M6 Realty LLC, a New Jersey Ltd. Liability Co. v. Com. of PA ( 2021 )

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
M6 Realty LLC, a New Jersey Limited :
Liability Company, :
Petitioner :
:
v. :
:
Commonwealth of Pennsylvania, : No. 797 F.R. 2017Respondent : Submitted: June 10, 2021
BEFORE: HONORABLE PATRICIA A. McCULLOUGH, Judge
HONORABLE ANNE E. COVEY, Judge
HONORABLE CHRISTINE FIZZANO CANNON, Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY
JUDGE COVEY FILED: August 4, 2021
M6 Realty LLC (Petitioner) petitions this Court for review of the Board
of Finance and Revenue’s (Board) August 23, 2017 order denying Petitioner’s
request for relief from the Pennsylvania Department of Revenue’s (Revenue) realty
transfer tax assessment. Petitioner presents two issues for this Court’s review: (1)
whether the subject real estate transaction is exempt from the real estate transfer tax
imposed under Sections 1102-C - 1114-C of the Tax Reform Code of 1971,
commonly referred to as the Realty Transfer Tax Act (Act)1 (Transfer Tax); and (2)
whether equity requires that the subject transaction was exempt from the Transfer
Tax. After review, we affirm.
1
Act of March 4, 1971, P.L. 6, as amended, added by Section 4 of the Act of May 5, 1981,
P.L. 36, 72 P.S. §§ 8101-C - 8114-C.
Facts
Pursuant to Pennsylvania Rule of Appellate Procedure (Rule) 1571(f),
Petitioner and the Commonwealth of Pennsylvania (Commonwealth) filed a joint
Stipulation of Facts (Stipulation) with this Court.2 According to the Stipulation, the
instant matter involves a dispute between Petitioner and the Commonwealth over a
Transfer Tax assessed on a deed (Deed) from Robert E. Bodkin, III and Rebecca
Bodkin, husband and wife (collectively, Bodkins), to Petitioner, conveying title to
real estate commonly known as 928 Lawn Avenue, West Rockhill Township, Bucks
County, Pennsylvania (Property). See Stip. ¶2.
On July 31, 2015, First Savings Bank of Perkasie executed two
mortgage assignments for mortgages encumbering the Property (Mortgages) to Tuna
Management, LLC (TM). See Stip. ¶3. Thereafter, Petitioner agreed to accept the
Deed as payment in full for the Mortgages, as reflected in an undated document titled
“Deed in Lieu Agreement,”3 and, accordingly, the Deed was executed and
2
A review of determinations of the Board is governed by [Rule] 1571.
Although this Court hears such cases in its appellate jurisdiction, it
functions essentially as a trial court. Therefore, this Court must
consider a record made by the parties specifically for the Court
rather than one certified to the Court from the proceedings below.
Armco, Inc. v. Commonwealth, 654 A.2d 1191, 1192 (Pa. Cmwlth. 1993) (citation omitted). Rule
1571(f) mandates that the parties “prepare and file a stipulation of such facts as may be agreed to
. . . .” Pa.R.A.P. 1571(f). “The facts stipulated by the parties are binding and conclusive and
should be regarded as this Court’s findings of fact.” Quest Diagnostics Venture, LLC v.
Commonwealth, 119 A.3d 406, 410 n.4 (Pa. Cmwlth. 2015), aff’d, 148 A.3d 448 (Pa. 2016).
“‘However, this Court may draw its own legal conclusions.’” Am. Elec. Power Serv. Corp. v.
Commonwealth, 184 A.3d 1031, 1034 n.7 (Pa. Cmwlth.), aff’d, 199 A.3d 880 (Pa. 2018) (quoting
Kelleher v. Commonwealth, 704 A.2d 729, 731 (Pa. Cmwlth. 1997)). The parties declared in the
Stipulation: “[N]o evidence of [] facts other than in this Stipulation need be adduced in this matter.”
Stip. at 1.
3
The undated Deed in Lieu Agreement is purportedly signed by Robert E. Bodkin, III
(Bodkin) and Dr. Michael Malka (Malka), identified therein as Petitioner’s Managing Member.
It is accompanied by what appears to be a signed and undated acknowledgment notarized by a
New Jersey commissioned notary public. The Bodkin acknowledgment identifies “County of
2
acknowledged on September 3, 2015.4 See Stip. ¶¶4-5. On September 8, 2015, TM
executed two mortgage assignments, assigning the Mortgages to Petitioner.5 See
Stip. ¶6.
