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Mortgage Electronic Registration Systems, Inc. v. Anastasio

June 16, 2006

MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., PLAINTIFF,
v.
JAMES ANASTASIO, A/K/A JAMES P. ANASTASIO, DEFENDANT.



The opinion of the court was delivered by: Judge Kosik

MEMORANDUM

Before the court is the third party purchaser, Brian Stone's (hereinafter "Purchaser") motion for reconsideration (Doc. 21) of our February 3, 2006, order (Doc. 18). In that order we overruled Purchaser's exception to the schedule of distribution (Doc. 14) prepared by the U.S. Marshal Service. For the reasons that follow, we will deny Purchaser's motion for reconsideration and will let stand our February 3, 2006, order overruling Purchaser's exception to the schedule of distribution.

I. FACTS

The controversy before us originates from a December 20, 2005, Marshal's sale of real property located at Route 115 West, Tobyhanna, Pennsylvania. This court issued a writ of execution directing the Marshal to sell the property subsequent to the entry of default judgment in favor of plaintiff, Mortgage Electronic Registration Systems, Inc. (hereinafter "MER" or "plaintiff"), in a mortgage foreclosure action. A MER attorney attended the Marshal's sale and set the upset price for the property at $545,400.00. The upset price is fixed by the foreclosing creditor and represents the highest bid that the creditor will make at the sale to ensure that it takes possession of the property outright, or that any sale to another party will cover the judgment, interest, and costs associated with the foreclosure. Any potential purchaser must bid one dollar over the upset price in order to buy the property.

Prior to the sale, Purchaser, spoke with MER attorney, Kevin Kane, regarding the upset price of the property. In a declaration filed on February 21, 2006, Purchaser recounted that prior to the date of the sale, Mr. Kane told him that the judgment awarded in the MER's favor by this court was roughly $476,000, and that the amount owed MER as of October, 2005, was roughly $514,943.73. (Doc. 21). Purchaser alleged that Mr. Kane notified him that the upset price would include the Marshal's fee, any tax lien and other costs. On the day of the sale, December 20, 2005, Mr. Kane told Purchaser that the upset price was $545,400. Purchaser's declaration states that he "anticipated that [the stated price] included the transfer tax, Marshal's fees, and all other expenses that would be needed to be paid to file the deed and to obtain good title to the property." (Doc. 21 at ¶ 3).

Andrea Lavelle of the U.S. Marshal Service explained the procedure followed in this sale at a hearing on May 11, 2006. Ms. Lavelle recounted that she received the writ of execution from this court and scheduled the sale for December 20, 2005. See 5/11/06 Hearing Transcript at 7. She typed a notice of sale and provided it to MER's counsel. Ms. Lavelle advertised the sale in the local newspaper, the Pocono Record. Id. at 18. The public notice indicated that, "all stamps and transfer taxes shall be the responsibility of the purchaser." See Public Notice, attached to Doc. 25 as Ex. D. She directed Deputy Marshals to post the property prior to the sale. See 5/11/06 hearing Transcript at 7. A Deputy Marshal then went to the Monroe County courthouse to manage sales scheduled for that day. The Deputy Marshal accepted Purchaser's down payment on the winning bid on the property.

On January 4, 2006, MER submitted an assessment of its claim to the Marshal Service. (Doc. 36, Exhibit). MER represented that it was owed $633,650.84, an increase of more than $90,000 over the upset price MER had provided Purchaser, and more than $100,000 over the award and interest actually payable to MER. The Marshal contacted MER's counsel to question the assessment and the latter provided a corrected claim of $520,653.01. On January 10, 2006, the Marshal filed a schedule of distribution. (Doc. 12). The schedule listed Purchaser's bid of $545,401.00, the amount of the down payment, attorney costs, and the sums to be paid to the lien holders and the U.S. Marshal Service. An amount of $520,653.01 was to be distributed to MER. Among the remaining distributions was a payment of $15,023.44 to a junior mortgagee, Countrywide Home Loan, Inc. (hereinafter "Countrywide"). No distributions were made for a transfer or property tax. Id.

