NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 14-3704
_____________
* KIM POTOCZNY, as Executrix of the Estate
of Emil William Potoczny, Jr.,
Appellant
v.
AURORA LOAN SERVICES;
AURORA BANK FSB;
PHELAN HALLINAN & SCHMIEG
*Pursuant to 43 (c)
_____________
No. 15-1769
_____________
KIM POTOCZNY, as Executrix of the Estate
of Emil William Potoczny, Jr.,
Appellant
v.
NATIONSTAR MORTGAGE;
PHELAN HALLINAN & SCHMIEG
_____________
Appeal from the United States District Court
for the Eastern District of Pennsylvania
(Nos. 2:12-cv-01251, 2:13-cv-03848)
District Judge: Honorable Mary A. McLaughlin
Submitted Pursuant to Third Circuit LAR 34.1(a)
December 11, 2015
Before: FUENTES, CHAGARES and GREENBERG, Circuit Judges.
(Filed: December 21, 2015)
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OPINION*
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CHAGARES, Circuit Judge.
Plaintiff Kim Potoczny1 appeals the District Court’s denial of her motion for
summary judgment, and the District Court’s grant of defendant Aurora Loan Services’s
(“ALS”) and Aurora Bank FSB’s (collectively, “Aurora”), Nationstar Mortgage’s
(“Nationstar”), and Phelan Hallinan & Schmieg’s (“PHS”) cross-motions for summary
judgment. The consolidated cases before us present two primary issues: (1) whether
Aurora and Nationstar, as holders of an indorsed-in-blank promissory note, violated
certain debt collection statutes by seeking foreclosure on the mortgage securing that note;
and (2) whether Aurora and Nationstar improperly charged escrow payments from
Potoczny. For the reasons that follow, we will affirm the District Court’s orders.
I.
We write solely for the parties and therefore recite only the facts necessary to our
disposition. In 2006, Emil W. Potoczny, Jr. executed a $100,000 promissory note to
Home Loan Center d/b/a LendingTree (“LendingTree”), which was secured by a
*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
1
Appellant Kim Potoczny is acting as executrix of the estate of Emil W. Potoczny, Jr.,
and was substituted in his place in the District Court actions and the instant appeals. We
will refer to Kim Potoczny and Emil W. Potoczny, Jr. as “Potoczny” interchangeably.
2
residential mortgage. Under the terms of the mortgage agreement, LendingTree was the
originating mortgage lender, and Mortgage Electronic Registration Systems, Inc.
(“MERS”) was to act as their nominee. LendingTree also agreed to waive collection of
escrow for property taxes and insurance premiums. However, the mortgage agreement
provided that, at any time, the lender could unilaterally revoke the escrow waiver by
providing written notice to Potoczny. With escrow payments waived, Potoczny’s
monthly payments were approximately $717.00, which included his contractual principal
and interest payments.
Shortly thereafter, a series of changes were made regarding the servicing of the
loan, possession of the note, and assignment of the mortgage. First, in 2006,
LendingTree transferred servicing of the loan to ALS, who then transferred servicing to
Nationstar in 2012. Second, there were multiple changes in the possession of the note
between 2006 and 2010. After the note was indorsed to Lehman Brothers Bank, FSB,
and then Lehman Brothers Holdings Inc., it was indorsed in blank. By December 2010,
Aurora had possession of the indorsed-in-blank note. Nationstar had possession by July
2012. Third, a series of transactions purported to assign the mortgage. In 2011, MERS,
acting as the lender’s nominee, assigned the mortgage to ALS. And in 2012, ALS
assigned the mortgage to Nationstar. Potoczny disputes the validity of these assignments.
