Court Opinion

ID: 3164417
Source: CourtListenerOpinion
Date Created: 2015-12-21 21:00:31.186588+00
Date Added: 2024-06-11T12:01:25.413471
License: Public Domain

NOT PRECEDENTIAL

  UNITED STATES COURT OF APPEALS
       FOR THE THIRD CIRCUIT
            _____________

                No. 14-3704
               _____________

* KIM POTOCZNY, as Executrix of the Estate
       of Emil William Potoczny, Jr.,
                          Appellant

                      v.

       AURORA LOAN SERVICES;
         AURORA BANK FSB;
     PHELAN HALLINAN & SCHMIEG

              *Pursuant to 43 (c)

               _____________

                No. 15-1769
               _____________

 KIM POTOCZNY, as Executrix of the Estate
       of Emil William Potoczny, Jr.,
                           Appellant

                      v.

       NATIONSTAR MORTGAGE;
     PHELAN HALLINAN & SCHMIEG
            _____________

 Appeal from the United States District Court
    for the Eastern District of Pennsylvania
      (Nos. 2:12-cv-01251, 2:13-cv-03848)
District Judge: Honorable Mary A. McLaughlin

Submitted Pursuant to Third Circuit LAR 34.1(a)
              December 11, 2015
         Before: FUENTES, CHAGARES and GREENBERG, Circuit Judges.

                               (Filed: December 21, 2015)
                                      ____________

                                        OPINION*
                                      ____________

CHAGARES, Circuit Judge.

       Plaintiff Kim Potoczny1 appeals the District Court’s denial of her motion for

summary judgment, and the District Court’s grant of defendant Aurora Loan Services’s

(“ALS”) and Aurora Bank FSB’s (collectively, “Aurora”), Nationstar Mortgage’s

(“Nationstar”), and Phelan Hallinan & Schmieg’s (“PHS”) cross-motions for summary

judgment. The consolidated cases before us present two primary issues: (1) whether

Aurora and Nationstar, as holders of an indorsed-in-blank promissory note, violated

certain debt collection statutes by seeking foreclosure on the mortgage securing that note;

and (2) whether Aurora and Nationstar improperly charged escrow payments from

Potoczny. For the reasons that follow, we will affirm the District Court’s orders.

                                             I.

       We write solely for the parties and therefore recite only the facts necessary to our

disposition. In 2006, Emil W. Potoczny, Jr. executed a $100,000 promissory note to

Home Loan Center d/b/a LendingTree (“LendingTree”), which was secured by a

*
 This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
1
 Appellant Kim Potoczny is acting as executrix of the estate of Emil W. Potoczny, Jr.,
and was substituted in his place in the District Court actions and the instant appeals. We
will refer to Kim Potoczny and Emil W. Potoczny, Jr. as “Potoczny” interchangeably.
                                             2
residential mortgage. Under the terms of the mortgage agreement, LendingTree was the

originating mortgage lender, and Mortgage Electronic Registration Systems, Inc.

(“MERS”) was to act as their nominee. LendingTree also agreed to waive collection of

escrow for property taxes and insurance premiums. However, the mortgage agreement

provided that, at any time, the lender could unilaterally revoke the escrow waiver by

providing written notice to Potoczny. With escrow payments waived, Potoczny’s

monthly payments were approximately $717.00, which included his contractual principal

and interest payments.

       Shortly thereafter, a series of changes were made regarding the servicing of the

loan, possession of the note, and assignment of the mortgage. First, in 2006,

LendingTree transferred servicing of the loan to ALS, who then transferred servicing to

Nationstar in 2012. Second, there were multiple changes in the possession of the note

between 2006 and 2010. After the note was indorsed to Lehman Brothers Bank, FSB,

and then Lehman Brothers Holdings Inc., it was indorsed in blank. By December 2010,

Aurora had possession of the indorsed-in-blank note. Nationstar had possession by July

2012. Third, a series of transactions purported to assign the mortgage. In 2011, MERS,

acting as the lender’s nominee, assigned the mortgage to ALS. And in 2012, ALS

assigned the mortgage to Nationstar. Potoczny disputes the validity of these assignments.

