Pappas v. Eastern Savings Bank, Fsb, No. 05-CV-1062.

• Decision Date: 07 December 2006
• Docket Number: No. 05-CV-1062.
• Citation: 911 A.2d 1230
• Parties: Achilles PAPPAS et al., Appellants, v. EASTERN SAVINGS BANK, FSB, et al., Appellees.
• Court: D.C. Court of Appeals

911 A.2d 1230

Achilles PAPPAS et al., Appellants, v. EASTERN SAVINGS BANK, FSB, et al., Appellees.

No. 05-CV-1062.

District of Columbia Court of Appeals.

Argued October 25, 2006.

Decided December 7, 2006.

Daniel S. Roth, Washington, DC, with whom Kurt Berlin, was on the brief, for appellants.

G. Vann Canada, Jr., Rockville, MD, for appellees.

Before FISHER and THOMPSON, Associate Judges, and NEWMAN, Senior Judge.

THOMPSON, Associate Judge:

This case is the continuation of a dispute that arose several years ago between lienholders of a property located at 2507 33rd Street, S.E. ("the 33rd Street property"). Appellants, who obtained judgment liens against the 33rd Street property to satisfy certain debts, complain that their liens were not satisfied from the proceeds of a foreclosure sale of the property conducted at the instance of appellee/mortgagee Eastern Savings Bank ("ESB"), and ask that the sale be set aside. The trial court granted summary judgment in favor of ESB. We affirm.

I. Background

The early history of this dispute is set out in Eastern Savings Bank, FSB v. Pappas, 829 A.2d 953 (D.C.2003) ("Pappas I"). We borrow liberally from that description.

In 1980, Aphrodite Pappas, who was the owner of the 33rd Street property, conveyed the property to Vasiliki Pappas in fee simple. Soon thereafter, Aphrodite Pappas died, leaving her three children as heirs.¹ Vasiliki Pappas was named personal representative of the Aphrodite Pappas estate. In 1986, however, the Probate Court removed Vasiliki Pappas as personal representative because of numerous improprieties with respect to her fiduciary responsibilities.

On April 18, 1990, Vasiliki Pappas executed a deed of trust on the 33rd Street property to secure a loan made to her by CitiBank Federal Savings Bank ("Citi-Bank") in the amount of $159,000, which deed of trust was recorded at about the same time. In 1992, and again in 1996, the successor personal representative of the Aphrodite Pappas estate obtained judgments against Vasiliki Pappas personally for breach of fiduciary duty. These judgments, too, were duly recorded in the land records, and they became effective as judgment liens against all real property titled in the name of Vasiliki Pappas, including the 33rd Street property. The record discloses that the total value of those liens is in excess of $240,000. In March 1999, the Probate Court ordered that portions of the judgments obtained by the successor personal representative of the Aphrodite Pappas estate be distributed to the beneficiaries, the Pappas heirs.²

By 1998, Vasiliki Pappas was in default on the CitiBank deed of trust, and Citi-Bank instituted foreclosure proceeding. In November 1998, Vasiliki Pappas secured a loan from ESB and executed a promissory note in the amount of $168,000 payable to ESB, $153,800 of which was used to refinance and discharge the earlier CitiBank loan. This note was secured by a new deed of trust with respect to the 33rd Street property, which was recorded on November 6, 1998. The CitiBank deed of trust was released by an instrument dated September 15, 1999, and recorded January 15, 2000. The interest rate on CitiBank's promissory note had been approximately 10.5%; the rate on ESB's note was 14.25%.

Soon after executing the promissory note and deed of trust in favor of ESB, Vasiliki Pappas defaulted on the ESB loan. ESB prepared to foreclose. In connection with that preparation, counsel for ESB caused the title to be examined, and ESB learned for the first time that there were judgments in favor of the Pappas heirs against Vasiliki Pappas individually and also learned the amount of the total judgment debt. The record discloses that on February 4, 2000, a lawyer for the estate of Frances Papageorge (one of the Pappas heirs), wrote to ESB's counsel about ESB's foreclosure sale notice published sometime prior to that date, noting that the foreclosure sale was being delayed because of Vasiliki Pappas' bankruptcy petition and inquiring about how ESB would handle the judgment liens.

On December 19, 2000, ESB brought a suit for declaratory relief against the Pappas heirs in their individual names, claiming that its lien had priority over the heirs' judgment liens under the principle of equitable subrogation. The trial court held that the heirs' liens, which were recorded first, were first in right, but this court reversed, holding that ESB, having paid CitiBank to satisfy Vasiliki Pappas' indebtedness to CitiBank, had the superior lien by virtue of the doctrine of equitable subrogation. See Pappas I, 829 A.2d at 960.³ We remanded the case to the trial court to determine "whether, and to what extent, [ESB] is entitled to equitable subrogation for interest on the $153,800 it paid Citi-Bank to release CitiBank's Deed of Trust." Id. at 960 n. 13 (emphasis in the original). The trial court eventually determined, by order dated January 27, 2005, that ESB's superior lien was to the extent of the original $153,800 indebtedness plus interest at 10.5%, for a total of $181,100.71.

