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Home My WebLink About1998-2659 Civil FINANCIAL TRUST COMPANY, Plaintiff IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA vs. CIVIL ACTION - LAW 98-2659 CIVIL MEMBERS 1 ST FEDERAL CREDIT UNION, Defendant ACTION FOR DECLARATORY JUDGMENT IN RE: CROSS MOTIONS OF THE PARTIES FOR SUMMARY JUDGMENT BEFORE BAYLEY AND HESS, 1.1. OPINION AND ORDER This case is before the court on the cross-motion of the parties for summary judgment. The essential facts are not in dispute. On May 20, 1987, Ronald Kepner and Sharon Kepner (the Kepners) executed a mortgage in favor of the Defense Activities Federal Credit Union, now Members 181 Credit Union ("Members 181"). This mortgage was recorded on May 27, 1987 as a first lien mortgage against the Kepners' residence. The Members 181 mortgage secured a home equity line of credit for $27,000. On March 6, 1992, the Kepners executed a mortgage in favor of Financial Trust Company, now Manufacturers and Traders Trust Bank ("Bank"). This mortgage was recorded against the Kepners' residence on March 11, 1992. The Bank mortgage secured a $100,000 promissory note for a loan in that amount to the Kepners. At the time the Bank mortgage was executed and recorded, the balance outstanding on the Members 181 line of credit was zero. The Members 181 agreement provided that advances on the line of credit could be made until May 20, 1992. Members 181 and the Kepners, however, extended the line of credit by agreement dated April 30, 1992. The extension agreement was recorded on May 21, 1992. 98-2659 CIVIL In 1997, the Kepners defaulted to the Bank. In the meantime, in April of 1993, they had made a draw of more than $17,000 on their line of credit. The Kepner residence was sold at Sheriff s Sale on March 4, 1998. Members 1 st did not bid at the Sheriff s Sale. Moreover, the bid was not sufficient to cover the outstanding indebtedness to the Bank without regard to the additional claims of Members 1 st. After the Sheriff s Sale, the Bank asked Members 1 st to release its mortgage from the Kepner residence to remove any question as to the title. When Members 1 st refused to do so, the parties entered into an escrow agreement under which the Bank has been holding funds in escrow pending resolution of the lien priority issue which is now before the court. The Bank first contends that its mortgage has priority over the Members 1 st mortgage because the extension of the line of credit was not timely and Members 1 st lost priority over the Bank mortgage with respect to advances made after the recording of the Bank mortgage. We find no merit in this contention. The Members 1st agreement was dated May 20,1987, and provided that advances could be made thereunder by Members 1 st to the Kepners until May 20, 1992. The Members 1 st extension agreement with the Kepners extended the line of credit for an additional five years, or until May 20, 1997. The extension agreement is dated April 30, 1992, and, thus, was executed before the expiration of the original agreement. Weare satisfied, therefore, that the extension of the line of credit was timely and valid. In addition, the Members 1 st mortgage, while including a reference to the start date of May 20, 1987, contains no reference to the expiration date in any accompanying line of credit. Thus, the only date of significance with respect to the Members 1 st mortgage is May 20, 1987. 2 98-2659 CIVIL Thus, the Bank had clear notice of the existence of another mortgage when it secured its promissory note on March 6, 1992. Next, the Bank contends that its mortgage has priority because the Members 1 st mortgage does not comply with Act 126 of 1990. This Act, referred to as the "Open-End Mortgage Law" found at 42 Pa.C.S. 8143, by its own terms, has no application to this case. Specifically, Section 2 of the 1990 Act provides that the Act: ... [I]s not exclusive and shall not be construed to change existing law with respect to the priority of the lien of advances made pursuant to a mortgage except to the extent that it gives priority to the lien for advances under an open-end mortgage complying with the requirements of this section which would not have such priority in the absence of this section. Id. at (e). More importantly, Section 2 of the Act explicitly provides that nothing contained in the Act "shall be construed to effect the priority of advances made under any mortgage recorded before the effective date of this Act." The Act was effective sixty days from October 