleet Consumer Discount. Duane was living in the house when he
took out the second mortgage.
            At the sheriff's sale on October 7, 1991, Fleet

purchased the property for $42,000.00.    Fleet attempted to sell

the house to Graves, but after negotiations failed, Fleet filed

an eviction action on November 8, 1991.    Graves was served on

November 16, 1991, but did not file an answer.6   The court

entered default judgment on January 15, 1992.

            On April 9, 1992, Graves filed a "Motion to Set Aside

Sheriff's Sale and/or Set Aside Default," and an "Emergency

Petition to Stay Eviction" in Common Pleas Court.    The court

denied the petition to stay the eviction without opinion on April

14, 1992.   It then denied her motion to set aside the sheriff's

sale on May 14, 1992, and filed an opinion on August 17, 1992

holding that the motion was not promptly filed and that Graves

did not have a meritorious defense to the claim.7

            C.   Bankruptcy Proceedings

            On April 22, 1992 Graves filed for bankruptcy.    Fleet

filed a motion seeking relief from the automatic stay.   At a

bankruptcy court hearing on June 9, 1992, testimony was given by

6
 . Although the Affidavit of Service contained a special
instruction that the server "MUST GET NAME OF INDIVIDUAL
SERVED!!," the affidavit states only that process was personally
served on "Adult in charge of Defendant's residence who refused
to give name or relationship." Under Pennsylvania Rule of Civil
Procedure 402(a)(2)(ii) personal service on an adult in charge of
defendant's home constitutes valid service on the defendant.
Flaherty v. Atkins, 152 A.2d 280, 281 (Pa. Super. Ct. 1959).
7
 . The Common Pleas Court's judgment was affirmed on appeal by
the Pennsylvania Superior court. Liberty Savings Bank v. Estate
of Bacon, No. 02344 (Pa. Super. Ct. Apr. 26, 1993). A Petition
for Allowance of Appeal is now pending with the Pennsylvania
Supreme Court.
Graves and Heather Thompson, the Assistant President of Fleet's

Upper Darby branch.     There was a subsequent hearing on June 18,

1992, when the court permitted Fleet to admit certified copies of

the affidavits of service.8

             On June 25, 1992, the bankruptcy court denied Fleet's

motion for relief from the automatic stay.    The court found the

sheriff's sale invalid on three independent grounds: (1) as the

holder of an interest in the property Graves was entitled, under

Pennsylvania law, to personal service, (2) Graves' continuous

possession of the property put Liberty on constructive notice

that Graves had an interest in the house which Liberty should

have investigated before the sale, and (3) Fleet's knowledge of

Graves' interest in the house prior to the sheriff's sale

precluded Fleet from being a bona fide purchaser for value

without notice. Graves, 142 B.R. at 117.

             Fleet appealed to the district court, which affirmed,

holding that Graves was entitled to personal notice under

Pennsylvania law.     The district court then upheld the bankruptcy

court's factual findings that Graves had no prior notice of the

sheriff's sale, Liberty had knowledge of Graves' interest, and

Fleet was not a bona fide purchaser.     This timely appeal

followed.9

8
 . During the first hearing Fleet had unsuccessfully attempted
to enter uncertified copies of the affidavits of service.
9
 . Bankruptcy court jurisdiction was based on 28 U.S.C. §
157(b)(1)(1988). The district court had jurisdiction under 28
U.S.C. § 158(a), which gives the district courts jurisdiction
over appeals from final orders of the bankruptcy courts. The
district court denied Fleet relief from the automatic stay, a
          In an appeal from a judgment of a bankruptcy court, we

review factual findings for clear error and apply plenary review

to questions of law.   "In that sense, our review duplicates that

of the district court and we view the bankruptcy court decision

unfettered by the district court's determination." In re Brown,

951 F.2d 564, 567 (3d Cir. 1991).
                                II.

                            DISCUSSION

          A. Issue Preclusion

          Under Pennsylvania law, real property cannot be sold at

sheriff's sale until the interest holders have received notice of

the sale. See Pa. R. Civ. P. 3129.1 (a) (Supp. 1994).    The

Bankruptcy court invalidated the sheriff's sale, in part, because

it believed Liberty failed to give Graves the required notice.