On November 5, 2015, Petitioner recorded the mortgage assignments
from First Savings Bank of Perkasie to TM; the Assignments of Mortgage from TM
to Petitioner; and the Deed (collectively, the Documents) with the Bucks County
Recorder of Deeds (Recorder). See Stip. ¶7. No Transfer Tax was paid at that time.
On September 9, 2016, Revenue’s Bureau of Individual Taxes issued Notice of
Assessment No. 2016-2910-09 for Transfer Tax due under Section 1102-C of the
Act, 72 P.S. § 8102-C, in the principal amount of $14,117.52, plus interest and fees.
See Stip. ¶8. On September 30, 2016, Petitioner appealed to Revenue’s Board of
Appeals, but the appeal was denied. On April 20, 2017, Petitioner filed an appeal
Bucks[,]” “Commonwealth of Pennsylvania” as the jurisdiction in which the acknowledgment was
taken. Stip. Ex. F at 10. The Malka acknowledgment identifies its jurisdiction as “Commonwealth
of Pennsylvania,” but omits the county. Id. The Commonwealth contends that because the Deed
in Lieu Agreement is undated and contains faulty acknowledgments, it does not comply with New
Jersey law.
4
The Deed, titled “Deed in Lieu of Foreclosure,” recites consideration of $10.00, but
makes no reference to the release from the mortgage obligations or a foreclosure. Stip. Ex.
A. Specifically, the Deed states:
[S]aid Grantor for and in consideration of the sum of Ten Dollars
00/100 ($10.00) lawful money of the United States of America, unto
it well and truly paid by the said Grantee, at or before the sealing
and delivery hereof, the receipt whereof is hereby acknowledged,
has granted, bargained and sold, released and confirmed, and by
these presents does grant, bargain and sell, release and confirm unto
the said Grantee, as sole owner Street Address: 928 Lawn Avenue,
Sellersville, PA[.]
Id. The signed acknowledgment is notarized and is also dated September 3, 2015.
5
The mortgage assignments are signed by Malka, identified therein as TM’s Managing
Member. Although Malka is identified as both TM’s and Petitioner’s Managing Member, there is
no record evidence demonstrating that TM and Petitioner are related.
3
with the Board, which the Board denied on August 23, 2017. Petitioner appealed to
this Court.
Discussion
1. Briefing Defects
The Commonwealth argues that Petitioner’s appeal should be
dismissed because its brief fails to comply with the Rules. Specifically, the
Commonwealth contends that, although Petitioner is represented by counsel,
Petitioner’s brief contains substantial defects, including: missing Statement of Scope
and Standard of Review, missing Tables of Contents and Citations, missing
Stipulation citations, references to facts not included in the Stipulation,6 and
6
The Commonwealth states, in pertinent part:
[Petitioner] also includes several facts not in evidence in its
Statement of the Case, including:
A. There is no evidence in the record as to who owns [TM].
Furthermore, it is irrelevant who the principles [sic] are of
the various business entities, because pursuant to the [Act]
“corporations and associations are entities separate from
their members, partners, stockholders or shareholders.”
[Petitioner Br. at] 8; [Section 1102-C.4 of the Act, 72 P.S. §
8102-C.4].
B. There is no evidence in the record that there were
negotiations between [Petitioner] and the Bodkins, and even
if true[, this] does not help [Petitioner] prove its claims. Id.
C. The recording order of the [D]ocuments is shown by the
time stamps on the [D]ocuments themselves, in
contradiction to [Petitioner’s] statement that “[t]he
Documents were recorded in order.” [Petitioner Br. at] 8;
[Stip.] [Exs.] A, D-E, G-H.
D. There is no evidence in the record to support Petitioner’s
statement that “[n]o [Transfer Tax] was assessed at the time
of recording because the transfer of title via [D]eed in [L]ieu
of [F]oreclosure is an otherwise exempt transaction.”
[Petitioner Br. at 8].
4
improper and insufficient citation to authorities. Accordingly, the Commonwealth
asserts that Petitioner has waived all issues because it failed to properly develop any
issue for this Court’s review.
This Court recognizes that “[t]he [Rules] set forth the fundamental
requirements every appellate brief must meet.” Commonwealth v. Perez, 93 A.3d
829, 837 (Pa. 2014). In particular, Rule 2111(a) states:
General rule.-- The brief of the appellant, except as
otherwise prescribed by these rules, shall consist of the
following matters, separately and distinctly entitled and in
the following order:
(1) Statement of jurisdiction.
(2) Order or other determination in question.