Purchaser filed an "Exception to Schedule of Distribution" on January 13, 2006.*fn1 (Doc. 14). In his exception, Purchaser alleged that Countrywide had not appeared in the action. Purchaser further argued that he had agreed to pay $1 over the amount owed to MER, and that MER represented to Purchaser that it was owed $545,400.00. Id. Purchaser asserted that MER was actually owed $15,023.44 less than it had claimed. Id. Purchaser asked that the schedule of distribution be altered to reflect a purchase price of $530,377.56, and that no distribution be made to the junior mortgagee, Countrywide. Id.

On February 3, 2006, we entered an order overruling Purchaser's exception to schedule of distribution. (Doc. 19). At the time, we read Purchaser's exception as a challenge to the right of Countrywide to receive funds from the proceeds of the sale. Only after entering the order and receiving a letter from Purchaser did this court comprehend the nature of Purchaser's challenge, that the amount of the transfer tax should have been taken from his winning bid. On February 9, 2006, we wrote to all counsel explaining the confusion and asking that they meet in an attempt to settle the dispute. (Doc. 20).

Purchaser filed a motion for reconsideration on February 21, 2006. (Doc. 21). In his memorandum of law in support thereof, Purchaser argues that the bid of $545,401.00 included a sum of $15,023.44 in costs and fees that MER thought that the "Marshal would pay to submit the deed for filing, satisfy a tax lien and to otherwise meet the expenses of the sale and give good title . . .." (Doc. 24 at 1). He further contends that he relied upon statements made by MER's attorney that the upset price would include those various costs. Id. Purchaser concludes that it would be unconscionable for the him to pay those costs, only to have those funds diverted from the intended recipients and paid to a junior lien holder. Id.

After Purchaser filed his motion for reconsideration, we filed a rule to show cause why the motion should not be granted and scheduled a hearing on the matter. (Docs. 23 and 30). At the May 11, 2006, hearing, Purchaser testified that his conversations with MER's counsel leading up to the sale left him with the impression that the upset price included all fees and taxes required to take possession of the property. Purchaser admitted that he did not recall MER's attorney specifically stating that the upset price included the transfer tax. See 5/11/06 Hearing Transcript at 35. Purchaser acknowledged that the public notice published in the Pocono Record stated that all transfer taxes shall be the responsibility of the purchaser. Id. Purchaser additionally conceded that he did not rely upon MER's attorney's representations when bidding on the property. Id. at 37. Specifically, Purchaser testified:

In my conversation with [MER's attorney] he indicated -- two occasions that we spoke about it -- that all costs, fees, liens, whatever was necessary to have clean title would be included in the upset price. And to me, that was -- I took him at his word, although I don't say I truly, truly relied upon him, but I took him at his word, and that was all inclusive. He did not say to me all costs and fees except for this or for that, he said all costs and fees and liens would be included. And he did mention taxes.

Id. Subsequent to the hearing, this court invited the parties to file letter briefs further addressing the issue. All parties have submitted letter briefs. (Docs. 33, 34, and 36).

MER acknowledges that it "anticipated" that the Marshal would have to pay a transfer tax of roughly $9,500 and would deduct a fee of roughly $9,500. (Doc. 17). The plaintiff further anticipated that the sheriff would purchase a distribution insurance policy in the amount of approximately $2,300.00, and that the sheriff's costs would be roughly $1,300.00. The plaintiff admits that it, "was informed that there were taxes due, which it estimated to be approximately $1,800.00, in which may have been paid out of the proceeds of the sale." Id. MER appears to have based these erroneous assumptions on Pennsylvania law governing state sheriff's sales. MER claims that it's belief that it was responsible for the above fees and taxes was, "sufficient legal basis for the calculation of its upset price." Id. The plaintiff recently reiterated these arguments in its May 16, 2006, letter brief in response to the purchaser's motion for reconsideration. (Doc. 34). In the brief, MER contends that it included sheriff's fees and other state fees and taxes in the upset price because it could not be expected to predict with 100% accuracy the exact items the sheriff or Marshal would have to pay from the ...


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