Before this case reached the bankruptcy court, however, the

Philadelphia Common Pleas Court had already entered default

judgments in the ejectment and foreclosure actions, and had

denied Graves' motion to open the default judgments.    Fleet

contends that in issuing these rulings the state court found that

Graves received valid notice.   Thus, throughout the federal

litigation, Fleet has maintained the state court rulings preclude

Graves from raising the notice issue under the doctrine of issue

preclusion.

(..continued)
final, appealable order in bankruptcy. Accordingly, this court
has jurisdiction under 28 U.S.C. § 158(d).
           The bankruptcy court rejected Fleet's argument because

it believed applying issue preclusion under these circumstances

would violate Graves' right to due process. 142 B.R. at 122.     The

district court held default judgments do not have preclusive

effect in subsequent litigation.   We agree issue preclusion does

not apply here, but we do not reach the due process issue.10

           Issue preclusion prevents the relitigation of facts

adjudicated in a prior action. See Edmundson v. Borough of

Kennett Square, 4 F.3d 186, 189 (3d Cir. 1993); Bradley v.

Pittsburgh Bd. of Educ., 913 F.2d 1064, 1073-74 (3d Cir. 1990).

Federal courts must give the same preclusive effect to state

court factual findings as would the courts of that state. See 28

U.S.C. § 1738 (1988); Marrese v. American Academy of Orthopaedic

Surgeons, 470 U.S. 373, 380 (1985); Grimes v. Vitalink

Communications Corp., 17 F.3d 1553, 1562 (3d Cir. 1994), petition

for cert. filed, 63 U.S.L.W. 3010 (U.S. June 29, 1994)(No. 93-

2098).   Thus, to decide whether issue preclusion applies here we

must first determine whether Pennsylvania courts would permit

10
 . The measure of due process is whether "the means employed
[are] such as one desirous of actually informing the absentee
might reasonably adopt to accomplish it." See Mullane v. Central
Hanover Bank & Trust Co., 339 U.S. 306, 315 (1950); see also
Anderson v. White, 888 F.2d 985, 991 (3d Cir. 1989)(same). "When
the state within which the owner has located such property seizes
it for some reason, publication or posting affords an additional
measure of notification." Mullane, 339 U.S. at 316. A procedural
protection to be adequate, must represent a fair accommodation of
the respective interests of creditor and debtor. See Jordan v.
Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1271 (3d Cir.
1994)(quoting Finberg v. Sullivan, 634 F.2d 50, 58 (3d Cir.
1980)(in banc)).
litigation of the notice issue even though default judgments had

been entered.    We believe they would.

          In Muhammad v. Strassburger, McKenna, Messer, Shilobod,

& Gutnick, 587 A.2d 1346 (Pa.), cert. denied, 112 S. Ct. 196

(1991), the Pennsylvania Supreme Court stated:
          In order to grant a demurrer pursuant to
          [issue preclusion], the objecting party must
          show that "the fact or facts at issue in both
          instances were identical; [and] that these
          facts were essential to the first judgment
          and were actually litigated in the first
          cause." We have also required that the party
          against whom a plea of [issue preclusion] is
          asserted must have had a full and fair
          opportunity to litigate the issue in question
          in a prior action.
587 A.2d at 1348 (citations omitted); see also GPU Indus.

Intervenors v. Pennsylvania Pub. Util. Comm'n, 628 A.2d 1187,

1192-93 (Pa. Commw. Ct. 1993) (same).     Fleet claims those

requirements are met here; we cannot agree.

                                  1.

          Fleet contests the bankruptcy court's ability to

adjudicate the validity of the notice Graves received, in part,

because Graves raised the notice issue before the Common Pleas

Court in connection with her motion to open the default

judgments.     According to Fleet, that court's refusal to open the

default judgments constituted a judgment on the merits which

precluded relitigation of the issue before the bankruptcy court.

We disagree.

          Even though Graves raised the notice issue in

connection with her motion to open the default judgments, it was
not "essential" to the judgment. See Muhammad, 587 A.2d at 1348.

The Common Pleas Court stated, "[a] petition to open a default

judgment . . . will be granted where the court finds that each of

three factors are satisfied:
          (1) the petition has been promptly filed;
          (2) the default can be reasonably explained or excused;
          and

          (3) a meritorious defense exists to the underlying

          claim."

Liberty Sav. Bank v. Estate of Bacon, No. 1387, slip op. at 2
(C.P. Phila. County Aug. 17, 1992) (citing Fink v. General

Accident Ins. Co., 594 A.2d 345, 346 (Pa. Super. Ct. 1991)).    The

court then denied Graves' petition because it was not promptly

filed and because "payment on the mortgage to a third party [does

not] create a meritorious defense to the claim itself." Id.

