Oral Argument

A mortgagee who acquires a deed in lieu of foreclosure should be protected by the same three-year statute of limitations on a municipal lien that would apply to an outright purchaser of the property, an attorney for the mortgagee argued before the state Supreme Court last week.

Bruce Bellingham of Spector Gadon & Rosen said his client Philadelphia Transload & Logistics, which acquired the deed to a property when its borrower defaulted on a loan, was not aware of a $117,000 lien for gas services that was outstanding but hadn’t yet been made public by the city of Philadelphia.

The case is about the intersection of two provisions of the Municipal Claims Act, Bellingham said. Section 7143 created a three-year statute of limitations for municipalities to raise liens against a property. Liens brought after that were lost forever. But a 1959 amendment to the MCA created a revival provision — Section 7432 — that allowed municipalities to raise the liens whenever they were discovered, regardless of the time frame, Bellingham said. The exception to that revival statute has been that the three-year statute of limitations would still be in place to protect intervening purchasers of the property who were unaware of the lien and could show the lien was issued after the statute of limitations ran.

Bellingham said courts have rejected the idea that the 1959 amendment repealed the earlier version of the law. Rather, he said, courts have consistently "harmonized" the two by ruling the revival statute does not apply to intervening purchasers.

The question in this case revolved around whether a mortgagee that acquires the deed to a property in lieu of foreclosure is akin to a purchaser.

"Did the deed in lieu of foreclosure make this different than an out-and-out purchase?" Chief Justice Ronald D. Castille asked Bellingham at the start of his argument.

"I think there is no reason why it would," Bellingham said.

Castille asked whether the client’s acquisition of the deed counted as the sale of a property. Bellingham said it counted as a purchase.

"The legislature wants to protect people who, for consideration, get control of property without knowing of a secret lien," Bellingham said.

He said the act has a definition section and it doesn’t define "purchaser." Bellingham conceded that if the owner got possession of the property without consideration, such as through inheritance, the owner would be out of luck.

Justice Max Baer pointed to a footnote in the Commonwealth Court’s opinion that noted Bellingham’s client had never asserted it was a purchaser and therefore waived that issue.

Bellingham said it has argued all along it is protected by the statute of limitations. Baer then asked whether the Commonwealth Court just completely made up the information in the footnote. Bellingham said the court’s comments weren’t true and that his client has always argued that as a mortgagee it was protected. Baer asked whether the court should then send this case back to the Commonwealth Court to address the purchaser issue.

"We don’t usually do review in the first instance," Baer said. Bellingham said the court could do that.

Gerald T. Clark, an attorney for the city with Philadelphia Gas Works, said his client has always agreed that if Philadelphia Transload & Logistics was a purchaser, the lien would not attach to it. But Clark said this was not a purchase from his perspective. He said Section 7432 makes a distinction between a mortgagee and a purchaser.

Clark argued in his brief that Philadelphia Transload & Logistics had a lien of mortgage that, under the statute, takes a backseat to the city’s municipal lien.

"Appellant is arguing that the rights of a purchaser and a lien holder that gains priority over a lapsed municipal claim are legally equivalent in the statute when they clearly are not," the city said in its brief.

The case, City of Philadelphia v. Philadelphia Transload & Logistics, was argued March 5.

Gina Passarella can be contacted at 215-557-2494 or at gpassarella@alm.com. Follow her on Twitter 
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