In the meantime—while Pappas I was pending in the trial court, and before the appeal to this court and the resultant remand—ESB proceeded with foreclosure against the 33rd Street property. The foreclosure notice was sent to Vasiliki Pappas on March 16, 2001. Notice was also sent on that date to the (former) personal representative of the closed Aphrodite Pappas estate (which was the record holder of the 1992 and 1996 judgment liens). No notice was sent to the individual Pappas heirs. Notice of the foreclosure was published in the newspaper beginning on March 23, 2001. On April 3, 2001, the property's substitute trustees (co-appellees here) sold the property to ESB, the high bidder at the sale, for $171,000—an amount that, in light of the trial court's determination about the extent of ESB's superior lien, turned out to be less than the amount of the superior lien and insufficient to cover any portion of the Pappas heirs' subordinate judgment liens.⁴

On June 19, 2001, the Pappas heirs filed suit (a "creditors' bill") in the Superior Court against ESB, the substitute trustees, and Vasiliki Pappas, asserting that their judgment liens had not been satisfied from the foreclosure sale proceeds and asking the court to set aside the foreclosure sale and to conduct a judicial sale of the property from which their liens could be satisfied. ESB counterclaimed for a declaration as to the rights between the parties and reasserted its claim of subrogation. The trial court stayed the proceedings until the conclusion of Pappas I, and thereafter, on August 4, 2005, entered summary judgment for ESB. The court held that appellants' judgment liens had been "extinguished by the foreclosure sale conducted on April 3, 2001."

There followed this appeal. The Pappas appellants do not challenge the holding that ESB had a subrogation lien superior to theirs to the extent of $181,100.71, but contend that ESB waived or should be estopped from asserting its subrogation rights. Appellants also argue that their own judgment liens were not extinguished through the April 3, 2001 foreclosure sale. They seek to invalidate the April 3, 2001 sale, and pray for a judicial foreclosure sale through which their liens might be satisfied.

II. Analysis

A. The Claim That ESB Should Be Estopped from Invoking Its Subrogation Rights, and That It Waived Subrogation by Proceeding with a Non-Judicial Foreclosure

The general rule in this jurisdiction is that where a valid foreclosure sale yields proceeds insufficient to satisfy a priority lien, the result is extinguishment of subordinate liens. See Waco Scaffold & Shoring Co. v. 425 Eye St. Assocs., 355 A.2d 780, 783 (D.C.1976) ("Since the purchase price of the property was less than the amount of advances made under the loan, which constituted a superior interest, appellants' liens were extinguished and their claims were properly dismissed."); see also American Century Mortgage Investors v. Unionamerica Mortgage & Equity Trust, 355 A.2d 563, 566 (D.C.1976) ("The total amount derived from the sale of the property, when credited against appellees' liens, was insufficient to satisfy these prior liens, and therefore appellant's lien was extinguished."). Appellants contend, however, that ESB's foreclosure sale did not result in extinguishment of their liens. They assert that ESB foreclosed on the deed of trust that it recorded in 1998 rather than the deed of trust recorded by CitiBank in 1990, and they argue that ESB could not "foreclose on [its] junior lien, disregard the senior liens, and then contend that the latter were wiped out by the foreclosure."⁵ At the very least, appellants assert, there were "material facts in dispute as to whether the foreclosing lien was junior or senior to the judgment liens" that should have precluded summary judgment.

We agree with appellants that ESB must be deemed to have foreclosed under the 1998 deed of trust, because the 1990 deed of trust had been satisfied and released. However, we reject appellants' assertion that ESB must be deemed to have foreclosed solely on its junior lien and to have waived subrogation.

Appellants' reasoning is that the information that ESB provided in the various foreclosure sale notices implied that ESB intended to foreclose only on its junior lien, and that ESB should now be estopped from asserting otherwise.⁶ They argue that the Notice of Foreclosure Sale—which stated a "balance owed" of $232,747.08 as of February 28, 2001, and a cure amount of $51,273.05—was defective because the "sums stated in the Notice of Foreclosure as the `balance owed' and `minimum balance to cure' were not based on the $153,000 ESB paid to retire the CitiBank note or yearly interest [on that note] at 10.5%, but on the $168,000 principal of the ESB loan and yearly interest at 14.25%, with late fees and other charges applicable under the [1998] ESB note and trust."⁷

We discern nothing in the...