EMC Mortgage LLC v. Biddle, R. ( 2015 )

J-S47025-14
2015 Pa. Super. 79
EMC MORTGAGE, LLC, IN THE SUPERIOR COURT OF
PENNSYLVANIA
Appellee
v.
ROBERT D. BIDDLE,
Appellant No. 2894 EDA 2013
Appeal from the Order Entered August 26, 2013
In the Court of Common Pleas of Philadelphia County
Civil Division at No(s): September Term, 2011, No. 03840
BEFORE: MUNDY, OLSON AND WECHT, JJ.
OPINION BY OLSON, J.: FILED APRIL 15, 2015
Appellant, Robert D. Biddle, appeals from the order entered on August
26, 2013, granting a motion to reassess damages filed by Appellee, EMC
Mortgage, LLC (“EMC”). Upon careful consideration, we vacate the order
and remand with instructions.
The trial court summarized the facts and procedural history of this
case as follows:
The instant matter was initiated by [EMC] on
September 30, 2011, when it filed a mortgage foreclosure
complaint against Appellant. [Appellant failed to file a
pleading in response to EMC’s mortgage foreclosure
complaint.] After more than a year of conciliation efforts,
[EMC] entered a default judgment via praecipe on February
19, 2013 [in the amount of $60,264.10].
[EMC] filed a motion to reassess damages on June 6,
2013, stating that additional costs and interest had accrued
since the entry of judgment, and asking [the trial court] to
modify the damages accordingly. Appellant filed an answer
J-S47025-14
on June 26, 2013, arguing that the mortgage foreclosure
judgment was final when entered, and thus, damages were
fixed at that point in time. Upon consideration of [EMC’s]
motion and [] Appellant’s response thereto, the [trial court]
granted the motion to reassess damages through an order
dated August 6, 2013, and docketed on August 7, 2013,
thereby allowing the amendment of [EMC’s] writ of
execution to reflect an updated, total damages amount of
$78,115.15 [including interest at six percent annum].
Trial Court Opinion, 11/5/2013, at 1-2 (record citations, superfluous
capitalization, and parenthetical omitted). This timely appeal resulted.1
Appellant presents the following issues for our review:
A. Did the lower court abuse its discretion in amending the
default judgment; in the absence of any claim that the
allegations in the complaint were erroneous or that the
judgment was entered by mistake at the time it was
taken or that any miscarriage of justice would occur if
the judgment was not amended; when there was no
admissible evidence in the record that supported the
____________________________________________
1
The reassessed judgment was granted by order dated August 6, 2013 and
docketed on August 7, 2013. The order states that EMC’s motion to
reassess damages is granted “and that the writ is amended to reflect a total
judgment amount, including principal balance, interest through July 1, 2013,
late charges, legal fees, cost of suit and title, property inspections, mortgage
insurance premium, and escrow deficit of $78,115.71, plus interest at six
percent annum.” Trial Court Order, 8/7/2013, at 1. According to the
docket, notice of the judgment was sent to all of the parties by the
Prothonotary, pursuant to Pa.R.C.P. 236, on August 26, 2013. Appellant
filed a notice of appeal on September 25, 2013, or within 30 days after
notice of the judgment was sent by the Prothonotary. Thus, the appeal was
timely. See Reeves v. Middletown Athletic Ass'n, 866 A.2d 1115, 1122
(Pa. Super. 2004) (citation omitted) (“Notice of appeal, filed within thirty
days after the entry of the judgment and the Rule 236(b) notice, was
timely.”). On September 27, 2013, the trial court ordered Appellant to file a
concise statement of errors complained of on appeal pursuant to Pa.R.A.P.
1925(b). Appellant complied timely on October 17, 2013. On November 5,
2013, the trial court issued an opinion pursuant to Pa.R.A.P. 1925(a).
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higher judgment amount; and when amending the
judgment simply enabled EMC to circumvent the
requirement in Pa.R.C.P. 1037(b)(1) that damages on a
default judgment, which cannot be calculated from the
allegations in the complaint, be established by a trial
limited to damages[?]
B. Did the lower court err as a matter of law when it failed
to hold a hearing or use other means to develop a record
to resolve disputed factual issues and when it preferred
EMC’s unverified version of the facts over [Appellant’s]
answer to the motion with no evidentiary basis for doing
so[?]
C. Did the lower court err as a matter of law by increasing
the amount of the original judgment to include interest
allegedly accrued after the date the complaint was filed,
and before the original judgment was entered, in the
absence of a [n]ote or anything else in the record
entitling EMC to any interest or setting forth an interest
rate[?] Did the court further err by adding other items of
damages, allegedly incurred after the complaint was
filed, in the absence of any admissible evidence of their
existence[?]
D. Did the lower court err as a matter of law by calculating
the amounts that allegedly came due after the date the
default judgment was originally entered as if the
judgment had never been entered, failing to discriminate
between pre and post judgment amounts, and by
allowing EMC to include items post judgment to which it
was not entitled as a matter of applicable substantive
law[?]
Appellant’s Brief at 10-12 (suggested answers omitted).
Initially, we must determine whether this Court has jurisdiction to
consider the merits of Appellant’s appeal. “We address this issue first
because the appealability of an order directly implicates the jurisdiction of
the court asked to review the order.” Mother's Rest. Inc. v.