Because the only issue before it was whether to enforce the

default judgment, the court did not make a finding on the notice

issue.   Thus, although the notice issue was raised, the court did

not need to address it, and in fact chose not to.   Consequently,
we do not believe Pennsylvania's courts would give the judgment

preclusive effect on the notice issue.

          Moreover, the bankruptcy court was correct in not

giving preclusive effect to the orders denying Graves' Motion to

Open the Default judgments because the order violated the

automatic stay in bankruptcy.   When a debtor files for bankruptcy

the Code automatically stays all judicial and administrative

actions against the debtor. See 11 U.S.C. § 362(a)(1).   Graves

filed for bankruptcy on April 22, 1992.   The Common Pleas Court
issued its orders denying relief from the foreclosure and

refusing to stay the ejectment on May 14, 1992.    Consequently,

the orders were void when issued. See Borman v. Raymark Indus.,

Inc., 946 F.2d 1031, 1032-33 (3d Cir. 1991); Association of St.

Croix Condominium Owners v. St. Croix Hotel Corp., 682 F.2d 446,

448 (3d Cir. 1982).

            Fleet maintains the state court orders did not violate

the stay because the underlying actions were brought by Graves

instead of against her.   But, in Association of St. Croix

Condominium Owners v. St. Croix Hotel Corp., we expressly

rejected Fleet's reasoning, stating:
          Section 362 by its terms only stays proceedings against
          the debtor. The statute does not address actions
          brought by the debtor which would inure to the benefit
          of the bankruptcy estate . . . . It might be argued
          that whether an appeal is stayed by section 362 should
          be determined by whether the appeal is taken "by" or
          "against" the debtor, i.e., whether the debtor is the
          appellant or appellee. We reject this approach.

                 In our view, section 362 should be read to stay
            all appeals in proceedings that were originally brought
            against the debtor . . . . Thus, whether a case is
            subject to the automatic stay must be determined at its
            inception.
682 F.2d at 448-49.

            Fleet attempts to distinguish this case from St. Croix

Hotel Corp. on the grounds that St. Croix Hotel Corp. involved an

appeal from an action originally brought against the debtor but

contends this action was originally brought by the debtor.    We

disagree.

            Graves never filed a complaint in Common Pleas Court

and her "action" was never assigned a docket number of its own.
Rather, the dockets indicate Graves filed a motion in Fleet's

foreclosure and ejectment suits.       In each action the Common Pleas

Court treated Graves as the defendant, rather than as a new

plaintiff.    Because the proceedings were originally brought

against the debtor, the orders denying Graves' motions were

entered in Liberty's actions against the debtor, and therefore in

violation of the stay.

                                  2.

             Fleet's issue preclusion argument also fails because

default judgments are not given preclusive effect in

Pennsylvania's courts.    The Pennsylvania Supreme Court has

adopted the preclusion principles of the Second Restatement of

Judgments. See Schubach v. Silver, 336 A.2d 328, 333 (Pa. 1975);

GPU Indus., 628 A.2d at 1193.    The Restatement provides "[w]hen

an issue of fact or law is actually litigated and determined by a

valid and final judgment, and the determination is essential to

the judgment, the determination is conclusive on a subsequent

action between the same parties, whether on the same or a

different claim." Restatement (Second) of Judgments § 27 (1980).

          Comment e to that section states "[i]n the case of a

judgment entered by confession, consent, or default, none of the

issues is actually litigated.    Therefore, the rule of this

Section does not apply with respect to any issue in a subsequent

action." Id. cmt. e.    Applying that rule here indicates

Pennsylvania courts would not give preclusive effect to the

Common Pleas Court's orders in the foreclosure and ejectment

actions because Graves did not actually litigate those cases. See
GPU Indus, 628 A.2d at 1193. See generally, 1B James W. Moore,

Moore's Federal Practice ¶ 0.444[2] (2d ed. 1985).11

          B. Notice.

           We turn next to the bankruptcy court's finding that

Pennsylvania law required Liberty to notify Graves personally of

the sheriff's sale.     Finding that Pennsylvania Rule of Civil

Procedure 3129 requires an executing creditor to give notice to

all property owners, the bankruptcy court held the sheriff's sale

invalid because Graves did not receive prior notice. See 142 B.R.

at 120.   We disagree.    We do not believe Rule 3129 requires

personal notice to someone in Graves' position; we also do not

believe Graves was unaware of the sheriff's sale.

