In re Herbert
| Decision Date | 26 May 1988 |
| Docket Number | Bankruptcy No. 87-02650S,Adv. No. 88-0046S. |
| Citation | 86 BR 433 |
| Parties | In re Namie HERBERT a/k/a Tammy Herbert, Debtor. Namie HERBERT a/k/a Tammy Herbert, Plaintiff, v. FEDERAL NATIONAL MORTGAGE ASSOCIATION and GMAC Mortgage Corporation, Defendants. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Irwin Trauss, Community Legal Services, Inc., Philadelphia, Pa., for debtor/plaintiff.
Thomas I. Puleo, Philadelphia, Pa., for defendant.
Edward Sparkman, Philadelphia, Pa., Standing Chapter 13 Trustee.
We herein address an adversary proceeding attacking a Proof of Claim and a Motion to Disburse Proceeds from Sale of Real Estate filed by the Debtor's mortgagee in the main bankruptcy case which present the same question: how much of the proceeds of a post-petition sale of the Debtor's realty is the mortgagee entitled? We conclude as follows: (1) The mortgage is merged with a foreclosure judgment obtained by the mortgagee against the Debtor, entitling a mortgagee to only statutory interest subsequent to the entry of judgment, irrespective of the terms of the mortgage; (2) The foreclosure judgment must be allowed as of the date and in the sum at which damages were most recently reassessed, and hence legal interest runs only from the date of the reassessment to the date of the bankruptcy filing; (3) The mortgagee is entitled to its enumerated costs; and (4) The Debtor is entitled to a $1,000.00 recoupment against the mortgagee's claim because the Debtor denies receipt of a disclosure statement required by the federal Truth-in-Lending Act, 15 U.S.C. § 1601 et seq. () in the mortgage transaction, and the mortgagee is unable to establish its existence. Therefore, we conclude that the mortgagee is entitled to distribution of $34,779.62 from the sale proceeds, plus its share of the interest earned on the proceeds since settlement.
The underlying Chapter 13 bankruptcy case was filed on June 1, 1987. Apparently, it had two predecessor cases in our court: (1) Bankr. No. 82-02702K, a Chapter 7 filing by the Debtor and her now estranged husband, Stephen G. Herbert, on June 10, 1982, which resulted in a discharge on January 27, 1983; (2) Bankr. No. 84-03823K, a Chapter 13 filing by the Debtor only on November 2, 1984, which was dismissed on November 16, 1986. Shortly after the instant filing, on July 16, 1987, the Debtor filed a motion requesting permission to sell her home located at 12218 Rambler Road, Philadelphia, Pennsylvania, free and clear of any liens, which would then attach to the sale proceeds. The Debtor had purchased the home with her husband on August 7, 1978, and it was deeded to her alone on March 25, 1984. This motion was granted on July 21, 1987, and, on July 24, 1987, the home was sold. Proceeds of $41,147.29 were placed in an interest-bearing account by order of this court pending distribution.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (hereinafter referred to as "FNMA"), the Debtor's mortgagee, filed the motion in the main case presently before us on November 16, 1987, seeking, initially, a distribution of $36,397.99 to it from the sale proceeds.
On or about June 11, 1987, GMAC Mortgage Corp. (hereinafter referred to as "GMAC"), the servicer of FNMA's mortgage, filed a Proof of Claim in the amount of $37,429.82. On January 25, 1988, the Debtor filed the adversary proceeding before us, which raised an Objection to GMAC's Proof of Claim and sought to determine FNMA's rights in the sale proceeds. Among the Debtor's contentions as to why FNMA's claim should be reduced was a TILA recoupment claim.
The adversary proceeding was initially listed for trial on March 9, 1988. FNMA's motion, after several agreed continuances, came before us on March 2, 1988. The Debtor's request to continue this hearing and consolidate it with the trial of the adversary proceeding on March 9, 1988, was granted on the condition that both matters had to be tried on March 9, 1988, and they were. At the trial, the Debtor and Jana Janoske, a representative of GMAC, testified. At its conclusion, we entered an Order directing the Debtor and FNMA to file Briefs on or before April 8, 1988, and May 6, 1988, respectfully. The Debtor was granted permission to file a Reply Brief fifteen (15) days after service of GMAC's Brief. However, although GMAC filed its Brief on May 2, 1988, no Reply Brief was received until May 23, 1988.1
Although the matters before us include an adversary proceeding, there are no apparent material factual disputes, only disputes as to what legal consequences flow from these facts. We are therefore preparing our Opinion in narrative form.
