J. A03040/15


NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37


CYNTHIA KUKLIS,                  :                    IN THE SUPERIOR COURT OF
                                 :                         PENNSYLVANIA
                   Appellant     :
                                 :
               v.                :
                                 :
WELLS FARGO BANK NORTHWEST N.A., :
SUCCESSOR IN INTEREST TO         :
WACHOVIA NATIONAL BANK, N.A.     :
                                 :                    No. 935 MDA 2014


                   Appeal from the Order Entered May 1, 2014
               In the Court of Common Pleas of Schuylkill County
                        Civil Division No(s).: S-1631-13

BEFORE: MUNDY, STABILE, and FITZGERALD,* JJ.

MEMORANDUM BY FITZGERALD, J.:                             FILED APRIL 02, 2015

        Appellant/Plaintiff, Cynthia Kuklis, takes this counseled appeal from

the order entered in the Schuylkill County Court of Common Pleas, which (1)

sustained the objections of Appellee/Defendant, Wells Fargo Bank Northwest

N.A., successor in interest to Wachovia National Bank, N.A., and (2)

dismissed     Appellant’s    complaint   alleging   misrepresentation   under   the

Pennsylvania     Unfair     Trade   Practices   and   Consumer    Protection    Law

(“UTPCPL”).1     The gist of Appellant’s claim is that when her Chapter 7




*
    Former Justice specially assigned to the Superior Court.
1
    73 P.S. §§ 201-1 to 201-9.3.
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bankruptcy   case   discharged    her   personal   liability   under   the    instant

mortgage, it also removed Appellee’s lien on the property. We affirm.

      Appellant filed the instant complaint on August 14, 2013.              The trial

court summarized the factual averments as follows:

            In the complaint, [Appellant] alleges that she was the
         owner of real property with the address of 49 Ash Street,
         Cressona, PA 17929. On July 29, 2005, [she] executed a
         mortgage on the property for $40,400 with Wachovia Bank
         and the mortgage was signed and recorded in the Recorder
         of Deeds[.]

            In 2009, [Appellant] filed [a Chapter 7] bankruptcy in
         the Bankruptcy Court for the Middle District of
         Pennsylvania. On April 16, 2009, Wachovia sought relief
         from the automatic stay for the purpose of foreclosing on
         and selling the real estate, which was granted by Order
         dated May 5, 2009. On September 9, 2009, [Appellant]
         obtained a total discharge of debts from the bankruptcy
         court.   [Appellant] alleges that during the bankruptcy
         proceeding, she did not reaffirm the debt to Wachovia
         [and] that Wachovia did not commence the mortgage
         foreclosure    proceedings     during   the   bankruptcy
         proceedings.

Trial Ct. Op., 6/24/14, at 1-2.

      Appellant’s complaint further alleged the following. The September 9,

2009 bankruptcy discharge

         relieved [her] from any liability to the bank under the
         promissory note.      In August 2010, Wachovia induced
         [Appellant] to enter into a short sale of the property in the
         amount of $28,500[,] acknowledging that [Appellant]
         would not be personally liable for any shortfall under the
         promissory note.       [Appellant] alleges that Wachovia
         misrepresented that it had a valid lien on the real property
         which it used to induce her to enter the sale. [Appellant]
         alleges that, based on the misrepresentation, she sold the



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          real estate and tendered the proceeds of the sale to the
          bank.

Id. at 2.    The complaint concluded that Appellee’s actions violated the

UTPCPL.

      Appellee filed preliminary objections on March 25, 2014,2 averring

Appellant’s complaint failed to state any claim under UTPCPL.         Appellee

maintained that pursuant to the Bankruptcy Code and Johnson v. Home

State Bank, 501 U.S. 78 (1991), “a bankruptcy discharge does not render

a mortgage lien void.”    Appellee’s Prelim. Obj., 3/25/14, at ¶ 23.     Thus,

Appellee averred, “any representation [to Appellant] that [it] had a valid and

enforceable Mortgage lien against the Property during the short sale

negotiations was actually accurate as a matter of established law and was

not a misrepresentation.” Id. at ¶ 26. Appellant filed an answer. On May

1, 2014, the court entered the underlying order granting Appellee’s

preliminary objections and dismissing Appellant’s complaint. Appellant took

this timely appeal. Her sole claim is that the trial court erred in finding she

failed to plead misrepresentation and thus erred in dismissing her complaint.