(3) Statement of both the scope of review and the standard
of review.
(4) Statement of the questions involved.
(5) Statement of the case.
(6) Summary of argument.
....
(8) Argument for appellant.
(9) A short conclusion stating the precise relief sought.
(10) The opinions and pleadings specified in paragraphs
(b) and (c) of this rule.
....
(12) The certificates of compliance required by [Rules]
127 and 2135(d).
Commonwealth Br. at 10-11 (footnotes omitted).
5
Pa.R.A.P. 2111(a).
Rule 2119 specifies, in relevant part:
(a) General rule. The argument shall be divided into as
many parts as there are questions to be argued; and shall
have at the head of each part--in distinctive type or in type
distinctively displayed--the particular point treated
therein, followed by such discussion and citation of
authorities as are deemed pertinent.
(b) Citations of authorities. Citations of authorities in
briefs shall be in accordance with [Rule] 126 governing
citations of authorities.
(c) Reference to record. If reference is made to the
pleadings, evidence, charge, opinion or order, or any other
matter appearing in the record, the argument must set
forth, in immediate connection therewith, or in a footnote
thereto, a reference to the place in the record where the
matter referred to appears (see [Rule] 2132).
Pa.R.A.P. 2119.
With respect to tables of contents and citations, Rule 2174 requires, in
pertinent part:
(a) Tables of contents. The briefs and the reproduced
record shall each contain a full and complete table of
contents, set forth either on the inside of the front cover or
on the first and immediately succeeding pages. . . .
(b) Tables of citations. All briefs shall contain a table of
citations therein, arranged alphabetically, which shall be
set forth immediately following the table of contents.
Pa.R.A.P. 2174.
Further, Rule 2101 mandates:
Briefs . . . shall conform in all material respects with the
requirements of these rules as nearly as the circumstances
of the particular case will admit, otherwise they may be
suppressed, and, if the defects are in the brief . . . of the
6
appellant and are substantial, the appeal or other
matter may be quashed or dismissed.
Pa.R.A.P. 2101 (emphasis added).
However,
[w]hile an appeal may be dismissed or quashed when a
defect in a brief is “substantial,” Pa.R.A.P. 2101, we may
ignore even “egregious violations” of the [Rules] if these
defects do not preclude meaningful appellate review.
Richardson v. P[a.] Ins[.] Dep[’t], 54 A.3d 420, 426 (Pa.
Cmwlth. 2012) (quoting Seltzer v. Dep[’]t of Educ[.], 782
A.2d 48, 53 (Pa. Cmwlth. 2001)). Our Supreme Court has
cautioned that the “extreme action of dismissal should be
imposed by an appellate court sparingly, and clearly would
be inappropriate when there has been substantial
compliance with the [R]ules and when the moving party
has suffered no prejudice.” Stout v. Universal
Underwriters Ins[.] Co., . . . 421 A.2d 1047, 1049 ([Pa.]
1980); see also Giovagnoli v. State Civ[.] Serv[.]
Comm[’n] (Monroe C[nty.] Child[.] [&] Youth
Serv[s.]), . . . 868 A.2d 393, 399 ([Pa.] 2005).
Arnold v. Workers’ Comp. Appeal Bd. (Lacour Painting, Inc.), 110 A.3d 1063, 1067-
68 (Pa. Cmwlth. 2015).
Here, although Petitioner did not include a Statement of Scope and
Standard of Review, Table of Contents or Table of Citations, and failed to include
correct citation to legal authority and the record in the Argument portion of its brief,
this Court is able to conduct a meaningful review because Petitioner’s position can
be deciphered, and such failures did not prejudice the Commonwealth, which was
able to respond to Petitioner’s arguments. Accordingly, this Court declines to
dismiss Petitioner’s appeal based solely on these briefing defects.7
Notwithstanding, this Court expresses its dismay at Petitioner’s woefully deficient brief,
7
and emphasizes counsel’s obligation to adhere to the Rules.
7
2. Transfer Tax Applicability
Petitioner argues that, when it recorded the Deed on November 5, 2016,
the Recorder properly imposed no Transfer Tax. It contends that the Transfer Tax
is assessed at the time of recording and, on that date, Petitioner was a holder of a
mortgage in default, and a transfer under those circumstances is a Transfer Tax-
exempt transaction.