           1.    Rule 3129

           In Pennsylvania, notification of a sheriff's sale is

governed by Pennsylvania Rule of Civil Procedure 3129.     Rule 3129

has two main parts which together prescribe how notice must be

effected.12     Part 1 requires an executing plaintiff to submit an

11
 . Fleet cites Zimmer v. Zimmer, 326 A.2d 318, 320 (Pa. 1974)
and Bailey v. Harleysville Mut. Ins. Co., 491 A.2d 888, 890 (Pa.
Super. Ct. 1985) for the proposition that Pennsylvania courts
consider default judgments to be judgments on the merits for
purposes of issue preclusion. However, these case are not
convincing. Zimmer was decided in 1974 a year before the
Pennsylvania Supreme Court adopted the Restatement's principles
in Schubach. Bailey did not involve a default judgment, and
therefore its discussion about the preclusive effect of default
judgments is dicta. Moreover, Bailey makes no reference to the
Restatement or Schubach and as the opinion of an intermediate
appellate court, is not controlling.
12
 . A third part only applies when a sheriff's sale is stayed or
postponed. See Pa. R. Civ. P. 3129.3.
affidavit with the names of parties whose interest could be

affected by the sale. Pa. R. Civ. P. 3129.1 (b).13    Part 2

requires the plaintiff to send written notice to all persons

listed in the affidavit, and requires the posting of handbills at

the Sheriff's office at least 30 days before the sale and the

publication of notice in local newspapers once a week for at

least three weeks before the sale. Id. § 3129.2(a).

          Subsection § 3129.2(c)(1)(i) provides that "[s]ervice

of notice shall be made upon a defendant in the judgment who has

not entered an appearance and upon the owner of the property . .

. ." Id. (numbering omitted) (emphasis supplied).    The bankruptcy

court interpreted the term "owner of the property" to include

"every owner of any interest," 142 B.R. at 120, regardless

whether that interest was recorded or known to the executing

creditor. Id.   Thus, it concluded the Sheriff's sale was invalid

because Graves did not receive notice. See 142 B.R. at 120.

13
 .   Rule 3129.1 provides in part:

          (b) The affidavit shall set forth to the best of the
affiant's knowledge or information and belief as of the date the
praecipe for the writ of execution was filed the name and address
or whereabouts of

               (1) the owners or reputed owners of the property;
               (2) every person who has any record lien on that
          property;
               (3) every other person who has any record interest
          in that property which may be affected by the sale; and
               (4) every other person who has any interest in
          that property not of record which may be affected by
          the sale and of which plaintiff has knowledge.

Pa. R. Civ. P. 3129.1(b) (Purdon Supp. 1993).
          We disagree.   Rule 3129.1's plain language

distinguishes between owners, § (b)(1), other persons having a

record interest, § (b)(2), and persons having an interest not of

record, § (b)(4).   If the definition of owner in subsection

(b)(1) included every owner of any interest, the subsequent

sections would be surplusage.   We believe, therefore, that an

owner in this context is any person whose ownership appears of

record. Cf. Baxter Dunaway, 4 Law of Distressed Real Estate, §

PA1.05., at PA-10 (Pennsylvania Jurisdictional Summary) (A

current title search will identify the owner of the property for

notice purposes under Rule 3129); 72 Pa. Cons. Stat. Ann. §

5860.102 (1990) (defining "Owner" as "the person in whose name

the property is last registered, if registered according to law"

for Real Estate Tax Sale Law); Pittsburgh v. Pivirotto, 502 A.2d
747, 751 (Pa. Commw. Ct. 1985) (even though redemption period had

not expired, record of purchaser's interest in treasury deed book

triggered notice requirement), aff'd 528 A.2d 125 (Pa. 1987).

Thus, Graves is not an owner of the property; at most she is an

interest-holder.