Significantly, in October 2009, Potoczny agreed to and executed a temporary
Home Affordable Modification Trial Period Plan (the “Trial Plan”), which would have
modified his mortgage if Aurora (who was identified in the Trial Plan as the “Lender or
Servicer”) were to execute the Trial Plan during the trial period. The Trial Plan explicitly
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provided that it “constitutes notice that the Lender’s waiver as to payment of Escrow
Items, if any, has been revoked and [Potoczny] ha[s] been advised of the amount needed
to fund [his] escrow account, and [Potoczny] agree[s] to the establishment of an escrow
account.” App. 168. Potoczny began making escrow payments, increasing his monthly
payments to approximately $837 — the amount identified and required under the Trial
Plan. Aurora, however, did not return a fully executed copy during the trial period, and
the Trial Plan expired in 2010. After the expiration of the Trial Plan, Potoczny again
began making monthly payments of approximately $717.2
By early 2011, Potoczny was in default. On November 23, 2011, Aurora
commenced foreclosure proceedings in Pennsylvania state court. Potoczny then filed the
instant federal court actions. In the first action (the “Aurora Action”), Potoczny alleges
that Aurora and PHS, as Aurora’s counsel, violated the federal Fair Debt Collection
Practices Act, 15 U.S.C. §§ 1692-1692p (the “FDCPA”), Pennsylvania Fair Credit
Extension Uniformity Act, 73 Pa. Cons. Stat. §§ 2270.1–2270.6 (the “FCEUA”),
Pennsylvania's Unfair Trade Practices and Consumer Protection Law, 73 Pa. Cons. Stat.
§§ 201-1 to 201-9.3 (the “UTPCPL”), and committed breach of contract under
Pennsylvania common law. In the second action (the “Nationstar Action”), Potoczny
makes analogous allegations under the FDCPA, the FCEUA, and the UTPCPL against
Aurora’s successor, Nationstar.
2
A November 2009 escrow account statement, however, listed the monthly payment due,
including escrow, as approximately $1,416.19. There is no indication that Potoczny ever
paid that amount, but at least one statement (after Potoczny had defaulted) sought
$1,416.19. See Potoczny v. Aurora Loan Servs., LLC, 33 F. Supp. 3d 554, 567 n.21
(E.D. Pa. 2014).
4
The District Court denied Potoczny’s motion for summary judgment, and granted
the defendants’ cross-motions for summary judgment. Potoczny timely appealed.
II.
The District Court had jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1367(a),
and we have jurisdiction pursuant to 28 U.S.C. § 1291 to review a final decision of a
district court. We review a district court’s grant of summary judgment de novo. See
McMaster v. E. Armored Servs., 780 F.3d 167, 169 n.2 (3d Cir. 2015). Summary
judgment is appropriate “if, drawing all reasonable inferences in favor of the nonmoving
party, there is no genuine issue as to any material fact and the moving party is entitled to
judgment as a matter of law.” Young v. Martin, 801 F.3d 172, 177 (3d Cir. 2015)
(quotation marks and alteration marks omitted); see also Fed. R. Civ. P. 56(a).
III.
A.
Under the FDCPA, “[a] debt collector may not use any false, deceptive, or
misleading representation or means in connection with the collection of any debt.” 15
U.S.C. § 1692e. Potoczny argues that the defendants violated this section of the FDCPA
when they sought to foreclose on a debt they “did not own.” Potoczny Br. 3. We hold,
as did the District Court, that by virtue of their possession of the indorsed-in-blank
promissory note, Aurora and Nationstar were entitled to enforce the note and initiate
foreclosure proceedings. Therefore, the District Court properly granted summary
judgment.
5
Under Pennsylvania’s Uniform Commercial Code (“PUCC”), a “[p]erson entitled
to enforce” an instrument includes the holder of the instrument, a nonholder in possession
of the instrument who has the rights of a holder, or even a person who is “not the owner
of the instrument or is in wrongful possession of the instrument.” 13 Pa. Cons. Stat. §
3301. Pennsylvania courts have routinely held that a note securing a mortgage is a
negotiable instrument under PUCC, and when indorsed in blank, is enforceable by its
possessor. See J.P. Morgan Chase Bank v. Murray, 63 A.3d 1258, 1266 (Pa. Super. Ct.
2013) (“[W]e conclude that the Note secured by the Mortgage in the instant case is a
negotiable instrument under the PUCC. As such we find [the defendant’s] challenges to
the chain of possession by which [plaintiff] came to hold the Note immaterial to its
enforceability.”). See also In re Walker, 466 B.R. 271, 281-86 (Bankr. E.D. Pa. 2012)
(holding that, where trustee had possession of an indorsed-in-blank note, trustee had right
to enforce note).