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Krystkiewicz, 861 A.2d 327, 331 (Pa. Super. 2004) (citation omitted). The
trial court recommends quashing this appeal on grounds that the order
granting the motion to reassess damages was interlocutory, and not subject
to an exception2 or to an appeal as of right.3 Trial Court Opinion,
11/5/2013, at 2-4. More specifically, the trial court determined that the
order reassessing damages “was not final in nature, as it was issued prior to
satisfaction of the judgment.” Id. at 3. The trial court maintained that the
order is not collateral, necessitating immediate appellate review, because
Appellant may continue to contest the amount of damages until satisfaction
or “can still stay any future sheriff’s sale of the property and, if that fails,
may seek to set aside said sale.” Id.
Moreover, in January 2014, after the appeal was taken, this Court
entered a per curiam order directing Appellant to respond to a rule to show
cause why the appeal should not be quashed for lack of jurisdiction for
failing to file a petition to strike or open the default judgment. On February
10, 2014, Appellant filed a statement in response to our Court’s order,
arguing that he was “not appealing from the entry of a default judgment
against him, but is appealing the separate and subsequent order amending
____________________________________________
2
See Pa.R.A.P. 312 (interlocutory appeal by permission); Pa.R.A.P. 313
(collateral orders).
3
See Pa.R.A.P. 311 (interlocutory appeal by right).
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the judgment to increase the damages.” Appellant’s Statement in Response
to Superior Court Directive, 2/10/2014, at *4.
Upon review of the applicable law and the procedural posture of this
case, we conclude that the order at issue is a final, appealable order and
Appellant was not required to file a petition to strike or open the reassessed
judgment. “In this Commonwealth, an appeal may only be taken from: 1) a
final order or one certified by the trial court as final; 2) an interlocutory
order as of right; 3) an interlocutory order by permission; or 4) a collateral
order.” Mother's, 861 A.2d at 331 (citation omitted). “To constitute a final
order, the order appealed from must have disposed of all claims and of all
parties, have been defined as final by statute, or have been certified as final
by the trial court.” Id., citing Pa.R.A.P. 341(b).
Default judgments generally are governed by the Pennsylvania Rules
of Civil Procedure and are entered by prothonotaries and without judicial
involvement. Gotwalt v. Dellinger, 577 A.2d 623, 625 (Pa. Super. 1990).
Such judgments are not judicial orders and are not subject to an immediate
appeal after their entry; rather, to obtain relief, the party against whom the
judgment was entered may either file a petition to strike the default
judgment or file a petition to open the default judgment. Mother's, 861
A.2d at 336. Once a court of common pleas rules on one of these petitions,
then the aggrieved party has a right to an appeal to a higher court pursuant
to Pennsylvania Rule of Appellate Procedure 311(a)(1). See Pa.R.A.P.
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311(a)(1) (granting an appeal as of right from any “order refusing to open,
vacate or strike off a judgment”).
Here, however, the situation is markedly different from the
conventional case. EMC initially obtained a default judgment on February
19, 2013. Thereafter, EMC, the party in whose favor judgment was
originally entered, moved on June 6, 2013 to reassess its favorable
judgment by adding additional amounts to reflect sums allegedly expended
in obtaining the judgment or subsequent thereto. Appellant, on June 26,
2013, filed his response to EMC’s motion. In August 2013, the trial court
entered an order directing the Prothonotary to amend the judgment to
reflect additional principle, fees, and interest as requested by EMC.
Appellant’s June 26, 2013 response did not contest the underlying default
judgment, but simply challenged the supplemental amended amounts
requested by EMC that were ultimately reduced to judgment at the trial
court’s direction. In this particular case, judgment was not entered
ministerially by the Prothonotary but, instead, the trial court ordered that an
amended judgment be entered. In such an instance, Appellant was not
required to file a petition to strike or open the judgment. Moreover, the
trial court granted the only relief requested by EMC and directed the entry of
judgment over Appellant’s objection. Thus, all of the claims of all of the
parties have been finally addressed by the trial court. See Morgan Guar.
Trust Co. of New York v. Mowl, 705 A.2d 923, 928 (Pa. Super. 1998)
(“The order was a final, appealable order since it denied appellant the only
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relief it then was seeking in a mortgage foreclosure action.”). Accordingly,
the trial court’s order constituted a final order and we have jurisdiction to
entertain Appellant’s appeal.
In his first issue presented, Appellant claims that the trial court erred
by ordering an upward amendment of the amount of the default judgment
based upon EMC’s unverified, reassessment motion. Appellant’s Brief at 23-
26. Relying upon Pa.R.C.P. 1037,4 Appellant contends that the trial court
approved “an amendment of a default judgment that enabled [EMC] to avoid
its obligation to prove its damages at trial.” Id. at 26. According to
Appellant, EMC’s complaint in mortgage foreclosure stated it “was owed
$60,264.10[,]” but the “complaint was devoid of any exhibit evidencing that
____________________________________________
4
Rule 1037 of the Pennsylvania Rules of Civil Procedure provides in
pertinent part:
Rule 1037. Judgment Upon Default or Admission. Assessment
of Damages.
********
(b) The prothonotary, on praecipe of the plaintiff, shall
enter judgment against the defendant for failure to file
within the required time, a pleading to a complaint . . . for
any relief admitted to be due by the defendant’s pleadings.
