Citimortgage, Inc. v. Barbezat, E. , 2016 Pa. Super. 7 ( 2016 )

J. A34044/14
2016 PA Super 7CITIMORTGAGE, INC. : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
v. :
:
EDWARD F. BARBEZAT, : No. 536 MDA 2014
:
Appellant :
Appeal from the Order Entered February 25, 2014,
in the Court of Common Pleas of Berks County
Civil Division at No. 12-211627
BEFORE: FORD ELLIOTT, P.J.E., SHOGAN AND STABILE, JJ.
OPINION BY FORD ELLIOTT, P.J.E.: FILED JANUARY 07, 2016
Appellant Edward F. Barbezat appeals from the order entered
February 25, 2014, in the Court of Common Pleas of Berks County, granting
appellee CitiMortgage, Inc.’s motion for summary judgment in this in rem
mortgage foreclosure action. For the reasons set forth below, we affirm.
On August 15, 2003, in consideration of a loan in the principal amount
of $152,793, appellant executed and delivered a note in favor of and to
Fulton Bank. (See Complaint, 9/25/12, Exhibit B.) To secure his obligations
under the note, appellant concomitantly executed and delivered to Mortgage
Electronic Registration Systems, Inc. (“MERS”) (“solely as nominee for
Lender . . . and Lender’s successors and assigns”), a mortgage for the
property located at 119 Berkley Street, Reading, Berks County,
Pennsylvania, as security for the note. (Id., Exhibit C.) On August 2, 2012,
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MERS assigned the mortgage to appellee, which recorded the same on
August 6, 2012. (Id., Exhibit D.) Appellee also is in possession of the note
endorsed in blank. (Id., Exhibit B.)
On September 25, 2012, appellee filed a mortgage foreclosure
complaint against appellant, requesting judgment against him for,
inter alia, $137,625.55. (See id. at ¶ 9.) In the complaint, appellee
alleged that appellant had failed to make the scheduled payments on the
mortgage since April 1, 2012; and consequently, under the terms of the
mortgage agreement, the entire loan balance became due and payable.
(See id. at ¶ 8.) Moreover, appellee alleged it complied with the
requirements of Act 6 (41 P.S. § 403) by sending appellant a written notice
of intention to foreclose (“the Notice”). (See id. at ¶ 10.) Appellant filed an
answer to the complaint, generally denying appellee’s averments and raising
new matter.
On November 18, 2013, appellee moved for summary judgment
against appellant on the basis that appellant (1) failed to raise a genuine
issue of material fact in his answer and new matter and (2) admitted all
material allegations against him by virtue of his general denials. (See
motion for summary judgment, 11/18/13 at ¶¶ 2, 12.)
Objecting to appellee’s summary judgment motion, appellant raised
two principal defenses. First, he argued appellee failed to comply with Act 6.
Specifically, appellant argued that appellee sent the Notice on June 21,
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2012, when appellee did not own the debt because MERS did not assign the
mortgage to appellee until August 2, 2012. (Appellant’s response to
summary judgment, 12/13/13 at ¶¶ 38-42.) Appellant argued that the
Notice was defective because appellee’s name incorrectly appeared thereon.
Second, appellant argued that appellee lacked standing to bring this
foreclosure action because the mortgage and the note sub judice were
insufficient to establish appellee’s ownership of the debt relating to the
subject property. (Id. at ¶¶ 66-72.)
On February 25, 2014, the trial court granted with prejudice appellee’s
motion for summary judgment. In a memorandum of law accompanying its
order, the trial court determined as meritless appellant’s challenge to the
Notice. Particularly, the trial court concluded Act 6 did not require that the
actual mortgagee be named in the notice. (Trial court memorandum of law,
2/25/14 at 1.) The trial court also concluded that, based on the record,
appellee established its ownership of the debt. In this regard, the trial court
noted appellee was “the holder[] of a valid, recorded assignment of
mortgage.” (Id.) Moreover, the trial court determined that appellant failed
to offer any evidence beyond what was alleged in his pleadings to support
his contention that appellee was not a real party in interest. (Id. at 2.)
Appellant timely appealed to this court. Following appellant’s filing of
a Pa.R.A.P. 1925(b) statement, the trial court issued a Rule 1925(a) opinion,
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wherein it largely incorporated the reasoning set forth in its February 25,
2014 memorandum of law.
