Pennsylvania courts have recently handed down several important decisions in the realm of real estate law that provide context for future cases.

• Party whose signature was forged on mortgage loan is still liable to the lender.

In McConaghy v. Bank of New York, 2018 PA Super 194 (2018), the Pennsylvania Superior Court held that a spouse whose estranged husband forged her signature on several residential mortgages and used a portion of the proceeds realized from those mortgages to pay off a prior mortgage that the couple entered into before their separation was still liable to the lender of the new mortgage for the benefit that she received from the initial payout. 

 In 2004, Dana McConaghy and her spouse Matt McConaghy (decedent) obtained a $324,250 residential mortgage loan from First Franklin Financial Corp. (FFFC). Both McConaghy and the decedent signed the FFFC mortgage. McConaghy and the decedent separated soon thereafter and McConaghy moved out of the home. In August 2006, the decedent alone obtained a $175,000 loan from First Commonwealth Bank. In October 2006, the decedent alone obtained a $200,000 loan secured by a mortgage on the home from IndyMac Bank to pay off the First Commonwealth Loan. In November 2006, the decedent alone obtained a $543,000 loan secured by a mortgage and a $101,600 loan secured by a mortgage from Countrywide Home Loans to pay off the FFFC Mortgage and IndyMac Mortgage. Following these payoffs, the Countrywide mortgages purported to take the place of the FFFC mortgage and IndyMac mortgage as the first and second liens on the home. The Countrywide mortgages were assigned to Bank of New York (BNY). In January 2007, McConaghy learned that the decedent had forged her signature on the Countrywide mortgages. In April 2008, the decedent committed suicide, making McConaghy the sole owner of the home encumbered by the Countrywide mortgages and recipient of many collection notices.

In November 2012, McConaghy filed a quiet title action asserting that the Countrywide mortgages were unenforceable. BNY sought an equitable lien on the home created by BNY's satisfaction of the FFFC mortgage and reimbursement for paying insurance and real estate taxes for the home since 2006. After a nonjury trial, the trial court ruled for McConaghy and held that the Countrywide mortgages were unenforceable and denied BNY's claims for equitable relief because it found the BNY had unclean hands. The Superior Court reversed the trial court and found that BNY was entitled to equitable subrogation and an equitable lien for its satisfaction of the FFFC mortgage, as a portion of the proceeds from the Countrywide mortgages were used to pay off the FFFC mortgage, which was signed by McConaghy and was binding on her. The court found that when the FFFC mortgage was satisfied, it removed a $336,000 obligation from McConaghy and she would be unjustly enriched if allowed to retain the windfall.

• Superior Court order highlights the importance of the lis pendens test.

In Barak v. Karolizki, 2018 PA Super. 258 (2018), the Superior Court vacated a lower court's order striking a lis pendens and held that an order striking a lis pendens is immediately appealable and that the trial court applied the wrong legal test in reviewing the lis pendens. The Superior Court remanded the case back to the trial court so it could apply the correct lis pendens test.

Golan Barak owned a piece of real property in Wilkinsburg, which he agreed to sell to Alon Rimoni. At closing, after Barak signed the deed, he learned that Rimoni did not bring the money to pay for the property. The attorney facilitating the closing agreed to hold the signed deed in escrow until Rimoni produced the funds. Barak filed a lis pendens in the Allegheny County Department of Court Records against the property.

A few days later at Rimoni's direction, the attorney attached the signature page to a new deed purporting to transfer title from Barak to Eyal Karolizki and Gal Zeev Schwartz (collectively, Karolizki). The attorney recorded the fraudulent deed in the Allegheny County Department of Real Estate. Barak received no compensation for the transfer and filed a praecipe for writ of summons in equity—index as lis pendens and a complaint in quiet title against Karolizki to regain legal title to the real estate. At the hearing on the lis pendens, Karolizki argued that Barak needed to meet the preliminary injunction standard to maintain the lis pendens in the court's records. Ultimately, the trial judge signed an order removing the lis pendens and required that any proceeds from a sale of the property would be held in escrow pending the end of the quiet title action. Barak appealed the order to the Superior Court, held that an order striking a lis pendens is immediately appealable because it qualifies as a final order under Pennsylvania case law, and alternatively, meets the definition of a collateral order, which Barak may appeal as of right under Pennsylvania Rule of Appellate Procedure 313(a).

The court explained that the correct standard for whether a lis pendens notice should be stricken is a two-part lis pendens test. Under this test, the court should first ascertain whether title is at issue in the pending litigation. If the first prong is satisfied, the trial court should then balance the equities to determine whether the application of the doctrine is harsh or arbitrary and whether the cancellation of the lis pendens is harsh or arbitrary. The Superior Court found that the first prong was satisfied but remanded the case to the trial court to determine in the first instance whether the lis pendens should be maintained as a matter of equity under the second part of the lis pendens test.

Frank Kosir Jr. is an attorney at Pittsburgh-based law firm Meyer, Unkovic & Scott. He can be reached at [email protected].