Initially, Section 1102-C of the Act imposes a tax equal to 1% of the
value of the property on “[e]very person who makes, executes, delivers, accepts
or presents for recording any document or in whose behalf any document is made,
executed, delivered, accepted or presented for recording,” and requires that the tax
“shall be payable at the earlier of the time the document is presented for
recording or within [30] days of acceptance of such document or within [30] days
of becoming an acquired company.” 72 P.S. § 8102-C (bold and underline emphasis
added). Section 1102-C.3(16) of the Act excludes from imposition of the Transfer
Tax
[a] transfer by a mortgagor to the holder of a bona fide
mortgage in default in lieu of a foreclosure or a transfer
pursuant to a judicial sale in which the successful bidder
is the bona fide holder of a mortgage, unless the holder
assigns the bid to another person.
72 P.S. § 8102-C.3(16).
In support of its argument that the Transfer Tax is assessed at the time
of recording, Petitioner cites Comach Construction, Inc. v. City of Allentown, 633
A.2d 1336 (Pa. Cmwlth. 1993), wherein this Court held that “the event that triggers
the tax is the recording of the deed.” Id. at 1338. The Comach Court considered
whether imposition of the Transfer Tax and a local business privilege tax constituted
an unconstitutional double taxation. The Comach Court determined that “the subject
matter of the business privilege tax is the privilege of conducting a business in the
8
City of Allentown[,]” while “[t]he subject matter of the [Transfer Tax] is the
recording of a deed.” Id. Thus, the Comach Court concluded that imposition of both
taxes did not constitute double taxation. However, the Court did not explicitly
address when the Transfer Tax in Section 1102-C of the Act is to be assessed.
This Court has repeatedly held that “[t]he [Transfer Tax] is a tax upon
the transaction, the transfer of title to real estate as evidenced by a document that
is presented to be recorded.” Exton Plaza Assocs. v. Commonwealth, 763 A.2d 521,
523 (Pa. Cmwlth. 2000) (bold and italic emphasis added); see also Kline v.
Commonwealth, 899 A.2d 408 (Pa. Cmwlth. 2006), aff’d, 930 A.2d 1263 (Pa. 2007);
Lester Assocs. v. Commonwealth, 816 A.2d 394 (Pa. Cmwlth. 2003). “The Act
imposes a single tax on the transaction with liability for the full amount of the
payment on both parties[.]” Wilson Partners, L.P. v. Commonwealth, 723 A.2d
1079, 1082 (Pa. Cmwlth. 1999) (emphasis added). Because it is the transaction -
“the transfer of title to real estate” - that is taxed, it is the transaction’s nature at the
time the transfer occurs that determines whether the transaction is taxable. Exton,
763 A.2d at 523. This ruling is consistent with Section 1102-C.3(16) of the Act’s
Transfer Tax exception for “[a] transfer by a mortgagor to the holder of a bona
fide mortgage in default in lieu of a foreclosure . . . .” 72 P.S. § 8102-C.3(16)
(emphasis added). Accordingly, in the instant case, the exception applies if, when
the transfer of the Property to Petitioner occurred, Petitioner was “the holder of a
bona fide mortgage in default in lieu of a foreclosure[,]” id., and if Petitioner
“evidenced [such] by [the] document[s] that [were] presented to be recorded.”8
Exton, 763 A.2d at 523.
8
The Pennsylvania Supreme Court has
consistently held a “failure to record [documents demonstrating a
conveyance is] not dispositive of whether [the documents]
effectuated a valid conveyance.” In re Estate of Plance, . . . 175
A.3d 249, 266 ([Pa.] 2017); see also[] Morris v. Ziegler, 71 Pa. 450,
9
The Commonwealth contends that Petitioner failed to prove it was the
holder of a bona fide mortgage at the time the Property was transferred or that the
mortgage was in default at the time of the transfer. The record reflects that on
September 3, 2015, when the Deed to Petitioner was executed and acknowledged,
the Mortgages were held by TM. Five days thereafter, TM executed two mortgage
assignments, assigning the Mortgages to Petitioner.9 Thus, Petitioner was not “the
holder of a bona fide mortgage in default in lieu of a foreclosure” on September 3,
2015, when the Property was transferred.10 Section 1102-C.3(16) of the Act, 72 P.S.
§ 8102-C.3(16). Accordingly, the Act’s Transfer Tax exception does not apply.11
453 . . . ([]1872) (finding transfer was ineffective as consequence of
bad faith [fraud] and “not for simply not recording her deed, which
in law she was not bound to do”) (emphasis added); Appeal of Nice,
54 Pa. 200, 201 . . . ([]1867) (“it has been held that an unrecorded
mortgage is not wholly inoperative. It will avail against the
mortgagor himself, or his alienee or mortgagee with notice . . .”).
