Mortgage Foreclosure When the Owner Died

On July 16, 2007, a three-judge panel of the Pennsylvania Superior Court issued a decision in PNC Bank, N. A. v. Unknown Heirs, Successors, Assigns, and All Persons, Firms or Associations Claiming Right, Title or Interest, From or Under James C. Waters, Deceased.

The decision reversed a holding of the Philadelphia Court of Common Pleas in a mortgage foreclosure action that involved court-authorized "alternative service" of notice, where the borrower had died and no estate administration was opened.

This case is instructive for both real estate professionals and estate administrators. It demonstrates the difficulty of a lender in foreclosing upon a vacant mortgaged property where the loan is delinquent, but where heirs of the deceased borrower still may have some interest requiring notice to them of the proceedings.

Such notice is important to meet legal requirements of a foreclosure action, and also to provide "marketable" title to a subsequent buyer (which explains the one set of "parties" in the caption).

In order to convey clear and marketable title after a foreclosure sale, title companies customarily require the foreclosing mortgagee name as a defendant the unknown heirs, successors, assigns and all persons, firms or associations claiming right, title or interest from or under the decedent mortgagor.

An heir is automatically vested with an ownership interest in mortgaged real estate upon death of a decedent under 20 Pa.C.S.A. § 301(b). This was reflected in the bank's form of notice, which was reproduced in the Court's opinion.

The bank had averred to the trial court in a petition that the “surviving heirs at law are unknown”, and that the bank had conducted a good faith investigation. However, the Superior Court found facts to the contrary: "The record reveals that Appellee [the bank] did have knowledge of a potential heir to the mortgagor’s estate."

Yet the bank did not serve a foreclosure notice upon that potential heir, who was known. Instead, under authority of an order it had obtained unilaterally from the common pleas court, the bank delivered foreclosure notices by mailing to the vacant property, posting on the property, and publishing in a legal journal & newspaper.

Not surprisingly, the bank obtained a default judgment.

The appellate panel reviewed applicable Pennsylvania Rules of Civil Procedure, specifically Rule 410 (Real Property Actions) & Rule 430 (Service Pursuant to Special Order of Court. Publication).

The panel of three Superior Court judges then concluded that the trial court improperly modified the default notice rules in this case.

Upon our review of the record, we may only conclude that Appellee [the bank] did not request, and the trial court did not order, the alternative form of service most likely to give notice to a possible heir, an actual heir(s), or to an individual who might have knowledge of the heirs, namely, service upon Mr. Waters himself. * * *

Therefore, we agree with Appellants that Appellee [the bank] did not provide proper service of the action and, as a result, the Court of Common Pleas did not have jurisdiction to enter a default judgment against Appellants.

What was the amount of the original default judgment in controversy, which was overturned by the Superior Court & then remanded to the Philadelphia Court of Common Pleas for further proceedings, regarding this vacant, mortgaged house?

$9,550.04.