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COMFED SAV. BANK v. NEWTOWN COMMONS PLAZA ASSOC.

August 15, 1989

COMFED SAVINGS BANK
v.
NEWTOWN COMMONS PLAZA ASSOC



The opinion of the court was delivered by: KATZ

 MARVIN KATZ, UNITED STATES DISTRICT JUDGE

 On April 25, 1989, I entered an order in the above-captioned case, appointing Michael Schill Auditor for the purpose of determining the exceptions to the proposed schedule of distribution of the proceeds from the sale of that certain piece of property commonly known as Newtown Commons Plaza. Based upon the Stipulation of Uncontested Facts dated May 30, 1989 and signed by the attorneys for each of the interested parties, the record of two days of evidentiary hearings held before the Auditor on July 7 and July 10, 1989, and the Report of the Auditor with Respect to the Exceptions Filed to the Proposed Distribution of Funds from the Foreclosure Sale, I adopt the findings of fact and conclusions of law of the Auditor as follows:

 Findings of Fact

 A. Background Matters

 1. On March 3, 1987, ComFed Savings Bank ("ComFed") filed a complaint in the United States District Court for the Eastern District of Pennsylvania against Newtown Commons Plaza Associates, a Pennsylvania Limited Partnership, Civil Action No. 87-1203.

 2. The complaint sought foreclosure of a mortgage held by ComFed on commercial property owned by a limited partnership located in Newtown, Bucks County, Pennsylvania. The property shall hereinafter be referred to as the "Property".

 3. An Ad Hoc Committee of Limited Partners of Newtown Commons Plaza Associates (hereinafter referred to as the "Associates") on July 28, 1988 filed a motion to intervene as defendants in the foreclosure action. The intervenors were identified as Edward Rubin, Peter Graeffe, Robert Dove, Gerald Hamburg, Robert Zemon and David Weinstein.

 4. The Associates are represented by Douglas I. Zeiders, Esquire.

 5. The motion to intervene was granted by the court on August 2, 1988.

 6. On August 5, 1988, a judgment in favor of ComFed against Newtown Commons Plaza Associates was entered in the amount of $ 1,593,424.77. Included in the judgment was the amount of $ 46,000 attributable to the amount paid by ComFed to Mingroni Roofing for replacement of one of three roofs at the Property. No one present at the hearing before Judge Katz on August 4, 1988 objected to inclusion of the roof replacement expense in the judgment.

 7. A writ of execution was issued by the Clerk of Court on September 6, 1988 to direct the U.S. Marshal to levy upon and sell the Property.

 8. A marshal's sale of the Property was scheduled for November 8, 1988.

 9. Advertising and Sheriff's fees with respect to the scheduled sale equaled $ 864.36.

 10. On November 2, 1988, the Associates filed a motion to vacate judgment, motion to stay marshal's sale of real estate and motion for expedited briefing schedule and hearing.

 11. On November 3, 1988, Unicorn Associates, a limited partner, filed a motion for leave to intervene.

 12. On November 8, 1988, an Order was entered granting Unicorn Associates leave to intervene and to join in separate motions.

 13. After a hearing on November 8, 1988, an order was entered that intervening defendants are granted 60 days to conduct discovery on the motion to vacate judgment, the marshal's sale is stayed until further order and a hearing on the motion to vacate was scheduled for January 11, 1989.

 14. After discovery, the motion to vacate judgment was withdrawn at the hearing on January 11, 1989.

 15. By order entered on January 12, 1989, the order dated November 9, 1988 staying the marshal's sale was vacated, the U.S. Marshal was ordered to reschedule the sale at the earliest possible date and the judgment in favor of ComFed against the limited partnership was modified to include counsel fees and advertising expenses incurred by ComFed since August 3, 1988 in the amount of $ 49,709.99. According to testimony by Mr. David Gutin, attorney for ComFed, the modified judgment included $ 2,000 attributable to advertising expenses. The total judgment was therefore increased to the amount of $ 1,643,134.76.