MERSCORP, Inc. v. Del. Cnty., 207 A.3d 855, 867 (Pa. 2019) (underline emphasis added).
9
Although Malka was purportedly involved in both TM and Petitioner, they are different
entities. Section 1102-C.4 of the Act states, in relevant part: “For the purposes of this article,
corporations and associations are entities separate from their members, partners, stockholders or
shareholders.” 72 P.S. § 8102-C.4. Thus, the July 31, 2015 assignment of the Mortgages to TM
was not an assignment to Petitioner.
10
The Dissent claims that “[t]here is nothing in section [1]102-C.3(16) which indicates that
it was meant to define the exact ‘sequence’ of events to trigger the exclusion for transactions
completed via deeds in lieu of foreclosure.” M6 Realty LLC v. Commonwealth (Pa. Cmwlth. No.
797 F.R. 2017, filed August 4, 2021) (McCullough, J., dissenting) (Dissent), slip op. at 3. The
language of Section 1102-C.3(16) itself mandates the very meaning the Dissent disputes. That
section exempts “[a] transfer by a mortgagor to the holder of a bona fide mortgage in default in
lieu of a foreclosure . . . .” 72 P.S. § 8102-C.3(16) (emphasis added). A transfer “to the holder
of a bona fide mortgage in default” means that the transfer be made to a recipient holding (at the
time of the transfer) a defaulted mortgage. Id.
11
The Dissent asserts that the Majority “ignores the true nature of the transaction,” and that
“[t]he Majority’s focus on the precise timing of the execution of the assignment in relation to the
Deed in Lieu of Foreclosure is misplaced.” Dissent, slip op. at 2. The Majority’s focus is not
misplaced since Petitioner argues in its brief only that “the tax is assessed at the time of recording”
and “at the time of the submission of the Deed in Lieu for recording . . . [Petitioner] was the holder
of the mortgage in default.” Petitioner Br. at 11. Petitioner makes no other argument apart
from its equity argument that because the Recorder did not charge the tax, it should not be
10
Petitioner next argues that this Court should reverse the imposition of
the Transfer Tax based on equitable principles. Claiming that the tax assessed
resulted from “mere clerical errors[,]” Petitioner argues that “had the Recorder’s
required to pay the tax. Thus, Petitioner’s brief contains no argument therein that the document
titled “Deed in Lieu of Foreclosure” is not a document under the Act, and provides no legal support
therefor. An undeveloped claim that is not explained factually nor supported by citations to law
is unreviewable and waived. See Commonwealth v. Knight, 241 A.3d 620 (Pa. 2020). Although
this Court may consider issues subsumed within a petitioner’s questions presented that are
later raised within a petitioner’s brief, the Court may not sua sponte address issues that were
not raised or discussed at all. See Safe Harbor Water Power Corp. v. Fajt, 876 A.2d 954 (Pa.
2005).
This Court notes that the Act applies to “document[s,]” 72 P.S. § 8102-C, and defines
“[d]ocument” as “[a]ny deed, instrument or writing which conveys, transfers, devises, vests,
confirms or evidences any transfer or devise” of an interest in real estate. Section 1101-C of the
Act, 72 P.S. § 8101-C. Excluded from the definition of “document” are “mortgages, deeds of trust
or other instruments of like character given as security for a debt and deeds of release thereof to
the debtor[.]” Id. (bold and underline emphasis added). Here, apart from its title, the Deed makes
no reference to the release from the mortgage obligations, and, by its own terms, “grant[s],
bargain[s] and sell[s], release[s] and confirm[s] unto the said Grantee, as sole owner Street
Address: 928 Lawn Avenue, Sellersville, PA[.]” Stip. Ex. A.
“The same principles that apply to the interpretation of a contract apply to the interpretation
of a deed.” Starling v. Lake Meade Prop. Owners Ass’n, Inc., 162 A.3d 327, 341 (Pa. 2017).
When interpreting a contract, the law is well established:
[W]hat a contract is styled or labeled by the parties does not
determine its character or their legal relationship, nor is the name
given a contract determinative in its construction. Although courts
may consider the title of a contract provision or section to interpret
a contract, the greater weight must be given to the operative
contractual clauses of the agreement. . . . [T]he proper construction
of a contract is not dependent upon any name given it by the parties,
but upon the entire body of the contract and its legal effect as a
whole. In the determination of the real character of a contract, courts
will always look to its purpose rather than to the name given it by
the parties[.]