Similarly here, prior to initiating foreclosure proceedings, Aurora and Nationstar
had possession of the indorsed-in-blank promissory note, and thus they were entitled to
enforce the note. And as they were entitled to enforce the note, Aurora and Nationstar
were entitled to seek foreclosure. See, e.g., United States Bank, N.A. v. Pautenis, 118
A.3d 386, 393 n.8 (Pa. Super. Ct. 2015) (“Pursuant to our holding in [Murray], if the
purported mortgagee establishes that it holds the original note, indorsed to it or in blank,
it is entitled to enforce the note even in the face of questions regarding the chain of
possession. If the purported mortgagee is unable to establish that it is the holder of the
note or that the note is indorsed to it or in blank, the purported mortgagee may be
6
required to provide proof of the chain of possession to be entitled to proceed in the
foreclosure action.”).
It is immaterial whether there were defects in the assignment of the mortgage from
MERS to Aurora. First, Aurora was the holder of the indorsed-in-blank note, and thus
was entitled to enforce it in foreclosure proceedings even if there were defects in the
chain of assignment. See, e.g., Murray, 63 A.3d at 1267 (“Should Appellee successfully
establish that it holds the original Note, and that it is indorsed in blank, under the UCC it
will be entitled to enforce the Note . . . even if there remain questions as to the chain of
possession of the Note.”). Second, as the District Court noted, “[b]ecause any payments
made to the holder of the note will discharge a debtor’s liability under the note,
[Potoczny] cannot be harmed by paying the holder, even if the holder failed to comply
with certain transfer requirements.” Aurora Loan Servs., LLC, 33 F. Supp. 3d at 566
n.18. See also In re Walker, 466 B.R. at 285 (“If a borrower cannot demonstrate
potential injury from the enforcement of the note and mortgage by a party acting under a
defective assignment, the borrower lacks standing to raise the issue.”).
Finally, it is worth noting that the language in the servicing agreement supports
affirmance. Potoczny maintains that Aurora and Nationstar were merely servicers of the
loan, and could, at most, act as an agent or designated custodian of the securitization
trustee. Yet, the servicing agreement explicitly provides that:
each Servicer shall have full power and authority . . . to do any and all
things that it may deem necessary or desirable in connection with the
servicing and administration of the Mortgage Loans, included but not
limited to the power and authority . . . to effectuate foreclosure or other
7
conversion of the ownership of the Mortgaged Property securing any
Mortgage Loan.
App. 115. See also Potoczny v. Nationstar Mortgage, LLC, 2015 WL 787699, at *2
(E.D. Pa. Feb. 25, 2015). Thus, even the terms of the servicing agreement provide that
the loan servicers could effectuate foreclosure.
B.
Under the FDCPA, a debt collector is prohibited from using “unfair or
unconscionable means” to collect or attempt to collect any debt, including “[t]he
collection of any amount (including any interest, fee, charge, or expense incidental to the
principal obligation) unless such amount is expressly authorized by the agreement
creating the debt or permitted by law.” 15 U.S.C. § 1692f(1). Potoczny alleges that
Aurora and PHS violated 15 U.S.C. § 1692f(1) by attempting to collect escrow fees
because: (1) the escrow waiver had not been revoked, and (2) even if the waiver had
been revoked, the $1,416.19 payment sought was greater than the $837.27 payment
identified in the Trial Plan.
We hold, as did the District Court, that the escrow waiver had been revoked by
late 2009. Potoczny received notice — by the signed Trial Plan and the 2009 escrow
account statement — that Aurora intended to collect escrow payments. Further, Potoczny
has not provided evidence that the $1,416 escrow payment was unauthorized or
excessive, except for noting that it was a higher amount than that charged pursuant to the
Trial Plan. However, the 2009 escrow amount statement indicated that with escrow
payments, Potoczny’s monthly payment would be $1,416.19. See Aurora Loan Servs.,
8
LLC, 33 F. Supp. 3d at 567 n.21. Thus, we agree with the District Court that the grant of
summary judgment was appropriate regarding Potoczny’s claims alleging unauthorized
and excessive escrow charges.3
IV.
For the foregoing reasons, we will affirm the District Court’s orders denying
Potoczny’s motion for summary judgment, and granting defendants Aurora’s,
Nationstar’s, and PHS’s cross-motions for summary judgment.
3
Our reasoning also applies to Potoczny’s Pennsylvania state law claims, which are
analogous to or derivative of the FDCPA claims here, see Aurora Loan Servs., LLC, 33
F. Supp. 3d at 568, and, accordingly, we will affirm the District Court’s dismissal of
those claims as well.
9