On appeal, appellant argues the trial court erred in granting appellee’s
summary judgment motion because (a) appellee lacked standing to initiate
the action, and (b) appellee served on appellant a deficient Act 6 notice of
intention to foreclose. (Appellant’s brief at 3, 7.)
Against this background, we are mindful that:
[o]ur scope of review of a trial court’s order granting
or denying summary judgment is plenary, and our
standard of review is clear: the trial court’s order
will be reversed only where it is established that the
court committed an error of law or abused its
discretion.
Summary judgment is appropriate only when the
record clearly shows that there is no genuine issue of
material fact and that the moving party is entitled to
judgment as a matter of law. The reviewing court
must view the record in the light most favorable to
the nonmoving party and resolve all doubts as to the
existence of a genuine issue of material fact against
the moving party. Only when the facts are so clear
that reasonable minds could not differ can a trial
court properly enter summary judgment.
Hovis v. Sunoco, Inc., 64 A.3d 1078, 1081 (Pa.Super. 2013), quoting
Cassel-Hess v. Hoffer, 44 A.3d 80, 84-85 (Pa.Super. 2012). Summary
judgment in mortgage foreclosure actions is subject to the same rules as
any other civil action. See Pa.R.C.P. 1141(b).
Appellant’s first argument that appellee lacked standing to bring the
underlying foreclosure action is premised upon appellant’s assertion that
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appellee never owned the alleged debt. Appellant asserts that appellee did
not establish it possessed a valid assignment of the mortgage, and that the
note was never assigned or otherwise transferred to appellee. (Appellant’s
brief at 3, 6.) Appellant therefore asserts that appellee was not the real
party in interest and lacked standing to bring this action. (Id.)
Pennsylvania Rule of Civil Procedure 2002 provides, “[e]xcept as
otherwise provided . . . all actions shall be prosecuted by and in the name of
the real party in interest, without distinction between contracts under seal
and parol contracts.” Pa.R.C.P. 2002(a); see also J.P. Morgan Chase
Bank, N.A. v. Murray, 63 A.3d 1258, 1258 (Pa.Super. 2013) (finding a
debtor’s claim that appellee bank was not a real party in interest to bring
foreclosure action was a challenge to appellee’s standing). “[A] real party in
interest is a [p]erson who will be entitled to benefits of an action if
successful. . . . [A] party is a real party in interest if it has the legal right
under the applicable substantive law to enforce the claim in question.”
U.S. Bank, N.A. v. Mallory, 982 A.2d 986, 993-994 (Pa.Super. 2009)
(citation and quotation marks omitted; some brackets in original).
In a mortgage foreclosure action, the mortgagee is the real party in
interest. See Wells Fargo Bank, N.A. v. Lupori, 8 A.3d 919, 922 n.3
(Pa.Super. 2010). This is made evident under our Pennsylvania Rules of
Civil Procedure governing actions in mortgage foreclosure that require a
plaintiff in a mortgage foreclosure action specifically to name the parties to
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the mortgage and the fact of any assignments. Pa.R.C.P. 1147. A person
foreclosing on a mortgage, however, also must own or hold the note. This is
so because a mortgage is only the security instrument that ensures
repayment of the indebtedness under a note to real property. See
Carpenter v. Longan, 83 U.S. 271, 275 (1872) (noting “all authorities
agree the debt is the principal thing and the mortgage an accessory.”). A
mortgage can have no separate existence. Id. When a note is paid, the
mortgage expires. Id. On the other hand, a person may choose to proceed
in an action only upon a note and forego an action in foreclosure upon the
collateral pledged to secure repayment of the note. See Harper v. Lukens,
112 A. 636, 637 (Pa. 1921) (noting “as suit is expressly based upon the
note, it was not necessary to prove the agreement as to the collateral.”).
For our instant purposes, this is all to say that to establish standing in this
foreclosure action, appellee had to plead ownership of the mortgage under
Rule 1147, and have the right to make demand upon the note secured by
the mortgage.1
Based upon the record evidence produced by appellee in support of its
motion for summary judgment, we reject appellant’s first argument. Here,
appellee not only averred, but also produced evidence that it was the holder
1
The rules relating to mortgage foreclosure actions do not expressly require
that the existence of the note and its holder be pled in the action.