17A Am. Jur. 2d Contracts § 372 (2021) (footnotes omitted). Given the Deed’s substantive
language, its title does not control. Further, although the Dissent notes that “[t]he Deed in Lieu of
Foreclosure from the Bodkins to Petitioner was executed pursuant to the Deed in Lieu Agreement,
which expressly made the deed subject to the mortgages[,]” the Deed in Lieu Agreement is undated
and defectively notarized. Dissent at 4. Again, because Petitioner did not raise the issue that
the Deed is not a document under the Act, that issue is waived. See Knight; Safe Harbor Water
Power Corp..
11
Office rejected the submission because no [T]ransfer [T]ax was presented, Petitioner
could have corrected the associated problem presented by the dates at issue in this
matter. Because the documents were recorded, Petitioner was not afforded the
benefit [a] rejection would have provided.”12 Petitioner Br. at 12-13. The
Commonwealth retorts: “There is nothing in the record to show that “mere clerical
errors” occurred. See [Stip.]. The Deed was executed and delivered five days before
the [M]ortgages were assigned to [Petitioner]. Five days is not a clerical error.”
Commonwealth Br. at 25.
The Act determines whether a Transfer Tax is to be assessed on a
transaction.13 A recorder of deeds’ duties are ministerial14 and, thus, the Recorder’s
failure to collect the Transfer Tax is not determinative of Petitioner’s Transfer Tax
liability. Here, based upon the record, the September 3, 2015 transfer was a taxable
transaction. There is no record evidence that the Recorder’s failure to collect the
Transfer Tax deprived Petitioner of any right. Simply put, the Property was
transferred to Petitioner on September 3, 2015. At that time, TM held the mortgages
to the Property, not Petitioner. Thus, Petitioner was not “the holder of a bona fide
12
It appears that Petitioner characterizes the Recorder’s acceptance of the documents
absent payment of the Transfer Tax as “mere clerical errors[.]” Petitioner Br. at 12.
13
This Court has explained:
Where . . . the parties’ rights are regulated and fixed by a
comprehensive statutory scheme, the maxim, “equity follows the
law,” is applicable. First Fed[.] Sav[.] & Loan Ass’n [of Lancaster]
v. Swift, . . . 321 A.2d 895 ([Pa.] 1974). . . . A court simply “cannot
devise a remedy which is inconsistent with existing legislation.”
Armstrong Sch[.] Dist[.] v. Armstrong Educ[.] Ass’n, . . . 291 A.2d
125, 128 ([Pa. Cmwlth.] 1972).
Commonwealth v. 6969 Forest Ave., 713 A.2d 701, 705 (Pa. Cmwlth. 1998) (emphasis added).
14
See MERSCORP.
12
mortgage in default,” and any subsequent action taken or not taken by the Recorder
did not change that fact. As such, there is no basis for equitable relief.15
For all of the above reasons, the Board’s order is affirmed.
_________________________________
ANNE E. COVEY, Judge
15
Citing Tyson v. Commonwealth, 684 A.2d 246 (Pa. Cmwlth. 1996), Petitioner argues
that this Court has “vacated the Board’s decisions in the past using equitable principles.” Petitioner
Br. at 12. In Tyson, the taxpayers raised an argument before this Court seeking Transfer Tax relief
under a different exclusion than the exclusion they had originally claimed. Despite the taxpayers’
failure to raise the exclusion earlier, this Court considered it, explaining,
[a]lthough we cannot deny that it would have been preferable for the
Tysons to have specified a [S]ection 1102-C.3(11) [of the Act]
exclusion in their [p]etition for [r]eview, the fact that they did not
do so does not prevent us from considering the issue, particularly
where the Commonwealth has fully briefed the merits of the issue
for this [C]ourt’s de novo review.
Tyson, 684 A.2d at 250. The Tyson Court concluded:
In light of the unique circumstances of this case, we believe that,
despite the Tysons’ general claim of exclusion under [S]ection
1102-C.3 of the Act, the Commonwealth was fairly apprised of the
Tysons’ claim to an exclusion under subsection 1102-C.3(11) [of
the Act]. To conclude otherwise would be to place the niceties of
pleading above equitable principles, and we decline to do so.
Tyson, 684 A.2d at 250. Tyson is inapposite. In Tyson, this Court excused pleading requirements
based on equitable principles. Nothing in Tyson permits this Court to disregard the explicit
requirements of the Act mandating the imposition of a Transfer Tax for the September 3, 2015
transfer. See 6969 Forest Ave.