(1) The Prothonotary shall assess damages for the
amount to which the plaintiff is entitled if it is a sum
certain or which can be made certain by
computation, but if it is not, the damages shall be
assessed at a trial at which the issues shall be
limited to the amount of the damages.
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EMC is entitled to ongoing interest in any amount[,]” “[t]he mortgage
contains no interest rate[,]” [and,] “[t]here is no note attached as an exhibit
to the complaint.” Id. at 27-28. Hence, Appellant argues, “the trial court
expressly based its decision to amend the default judgment on documents
that do not exist in the record.” Id. at 33. In sum, Appellant asserts, “it
was an abuse of discretion for the trial court to permit EMC to take a default
judgment on the complaint and, four months later, allow it to amend the
default judgment, without evidence, and to thereby circumvent the
requirement that EMC prove at trial its damages in excess of the amount
alleged in the complaint.” Id. at 32. As such, Appellant claims that EMC
was required to prove damages at a trial and that the trial court erred to the
extent it permitted EMC to augment its default judgment by way of an
unsupported motion to add interest, fees, and costs. Id. at 28-33.
In his second issue presented, Appellant argues that EMC’s motion to
amend the default judgment was not verified and, while the mortgage was
attached to the motion as an exhibit and it refers to a note, the note was not
presented. Id. at 34. Thus, Appellant contends that EMC has “submitted
nothing [saying] that it had [a] right to interest in any amount and nothing
setting forth a rate of interest.” Id. at 34-35. Further, Appellant claims he
“filed a response to the motion in which he expressly and specifically denied
all the factual allegations in [EMC’s] motion[,]” including denials “that the
interest calculation was correct; [] that the legal fees were actually incurred
or reasonable; [] that there were any property inspections of his house; and
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[] that there was an escrow deficit in the amount set forth.” Id. at 35, 39-
40 (footnotes omitted). Relying upon Pa.R.C.P. 208.1-208.4, as well as local
rule Phila.C.R.P. 208.3(b), Appellant contends the trial court failed to follow
the proper procedure for developing a record on disputed facts. Id. at 38.
In his third issue presented, Appellant argues “the court below relied
upon two lines of cases.” Id. at 44. Appellant claims that the first line of
authority, as established in B.C.Y., Inc., Equip. Leasing Associates v.
Bukovich, 390 A.2d 276, 278 (Pa. Super. 1978), “recognized the authority
of the court to correct errors and to conform the facts of the default
judgment to the facts that existed at the time the judgment was entered and
the damages originally assessed.” Appellant’s Brief at 44-45. Appellant
argues that “[t]he other line of cases suggested in dicta that the assessment
on the writ of execution could be amended to reflect post judgment interest
and other post judgment amounts the plaintiff had a right to collect as
additions to the judgment.” Id. at 45, citing Nationsbanc Mortgage Corp.
v. Grillo, 827 A.2d 489, 493 (Pa. Super. 2003). Thus, Appellant claims:
EMC, without expressly articulating [these two lines of
authority], asked the court for both kinds of relief. It
alleged in its motion that when it filed its assessment of
damages and originally took the judgment on February 19,
2012, it had assessed the damages only for the amount
demanded in the complaint and it further alleged that the
amount alleged in the complaint did not reflect what it was
due when the judgment was entered [more than one year
after the complaint was filed].
In addition[,] EMC alleged in its motion that it was
entitled to increase the judgment because it incurred
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attorney[s’] fees and court costs and other costs and
additional interest after the judgment was entered.
The order entered by the court below does not
identify the kind of relief the court provided EMC. That is,
the order does not indicate the extent to which the original
assessment is being amended because the original amount
was entered in error. Nor does the order indicate the extent
to which the assessment on the writ of execution was being
amended to add [] post[-]judgment interest[,] costs[,] or
other amounts, accruing after the February 19, 2013
original assessment date, that EMC had a right to add to its
judgment.
* * *
Pre-judgment, the mortgage controls the rights and
obligations of the parties. Post[-]judgment, they are
controlled by the judgment, by those mortgage provisions
that expressly survive the judgment and by those applicable
rules of court and statutes that provide for amounts which
can be added to the judgment prior to execution.
Here, the trial court’s failure to distinguish between pre-
judgment and post[-] judgment events caused it to err as a
matter of law in its determination of what EMC was entitled
to include in the judgment at the time it originally took a
default and filed its praecipe for default judgment.
Id. at 45-49 (citations omitted; emphasis in original).
Finally, in his last issue presented, Appellant argues that once the
default judgment was entered, the underlying mortgage was extinguished
and merged with the judgment. Id. at 57. He contends that “[a]fter filing
its praecipe for a default judgment, EMC is entitled to receive for the sale of
[Appellant’s] property, only the judgment, less payments made on account
of the judgment at the legal rate or at some other amount if provided in the
judgment, less payments made on account of the judgment, plus record
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costs which may be added in accordance with the applicable procedural
rules.” Id. at 58. Citing paragraph 23 of the mortgage, Appellant concedes
that “[t]he only provision of the mortgage that expressly survives the entry
of judgment is the interest rate”. Id. at 59. Appellant again argues that the
rate of interest included in the note was not provided to the court. Id. at
59, n.20. Appellant therefore argues that the trial court erred by failing to
parse pre- and post-judgment interest and costs because:
The interest rate that is included in the judgment, to the
extent there is any evidence of an interest rate, is on the
unpaid principal balance of the mortgage from the date of
acceleration to the date of the judgment. In contrast,
interest post[-]judgment allowed by 42 Pa.C.S.A. § 8101 is
on the entire judgment amount.