       Significantly, in October 2009, Potoczny agreed to and executed a temporary

Home Affordable Modification Trial Period Plan (the “Trial Plan”), which would have

modified his mortgage if Aurora (who was identified in the Trial Plan as the “Lender or

Servicer”) were to execute the Trial Plan during the trial period. The Trial Plan explicitly

                                             3
provided that it “constitutes notice that the Lender’s waiver as to payment of Escrow

Items, if any, has been revoked and [Potoczny] ha[s] been advised of the amount needed

to fund [his] escrow account, and [Potoczny] agree[s] to the establishment of an escrow

account.” App. 168. Potoczny began making escrow payments, increasing his monthly

payments to approximately $837 — the amount identified and required under the Trial

Plan. Aurora, however, did not return a fully executed copy during the trial period, and

the Trial Plan expired in 2010. After the expiration of the Trial Plan, Potoczny again

began making monthly payments of approximately $717.2

       By early 2011, Potoczny was in default. On November 23, 2011, Aurora

commenced foreclosure proceedings in Pennsylvania state court. Potoczny then filed the

instant federal court actions. In the first action (the “Aurora Action”), Potoczny alleges

that Aurora and PHS, as Aurora’s counsel, violated the federal Fair Debt Collection

Practices Act, 15 U.S.C. §§ 1692-1692p (the “FDCPA”), Pennsylvania Fair Credit

Extension Uniformity Act, 73 Pa. Cons. Stat. §§ 2270.1–2270.6 (the “FCEUA”),

Pennsylvania's Unfair Trade Practices and Consumer Protection Law, 73 Pa. Cons. Stat.

§§ 201-1 to 201-9.3 (the “UTPCPL”), and committed breach of contract under

Pennsylvania common law. In the second action (the “Nationstar Action”), Potoczny

makes analogous allegations under the FDCPA, the FCEUA, and the UTPCPL against

Aurora’s successor, Nationstar.

2
  A November 2009 escrow account statement, however, listed the monthly payment due,
including escrow, as approximately $1,416.19. There is no indication that Potoczny ever
paid that amount, but at least one statement (after Potoczny had defaulted) sought
$1,416.19. See Potoczny v. Aurora Loan Servs., LLC, 33 F. Supp. 3d 554, 567 n.21
(E.D. Pa. 2014).
                                             4
       The District Court denied Potoczny’s motion for summary judgment, and granted

the defendants’ cross-motions for summary judgment. Potoczny timely appealed.

                                             II.

       The District Court had jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1367(a),

and we have jurisdiction pursuant to 28 U.S.C. § 1291 to review a final decision of a

district court. We review a district court’s grant of summary judgment de novo. See

McMaster v. E. Armored Servs., 780 F.3d 167, 169 n.2 (3d Cir. 2015). Summary

judgment is appropriate “if, drawing all reasonable inferences in favor of the nonmoving

party, there is no genuine issue as to any material fact and the moving party is entitled to

judgment as a matter of law.” Young v. Martin, 801 F.3d 172, 177 (3d Cir. 2015)

(quotation marks and alteration marks omitted); see also Fed. R. Civ. P. 56(a).

                                             III.

                                             A.

       Under the FDCPA, “[a] debt collector may not use any false, deceptive, or

misleading representation or means in connection with the collection of any debt.” 15

U.S.C. § 1692e. Potoczny argues that the defendants violated this section of the FDCPA

when they sought to foreclose on a debt they “did not own.” Potoczny Br. 3. We hold,

as did the District Court, that by virtue of their possession of the indorsed-in-blank

promissory note, Aurora and Nationstar were entitled to enforce the note and initiate

foreclosure proceedings. Therefore, the District Court properly granted summary

judgment.

                                              5
       Under Pennsylvania’s Uniform Commercial Code (“PUCC”), a “[p]erson entitled

to enforce” an instrument includes the holder of the instrument, a nonholder in possession

of the instrument who has the rights of a holder, or even a person who is “not the owner

of the instrument or is in wrongful possession of the instrument.” 13 Pa. Cons. Stat. §

3301. Pennsylvania courts have routinely held that a note securing a mortgage is a

negotiable instrument under PUCC, and when indorsed in blank, is enforceable by its

possessor. See J.P. Morgan Chase Bank v. Murray, 63 A.3d 1258, 1266 (Pa. Super. Ct.

2013) (“[W]e conclude that the Note secured by the Mortgage in the instant case is a

negotiable instrument under the PUCC. As such we find [the defendant’s] challenges to

the chain of possession by which [plaintiff] came to hold the Note immaterial to its

enforceability.”). See also In re Walker, 466 B.R. 271, 281-86 (Bankr. E.D. Pa. 2012)

(holding that, where trustee had possession of an indorsed-in-blank note, trustee had right

to enforce note).