      For ease of disposition, we first consider the Johnson decision. The

High Court summarized the underlying facts, adding some legal discussion,




2
  According to Appellee, “Appellant’s counsel granted [it] an open-ended
extension of time to file Preliminary Objections to the Complaint.” Appellee’s
Prelim. Obj., 3/25/14, at 4 n.5.



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as follows.    The bank had instituted foreclosure proceedings against the

petitioner when the

        petitioner filed for a liquidation under Chapter 7 of the
        Bankruptcy Code.      Pursuant to 11 U.S.C. § 727, the
        Bankruptcy Court discharged petitioner from personal
        liability on his promissory notes to the Bank.
        Notwithstanding the discharge, the Bank’s right to
        proceed against petitioner in rem survived the
        Chapter 7 liquidation. After the Bankruptcy Court lifted
        the automatic stay protecting petitioner’s estate, . . . the
        Bank reinitiated the foreclosure proceedings.[ ] Ultimately,
        the state court entered an in rem judgment of
        approximately $200,000 for the Bank.

Johnson, 501 U.S. at 80 (emphasis added).

     Before the foreclosure sale occurred, the petitioner filed a Chapter 13

bankruptcy petition. Id. In his Chapter 13, he “listed the Bank’s mortgage

in the farm property as a claim against his estate and proposed” a

repayment schedule. Id. at 81. “Over the Bank’s objection, the Bankruptcy

Court confirmed the Chapter 13 plan.” Id.

     The case proceeded to review before the High Court on the question of

“whether a debtor can include a mortgage lien in a Chapter 13 bankruptcy

reorganization plan once the personal obligation secured by the mortgaged

property has been discharged in a Chapter 7 proceeding.” Id. at 80, 81. In

a unanimous decision, the Court stated:

        [W]e must first say more about the nature of the
        mortgage interest that survives a Chapter 7
        liquidation. A mortgage is an interest in real property
        that secures a creditor’s right to repayment. But unless
        the debtor and creditor have provided otherwise, the
        creditor ordinarily is not limited to foreclosure on the


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         mortgaged property should the debtor default on his
         obligation; rather, the creditor may in addition sue to
         establish the debtor’s in personam liability for any
         deficiency on the debt and may enforce any judgment
         against the debtor’s assets generally. A defaulting debtor
         can protect himself from personal liability by obtaining a
         discharge in a Chapter 7 liquidation. However, such a
         discharge extinguishes only “the personal liability of the
         debtor.” [T]he Code provides that a creditor’s right to
         foreclose on the mortgage survives or passes
         through the bankruptcy.

Id. at 82-83 (citations omitted) (some emphases added).            In “concluding

that a mortgage interest that survives the discharge of a debtor’s personal

liability” will be a claim in a subsequent Chapter 13 bankruptcy, the Court

noted, “Even after the debtor’s personal obligations have been extinguished,

the mortgage holder still retains a “right to payment” in the form of its right

to the proceeds from the sale of the debtor’s property.” Id. at 84.

      In the instant appeal, Appellant avers the following rationale.

Pennsylvania “follow[s] the lien theory of mortgages,” in which “the

mortgage is but a pledge or security redeemable until foreclosure,” “the

debtor is primarily liable for the obligation and the mortgage is an

accessory,”   and   “[t]itle   to   the   mortgaged   property   remains   in   the

mortgagor.” Appellant’s Brief at 8. “Under the title theory of mortgages,”

on the other hand,3

         the mortgagor is the owner of the property as against the
         world, save for the mortgagee, who as between the

3
  Appellant does not set forth any citation to legal authority in her discussion
of the lien and title theories of mortgages. See Appellant’s Brief at 7-8.



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           mortgagor and mortgagee is the owner. Title to the
           property is conveyed to the mortgagee with a condition
           subsequent, that upon payment of the underlying debt, the
           mortgagee conveys title back to the mortgagor.

