Local Bank Faces Reprimand Over Act 6 And 91 Foreclosure
In Wachovia Bank v. Marone, the Philadelphia County Court of Common Pleas recently reprimanded a local bank for failing to give its borrowers Act 6...
4 min read
Alan Nochumson : Mar 28, 2005 9:00:00 AM
In a warning shot to attorneys who represent judgment creditors in Pennsylvania, the United States District Court for the Eastern District of Pennsylvania in Grillo v. BA Mortgage, LLC refused to dismiss a Section 1983 claim against a law firm that improperly facilitated the sale of a family home at a sheriff’s sale.
In the late 1980s, Mary and Samuel Grillos purchased their house in Bucks County, Pennsylvania. When the Grillos failed to make timely mortgage payments, BA Mortgage, LLC, the mortgage holder at the time, obtained a judgment in foreclosure in the amount of $153,910.86. Afterwards, BA Mortgage, LLC issued a writ of execution scheduling the home for sheriff’s sale.
Two days before the sale, the Grillos’ counsel hand delivered a certified check to Spear & Hoffman, the law firm representing BA Mortgage, LLC, for the amount indicated on the face of the writ. In addition to the check, Spear & Hoffman was provided with a letter demanding cancellation of the sale and satisfaction of the judgment and mortgage. A day later, after receiving no response from the letter sent the previous day, the Grillos’ counsel sent another letter to Spear & Hoffman reasserting their demands.
On the day of the sale, Spear & Hoffman hand delivered the certified check back to the Grillos’ counsel, with a letter stating that the check was insufficient to satisfy the judgment and mortgage. In the letter, Spear & Hoffman noted that the judgment amount had increased as a result of the accrued interest and costs associated with the litigation. According to Spear & Hoffman, the amount to satisfy the judgment and mortgage was $191,887.46. By the time the Grillos received the letter, the home had already been sold at the sheriff’s sale to BA Mortgage, LLC.
Subsequently thereafter, the Grillos received an eviction notice from the Federal Home Loan Mortgage Corporation (Fannie Mae), which purchased the home from BA Mortgage, LLC after the sheriff’s sale. On the same day, the Grillos filed a petition to stay eviction and to set aside the sheriff’s sale of the home.
The contentious litigation lasted for several years. At the trial level, the petition was denied. On appeal, the Superior Court of Pennsylvania reversed the trial court’s decision and granted the petition. After the Supreme Court of Pennsylvania refused to hear BA Mortgage LLC’s appeal, the Grillos sent a check for the amount indicated on the face of the writ to Fannie Mae in satisfaction of the judgment and mortgage.
Several months later, the Grillos filed a complaint in federal court against Spear & Hoffman alleging a violation of 42 U.S.C. Section 1983. Under their theory of the case, Spear & Hoffman violated the Grillos’ constitutional right to procedural due process by unilaterally increasing the amount of the writ without obtaining judicial approval or giving the Grillos the opportunity to be heard.
Spear & Hoffman thereafter filed a motion to dismiss the complaint challenging the validity of the Section 1983 claim. In addition to responding to the motion to dismiss, the Grillos filed a motion for leave to file an amended complaint. In its opposition to that motion, Spear & Hoffman argued that the amended complaint was futile because the Grillos still failed to state a valid claim under Section 1983.
In order to establish a prima facie case under Section 1983, a plaintiff must show that: an individual deprived the plaintiff of a constitutional or statutory right; and the individual who deprived the plaintiff of that right acted under color of the law.
The court in Grillo rejected Spear & Hoffman’s attempt to dismiss the Section 1983 claim. The court believed that the claim was supported by both a long line of cases from the Superior Court of Pennsylvania and by analogy from a Third Circuit decision on confessed judgments.
The court first discussed the state appellate court cases finding that unilateral increases in a writ of execution violate the due process clause of the Fourteenth Amendment to the United States Constitution.
In Union National Bank of Pittsburgh v. Ciongoli, the Superior Court chastised a county foreclosure practice allowing increases to the face amount of a writ in mortgage foreclosure actions. The Superior Court held that such practice violated the due process clause because it was “tantamount to a prejudgment execution” and required the judgment creditor to petition the court to amend the judgment prior to executing on an unapproved amount.
In Morgan Guaranty Trust Company v. Mowl, the Superior Court, citing Ciongoli, stated that a judgment creditor’s ex parte attempt to increase the writ figure in a foreclosure action was also procedurally and constitutionally impermissible.
The federal court then pointed to the Superior Court’s pronouncement in the underlying case, Nationsbanc Mortgage Corporation v. Grillo, where the Superior Court held that BA Mortgage, LLC was prohibited from increasing the amount of the writ without petitioning the court for approval and without giving the Grillos notice and an opportunity to be heard.
Although these Superior Court decisions were not binding on the federal court, it found their reasoning persuasive given the courts’ familiarity with Pennsylvania’s foreclosure procedures. The federal court stressed that Spear & Hoffman unilaterally increased the amount listed on the writ, refused the Grillos’ tender, and caused the sheriff to sell the home without judicial approval or a pre-deprivation hearing—conduct sufficient to satisfy the procedural due process element of a Section 1983 claim.
The federal court next considered whether Spear & Hoffman acted under color of state law, satisfying the second prong of a Section 1983 claim.
The Grillos argued that “the unconstitutional state action was Spear & Hoffman’s enlistment of the ‘compulsive power of the local Sheriff’ after unilaterally and without notice increasing the amount of the default judgment.”
The court concluded their argument was supported by the Third Circuit’s decision in Jordan v. Fox, Rothschild, O’Brien & Frankel, which held that a law firm invoking state procedures for garnishment of a confessed judgment acts under color of law when it causes the sheriff to seize the debtor’s assets. Similarly, Spear & Hoffman’s use of Pennsylvania’s foreclosure execution process to sell the Grillos’ home constituted state action under Section 1983.
Attorneys who represent judgment creditors should tread lightly after discovering that they may be liable under Section 1983 for failing to follow court rules during the execution process. By failing to do so, they may find themselves embroiled in the middle of a messy lawsuit.
Reprinted with permission from the March 28, 2005 edition of The Legal Intelligencer © 2005 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, reprints@alm.com or visit www.almreprints.com.
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