       Similarly here, prior to initiating foreclosure proceedings, Aurora and Nationstar

had possession of the indorsed-in-blank promissory note, and thus they were entitled to

enforce the note. And as they were entitled to enforce the note, Aurora and Nationstar

were entitled to seek foreclosure. See, e.g., United States Bank, N.A. v. Pautenis, 118

A.3d 386, 393 n.8 (Pa. Super. Ct. 2015) (“Pursuant to our holding in [Murray], if the

purported mortgagee establishes that it holds the original note, indorsed to it or in blank,

it is entitled to enforce the note even in the face of questions regarding the chain of

possession. If the purported mortgagee is unable to establish that it is the holder of the

note or that the note is indorsed to it or in blank, the purported mortgagee may be

                                              6
required to provide proof of the chain of possession to be entitled to proceed in the

foreclosure action.”).

       It is immaterial whether there were defects in the assignment of the mortgage from

MERS to Aurora. First, Aurora was the holder of the indorsed-in-blank note, and thus

was entitled to enforce it in foreclosure proceedings even if there were defects in the

chain of assignment. See, e.g., Murray, 63 A.3d at 1267 (“Should Appellee successfully

establish that it holds the original Note, and that it is indorsed in blank, under the UCC it

will be entitled to enforce the Note . . . even if there remain questions as to the chain of

possession of the Note.”). Second, as the District Court noted, “[b]ecause any payments

made to the holder of the note will discharge a debtor’s liability under the note,

[Potoczny] cannot be harmed by paying the holder, even if the holder failed to comply

with certain transfer requirements.” Aurora Loan Servs., LLC, 33 F. Supp. 3d at 566

n.18. See also In re Walker, 466 B.R. at 285 (“If a borrower cannot demonstrate

potential injury from the enforcement of the note and mortgage by a party acting under a

defective assignment, the borrower lacks standing to raise the issue.”).

       Finally, it is worth noting that the language in the servicing agreement supports

affirmance. Potoczny maintains that Aurora and Nationstar were merely servicers of the

loan, and could, at most, act as an agent or designated custodian of the securitization

trustee. Yet, the servicing agreement explicitly provides that:

       each Servicer     shall have full power and authority . . . to do any and all
       things that it    may deem necessary or desirable in connection with the
       servicing and      administration of the Mortgage Loans, included but not
       limited to the    power and authority . . . to effectuate foreclosure or other

                                               7
       conversion of the ownership of the Mortgaged Property securing any
       Mortgage Loan.

App. 115. See also Potoczny v. Nationstar Mortgage, LLC, 2015 WL 787699, at *2

(E.D. Pa. Feb. 25, 2015). Thus, even the terms of the servicing agreement provide that

the loan servicers could effectuate foreclosure.

                                             B.

       Under the FDCPA, a debt collector is prohibited from using “unfair or

unconscionable means” to collect or attempt to collect any debt, including “[t]he

collection of any amount (including any interest, fee, charge, or expense incidental to the

principal obligation) unless such amount is expressly authorized by the agreement

creating the debt or permitted by law.” 15 U.S.C. § 1692f(1). Potoczny alleges that

Aurora and PHS violated 15 U.S.C. § 1692f(1) by attempting to collect escrow fees

because: (1) the escrow waiver had not been revoked, and (2) even if the waiver had

been revoked, the $1,416.19 payment sought was greater than the $837.27 payment

identified in the Trial Plan.

       We hold, as did the District Court, that the escrow waiver had been revoked by

late 2009. Potoczny received notice — by the signed Trial Plan and the 2009 escrow

account statement — that Aurora intended to collect escrow payments. Further, Potoczny

has not provided evidence that the $1,416 escrow payment was unauthorized or

excessive, except for noting that it was a higher amount than that charged pursuant to the

Trial Plan. However, the 2009 escrow amount statement indicated that with escrow

payments, Potoczny’s monthly payment would be $1,416.19. See Aurora Loan Servs.,

                                             8
LLC, 33 F. Supp. 3d at 567 n.21. Thus, we agree with the District Court that the grant of

summary judgment was appropriate regarding Potoczny’s claims alleging unauthorized

and excessive escrow charges.3

                                           IV.

      For the foregoing reasons, we will affirm the District Court’s orders denying

Potoczny’s motion for summary judgment, and granting defendants Aurora’s,

Nationstar’s, and PHS’s cross-motions for summary judgment.

3
  Our reasoning also applies to Potoczny’s Pennsylvania state law claims, which are
analogous to or derivative of the FDCPA claims here, see Aurora Loan Servs., LLC, 33
F. Supp. 3d at 568, and, accordingly, we will affirm the District Court’s dismissal of
those claims as well.
                                            9