Id. Appellee asserts “the language” in Johnson is “clear:”

           In those twenty eight states in which the lien theory of
           mortgages is followed, the mortgagee may pursue its
           rights in rem after a Chapter 7 discharge, as the title
           holder of the property. [Johnson] did not establish a new
           theory of mortgage rights, [it] simply stated that the
           existing rights, as they may be, were unaffected by the
           Bankruptcy Court in those jurisdictions in which the lien
           theory of mortgages does not apply.           Accordingly,
           [Appellee] may have no reliance upon [Johnson] to
           establish enforceable rights under the mortgage herein.

Id. at 8-9 (emphasis added).

        Appellee   then   alleges   the   following.   “Judicial   foreclosure   in

Pennsylvania requires . . . the mortgagee [to] prove that it holds the note.”

Id.     In the instant case, however, the note given by Appellant “was

discharged by the United States Bankruptcy Court, and under federal law,

may not be collected.”      Id. at 9-10.    Appellant cites Section 3310 of the

Pennsylvania Uniform Commercial Code4 in stating “the discharge of the

obligation under the promissory note discharges the entire obligation,” and

in this case, “[o]nce the obligation under the promissory note was

extinguished . . . by way of [bankruptcy] discharge, the rights of the

lienholder are simultaneously discharged.” Id. at 10-11. Appellant further

alleges that once “[t]he Bankruptcy Court discharge[ ] eliminated the

4
    13 Pa.C.S. § 3310.



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obligation,”    Appellee’s “mortgage   secured payments     of nothing”   and

“became little more than a cloud on the title to [her] property,” and Appellee

“did not have enforceable rights under the mortgage.” Id. at 11.

      Appellant concludes that when Appellee “misrepresented to [her] that

it had a valid and enforceable lien against [the] property by way of the

mortgage, and induced [her] to sell the property by way of a short sale[, it]

engaged in fraudulent and deceptive conduct which created a likelihood of

confusion or of misunderstanding on [Appellant’s] part” in violation of the

UTPCPL. Id. Thus, Appellant argues, her complaint pleaded facts for which

the law permits recovery. We find no relief is due.

      We note the relevant standard of review:

         When an appeal arises from an order sustaining
         preliminary objections in the nature of a demurrer, which
         results in the dismissal of a complaint, the Superior Court’s
         scope of review is plenary.

               [We] appl[y] the same standard employed by the
               trial court: all material facts set forth in the
               complaint as well as all inferences reasonably
               deducible therefrom are admitted as true for the
               purposes of review.

         We need not consider the pleader’s legal conclusions,
         unwarranted   inferences   from facts, opinions,   or
         argumentative allegations.

Betts Indus., Inc. v. Heelan, 33 A.3d 1262, 1264-65 (Pa. Super. 2011)

(citations omitted).

      “A demurrer tests the sufficiency of challenged pleadings. Fact-based

defenses, even those which might ultimately inure to the defendant’s


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benefit, are thus irrelevant on demurrer.” Id. at 1265 (citation omitted).

         The question presented by a demurrer is whether, on the
         facts averred, the law says with certainty that no recovery
         is possible. Where affirmance of the trial court’s order
         sustaining preliminary objections would result in the
         dismissal of an action, we may do so only when the case is
         clear and free from doubt.

            To be clear and free from doubt that dismissal is
            appropriate, it must appear with certainty that the
            law would not permit recovery by the plaintiff upon
            the facts averred. Any doubt should be resolved by
            a refusal to sustain the objections. We review the
            trial court’s decision for an abuse of discretion or an
            error of law.

                                  *    *    *

         In the context of reviewing preliminary objections in the
         nature of a demurrer, an abuse of discretion is not merely
         an error of judgment. Rather, the trial court commits an
         “abuse of discretion” when its judgment is manifestly
         unreasonable, or when the law is not applied, or if the
         record shows that the decision resulted from partiality,
         prejudice, bias or ill will.

Id. (citations omitted).