Id. at 60.
Our standard of review is as follows. “A judgment should only be
stricken if the record reveals a defect on its face.” Bukovich, 390 A.2d at
278. Here, as in Bukovich, we have a validly entered default judgment
with only an alleged error on the amount entered. Id. “The fact that the
judgment was entered is not the mistake and thus the entire judgment
should not be stricken.” Id. The trial court has the power to modify a
judgment upon the proper application to the court for amendment. Id.
(citation omitted); see also Grillo, 827 A.2d at 493 (mortgagee “had every
right to petition the court to amend the writ of execution to include
additional interests and costs prior to” satisfaction.); PNC Bank, N.A., v.
Unknown Heirs, 929 A.2d 219, 227 n.3 (Pa. Super. 2007) (a motion to
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reassess damages “invokes a trial court’s equitable power to enforce the
underlying judgment and to grant relief until the judgment is discharged or
satisfied.”). We review the trial court’s entry of a modified judgment for an
abuse of discretion. Bukovich, 390 A.2d at 278.
Based upon the foregoing legal principles, we conclude that the trial
court enjoys the inherent power to amend a judgment until the judgment is
discharged or satisfied.5 In this case, EMC sought amendment prior to either
event. Thus, we discern no abuse of discretion or error of law in the trial
court’s decision to entertain EMC’s request to reassess the default judgment.
However, we must still assess: (1) whether the mortgage was
extinguished, either in whole or in part, upon entry of judgment, and; (2)
whether the trial court utilized the proper procedure for recalculating EMC’s
damages.
As discussed below, upon entry of a default judgment the parties’
mortgage agreement was extinguished. Both parties and the trial court rely
upon the Third Circuit case,6 In re Stendardo, 991 F.2d 1089 (3d Cir.
____________________________________________
5
Relying on a waiver provision in the parties’ mortgage agreement as well
as In re Phillips Group, Inc., 382 B.R. 876 (Bankr. W. D. Pa. 2008), EMC
also argues that it could seek to amend the default judgment since Appellant
waived the defects in the proceedings. Since we have determined that the
trial court enjoyed the inherent power to amend a judgment, we need not
examine the waiver provision at issue.
6
We are not bound by decisions of the federal courts, but we may rely on
them for persuasive authority. McEwing v. Lititz Mut. Ins. Co., 77 A.3d
639, 648 n.7 (Pa. Super. 2013).
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1993), in advancing their respective positions regarding the merger of the
mortgage with the default judgment. Thus, we will examine Stendardo
herein. The Stendardos owned residential property in Philadelphia, secured
by a mortgage that was subsequently assigned to Federal National Mortgage
Association (FNMA). The Stendardos later filed for bankruptcy and the
bankruptcy court determined that FNMA was entitled to collect real estate
taxes and insurance premiums it paid after filing a mortgage foreclosure
action and obtaining a default judgment against the Stendardos’ property.
The Stendardos appealed to the district court, which reversed,
reasoning that the Stendardos’ obligations under the mortgage were merged
into the judgment obtained in the foreclosure action:
[T]he bankruptcy court held that FNMA was entitled to
include the Post-Judgment Expenses in its proof of claim.
The court first held that although a mortgage merges into a
judgment, the lien created by the mortgage remains despite
the presence of the judgment. Accordingly, the bankruptcy
court concluded that the doctrine of merger did not render
null and void the mortgage terms imposing on the
[Stendardos] the obligation to pay insurance premiums and
real estate taxes. As a result, FNMA was allowed to add the
Post-Judgment Expenses to the amount of its secured claim.
In the alternative, the bankruptcy court held that even if
such a merger occurred, FNMA could include the Post-
Judgment Expenses in its secured claim under a theory of
unjust enrichment because FNMA's payments clearly
conferred benefits upon the [Stendardos] who retained an
independent legal obligation to pay these costs.
The district court vacated and remanded. In order for
mortgage terms to survive merger into a foreclosure
judgment, it decided that the language of the mortgage
must clearly indicate that a term or clause in an agreement
will remain operative after a judgment is obtained. The
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language in the Mortgage here only mentions the
[Stendardos’] obligation to pay the relevant taxes and
insurance premiums while the Mortgage is in effect. It does
not provide that this obligation is to continue after a
judgment is obtained. Based on this reasoning, the district
court concluded that the Mortgage is unambiguous as a
matter of law and not reasonably susceptible to the
bankruptcy court's interpretation that the [Stendardos’]
obligation to pay the expenses at issue extends beyond the
date of judgment.
* * *
The district court also held that FNMA could not rely
on the doctrine of unjust enrichment to recover the Post-
Judgment Expenses because no evidence in the record
established either that the [Stendardos] benefitted from
FNMA's payments or that the [Stendardos] had notice that
FNMA was making the payments and that it expected to be
reimbursed. Accordingly, the district court refused to allow
FNMA to include in its secured proof of claim the Post-
Judgment Expenses.
In re Stendardo, 991 F.2d at 1093-94 (citations, quotations and footnotes
omitted).