          Under Pennsylvania's Rules of Civil Procedure an

executing creditor must notify only those persons that fall

within the categories designated in Rule 3129.1(b) because Rule

3129.2(c) restricts the persons who must receive written notice

to those listed on the 3129.1 affidavit.14   Graves was not

14
 . Rule 3129.2(c) provides that "[t]he written notice . . .
shall be served . . . on all persons whose names and addresses
are set forth in the affidavit required by Rule 3129.1." Pa. R.
Civ. P. 3129.2 (Purdon Supp. 1993). Subsection 3129.2(c)(1)
entitled to notice before the sale unless she was either the

owner or reputed owner of the property, see § 3129.1(b)(1), or a

non-record interest holder whose interest could be affected by

the sale and is known by the creditor, see § 3129.1(b)(4).15

Graves maintains she has a right to personal notice because "of

her interest in the home being detrimentally affected by the

Sheriff's Sale."   Appellee Brief at 11.   Thus, we understand

Graves to argue that she had an interest in the property

requiring notice under § 3129.2(b)(4), not that she was the owner

or reputed owner of the property requiring notice under (b)(1).

          Operating in conjunction with § 3129.2, subsection

3129.1(b)(4) requires notification of "every other person who has

any interest in that property not of record which may be affected

by the sale and of which the plaintiff has knowledge."

3129.1(b)(4).   The bankruptcy court found that Liberty had

(..continued)
declares how certain people are to receive written notice, not
who is to be notified. See Rule 3129.2 Explanatory Comment --
1989 ("subdivision (c)(1)(i) and (c)(1)(ii) dictate different
methods of service . . . ."). Interpreting Rule 3129.2(c)(1) as
compelling written notice to every owner, regardless whether that
owner falls within the definitions in Rule 3129.1(b), makes the
section internally inconsistent because the subsection would
require notice to all owners, while the main section would
require notice only to those persons covered by the Rule 3129.1
affidavit. When interpreting a statute "a construction which
would create confusion should be avoided." 2A Norman J. Singer,
Sutherland Statutory Construction § 45.12, at 61 (5th ed. 1992);
cf. id. § 46.06 (effect must be given to every clause and
sentence).
15
 . Because Graves did not have a record interest, notice was
not required by (b)(2), which requires notice to all record
lienholders, or (b)(3), which requires notice to any record
interest holders whose interest could be affected by the sale.
constructive notice of Graves' interest because of her clear and

open possession of the property. 142 B.R. at 121.   The district

court held this finding was not clearly erroneous. 156 B.R. at

955.   We cannot agree.

           In Pennsylvania, clear and open possession of real

property constitutes constructive notice to subsequent purchasers

of the rights of the party in possession. See McCannon v.

Marston, 679 F.2d 13, 17 (3d Cir. 1982); Overly v. Hixson, 82
A.2d 573, 575 (Pa. Super. Ct. 1951).    Graves lived at the house,

without interruption, since before Thomas Bacon's death.

Consequently, the bankruptcy court held Graves was entitled to

personal service because Liberty had constructive knowledge of

Graves' interest. 142 B.R. at 120-21.

           The bankruptcy court correctly stated Pennsylvania's

general rule for constructive notice; however, an exception to

the rule provides that where a possessor lives with a record

owner in a manner consistent with the record ownership, no

constructive knowledge is imputed. Overly, 82 A.2d at 575.   The

Pennsylvania Superior Court explained the rule, stating:
          There can be no doubt whatever of the
          proposition that where the land is occupied
          by two persons . . . and there is a recorded
          title in one of them, such joint occupation
          is not notice of an unrecorded title in the
          other. *** The rule is universal that, if the
          possession be consistent with the recorded
          title, it is no notice of an unrecorded
          title.

           Indeed, this conclusion is but an application
           of the general principle that, in the absence
           of proof to the contrary, actual possession
           is presumed to be in him who has the record
          title. It would be intolerable to require an
          intending purchaser or incumbrancer to ask
          every person living in a property, be they
          many or few, whether or not he has a better
          title than the record owner, who is also in
          possession.

Overly, 82 A.2d at 575 (citations omitted).

          According to Graves' undisputed testimony, Duane Bacon

lived on the property until September, 1990.     Liberty commenced

the foreclosure action in November, 1990 approximately two months

after Duane Bacon left.   Although Graves was in clear and open

possession when the foreclosure action began, it was inconsistent

with the record ownership for less than two months.     Furthermore,

Graves has not pointed to any evidence which would have put

Liberty on notice of her interest.     Neither side cites any

authority for the length of time possession has to be

inconsistent with the record before an execution creditor is put

on constructive notice; however, absent any other evidence

indicating Liberty should have known of the record owner's

departure or Graves' open possession, we believe Liberty was not

on notice that a new ownership interest had been created.