13
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
M6 Realty LLC, a New Jersey Limited :
Liability Company, :
Petitioner :
:
v. :
:
Commonwealth of Pennsylvania, : No. 797 F.R. 2017Respondent :
ORDER
AND NOW, this 4th day of August, 2021, the Board of Finance and
Revenue’s August 23, 2017 order is AFFIRMED.
The Prothonotary shall enter judgment in favor of the Commonwealth
of Pennsylvania and against M6 Realty LLC, unless exceptions are filed within 30
days after entry of this order, pursuant to Pennsylvania Rule of Appellate Procedure
1571(i).
_________________________________
ANNE E. COVEY, Judge
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
M6 Realty LLC, a New Jersey Limited :
Liability Company, :
Petitioner :
: No. 797 F.R. 2017v. :
: Submitted: June 10, 2021
Commonwealth of Pennsylvania, :
Respondent :
BEFORE: HONORABLE PATRICIA A. McCULLOUGH, Judge
HONORABLE ANNE E. COVEY, Judge
HONORABLE CHRISTINE FIZZANO CANNON, Judge
OPINION NOT REPORTED
DISSENTING OPINION
BY JUDGE McCULLOUGH FILED: August 4, 2021
The Realty Transfer Tax Act (Act)1 specifically excludes the transfer
of property from a mortgagor to the holder of the mortgage through a deed in lieu of
foreclosure from the realty transfer tax. Section 1102-C.3(16) of the Act,2 72 P.S.
§8102-C.3(16); Provident Mutual Life Insurance Company v. City of Philadelphia
Tax Revenue Board, 750 A.2d 942, 946 (Pa. Cmwlth. 2000). For this reason, I must
respectfully dissent from the well written majority.
The parties’ Joint Stipulation of Facts establishes that: (1) First Bank of
Perkasie (Bank) loaned Robert E. Bodkin, III and Rebecca Bodkin (collectively,
Bodkins) $755,000, as evidenced by two promissory notes, the repayment of which
1
Act of March 4, 1971, P.L. 6, as amended, added by Section 4 the Act of May 5, 1981,
P.L. 36, 72 P.S. §§8101-C-8114-C.
2
Added by the Act of July 2, 1986, P.L. 318.
was secured by two mortgages on a property located at 928 Lawn Avenue,
Sellersville, Pennsylvania 18960 (Property); (2) the notes and mortgages were
assigned to M6 Realty LLC (Petitioner); (3) the Bodkins were in default of the notes
and mortgages; (4) Petitioner and the Bodkins entered into a “Deed in Lieu
Agreement” whereby Petitioner expressly agreed to release the Bodkins from the
notes and mortgages in exchange for a Deed in Lieu of Foreclosure; and (5) pursuant
to that Agreement, the Bodkins executed and recorded a Deed in Lieu of Foreclosure
transferring the property to Petitioner. Joint Stipulation of Facts, ¶¶2-7, at 2-3, and
Exhibit F to Joint Stipulation (Deed in Lieu Agreement).
To say that Petitioner owes a transfer tax because it was not the holder
of a bona fide mortgage in default encumbering the real estate at the time the real
estate was transferred ignores the true nature of the transaction, which is our guide
when deciding whether a transfer tax is due. See Hahnemann Medical College &
Hospital of Philadelphia v. Commonwealth, 416 A.2d 604, 607 (Pa. Cmwlth. 1980)
(finding that in form a legal document appeared to be a conveyance of real estate,
but was in fact a mortgage and therefore was not taxable).
These events are all part of a single transaction that, when viewed as a
whole, indicates Petitioner stepped into the shoes of the Bank and assumed the
Bank’s rights under the Bodkins’ promissory notes and mortgages. Rather than
commencing a judicial foreclosure against the Bodkins to obtain title to the Property,
Petitioner entered into the Deed in Lieu Agreement and accepted from the Bodkins
the Deed in Lieu of Foreclosure. This is a foreclosure transaction which is excluded
from the transfer tax.
The Majority’s focus on the precise timing of the execution of the
assignment in relation to the Deed in Lieu of Foreclosure is misplaced. Because the
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Assignments of Mortgage were executed five days after the Deed in Lieu of
Foreclosure was recorded, the Majority concludes that Petitioner was not “the holder
of a bona fide mortgage in default in lieu of a foreclosure” on September 3, 2015,
when the Property was transferred. Section 1102-C.3(16) of the Act, 72 P.S. §8102-
C.3(16). Under the Majority’s reading of section 1102-C.3(16), unless the
assignment is executed before the Deed in Lieu of Foreclosure is executed, the
transaction is subject to a transfer tax. I do not agree that this five-day lapse controls
whether the transaction is subject to the realty transfer tax. There is nothing in
section 1102-C.3(16) which indicates that it was meant to define the exact
“sequence” of events to trigger the exclusion for transactions completed via deeds
in lieu of foreclosure.
