Photo: Karen Roach

Mortgagees do not have the power to stand in the way of a good-faith judicial sale of encumbered property, the Pennsylvania Superior Court has ruled.

In a published April 23 opinion in In re Estate of Anna Marie Leipold, a three-judge panel of the appeals court reversed a ruling by the Westmoreland County Orphans' Court Division that refused to order a judicial sale of a home in Ligonier because the mortgagee, Quicken Loans, objected.

According to the appeals court's opinion, appellants Scott Hines and Kelly Schueltz petitioned for the judicial sale of a home that had belonged to their deceased mother, Anna Marie Leipold. The home was subject to a Quicken Loans mortgage and had an outstanding balance of $77,129.41 at the time of Leipold's death. Hines and Schueltz sought the judicial sale after receiving an offer of $82,000 for the home. Quicken Loans, however, objected and the Ophans' Court judge denied the petition, reasoning that “'the court simply cannot order a free and clear sale of the property without the consent of the mortgagee pursuant to 20 Pa.C.S.A. Section 335[7](b).'”

But Judge Jacqueline Shogan, writing for the Superior Court panel, called that finding “inaccurate” because Quicken Loans' lien would attach to the sale proceeds following the judicial sale, meaning the sale would not be “'free and clear.'”

Shogan said 20 Pa.C.S. Section 3353 “permits the personal representative to sell an encumbered property pursuant to a court order at a judicial sale when the court determines that such a sale is desirable for the proper administration and distribution of the estate.”

“This broad power afforded to the Orphan's Court under Section 3353 permits a judicial sale even where the mortgagee objects; however, it does not, by itself extinguish the lien, as the lien would attach to the proceeds,” said Shogan, joined by Judge Mary Jane Bowes and Senior Judge Eugene Strassburger III. “Sustaining a mortgagee's objection to a judicial sale when the price is fair and reasonable would estop a personal representative from the proper administration of an estate; it would have a chilling effect upon anyone who is administering an estate from attempting, in good faith, to liquidate encumbered real property that is in less than pristine and immediately saleable condition.”

Allowing mortgagees to block good-faith judicial sales would also discourage people from accepting the position of personal representative.

“Under such a construct, accepting an administrative position would require the personal representative to pay for the maintenance, repair, and upkeep of an encumbered property until the mortgagee, as opposed to the orphans' court, deemed the sale price acceptable,” Shogan said. ”A mortgagee could thus prevent the administration of an estate in perpetuity. We conclude that the broad powers afforded the Orphans' Court in 42 Pa.C.S. Section 8152, 20 Pa.C.S. Section 3353, and 20 Pa.C.S. Section 3357 prevent a capricious refusal and permits a judicial sale despite the objection of the mortgagee.”

Counsel for the plaintiffs, Richard Flickinger of Ligonier Law in Ligonier, could not be reached for comment at press time.

Counsel for Quicken Loans, Edward McKee of Stern & Eisenberg in Warrington, also could not be reached for comment.

(Copies of the 13-page opinion in In re Estate of Anna Marie Leipold, PICS No. 19-0496, are available at http://at.law.com/PICS.)