Appeal from the Order entered April 12, 1984, Court of Common Pleas, Allegheny County, Civil Division at No. 2781, January Term 1972.
Michael P. Malakoff, Pittsburgh, for appellant.
Franklin Poul, Philadelphia, for appellees.
Cirillo, President Judge, and Cavanaugh, Brosky, Rowley, Olszewski, Del Sole, Kelly, Popovich and Johnson, JJ. Rowley, J., files a dissenting opinion in which Brosky, J., joins.
This case presents the question of whether a mortgagor's advance payment to a mortgagee of money in escrow to be used to pay taxes and insurance premiums constitutes a trust. On the facts presented in this case, we find that a trust is created.
At the non-jury trial, the parties stipulated to the following facts. Roger and Dorothy Buchanan purchased a two family residential dwelling located on Dawson Street, Pittsburgh, Pennsylvania, which they bought as investment property. In financing the purchase they executed a mortgage
on May 29, 1969 with Abbott Mortgage Corporation of Pittsburgh (Abbott). This mortgage was insured by the Federal Housing Administration (FHA) and executed on a printed form prepared by the FHA.
The Federal National Mortgage Association (FNMA) purchases mortgages insured by the FHA as well as mortgages guaranteed by the Veterans' Administration (VA). FNMA does not originate mortgages and has no direct contact with any mortgagors. The purchase of mortgages by FNMA is normally pursuant to a selling agreement. The mortgages are serviced by mortgage banking institutions, generally the original mortgagees, in accordance with a standardized servicing agreement. On June 11, 1969 FNMA purchased the mortgage entered into between the Buchanans and Abbott. An assignment of mortgage was executed between Abbott and FNMA. Abbott remained the FNMA servicer of the mortgage. At some point Abbott changed its name to Galbreath Mortgage Company.
In addition to purchasing the Buchanan mortgage FNMA purchased FHA and VA mortgages in the 1960's and 1970's for residential properties located in Pennsylvania. These mortgages were issued on FHA and VA prepared mortgage forms. FHA regulations required that mortgagors, such as the Buchanans, pay, in addition to their monthly payments of principal and interest, an amount equal to 1/12 of the annual insurance premiums and tax assessments anticipated to be due on the mortgaged property. Such a requirement was also contained in the VA mortgage forms.
On FHA and VA mortgages for properties located in Pennsylvania FNMA has never paid interest or other compensation on the monthly payments of taxes and insurance.
The clause in the Buchanan mortgage which set forth the advance payment of insurance and taxes reads as follows:
THIS INDENTURE IS MADE, however, subject to the following covenants, conditions, and agreements and the Mortgagor covenants and agrees:
[ 374 Pa. Super. Page 42]
. That in order more fully to protect the security of this mortgage, the Mortgagor, together with, and in addition to, the monthly payments of principal and interest payable under the terms of the note secured hereby, covenants to pay to the Mortgagee, on the first day of each month until the said note is fully paid, the following sums:
b) A sum equal to the ground rents, if any, next due, plus the premiums that will next become due and payable on policies of fire and other hazard insurance covering the premises secured hereby, plus taxes and assessments next due on the premises covered hereby (all as estimated by the Mortgagee) less all sums already paid therefor divided by the number of months to elapse before one (1) month prior to the date when such ground rents, premiums, taxes and assessments will become delinquent, such sums to be held by Mortgagee in trust to pay said ground rents, premiums, taxes, and special assessments; . . . .
FHA Form No. 2171 m, as revised July, 1966.
The case now before this Court is a class action which was commenced in 1971 by a complaint in equity. The plaintiffs in action are the Buchanans, and other individual mortgage borrowers who represent themselves and others similarly situated (hereinafter reference to the Buchanans shall be understood to include reference to the other plaintiffs, where applicable).
The defendants are FNMA and numerous banking institutions which issued mortgages to the Buchanans and other plaintiffs containing tax and insurance escrow provisions similar to the one set forth above. The Buchanans alleged that the advance payments of tax, insurance and assessments into escrow (hereinafter, advance payments or escrow payments) to the defendants pursuant to the mortgages are monies which defendants receive and hold as trustee for ...