 16. The interest rate in effect on federal judgments on August 4, 1988 was 7.95 percent.

 17. The interest rate in effect on federal judgments on January 11, 1989 was 9.20 percent.

 18. ComFed rescheduled the marshal's sale of the Property for February 22, 1989 at 1:00 p.m. by notices dated January 18, 1989. The expenses incurred by the sheriff in connection with advertising and serving notice for the planned February 22, 1989 sale equalled $ 852.12.

 19. By letter dated February 16, 1989, Miles H. Shore, Esq., attorney for Albert Bader, an alleged second mortgagee of the property, challenged the Notice of Sale and advertising used by ComFed with respect to the planned February 22, 1989 sale. After consultation with its attorney, ComFed decided to postpone the sale planned for February 22, 1989. Although ComFed and its attorney believed that the notice and advertising were appropriate, they believed that it would be prudent to provide the notice requested by Mr. Shore so as to ensure that the foreclosure sale would be free from legal attack. They also believed that litigating the issue of notice would generate costs in excess of the cost of additional notice and delay.

 20. ComFed rescheduled the sale of the Property for March 29, 1989. The sheriff's expenses for advertising and notice in connection with the sale planned for March 29, 1989 were equal to $ 1,669.35.

 21. The sale was rescheduled for a final time to April 5, 1989 due to the failure of the sheriff to serve one of the general partners personally thirty days prior to the date of the planned March 29, 1989 sale. No additional advertising costs were incurred as a result of the postponement to April 5, 1989.

 22. The Property was sold on April 5, 1989 by the marshal to John Baylis for $ 1,751,000. Mr. Baylis closed with the marshal on April 17, 1989. The U.S. Marshal is holding the entire proceeds of the sale in escrow in an interest-bearing account.

 23. By letter dated April 6, 1989, ComFed's attorney submitted a Schedule of Proposed Distribution of the proceeds, requesting that the entire proceeds of the sale, after deducting the Marshal's commission, be paid to ComFed.

 24. On April 13, 1989, Miles Shore, on behalf of Albert Bader, filed exceptions to the Schedule of Proposed Distribution and requested the appointment of an auditor.

 25. On April 14, 1989, Douglas Zeiders, Esq., on behalf of the Associates, filed exceptions to the Schedule of Proposed Distribution.

 26. On April 25, 1989, the Honorable Marvin Katz appointed Michael H. Schill, Assistant Professor of Law, University of Pennsylvania Law School, as the Auditor for purposes of determining the exceptions to the proposed schedule of distribution of the proceeds of the sale of the Property.

 27. A meeting with the attorneys involved in the matter was held at the University of Pennsylvania Law School on May 10, 1989. Notice of the meeting was sent to all attorneys listed on the district court clerk's docket. Arsen Kashkashian, Jr., Esq. was sent notice of the meeting, which notice was returned to the sender due to an inaccurate address. Upon being notified of the meeting by telephone, Mr. Kashkashian referred all matters concerning the Exceptions to the Proposed Schedule of Distribution to Mr. Zeiders.

 28. At the May 10, 1989 meeting it was decided that the matter should be bifurcated. The first segment of the proceeding would require the Auditor to determine the amount of the fund held by the Marshal to which ComFed was entitled. In the event that the fund was not exhausted by ComFed's award and other expenses, a second proceeding would take place to determine whether the Associates or Mr. Bader was entitled to the surplus.

 29. An evidentiary hearing was held on July 7, and July 10, 1989 at which the Auditor heard evidence from several witnesses. All attorneys of record were given notice of the proceeding.

 B. Management of the Property

 30. Pursuant to a Conditional Assignment of Rents and Leases between James A. Fister, the general partner of Newtown Commons Plaza Associates, and ComFed dated October 2, 1986 (hereinafter referred to as the "Assignment"), Newtown Commons Plaza Associates granted to ComFed an assignment of the rents and ...


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