      In Pines v. Farrell, 848 A.2d 94 (Pa. 2004), the Pennsylvania

Supreme Court considered the lien and title theories of mortgages with

respect to a statute pertaining to filing fees. Id. at 99-100. Specifically, the

Court reviewed the propriety of the Court Administrator of Pennsylvania’s

interpretation of the term “property transfer,” as set forth in a statute of the

Judicial Code, to include mortgage assignments, mortgage releases, and




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mortgager satisfactions.5 Id. at 95. The Court cited “ample” Pennsylvania

case authority supporting both theories.     Id. at 99 (“[T]here is ample

caselaw to support the position that mortgages are merely security interests

for the payment of money, performance or other collateral[;]” “On the other

hand, the title theory remains viable.”).       In resolving the question

presented, however, the Supreme Court held:

        [F]or purposes of determining whether mortgage
        assignments, mortgage satisfactions and mortgage
        releases are property transfers, we begin with the
        premise that a mortgage conveys the property subject to
        the mortgage to the mortgagee until the obligations under
        the mortgage are fulfilled.[ ]
        ____________________________
        []
          As our conclusion regarding the treatment of a mortgage
        as a conveyance is limited to the recording acts and
        Section 3733(a.1)(1)(v), it is unnecessary to address
        the [intervenor’s6] fear of the adverse consequences of
        applying the title theory on mortgages in bankruptcy
        and foreclosure matters.

Id. at 100 (emphases added).

5
  The statute at issue was 42 Pa.C.S. § 3733(a.1)(1)(v), which allows the
recorders of deeds, clerks of court, and similar officials to collect an
additional $10 “for each filing of a deed, mortgage or property transfer.”
Pines, 848 A.2d at 96. The Court Administrator promulgated financial
regulations which, inter alia, defined the term to include mortgages. Id.
The Chester County Recorder of Deeds filed a declaratory judgment action,
averring the Court Administrator exceeded his authority and that it was
“within the discretion of individual recorders of deeds to determine what the
General Assembly meant by the term ‘property transfer’ and that the
Administrator’s definition [was] invalid.” Id. at 97. The Supreme Court held
the Court Administrator did not exceed his authority, and then considered
the issue we set forth above. Id. at 98.
6
 The City of Philadelphia filed an intervenor brief in the Pines case. Id. at
99.



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        In the case sub judice, the gist of Appellant’s argument is that

Pennsylvania employs the lien theory of mortgages, but Johnson applies

only in cases with a title theory of mortgages.         Furthermore, the logical

conclusion of Appellant’s rationale, although she does not articulate it, is

that a Chapter 7 discharge not only relieves a debtor from liability under a

mortgage or property-secured promissory note, but also grants her the

property free and clear of the mortgagee’s lien on the property.

        Our review of Johnson reveals no mention of the two theories or any

discussion that could be interpreted as applying its holding to only one or the

other    theory.     Instead,   Johnson       clearly   stated     the   following.

“Notwithstanding the discharge, the Bank’s right to proceed against

petitioner in rem survived the Chapter 7 liquidation.” Id. at 80. A Chapter

7 “discharge extinguishes only ‘the personal liability of the debtor” and “a

creditor’s right to foreclose on the mortgage survives or passes through the

bankruptcy.” Id. at 83. “Even after the debtor’s personal obligations have

been extinguished, the mortgage holder still retains a ‘right to payment’ in

the form of its right to the proceeds from the sale of the debtor’s property.”

Id. at 84. Accordingly, we reject Appellant’s interpretation of Johnson as

applying only to jurisdictions operating under the title theory.

        Furthermore, we have not discovered any Pennsylvania decisional

authority supporting Appellant’s rationale. Our Supreme Court cited multiple

court decisions supporting the application of both the title and lien theory of



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mortgages in Pennsylvania, and in Pines, specifically stated it was not

addressing the application of the title theory in bankruptcy matters. Pines,

848 A.2d at 99-100 & n.7.

     In light of the foregoing, we hold the trial court properly applied

Johnson to find Appellant failed to state a claim upon which relief was due.

Thus, we affirm the order granting Appellee’s preliminary objections and

dismissing Appellant’s complaint.

     Order affirmed.



Judgment Entered.




Joseph D. Seletyn, Esq.
Prothonotary

Date: 4/2/2015




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