Accordingly, there was no evidence to trigger Rule 3129.1(b)(4)'s

notification requirement.

          2.   Notice sent to Graves

          At the June 9 bankruptcy hearing Graves testified she

was unaware of the sheriff's sale until October 8, the day after

the sale took place.   At the same hearing Fleet's Assistant

Branch President, Thompson, testified that Fleet had sent several

letters to Thomas and Duane Bacon at the house notifying them of
the sale, and that a Fleet employee had attempted to contact

Graves by telephone prior to the sheriff's sale.   The bankruptcy

court found Graves was not notified of the sale, stating,

"[h]aving observed the Debtor, we find her credibility outweighs

the hearsay statements contained in Fleet's records to the

contrary." 142 B.R. at 121.

          Were this the full extent of the evidence presented to

the bankruptcy court we might agree with its finding because our

review of factual findings is limited to clear error, In re

Brown, 951 F.2d 564, 567 (3d Cir. 1991), and we give deference to

the trial court's determination of credibility.    But the record

also contained a return of service signed by a Philadelphia

deputy sheriff which stated that notice of the sheriff's sale was

posted at 6133 Nassau St. on September 6, 1991, one month before

the sale took place.16   In the face of objective evidence that

notice was conspicuously posted at the house we believe the

bankruptcy court erred in finding Graves never received notice.

Our conviction is buttressed by Graves claim that she was also

16
 .   In Pennsylvania a sheriff's return of service is conclusive
with respect to facts of which the sheriff has personal
knowledge. See Hollinger v. Hollinger, 206 A.2d 1, 2 (Pa. 1965);
Pennsylvania ex rel. McKinney v. McKinney, 381 A.2d 453 (Pa.
1977); Collins v. Park, 621 A.2d 996 (Pa. Super. Ct. 1993);
Miller v. Carr, 292 A.2d 423, 424 (Pa. Super. Ct. 1972). "The
rule . . . is based upon the presumption that a sheriff, acting
in the course of his official duties, acts with propriety and,
therefore, when the sheriff in the course of his official duties
makes a statement, by way of an official return, such statement
is given conclusive effect." Hollinger, 206 A.2d at 2. Although
federal courts need not apply the same rule, we recognize the
policy behind the rule and accordingly give weight to an
objective indication that process has been served.
unaware of the foreclosure action, despite a deputy sheriff's

return of service stating that a copy of the complaint was posted

at the house on March 16, 1991.    No evidence was presented that

either return of service was in any way irregular.   We are faced,

therefore, with two returns of service to the residence of the

same defendant that have the appearance of regularity.     Under

these circumstances, the record as a whole leaves us with the

firm conviction that the court erred in finding Graves did not

receive notice.17

          C. Bona Fide Purchaser

          Fleet contends its purchase of the property is valid,

even if the sale was conducted without regard to Graves'

interest, because it was a bona fide purchaser for value without

notice.   The bankruptcy court held that Fleet was not a bona fide

purchaser because Fleet was aware of Graves' interest when it

purchased the house at the sheriff's sale. 142 B.R. at 121.      In

Pennsylvania, a bona fide purchaser for value without notice

takes clear of any interest that was violated by the sale.     See

Phillips v. Stroup, 17 A. 220 (Pa. 1889); Schuchman v. Borough of
Homestead, 2 A. 407 (Pa. 1886).    Based largely on Thompson's

testimony, the bankruptcy court found Fleet had knowledge of

17
 . Fleet contends any lack of notice on Graves' part was    her
own fault because she failed to read notices Liberty sent   to
Thomas and Duane Bacon at the house. Thus, Fleet asks us    to hold
that Graves is estopped from claiming lack of notice as a
defense. Because we find Graves received notice of the
foreclosure action and the sheriff's sale we do not reach    this
issue.
Graves' interest in the property,18 and Fleet's knowledge

prevented it from being a bona fide purchaser. 142 B.R. at 121.

          The district court affirmed on somewhat different

grounds finding that Fleet was put on constructive notice of

Graves' interest when a Fleet employee contacted Graves by

telephone on June 25, 1991. 156 B.R. at 957.   Thus, the district

court concluded Fleet was required "to investigate whether the

possessor claimed to have any legal or equitable interest in the

property." Id.    On appeal, Fleet argues the district court should

have either accepted its contention that there was a conversation

between Fleet and Graves (and conclude Graves had notice of the

sale), or accept Graves' argument that no such conversation took

place (and conclude Fleet did not have knowledge of Graves'

possession and interest).   We disagree.