In analyzing merger of a mortgage with a default judgment, the Third
Circuit noted:
Under controlling Pennsylvania law, “[i]t is elementary
that judgment settles everything involved in the right to
recover, not only all matters that were raised, but those
which might have been raised. The cause of action is
merged in the judgment which then evidences a new
obligation.” Lance v. Mann, 60 A.2d 35, 36 (Pa. 1948)
(citations omitted). The doctrine of merger of judgments
thus provides that the terms of a mortgage are merged into
a foreclosure judgment and thereafter no longer provide the
basis for determining the obligations of the parties. In re
Presque Isle Apartments, 112 B.R. 744, 747
(Bankr.W.D.Pa. 1990); see In re Herbert, 86 B.R. 433,
436 (Bankr.E.D.Pa. 1988) (“The Debtor is, in our view,
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correct in her assertion that ‘[t]he mortgage is merged in a
judgment entered in a mortgage foreclosure action’ in
Pennsylvania.”) (quoting 25 P.L.E. 85 (1960); citing Murray
v. Weigle, 11 A. 781, 782 (Pa. 1888); Hartman v.
Ogborn, 54 Pa. 120, 122-23 (1867)); see also In re
Roach, 824 F.2d 1370, 1377 (3d Cir. 1987) (“In New
Jersey, as in many states, the mortgage is merged into the
final judgment of foreclosure and the mortgage contract is
extinguished. As a result of this merger, there is no longer a
mortgage....”)) (citations omitted).
For example, bankruptcy courts have consistently held
that the doctrine of merger under Pennsylvania law entitles
a mortgagee post-judgment to the legal rate of interest
rather than the rate specified in the mortgage. Because the
mortgage merges into the judgment, its terms specifying
the contractual interest rate no longer exist to bind the
parties. See, e.g., Presque Isle, 112 B.R. at 747; In re
Rorie, 98 B.R. 215, 218-19 (Bankr.E.D.Pa. 1989); In re
Smith, 92 B.R. 127, 129-31 (Bankr.E.D.Pa. 1988), rev'd on
other grounds, Smith v. Kissell Co., 98 B.R. 708
(E.D.Pa.1989); Herbert, 86 B.R. at 436.
There is an exception to this doctrine. Parties to a
mortgage may rely upon a particular provision post-
judgment if the mortgage clearly evidences their intent to
preserve the effectiveness of that provision post-judgment.
See, e.g., Presque Isle, 112 B.R. at 747 (“Once a claim is
reduced to judgment, the legal rate of interest applies
unless the documents evidence a clear intent to continue
the contractual rate of interest post-judgment.”) (citing In
re Crane Automotive, Inc., 98 B.R. 233 (Bankr.W.D.Pa.
1989)); see also Burns Mfg. Co. v. Boehm, 467 Pa. 307,
356 A.2d 763, 766 n.3 (1976) (parties' intent controlling in
construing agreement); accord Robert F. Felte, Inc. v.
White, 302 A.2d 347 (Pa. 1973). The applicability of this
exception will determine whether the instant [m]ortgage
clause requiring the [Stendardos] to pay the expenses at
issue survived the [j]udgment.
In re Stendardo, supra at 1094-1095.
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Moreover, the Stendardo court examined a prior decision in
deciphering whether contractual provisions survive the entry of judgment:
[In In re Clark Grind & Polish, Inc., 137 B.R. 172
(Bankr.W.D.Pa. 1992),] specific language in the mortgage,
also incorporated into the note and the asset purchase
agreement, provided for survival of the creditor's recovery
of attorneys’ fees and costs:
In case [of] default ... foreclosure proceedings may
be brought ... on this Mortgage and prosecuted to
judgment, execution and sale for the collection of the
same, together with costs of suit and an attorney's
commission for collection of the total indebtedness.
[Clark] at 174. Accordingly, the court decided in Clark that
this language demonstrated the parties' intent that the
creditor was entitled to compensation for attorneys' fees
and costs in executing its judgment:
Between the time of judgment and the time the
secured creditor receives payment, the secured
creditor may be required to make additional
expenditures to protect its security interest and its
collateral. The amount of fees asserted in the
judgment is not binding where there is an intent to
allow the secured creditor to recoup its costs in fully
realizing upon its claim. Such costs include defending
the claim in bankruptcy proceedings.
The Mortgage and Asset Purchase Agreement
contemplate that liability for fees and costs would
continue until the debt was paid. [The secured
creditor] may include these charges as part of its
secured claim subject to this Court's determination
of the reasonableness of such charges.
Id. at 175.
Stendardo, 991 F.2d at 1096.
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In this case, initial judgment was entered based upon EMC’s complaint
in foreclosure, which alleged the following amounts were due, as of June 30,
2011:
Principal Balance $58,227.31
Interest $1,772.61
02/01/2011 through 06/30/2011
Late Charges $231.92
Property Inspections $160.00
Subtotal $60,391.84
Escrow Credit ($127.74)
TOTAL $60,264.10
Complaint in Mortgage Foreclosure, 9/30/2011, at ¶ 6.
Relevant to the issue of whether and to what extent EMC’s default
judgment extinguished the terms of the parties’ agreement, the mortgage
contained the following provisions:
18. Foreclosure procedure. If [EMC] requires immediate
payment in full under paragraph 9 [pertaining to
acceleration of the debt], [EMC] may foreclose this Security
Instrument by judicial proceeding. [EMC] shall be
entitled to collect all expenses incurred in pursuing
the remedies provided in this paragraph 18,
including, but not limited to, attorneys’ fees and costs
of title evidence.