On October 1, 1984, FNMA obtained a default judgment in a complaint to foreclose upon the mortgage of the Debtor and her husband. Although the original amount of the mortgage, dated August 7, 1978, was only $27,500.00, and the complaint prayed for damages in the amount of only $29,253.06, FNMA was permitted to assess damages at $31,504.19 in taking judgment. The Debtor's second bankruptcy filing halted the foreclosure sale on this judgment. Thereafter, the ruling of our district court in Hines v. Pettit, 638 F.Supp. 1269 (E.D.Pa.), on July 18, 1986, declared unconstitutional the practice of allowing parties plaintiff to assess damages merely by having the counsel present a praecipe to the Prothonotary reciting a higher figure than was prayed for in a complaint.
On January 23, 1987, and February 11, 1987, subsequent to the Hines decision and in the interval between the Debtor's two most recent bankruptcy cases, the state court reassessed FNMA's damages in the 1984 foreclosure action at $33,843.30. The Debtor appealed from this reassessment order, but this appeal was dismissed without prejudice to its reinstatement at the conclusion of the Debtor's bankruptcy. Additional costs of $1,224.15 were incurred by FNMA in the execution process thereafter, until the instant bankruptcy intervened to halt the sheriff's sale.
The Debtor argues that her mortgage merged with the foreclosure judgment entered on October 2, 1984, thus allowing the mortgagee to collect interest measured only at the Pennsylvania legal rate of six (6%) percent per annum thereafter. Since only $29,253.06 was sought in the original mortgage complaint, the Debtor claims, on authority of Hines, that only legal-rate interest may be added to this figure after October 2, 1984. The addition of this interest and the deduction of $5,908.04 in mortgage payments during the 1984 bankruptcy case yields a net sum of $27,556.80. Although the legitimacy of at least $1,212.15 of the costs is not disputed, the Debtor argues that a notation that "fees & costs none all paid" on one exhibit should eliminate these items from consideration.2
At the hearing, the Debtor produced a large volume of papers which she claimed were kept by her estranged husband in an envelope and were purported to be all of the papers received by the mortgagors at settlement. No Disclosure Statement, as required by the TILA, was among them. Ms. Janoske, the GMAC agent who testified, stated that, despite her efforts to locate same, no TILA disclosure statement had been located in GMAC's files. On the authority of our decision in In re Pinder, 83 B.R. 905, 912-14 (Bankr.E.D.Pa.1988), filed after this trial, the Debtor contends that she should receive an additional recoupment of $1,000.00, reducing FNMA's distribution from the proceeds to $26,556.80.
Not surprisingly, FNMA computes the sum due to it differently. Apparently calculating the balance due at the contract rate through to the present and adding the $1,224.15 sum for costs, it claims that it is entitled to distribution of $38,740.17. Attempts are made to distinguish Pinder because (1) The Debtor here was purportedly less certain as to whether she received a disclosure statement than was the Pinder Debtor; and (2) The Complaint recites only a violation of TILA in disclosures given, not the absence of a Disclosure Statement.
The Debtor is, in our view, correct in her assertion that "the mortgage is merged in a judgment entered in a mortgage foreclosure action" in Pennsylvania. 25 P.L.E. 85 (1960). See Murray v. Weigle, 111 Pa. 159, 164, 11 A. 781, 782 (1888); and Hartman v. Ogborn, 54 Pa. 120, 122-23 (1867). Our Court of Appeals has recently recognized that the same rule applies "in New Jersey, as in many states, . . ." In re Roach, 824 F.2d 1370, 1377 (3d Cir.1987). See, e.g., In re Coleman, 82 B.R. 15, 17 (Bankr.D.N.J.1988); In re McKillips, 81 B.R. 454, 455-56 (Bankr.N.D.Ill.1987); In re Brown, 73 B.R. 306, 308 (Bankr.D.N.J. 1987); In re Schlecht, 36 B.R. 236, 240 (Bankr.D.Alas.1983); and United Companies Financial Corp. v. Brantley, 6 B.R. 178, 189 (Bankr.N.D.Fla.1980).
The Debtor also appears quite correct in her assertion that, after entry of judgment, "a judgment creditor is entitled to interest on the judgment at the legal rate only, even if the rate of interest on the obligation on which the judgment is entered was greater." 10 STANDARD PA.PRAC. 2d 473 (1982). See Miller v. Reading, 369 Pa. 471, 87 A.2d 223 (1952); and Dunbar v. Dunbar, 9 D. & C.3d 214, 218 (Alleg.Co.C. P. 1977). Also pertinent to the instant case on these points is the recent decision in Chase Home Mortgage Corp. of the Southeast v. Good, 370 Pa.Super. 570, 537 A.2d 22 (1988), cited by FNMA in its Brief. There, the court allowed mortgagors to pay off the amount of the foreclosure judgment as entered without additional post-judgment interest at the rate established in the mortgage, because the mortgagee had never taken any steps to reassess the damages awarded in the judgment prior to the payoff.
The only response of...
To continue reading
Request your trial