Nonetheless, a mortgagee must hold the note secured by a mortgage to
foreclose upon a property. “The note and mortgage are inseparable; the
former as essential, the latter as an incident.” Longan, 83 U.S. at 274.
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of the mortgage. Specifically, appellee alleged in its complaint that
“[Appellee] is [a] proper party . . . by way of an Assignment of Mortgage
recorded August 6, 2012 under Instrument 2012032210.” (Complaint,
9/25/12 at ¶ 6.) Appellee produced copies of the original recorded
mortgage and its recorded assignment to appellee. (Id. at ¶ 4-7.) Where
an assignment is effective, the assignee stands in the shoes of the assignor
and assumes all of his rights. See Smith v. Cumberland Group, Ltd., 687
A.2d 1167, 1172 (Pa.Super. 1997). Accordingly, the uncontroverted
evidence of record indicates appellee properly held the mortgage by way of
assignment from MERS. We note also, although appellant argues a lack of
standing in appellee to assert rights under the mortgage, appellant offers no
evidence in opposition to the motion for summary judgment to establish a
genuine issue of material fact as to appellee’s ownership of the mortgage.
Appellant’s argument that appellee cannot establish ownership of the
note, because it was never assigned or otherwise transferred to appellee, is
similarly without merit. The note produced by appellee in this case identifies
appellant as the “Borrower” and Fulton Bank as the “Lender.” The note was
endorsed by Fulton Bank without recourse to the order of Principal
Residential Mortgage Inc. (“PMI”). PMI in turn endorsed the note without
recourse in blank. A note endorsed in blank becomes payable to “bearer”
and may be negotiated by transfer of possession alone until specially
endorsed. See 13 Pa.C.S.A. §§ 3109(a), 3205(b). The note as a negotiable
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instrument entitles the holder of the note to enforcement of the obligation.
See 13 Pa.C.S.A. §§ 3109(a), 3301. Thus, appellant’s argument that
ownership of the note cannot be established in appellee because there was
no formal assignment or transfer is unavailing, because “the chain of
possession by which [a party] c[o]me[s] to hold the [n]ote [is] immaterial to
its enforceability by [the party].” Murray, 63 A.3d at 1266; see Bank of
America, N.A. v. Gibson, 102 A.3d 462, 466 (Pa.Super. 2014) (rejecting
an identical argument). Appellee, as the holder of the note, a negotiable
instrument not challenged herein, was entitled to make demand upon and to
enforce the obligations under the note. Accordingly, given appellee’s
uncontested ownership of the mortgage and possession of the note, the trial
court did not err in concluding that appellee had standing as a real party in
interest to bring the underlying foreclosure action.
We observe that, although this appeal lies from the trial court’s grant
of summary judgment in favor of appellee, appellant anchors his standing
argument on rules governing pleadings. If appellant desired to continue to
challenge appellee’s standing at the summary judgment stage based upon
his assertion appellee did not own the debt, it was incumbent upon the
appellant to produce evidence to demonstrate there was a material issue of
fact in this regard to defeat appellee’s summary judgment motion.
Appellant’s attempt to continue to challenge standing based upon the
averments of his pleadings does not suffice for summary judgment
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purposes. See Pa.R.C.P. 1035.3(a) (an adverse party may not rest upon
the mere averments or denials in its pleadings). Indeed, as the trial court
noted, appellant fails to point to any evidence of record to demonstrate the
existence of any genuine issue of material fact with respect to appellee’s
ownership of the debt at the summary judgment stage. (See trial court
memorandum of law, 2/25/14 at 2 (“[Appellant] rests on [his] pleadings and
does not present any specific facts indicating that a valid assignment does
not exist, nor provides any indication that further discovery would uncover
those facts[.]”).) To successfully defend against appellee’s summary
judgment motion, it was incumbent upon appellant to establish “one or more
issues of fact arising from evidence in the record controverting the evidence
cited in support of the motion or from a challenge to the credibility of one or
more witnesses testifying in support of the motion.” Pa.R.C.P. 1035.3(a)(1);
see Marks v. Tasman, 589 A.2d 205, 206 (Pa. 1991) (decided under
materially similar predecessor Rule 1035(d)). Here, appellant merely alleges
in his new matter and in response to the summary judgment motion that
appellee has not established ownership of the debt. He points to no
evidence in the record to support this bare assertion, despite the
above-recited evidence of record. Accordingly, no dispute exists as to any
genuine issues of material fact with respect to appellee’s ownership of the
debt. Appellee had standing to bring the underlying foreclosure action.
