In re Sparkman, Bankruptcy No. 80-00033G

• Decision Date: 02 March 1981
• Docket Number: Bankruptcy No. 80-00033G,Adv. No. 80-0578G.
• Citation: 9 BR 359
• Parties: In re Andre SPARKMAN, Debtor. ADMINISTRATOR OF VETERANS' AFFAIRS, Veterans' Administration, and The Lomas & Nettleton Company, Plaintiffs, v. Andre SPARKMAN, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

9 B.R. 359 (1981)

In re Andre SPARKMAN, Debtor ADMINISTRATOR OF VETERANS' AFFAIRS, Veterans' Administration, and The Lomas & Nettleton Company, Plaintiffs, v. Andre SPARKMAN, Defendant.

Bankruptcy No. 80-00033G, Adv. No. 80-0578G.

United States Bankruptcy Court, E.D. Pennsylvania.

March 2, 1981.

Richard J. Stout, Asst. U.S. Atty., Philadelphia, Pa., for plaintiff, Administrator of Veterans' Affairs, Veterans' Administration.

David B. Comroe, Robinson, Greenberg & Lipman, Philadelphia, Pa., for plaintiff, The Lomas & Nettleton Co.

Terris J. Green, Philadelphia, Pa., for defendant/debtor, Andre Sparkman.

Margaret Graham, Philadelphia, Pa., Trustee.

OPINION

EMIL F. GOLDHABER, Bankruptcy Judge:

The question before us is whether a mortgagee and the Veterans' Administration ("the VA"), to whom the mortgagee assigned its bid at sheriff's sale, are entitled to relief from the automatic stay provisions of § 362(a) of the Bankruptcy Code ("the Code") to permit them to complete foreclosure on premises owned by the debtor. We conclude that the mortgagee and the VA are entitled to the relief sought because the debtor lacks any interest in the foreclosed property since it was sold at sheriff's sale and all acts necessary under Pennsylvania law to divest the debtor of his interest in the property were taken prior to the filing of the debtor's petition under chapter 13 of the Code. We will, therefore, permit the mortgagee and the VA to complete the foreclosure action — the only remaining part of which is the ministerial act of having the sheriff record the deed.

The facts of the instant case are as follows:¹ On September 16, 1976, one Willie B. Sparkman executed and delivered a note and mortgage to The Lomas and Nettleton Company ("the mortgagee") on premises at 1819 South 57th Street, Philadelphia, Pennsylvania. That mortgage was duly recorded. Sometime thereafter Willie Sparkman executed and delivered a deed to those premises to his son, Andre C. Sparkman ("the debtor") which deed was recorded on May 7, 1979. There was no formal assumption of the mortgage by the debtor although he testified that he told his father that he would make the payments due thereunder.

From January 1, 1979, no mortgage payments having been made by either Willie Sparkman or the debtor, under the terms of the mortgage the entire principal, interest and costs became due. Accordingly, notice of intention to foreclose was sent by the mortgagee in accordance with Pennsylvania law and the mortgagee instituted a complaint in foreclosure in the Court of Common Pleas of Philadelphia County, against Willie Sparkman, as mortgagor, and against the debtor, as owner of the premises. A default judgment was entered therein in favor of the mortgagee against Willie Sparkman and the debtor on September 5, 1979, in the amount of $11,509.00 and, on that same day, a writ of execution was filed with the prothonotary of Philadelphia County and delivered to the sheriff of that county for service. All other documents required by Pennsylvania law to be filed were also filed at that time. After the appropriate advertisement, and in accordance with law, the sheriff scheduled the premises for sheriff's sale on Monday, November 5, 1979. At the request of Willie Sparkman and the debtor, the sale was postponed until Monday, December 3, 1979. At the sheriff's sale held on that date, the premises were sold to the mortgagee's attorney as attorney on the writ for the sheriff's upset price. On December 12, 1979, the mortgagee made settlement with the sheriff and delivered to him a form of deed, an assignment² and a transfer tax affidavit. The sheriff signed the deed on December 17, 1979, and delivered it to the prothonotary who acknowledged it that day and returned it to the sheriff to be recorded.

On January 5, 1980, the debtor filed a petition for an adjustment of his debts under chapter 13 of the Code. The sheriff has since that time refused to record the deed, fearing that such action would be in violation of the automatic stay provisions of § 362(a) of the Code. 11 U.S.C. § 362(a). On October 1, 1980, the mortgagee filed the instant complaint³ seeking relief from the automatic stay and other relief.⁴ After several motions and hearings — which included the joinder of the VA as a party plaintiff⁵ — the merits of that complaint were finally presented at trial on January 27, 1981.

The mortgagee asserts that under Pennsylvania law title had passed from the debtor to the mortgagee once the sheriff's sale was completed and the various documents were signed and filed. It contends that the remaining act — that of recording the deed — was merely a ministerial act that did not detract from the title which it held (and had assigned to the VA). Therefore, the mortgagee contends that the debtor lacks any interest or equity in the property, thereby entitling the mortgagee to relief from the stay pursuant to § 362(d)(2).⁶ Furthermore, the mortgagee contends that the debtor had no equity in the property, even before the sheriff's sale. In support of this contention the mortgagee offered evidence that the debt owed to it was over $11,000 while the value of the property was $9,000, as evidenced by a transfer tax affidavit executed by the attorney for the debtor and Willie Sparkman at the time the property was transferred to the debtor.

In response to the mortgagee's assertions, the debtor contends that the mortgagee is no longer a party in interest since it has assigned its rights in the property to the VA. The debtor also maintains that there was equity in the property (the fair market value being allegedly greater than the mortgage debt) and that the property is necessary for the debtor's effective reorganization.

With respect to the debtor's first contention — that the mortgagee is not a party in interest — we conclude that it is without merit. Under the statutes and regulations governing VA-guaranteed loans, the mortgagee is required to cooperate with the VA in pursuing their remedies on default of any VA-guaranteed mortgage.⁷ We conclude, therefore, that the mortgagee has sufficient interest to entitle it to be a party to the instant complaint. However, even if we were to conclude that the mortgagee did not have such an interest, the VA clearly is a party in interest, as the assignee of the bid at sheriff's sale. The VA is a plaintiff in this complaint and has joined the mortgagee in...