* * *
23. Interest Rate After Judgment. [Appellant] agrees
that the interest rate payable after a judgment is
entered on the [n]ote or in an action of mortgage
foreclosure shall be the rate payable from time to
time under the [n]ote.
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Appellant’s Brief, Exhibit D, Mortgage, 12/2/1996, at 7 (emphasis supplied).
In its motion to reassess damages, EMC alleged:
5. Additional sums have been incurred or expended on
[Appellant’s] behalf since the Complaint was filed and
[Appellant] has been given credit for any payments that have
been made since the judgment. The amount of damages
should read as follows:
Principal Balance $58,227.31
Interest through July 1, 2013 $10,377.94
Late Charges $231.92
Legal Fees $2,300.00
Cost of Suit and Title $1,408.64
Property Inspections $525.00
Mortgage Insurance Premium to be paid $61.05
Escrow Deficit $4,983.85
TOTAL $78,115.71
6. [EMC] paid the following in legal fees during the time
the loan was in default:
10/12/2011 FORECLOSURE FEE $1,300.00
2/20/2012 Conciliation Conference
Mandatory Court Appearance $250.00
4/20/2012 Conciliation Conference
Mandatory Court Appearance $250.00
6/8/2012 Conciliation Conference
Mandatory Court Appearance $250.00
8/10/2012 Conciliation Conference
Mandatory Court Appearance $250.00
Total Fees $2,300.00
EMC’s Motion to Reassess Damages, 6/6/2013, at ¶¶ 5-6.
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Here, the trial court determined that the language in the mortgage
evinced the parties’ intent to allow the mortgage to govern the parties’
obligations following the entry of judgment. Trial Court Opinion, 11/5/2013,
at 7-8. Relying on paragraph 18 above, the trial court concluded that EMC
was able to collect all of its submitted expenses incurred in the foreclosure,
including “costs, fees, and other expenses stemming from Appellant’s default
and the resulting foreclosure action.” Id. at 8. It further found that
“[paragraph] 23 of the mortgage [as set forth above] provides that the
interest rate after judgment shall be at the rate entered on the note.” Id.
Although we acknowledge the trial court’s inherent authority to consider
EMC’s request to amend its judgment, we do not agree with the trial court’s
interpretation of the mortgage agreement or its procedure for reassessing
EMC’s damages.
We begin our analysis by reciting the legal framework pertaining to
contractual interpretation:
The interpretation of any contract is a question of law
and this Court's scope of review is plenary. Moreover, we
need not defer to the conclusions of the trial court and are
free to draw our own inferences. In interpreting a contract,
the ultimate goal is to ascertain and give effect to the intent
of the parties as reasonably manifested by the language of
their written agreement. When construing agreements
involving clear and unambiguous terms, this Court need
only examine the writing itself to give effect to the parties'
understanding. This Court must construe the contract only
as written and may not modify the plain meaning under the
guise of interpretation.
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Stephan v. Waldron Elec. Heating & Cooling LLC, 100 A.3d 660, 665
(Pa. Super. 2014).
In construing the plain meaning of the mortgage, we note that
paragraph 18 clearly and unambiguously states that EMC is “entitled to
collect all expenses incurred in pursuing the remedies [of a foreclosure
action], including, but not limited to, attorneys’ fees and costs of title
evidence.” (emphasis added). We read this provision to mean that
recoverable expenses include those that are necessary to the pursuit of the
foreclosure action. The types of recoverable expenses that are expressly
identified in paragraph 18 support this interpretation, i.e. attorneys’ fees and
costs of title evidence. Thus, it was not error for the trial court to grant
attorneys’ fees and costs of title as those expenses survived the judgment
under the plain terms of the parties’ security agreement.7
As for other expenses requested by EMC (e.g., late charges, additional
property inspections, mortgage insurance premiums, and escrow deficits),
however, we must apply a different analysis. Although the mortgage
permitted EMC to recover these sums from Appellant or, alternatively, to
make these expenditures on his behalf (see infra at n.10), the agreement
did not expressly provide that collection of these sums or outlays for these
____________________________________________
7
Moreover, subject to our more detailed discussion infra, the trial court did
not err in concluding that the interest rate term stated in the note survived
entry of EMC’s default judgment.
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items survived the default judgment. We note further that EMC never filed
an amended complaint claiming these additional damages prior to the entry
of default judgment.8 For these reasons, EMC’s pre-judgment losses (other
than interest, attorneys’ fees, and title costs) are no longer recoverable.
Moreover, to the extent EMC sought to add post-judgment expenses (other
____________________________________________
8
As previously stated, default judgments generally are governed by the
Pennsylvania Rules of Civil Procedure and are entered by prothonotaries and
without judicial involvement. Gotwalt, 577 A.2d at 625. “The prothonotary
shall assess damages for the amount to which the plaintiff is entitled if it is a
sum certain or which can be made certain by computation, but if it is not,
the damages shall be assessed at a trial at which the issues shall be limited
to the amount of the damages.” Pa.R.C.P. 1037. Thus, a default judgment
is entered on a sum certain amount. If a plaintiff determines the amount of
damages claimed in the original complaint is incorrect, plaintiff may file an
amended complaint correcting the sum certain amount of damages claimed
prior to the entry of a default judgment. Alternatively, a plaintiff may file an
amended complaint seeking a trial on the lone issue of damages if a sum
certain amount cannot be ascertained. See Reichert v. TRW, Inc., 611
A.2d 1191, 1193 (Pa. Super. 1992) (filing an amended complaint foreclosed
ability for default judgment on the original complaint). Specifically, we note
that
[a] party, either by filed consent of the adverse party or by
leave of court, may at any time change the form of action,
add a person as a party, correct the name of a party, or
otherwise amend the pleading. The amended pleading may
aver transactions or occurrences which have happened
before or after the filing of the original pleading, even
though they give rise to a new cause of action or defense.