Pursuant to the Act, a tax is imposed upon transfers of title, but excludes
certain transactions including foreclosures, financings, and mortgages. To that end,
the Act excludes from definition of “document” deeds in lieu of foreclosure. In this
regard, Section 1102-C of the Act (Imposition of Tax) provides, in part:
Every person who makes, executes, delivers, accepts or
presents for recording any document or in whose behalf
any document is made, executed, delivered, accepted or
presented for recording, shall be subject to pay for and in
respect to the transaction or any part thereof . . . .
72 P.S. §8102-C (emphasis added).
“Document” as used in this section is defined in the Act as one which
"conveys, transfers, demises, vests, confirms or evidences any transfer or demise"
of an interest in real estate. Section 1101-C of the Act, 72 P.S. §8101-C.
A “deed in lieu of foreclosure” is a not a “document” under Section
1102-C of the Act, 72 P.S. §8102-C. A deed in lieu of foreclosure is defined as “[a]
deed by which a borrower conveys fee-simple title to a lender in satisfaction of
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mortgage debt and as a substitute for foreclosure.” Black’s Law Dictionary 476
(9th Ed. 2009) (emphasis added). It is a foreclosure instrument, which is specifically
excluded from the definition of “document” under section 1101-C of the Act, 72 P.S.
§8101-C (excluding from the term “document” - “mortgages, deeds of trust, or other
instruments of like character given as security for a debt and deeds of release thereof
to the debtor”).
This should be the end of the inquiry.
Nevertheless, by focusing on the sequence of events instead of viewing
the transaction as a whole, the Majority’s analysis does not capture the realities of
the actual transaction at issue. As our Supreme Court has explained, “[f]orm over
substance is not the law of this Commonwealth, and, quite to the contrary, tax cases
must be decided on realities. Especially in tax cases, substance controls over form.”
Baehr Brothers v. Commonwealth, 409 A.2d 326, 329 (Pa. 1979). Here, the
undisputed details of the transaction reveal that the transaction between Petitioner
and the Bodkins falls squarely within the concept of a foreclosure.
The Majority’s conclusion that the Deed in Lieu of Foreclosure should
be deemed a standard deed and therefore a “document” under the Act because it
makes no reference to the release of the Bodkins from their mortgage obligations is
equally without merit.
The Deed in Lieu of Foreclosure from the Bodkins to Petitioner was
executed pursuant to the Deed in Lieu Agreement, which expressly made the deed
subject to the mortgages. The mortgages in turn explicitly authorize the holder to
foreclose, and a holder of a mortgage may accept a deed in lieu of foreclosure as a
substitute to foreclosure. The fact that the Deed in Lieu of Foreclosure itself did not
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contain release language does not alter the fact that the transaction between
Petitioner and the Bodkins was in both form and substance a foreclosure.
Lastly, I cannot join in the Majority’s conclusion that Petitioner waived
the issue of whether the “Deed in Lieu of Foreclosure” at issue is a “document” as
defined in section 1102-C of the Act, 72 P.S. §8101-C. I believe that issue is fairly
subsumed within the salient question before us – that is, whether a transfer tax was
properly imposed upon the parties’ underlying transaction. Part of what we are
asked to do in this appeal is to construe the Act. In my view, that entails analyzing
together all of the provisions of the Act that relate to the transactions which are
excluded from the transfer tax. In any event, even if Petitioner waived the issue of
whether the Deed in Lieu of Foreclosure is a “document” under the Act, it is still
clear that the transaction was in the nature of a foreclosure and foreclosure
transactions, including those by deed in lieu of foreclosure, are excluded from the
realty transfer tax. In other words, Petitioner does not need to establish that the Deed
in Lieu of Foreclosure was not a “document” under section 1102-C of the Act, 72
P.S. §8101-C to prevail.
Because the conveyance of real estate in the underlying transaction in
this appeal was by a Deed in Lieu of Foreclosure and because it was overall in the
nature of a foreclosure, it is not subject to the transfer tax under section 1102-C, 72
P.S. §8102-C of the Act.
Accordingly, for these reasons, I dissent.
________________________________
PATRICIA A. McCULLOUGH, Judge
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