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In considering appellant’s second argument, we conclude the trial
court did not err in determining that the Notice sub judice under Act 6 was
proper.
In 1974, the Pennsylvania Legislature enacted Act No. 6, 41 P.S. § 101
et seq., commonly referred to as “Act 6.” Bankers Trust Co. v. Foust,
621 A.2d 1054, 1056 (Pa.Super. 1993), appeal denied, 631 A.2d 1007 (Pa.
1993). “Act 6 is essentially a comprehensive interest and usury law with
numerous functions.” Id. (citation omitted). The Act’s provision regulating
notice of foreclosure for owners of relatively modest homes was intended to
afford homeowners who are in dire economic straits a measure of protection
from overly zealous residential mortgage lenders. Id.Section 403 of Act 6, setting forth the requirements of a notice of
intention to foreclose, provides as follows:
(a) Before any residential mortgage lender may
accelerate the maturity of any residential
mortgage obligation, commence any legal
action including mortgage foreclosure to
recover under such obligation, or take
possession of any security of the residential
mortgage debtor for such residential mortgage
obligation, such person shall give the
residential mortgage debtor notice of such
intention at least thirty days in advance as
provided in this section.
(b) Notice of intention to take action as specified in
subsection (a) of this section shall be in
writing, sent to the residential mortgage
debtor by registered or certified mail at his last
known address and, if different, at the
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residence which is the subject of the residential
mortgage.
(c) The written notice shall clearly and
conspicuously state:
(1) The particular obligation or real
estate security interest;
(2) The nature of the default claimed;
(3) The right of the debtor to cure the
default as provided in section 404
of this act and exactly what
performance including what sum of
money, if any, must be tendered to
cure the default;
(4) The time within which the debtor
must cure the default;
(5) The method or methods by which
the debtor's ownership or
possession of the real estate may
be terminated; and
(6) The right of the debtor, if any, to
transfer the real estate to another
person subject to the security
interest or to refinance the
obligation and of the transferee's
right, if any, to cure the default.
(d) The notice of intention to foreclose provided in
this section shall not be required where the
residential mortgage debtor, has abandoned or
voluntarily surrendered the property which is
the subject of a residential mortgage.
41 P.S. § 403.
“Residential mortgage lender” means any person
who lends money or extends or grants credit and
obtains a residential mortgage to assure payment of
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the debt. The term shall also include the holder at
any time of a residential mortgage obligation.
41 P.S. § 101.
Appellant claims that he was never properly notified of the foreclosure
action because the Notice named the incorrect lender. (Appellant’s brief at
8.) Appellant argues that appellee did not own the debt at the time the
Notice was served on appellant. (Id.) Appellee sent the Notice on or about
June 21, 2012, but the mortgage was not assigned to appellee until
August 2, 2012. (Id.) Therefore, according to appellant, the Notice cannot
possibly set forth the obligations owed by appellant. (Id.) The listed
obligation is to appellee, which did not own the debt at the time. (Id. at
8-9.) Appellant contends that appellee identifying itself as the mortgagee
prior to the recordation of its assignment of the mortgage, proves defective
under Section 403(c)(1). Appellee does not deny that its name appears on
the Notice rather than the name of the original mortgagee, Fulton Bank.
(Trial court opinion, 5/6/14 at 2.)
Appellant’s claim that the Notice was defective because appellee was
not the “residential mortgage lender” at the time of the June 21, 2012 Act 6
Notice improperly conflates the purposes of the Act 6 Notice with the date
for the recording of the assignment of the mortgage. As stated above, the
purpose of 41 P.S. § 403(a), is to provide a measure of protection to
residential homeowners who are in dire economic straits from overly zealous
residential mortgage lenders. By requiring notice of deficiency and an
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opportunity to cure, mortgage lenders cannot immediately foreclose when a
deficiency occurs. The specific notice requirements are all directed to the
interest of the debtor, identifying the debt, the nature of the default, and
relief and remedies available to the debtor to cure the deficiency.