An amendment may be made to conform the pleading to
the evidence offered or admitted.
Pa.R.C.P. 1033. In this case, EMC never filed an amended complaint.
Instead, it chose to enter default judgment for the sum certain amount set
forth in its original complaint.
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than interest, attorneys’ fees, and title costs) to its recovery, then it needed
to demonstrate how its pursuit of a foreclosure remedy necessitated those
outlays. As discussed below, we conclude that the trial court failed to make
these critical inquiries and, as far as legal fees and title costs are concerned,
the court further failed to consider whether EMC’s requested damages were
reasonable.
With regard to attorneys’ fees, 41 P.S. § 406 allows a residential
mortgage lender such as EMC to charge Appellant with actual and
reasonable attorneys' fees. See 41 P.S. § 406(2) (“Upon commencement of
foreclosure or other legal action with respect to a residential mortgage,
attorney's fees which are reasonable and actually incurred by the residential
mortgage lender may be charged to the residential mortgage debtor.”).
And, as we have said above, the mortgage at issue clearly evinces the
parties’ intention for attorneys’ fees to survive the entry of judgment. We
note, however, that “[a] determination of [the] reasonableness [of
attorneys’ fees in a foreclosure action] requires the [c]ourt to engage in a
lodestar analysis which takes into consideration the number of hours
reasonably expended times a reasonable hourly rate increased or decreased
depending upon any additional factors involving case contingency or work
product quality.” In re McMillan, 182 B.R. 11, 14-15 (Bankr. E.D. Pa.
1995). A claimant must “make an evidentiary record regarding the time and
rate and actual services rendered in connection with its foreclosure action.”
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Id. Here, EMC submitted flat fees for services provided on certain dates,
but there is no breakdown of the time, rate, or actual services provided
because there are no invoices, billable hour itemizations, or affidavits from
counsel to confirm EMC’s allegations. On remand, EMC must come forward
with such proof to justify its claim for attorneys’ fees.
The trial court also awarded EMC $1,408.64 for costs of suit and title.
While paragraph 18 clearly entitles EMC to such costs in pursuing its
foreclosure remedy, EMC failed to submit evidence supporting these
expenses. Based upon the limited record before us, it is impossible to
confirm whether the costs of title evidence alleged in EMC’s motion to
reassess damages were actually incurred and whether they were reasonable.
Again, on remand, EMC must adduce evidence to support its request for
costs of title evidence.
The trial court also granted EMC late charges, the costs of additional
property inspections, mortgage insurance premiums, and escrow deficits.
These expenses seem to have been made in accordance with EMC’s rights
under the mortgage agreement. In fact, EMC admits as much in its
memorandum of law in support of the motion to reassess damages. In its
memorandum, EMC argued: “Because of the period of time between the
initiation of the mortgage foreclosure action, the entry of judgment and the
[s]heriff’s [s]ale date, damages as previously assessed are outdated and
need to be adjusted to include current interest, real estate taxes, insurance
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premiums, costs of collection, and other expenses which [EMC] has been
obligated to pay under the Mortgage in order to protect its
interests.” Memorandum of Law in Support of EMC’s Motion to Reassess
Damages, 6/6/2013, at *2 (emphasis added).9 Essentially, EMC alleged that
these additional expenses arose from its rights and obligations under the
mortgage (which was extinguished -- except as expressly provided --
following entry of judgment) to protect its interests in the subject property.
We therefore examine EMC’s individual requests separately.
With regard to the performance of additional property inspections, the
mortgage does not specifically identify this right as surviving the entry of
default judgment in foreclosure. Therefore, if EMC sought to amend its
judgment by adding pre-judgment expenses incurred in performing property
inspections, then it needed to file an amended complaint prior to the entry of
judgment to account for those expenditures. It failed to take this action.
Thus, pre-judgment expenditures for additional property inspections are no
longer recoverable. However, to recover for post-judgment expenditures on
property inspections, EMC may demonstrate on remand how the pursuit of
its foreclosure remedy necessitated these expenses.10 To recover these
____________________________________________
9
EMC’s memorandum in support of its motion to reassess is not paginated.
We have supplied page numbers for ease of discussion.
10
Under the heading of Uniform Covenants, the mortgage obligates
Appellant to pay taxes, hazard insurance premiums, mortgage insurance
(Footnote Continued Next Page)
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sums, EMC will need to offer proof of when it performed the property
inspections, what it paid for those services, and what purpose was served by
the inspections.