          We have already held that Graves had notice of the

sale, but Graves notice does not affect Fleet's status as a bona

fide purchaser.   Under Pennsylvania law actual or constructive

knowledge of an unrecorded deed defeats a subsequent claimant's

interest. See Long John Silver's, Inc. v. Fiore, 386 A.2d 569,

573 (Pa. Super. Ct. 1978) ("to qualify as a bona fide purchaser,

the subsequent buyer must be without notice of the prior

equitable estate)(citation omitted); Overly v. Hixson, 82 A.2d
573, 574 (Pa. Super. Ct. 1951); see also United States v.

18
 . During her testimony Thompson "described records of contacts
of Fleet with the Debtor and Duane in June, 1991 which made Fleet
aware that Thomas was deceased and that Debtor claimed to be one
of his heirs." 142 B.R. at 118.
Purcell, 798 F. Supp. 1102, 1116 (E.D. Pa. 1991), aff'd 972 F.2d
1334 (3d Cir. 1992).

            Fleet was aware that someone other than Duane Bacon had

an interest in the property as early as 1988 when he applied

individually for a mortgage on his half interest in the house.

Thompson testified before the bankruptcy court that "[Fleet] knew

at the time of the loan that [Thomas Bacon] was deceased."

Therefore, the bankruptcy court's finding that Fleet had

knowledge of Graves' interest was not clearly erroneous.

Further, because Fleet knew Thomas was deceased and that the

property was jointly held,     we believe that when Fleet purchased

the property it had knowledge that someone owned the other

interest.19

            Yet Fleet claims it is a bona fide purchaser, despite

its knowledge of Graves' interest, because knowledge of a

contrary interest only requires a prospective purchaser to

investigate the purported ownership interest, which they did.    We

disagree.     When a purchaser buys real property with knowledge of

19
 . Thompson testified she did not know the extent to which any
investigation was done to determine who inherited Thomas Bacon's
interest. In response to the bankruptcy court's inquiry about
what steps were taken to find the holder of Thomas' interest,
Thompson replied:
          Well, honestly, your Honor, I really don't
          know. I'm assuming that they go their
          standard questions [sic] that we ask about
          other names that appear on the title search.
          If they're deceased, we say are there any
          relatives, and if the party says no, then we
          proceed. And if the party says, yes, then we
          ask them to co-sign. We'll find out to the
          extent [i]f that's true or not.
an unrecorded interest, the purchaser's interest is subject to

that of the unrecorded interest holder. See, e.g., Long John

Silver's, 386 A.2d at 572-73; Purcell, 798 F. Supp. at 1116-17.

For example, in Long John Silver's, when two purchasers had

actual notice of an unrecorded equity interest in a piece of

property, the court held the equity interest was superior to that

of the subsequent purchasers. 386 A.2d at 572-73.   The Superior

Court explained, "[i]f the subsequent purchaser has notice of the

first agreement of sale or deed, he has no protection as a bona

fide purchaser and his title is subject to the interest vested in

the first purchaser." Id. at 573.

          The Pennsylvania Supreme Court has stated "a

fundamental rule in construing recording laws generally [is] that

actual notice of an unrecorded instrument, if received by a

subsequent lienor before his interest attaches, is equivalent to

the constructive notice which recording provides." Purcell, 798
F. Supp. at 1117 (quoting In re 250 Bell Road, 388 A.2d 297, 299-

300 n.1 (Pa. 1978)).   Because a purchaser's knowledge of the

unrecorded interest subordinates the purchaser's interest to that

of the unrecorded interest holder, Fleet's knowledge of an

outstanding unrecorded ownership interest prevents it from being

a bona fide purchaser.   Consequently, we believe the sale was

voidable.20

20
 . Fleet argued the bankruptcy court erred by sua sponte
raising the issue whether Fleet was a bona fide purchaser. Fleet
claims a bankruptcy court can only raise certain issues sua
sponte. We find no merit in this position. Determining whether
or not to allow a claim against the property of the estate is a
                              III.

          For the foregoing reasons, we will affirm the order of

the bankruptcy court denying relief from the automatic stay.

(..continued)
core proceeding expressly assigned to the bankruptcy court. See
11 U.S.C. § 157(b)(2)(B).