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Tobyhanna Army Depot Federal Credit Union v. Monroe County Tax Claim Bureau and Mt. Pocono Enterprises

IN THE COMMONWEALTH COURT OF PENNSYLVANIA


November 1, 2011

TOBYHANNA ARMY DEPOT FEDERAL CREDIT UNION, APPELLANT
v.
MONROE COUNTY TAX CLAIM BUREAU AND MT. POCONO ENTERPRISES

The opinion of the court was delivered by: Patricia A. McCULLOUGH, Judge

Argued: June 6, 2011

BEFORE: HONORABLE ROBERT SIMPSON, Judge HONORABLE PATRICIA A. McCULLOUGH, Judge (P.)HONORABLE JAMES R. KELLEY, Senior Judge

OPINION BY JUDGE McCULLOUGH

Tobyhanna Army Depot Federal Credit Union (Credit Union) appeals from the October 18, 2010, order of the Court of Common Pleas of Monroe County (trial court), which granted Mount Pocono Enterprises' (Mount Pocono) motion for judgment on the pleadings and denied the Credit Union's petition to preserve or reinstate its mortgage lien on property purchased by Mount Pocono at a judicial tax sale pursuant to section 612 of the Real Estate Tax Sale Law (Law).*fn1

The real property at issue, located at 4336 West Sherwood Drive, Kunkletown, Monroe County, Pennsylvania (property), was originally owned by Paul Emmet King (King) and is improved with a single family home. The Credit Union obtained a $125,000 first lien on the property in a mortgage dated March 17, 2005. King did not pay his taxes, and the Monroe County Tax Claim Bureau (Bureau) exposed the property to an upset tax sale on September 10, 2008. However, the upset price was not bid and the property did not sell. On October 16, 2008, King filed a petition for Chapter 7 bankruptcy. Despite King's petition for bankruptcy, on January 23, 2009, the Bureau submitted a petition to sell the property at a judicial sale. The Bureau also issued the Credit Union a rule to show cause why the property should not be sold free and clear of all taxes and municipal claims, liens, mortgages and other charges, *fn2 but the Credit Union did not respond. On May 20, 2009, Mount Pocono purchased the property at the judicial tax sale.

On February 4, 2010, the Credit Union filed a petition to set aside the judicial sale or in the alternative to preserve or reinstate its mortgage lien. The Credit Union alleged that the judicial sale should be set aside because, pursuant to section 362 of the Bankruptcy Code, 11 U.S.C. §362, King's petition for bankruptcy acted as an automatic stay against the commencement of any proceeding to obtain possession of the property, including the judicial tax sale.

Section 362(a)(2)-(3) of the Bankruptcy Code provides debtors and estates an automatic stay from the following:

(2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title;

(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate; 11 U.S.C. §362(a)(2)-(3).

In response, the Bureau filed an answer admitting that it was not aware that King had filed for bankruptcy and that the judicial tax sale should be invalidated. Mount Pocono filed an answer denying the Credit Union's legal conclusions and asserted that if the judicial sale is invalidated the Credit Union must pay not only the delinquent taxes, but the costs incurred by Mount Pocono to improve and preserve the property. In an amended answer and new matter, Mount Pocono incorporated its initial pleadings, alleged that the six-month statute of limitations to set aside the judicial sale under 42 Pa. C.S. §5522(b)(5)*fn3 had expired, and alleged that the Credit Union, as a third party non-debtor, did not have standing under section 362 of the Bankruptcy Code, 11 U.S.C. §362, to object to the judicial sale of the property. Based on these affirmative defenses, Mount Pocono filed a motion for judgment on the pleadings.

Following oral argument and the submission of briefs, the trial court issued an opinion and order dated October 18, 2010, which granted Mount Pocono's motion for judgment on the pleadings. The trial court observed that the six-month statute of limitations for judicial sales under 42 Pa. C.S. §5522 had expired. Further, the trial court concluded that, absent unusual circumstances, the Credit Union, as a third party non-debtor, did not have standing to assert an automatic stay in bankruptcy under section 362 of the Bankruptcy Code, 11 U.S.C. §362. Observing that the Credit Union did not indicate, either in its brief or at oral argument, what unusual circumstances might exist to warrant an automatic stay for a non-debtor third party, the trial court concluded that all material facts had been resolved and entered judgment on the pleadings. The Credit Union now appeals to this Court.*fn4

The Credit Union asserts that the trial court erred in entering judgment on the pleadings based on the six-month statute of limitations for setting aside a judicial sale because the Credit Union was entitled to an automatic stay in bankruptcy, and, therefore, the judicial sale was void ab initio. The Credit Union cites Bankers Trust Company v. Tax Claim Bureau of Delaware County, 723 A.2d 1092 (Pa. Cmwlth. 1999), for the proposition that it had standing to assert an automatic stay in bankruptcy because unusual circumstances exist to warrant standing for a non-debtor third party, and Poffenberger v. Goldstein, 776 A.2d 1037 (Pa. Cmwlth. 2001), for the proposition that the judicial sale is, consequently, void ab initio. *fn5

In Bankers Trust, a mortgagee (Bankers Trust) that purchased property at a foreclosure sale filed a petition to set aside a subsequent tax sale of the same property. The trial court denied the petition, concluding that the procedures for a judicial tax sale were satisfied and that Bankers Trust lacked standing to assert the automatic stay provisions of the Code. On appeal, we affirmed the trial court, concluding as follows:

Bankers Trust's first two arguments concern whether it had standing to contest the Tax Claim Bureau's upset sale, held on September 11, 1995, because the Johnsons had filed for bankruptcy protection, which protection was not stayed until after the Bankruptcy Court's September 10, 1996 order. It is the contention of Bankers Trust that the upset sale was void ab initio because it was held during the pendency of the automatic stay period provided by 11 U.S.C. §362. The trial court found that Bankers Trust lacked standing to contest the validity of the upset sale, and we agree. It is well settled that, absent extraordinary circumstances, the automatic stay protections afforded a debtor under 11 U.S.C. §362 do not apply to non-debtor third parties. McCartney v. Integra National Bank North, 106 F.3d 506 (3d Cir.1997). Because Bankers Trust was not the debtor, but a non-debtor third party, it lacks standing to assert the debtors' (the Johnsons) defense of the federal bankruptcy law and to contest the validity of the Tax Claim Bureau's upset sale held on September 11, 1995.

Bankers Trust, 723 A.2d at 1093-1094 (emphasis in original).

Here, it is clear that the Credit Union did not file its petition to set aside the judicial sale of the property within the six-month statute of limitations under 42 Pa. C.S. §5522(b)(5); the property was sold to Mount Pocono at the judicial sale on May 20, 2009, and the Credit Union did not file its petition to set aside the sale until February 4, 2010. Further, the Credit Union is not the debtor, but a non-debtor third party, and, therefore, absent extraordinary circumstances, the Credit Union lacks standing to assert the debtor's (King's) automatic stay under the Bankruptcy Code to contest the validity of the judicial sale. Bankers Trust. Notably, the Credit Union did not allege unusual circumstances before the trial court in its brief or at oral argument. Thus, no material facts remained in dispute and the trial court did not error in entering its judgment on the pleadings.

For the foregoing reasons, we affirm.

IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Tobyhanna Army Depot Federal : Credit Union, : Appellant : v. Monroe County Tax Claim Bureau : and Mt. Pocono Enterprises :

No. 2460 C.D. 2010

ORDER

AND NOW, this 1st day of November, 2011, the order of the Court of Common Pleas of Monroe County, dated October 18, 2010, is hereby affirmed.

PATRICIA A. McCULLOUGH, Judge


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