12, 1990. As previously noted, the Members 1 st mortgage was dated and recorded in May of 1987 . We are satisfied, therefore, that Act 126 does not apply to the mortgages involved in this declaratory judgment action. We, accordingly, go on to determine priority in accordance with Pennsylvania Common Law. In this regard, the Bank asserts that mortgages covering future advances are disfavored in Pennsylvania. In Housing Mortgage Corp. v. Allied Constr., Inc., 97 A.2d 802-805-06 (Pa. 1953) , the Pennsylvania Supreme Court stated the priority ofliens as follows: The law is definitely established that an advance made pursuant to a mortgage to secure future advances which the mortgagee was not obligated to 3 98-2659 CIVIL make, is subordinate in lien to an encumbrance intervening between the giving of the mortgage and the making of the advance, if the advance was made with actual notice or knowledge of the intervening encumbrance: the lien of an advance under such circumstances dates only from the time it was made and not from the time of the creation of the mortgage. In other words, after notice of the existence of a junior lien, the senior mortgagee will not be protected in making future advances under his mortgage unless he is under a binding obligation to make such advances. In other words, an intervening encumbrance may have priority if advances are made after notice or knowledge of the intervening encumbrance unless the advance-money mortgagee is contractually obligated to make the advances in any event. Provident National Bank v. The First Pennsylvania Bank, N.A., 124 B.R. 648, 651, Bankr. E.D. Pa. (1991) The Members 1 st mortgage clearly and conspicuously states that it covers and secures future advances. Nowhere in the pleadings or the record of this case is there any reference to the fact that the Bank gave Members 1 st any notice of the recording of the Bank mortgage. Also, Members 1 st was obligated to make the advances to the Kepners in accordance with the line of credit agreement. The Members 1 st Agreement provides in section 5 entitled YOUR OBLIGATIONS: You (Members 1 st ) agree to honor all advances made against my (the Kepners) Account up to my credit limit for the term of the Agreement. Your Obligation is unconditional unless I am in default under the Default section of this Agreement. Section 11 of the Agreement, entitled Default, provides: I (the Kepners) will be in default if: - I fail to make a required payment when due; 4 98-2659 CIVIL - I die, am incarcerated, or am declared legally incompetent; - a Petition of Bankruptcy or similar proceeding is filed by or against me; - I give false statements or signatures to you (Members 1 st); - I break any promises made under this Agreement or mortgage; - The Premises are condemned in whole or in part, or are subject to proceedings in eminent domain. If I am in Default, you (Members 1 st) may refuse to make advances to me, cancel my account, demand immediate payment of the entire outstanding balance; and take whatever legal action is permissible. You will, however, send me a Notice of Default which will set forth your intentions. Thus, Members 1 st was not at liberty to refuse to make advances to the Kepners absent a default on the part of the mortgagors. Members 1 st has also raised issues concerning laches, waiver, estoppel and consent. Because we resolve this matter in favor of Members 1 st on the question of the priority ofliens, we need not address these remaining matters. ORDER AND NOW, this day of December, 2004, the motion of Members 1 st Federal Credit Union for summary judgment seeking a declaration that its lien has priority is GRANTED. The motion of the plaintiff, Financial Trust Company, is DENIED. BY THE COURT, Kevin A. Hess, 1. 5 98-2659 CIVIL Wayne Shade, Esquire For Financial Trust Company Geoffrey S. Shuff, Esquire For Members 1 st :rlm 6 FINANCIAL TRUST COMPANY, Plaintiff IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA vs. CIVIL ACTION - LAW 98-2659 CIVIL MEMBERS 1 ST FEDERAL CREDIT UNION, Defendant ACTION FOR DECLARATORY JUDGMENT IN RE: CROSS MOTIONS OF THE PARTIES FOR SUMMARY JUDGMENT BEFORE BAYLEY AND HESS, 1.1. ORDER AND NOW, this day of December, 2004, the motion of Members 1 st Federal Credit Union for summary judgment seeking a declaration that its lien has priority is GRANTED. The motion of the plaintiff, Financial Trust Company, is DENIED. BY THE COURT, Kevin A. Hess, 1. Wayne Shade, Esquire For Financial Trust Company Geoffrey S. Shuff, Esquire For Members 1 st :rlm