There is no requirement that the residential mortgage lender be
specifically identified and a servicing agent can provide such notice. See
Federal National Mortgage Assoc. v. Woody, 25 Pa.D.&C.3d 604, 606
(Phila. 1982) (“Close scrutiny of § 403 of the act fails to reveal any
requirement therein that the actual mortgagee be named in the notice.”).
The chain of possession of the note and the mortgage is not required to be
disclosed. How the holder gained possession of the note and mortgage is
simply not a part of the protections provided to the debtor.2 Section 403
2
This interpretation is consistent with the real world buying and selling of
mortgage instruments. It is not uncommon for a mortgage instrument to
change hands frequently through the life of the mortgage. Such transfers
have little to do with the terms and conditions of the mortgage for the
debtor. As demonstrated by this case, appellant was on notice at the time
of the closing in 2003 that Fulton Bank held the note and that MERS as
nominee for Fulton Bank held the mortgage on his property.
MERS is a national electronic loan registry system
that permits its members to freely transfer, among
themselves, the promissory notes associated with
mortgages, while MERS remains the mortgagee of
record in public land records as “nominee” for the
note holder and its successors and assigns. MERS
facilitates the secondary market for mortgages by
permitting its members to transfer the beneficial
interest associated with a mortgage—that is, the
right to repayment pursuant to the terms of the
promissory note—to one another, recording such
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simply puts the residential homeowner on notice that the delinquent
mortgage is subject to foreclosure at some future date unless the owner
takes some action. It is not a foreclosure action, and therefore the
requirements of such an action are not necessary to establish proper notice.
Furthermore, as appellee states, the date of the recording of the
mortgage assignment is of no consequence. (Appellee’s brief at 9.)
Section 101 defines a residential mortgage lender to include the holder “at
any time” of a residential mortgage obligation. (Id.) Appellee properly pled
ownership of the note and the mortgage in its complaint. As the holder in
due course of a note endorsed in blank, no formal assignment or transfer is
necessary; the chain of possession is immaterial to the note’s enforceability.
As the mortgage follows the note, appellee was the owner of both. 3
transfers in the MERS database to notify one another
and establish priority, instead of recording such
transfers as mortgage assignments in local land
recording offices. It was created, in part, to reduce
costs associated with the transfer of notes secured
by mortgages by permitting note holders to avoid
recording fees.
Montgomery County, Pa. v. MERSCORP Inc., 795 F.3d 372, 374 (3rd Cir.
(Pa.)) (2015) (footnote omitted) (deciding that 21 Pa.C.S.A. § 351 did not
require mandatory recording of assignment of a mortgage in Pennsylvania).
3
Although MERS assigned the mortgage to appellee in August 2012, one
cannot say with certainty when appellee came into possession of the note
and mortgage. One cannot find that such possession did not exist in June
2012 when the Act 6 Notice was sent. Additionally, as set forth in Mallory,
supra, once in possession of the note and mortgage, a lien holder can
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Order affirmed.
Shogan, J. joins the Opinion.
Stabile, J. files a Concurring and Dissenting Opinion.
institute foreclosure proceedings even before a formal assignment of the
mortgage takes place.
The “crux” of Appellant’s argument is that, before
Appellee could file a complaint in mortgage
foreclosure, Appellee was required to have executed
and recorded a written assignment from MERS,
thereby indicating it was the real party in interest.
We reject this argument.
....
In the case sub judice, as Appellee averred in
its complaint, it was the “legal owner” of the
mortgage, thereby indicating it was the holder of the
mortgage’s note. Moreover, prior to the entry of
default judgment, as Appellee indicated in its
complaint it was going to do, an assignment of the
mortgage was executed between Appellee and
MERS. . . . Simply put, contrary to Appellant’s
suggestion, the recording of an assignment of the
mortgage was not a prerequisite to Appellee having
standing to seek enforcement of the mortgage via a
mortgage foreclosure action.
Mallory, 982 A.2d at 993-994 (footnotes omitted). Accord Fusco v. Hill
Financial Savings Association, 683 A.2d 677, 681 (Pa.Super. 1996);
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 1/7/2016
Commonwealth, Pennsylvania Game Commission v. H.I. Ulrich, 565
A.2d 859, 862 (Pa.Cmwlth. 1989).
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