Likewise, late charges are not specifically exempt from the merger of
the parties’ mortgage into EMC’s judgment. Once the trial court entered
judgment, the mortgage was extinguished and Appellant ceased owing
payments. Because Appellant had no obligation to continue making
mortgage payments, there could be no late fees. We simply fail to see how
EMC’s foreclosure action could have necessitated this particular element of
its amended damage claim. Moreover, we note that the late fees as set
forth in both EMC’s complaint and its motion to reassess damages are for
the exact same amount, $231.92. It seems highly suspect that such a
distinct amount for late fees accrued both pre- and post-judgment. Had
additional late fees accrued after the filing of the complaint, EMC should
have instead filed an amended complaint before the entry of judgment to
include those damages. Again, it did not do this. Because late charges do
_______________________
(Footnote Continued)
premiums, late charges, and other expenses. See Appellant’s Brief, Exhibit
D, Mortgage, 12/2/1996, at ¶¶ 1 and 2. In the event that Appellant fails to
make such payments, or in the event of a legal proceeding that significantly
affects EMC’s rights in the property, the mortgage further provides that EMC
“may do and pay whatever is necessary to protect the value of the
[p]roperty and [EMC’s] rights in the [p]roperty, including payment of taxes,
hazard insurance and other items[.]” Id. at ¶ 7. We leave it to the trial
court to consider, on remand, whether the tasks performed and the
expenses incurred by EMC pursuant to this provision should be deemed
necessary because of the commencement of foreclosure proceedings.
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not expressly survive the mortgage, it was an abuse of discretion for the
trial court to have granted them.
Regarding the escrow deficit, EMC claimed “the mortgage specifically
provides that the mortgagee may advance the monies for taxes and
insurance and charge these payments against the escrow account.” Id. at
*4. The mortgage, however, makes no mention that taxes and insurance
survive judgment. Further, EMC alleged a lump sum for Appellant’s “escrow
deficit,” but failed to itemize the amount. Thus, it is impossible to confirm
what items were included in this amount, whether these expenses accrued
before or after the entry of judgment, or whether EMC’s pursuit of a
foreclosure remedy necessitated post-judgment expenditures on these
items. To the extent these expenditures were made prior to the entry of
judgment, EMC’s failure to file an amended complaint for these damages
precludes any recovery at this time. On remand, therefore, EMC will need to
demonstrate that these expenses accrued after the entry of judgment and
that its foreclosure action required post-judgment outlays for these items.11
Turning now to EMC’s request for post-judgment interest, under
paragraph 23 of the mortgage, Appellant agreed “that the interest rate
payable after a judgment is entered on the [n]ote or in an action of
____________________________________________
11
In its motion to reassess damages, EMC requested $61.05 for the
payment of mortgage insurance premiums. On remand, EMC must make a
similar demonstration as described above before obtaining this sum by way
of an amended damage award.
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mortgage foreclosure shall be the rate payable from time to time under the
[n]ote.” Appellant’s Brief, Exhibit D, Mortgage, 12/2/1996, at ¶ 23. Thus,
the interest rate set forth in the note survived entry of the default judgment.
However, as Appellant points out, the note is not contained in the certified
record, it was not attached to any pleadings, and there is no interest rate set
forth in the mortgage. In its motion to reassess damages, EMC merely set
forth a blanket amount for the total sum of post-judgment interest it
believed was due “through July 1, 2013.” In compounding the problem,
neither EMC nor the trial court identified the balance upon which the interest
was to be calculated – the total judgment amount or the balance of the
principal under the mortgage – or the date from which interest was to be
computed. Instead, the trial court entered the order at issue, amending the
judgment “to reflect a total judgment amount, including principal balance,
interest through July 1, 2013, late charges, legal fees, cost of suit and title,
property inspections, mortgage insurance premium, and escrow deficit, of
$78,115.71, plus interest at six percent annum.” Trial Court Order,
8/6/2013. While the trial court states, in its subsequent opinion, that EMC
“submitted the original mortgage, the note, [and] a calculation of additional
interest consistent with the rate agreed in the mortgage[,]” we are unable to
verify this information based upon the record before us. See Trial Court
Opinion, 11/5/2013, at 6. Based upon all of the foregoing, we conclude that
the trial court abused its discretion in awarding additional interest payments
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in response to EMC’s motion to reassess damages. On remand, the trial
court may award post-judgment interest but, in doing so, it shall supplement
the record to include the note, as well as a computation of its additional
interest award that identifies the applicable interest rate, the operative
dates, and the balance upon which the interest is calculated.
We believe that an evidentiary hearing is necessary to develop a
record that supports any additional damages that are to be awarded to
EMC.12 We do so because we are reminded that “[g]enerally, default
judgments are not favored.” Atlantic Credit & Finance, Inc. v. Giuliana,
829 A.2d 340, 343 (Pa. Super. 2003) (citation omitted). It has been stated
in regard to default judgments that:
[t]he purpose of the rules in authorizing the entry of default
judgments is to prevent a dilatory defendant from impeding
the plaintiff in establishing his claim. The rules are not
primarily intended to provide the plaintiff with a
means of gaining a judgment without the difficulties
which arise from litigation....
Id. (emphasis added). The trial court cannot abbreviate the process for
modifying the amount of the default judgment when factual issues are
present.
____________________________________________
12
As previously noted, Appellant relies upon Pa.R.Civ.P. 1037(b)(1) in
arguing that EMC must prove its additional damages at a trial. Supra, at 7-
8. We note that Rule 1037 applies in cases in which damages are to be
calculated before default judgment is entered. In this case, EMC is seeking
to modify the amount of damages after default judgment was entered.
Thus, Rule 1037 is not applicable.
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Order vacated. Case remanded for an evidentiary hearing to reassess
damages in accordance with this opinion. Jurisdiction relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 4/15/2015
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