# Fowler v. Rauso (In Re Fowler)

> United States Bankruptcy Court, E.D. Pennsylvania · March 3, 2010 · 425 B.R. 157

URL: https://www.frixlaw.com/law-library/cases/1883437

## Case

- **Full name:** In Re Rhodie D. FOWLER, Debtor(s) Larry D. Fowler, Et Al., Plaintiff(s) v. Gennaro Rauso, Et Al., Defendant(s)
- **Court:** United States Bankruptcy Court, E.D. Pennsylvania
- **Decided:** March 3, 2010
- **Citations:** 425 B.R. 157; 2010 Bankr. LEXIS 525; 2010 WL 830962
- **Precedential status:** Published
- **Opinion:** Opinion by Frank
- **Judges:** Eric L. Frank
- **Cited by:** 18 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/1883437

## How later opinions describe it (automated extraction)

- concluding that homeowners were purchasers of mortgage services as opposed to sellers of their interest in the property

## Opinion text

OPINION
ERIC L. FRANK, Bankruptcy Judge.
TABLE OF CONTENTS
I. INTRODUCTION.164
II. PROCEDURAL HISTORY.165
III. FINDINGS OF FACT.167
IV. CONCLUSIONS OF LAW. 00 CR
A. LIABILITY: Violation of Section 201-7 of the UTPCPL.... j — i OO 05
1. The Statute: Section 201-7 of Pennsylvania’s Consumer Protection Law, the Right to Cancel Certain Transactions and the Enforcement of the Right to Cancel. 00
2. Section 201-7 Applies to the December 11th Transaction Between the Plaintiffs and Rauso . 00 00 rH
a. the Plaintiffs were the buyers in the sales transaction Rauso devised. 00 00 t — 1
b. the $25.00 statutory threshold is satisfied o 05 i-H
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c. the gist of the action” doctrine does not bar the Plaintiffs’ claim. O Oí
d. summary. r — i 05
3. Rauso Violated Section 201-7. i-H Oí
4. Rauso’s Violation of Section 201-7 of the UTPCPL Entitles the Plaintiffs to Remedies Under Section 201-9.2. (M 05
B. REMEDIES. CO Oí
1. Restored Title to the Allengrove Property. CO Oí
a. void ab initio v. voidable title . ^ Oí
b. Pennsylvania Law on Bona Fide Purchasers for Value Without Notice.
ZD
Oí
c. The Downstream Title Defendants’ Notice of the Plaintiffs’ Unrecorded, Equitable Claim to Ownership of the Allengrove Property.
ZD
05
(1) The Debtor’s Status As A Former Record Titleholder Does Not Discharge the Downstream Title Defendants’ Duty of Inquiry.
ZD ZD
(2) Other Considerations. O tO
d. The Downstream Title Defendants Are Not Bona Fide Purchasers. to o CO
2. Countrywide Is Entitled to An Equitable Lien . to o ^
a. the court’s power to impose an equitable lien under Pennsylvania law. o 04
b. legal standards for imposition of equitable lien in Pennsylvania.
ZD
O 04
c. balancing the equities in this case. OO © 04
d. the extent of the Countrywide’s equitable lien. 05 © 04
3. Actual Damages, Treble Damages, Attorney’s Fees and Costs O rH 03
V. CONCLUSION. .211
I. INTRODUCTION
In November 2006, Defendant Gennaro Rauso (“Rauso”) sent a letter to Debtor Rhodie Fowler (“the Debtor”) offering to help her stop the impending foreclosure and loss of her home. Already distressed by the loss of her job and income, as well as by her husband’s incarceration, the Debtor responded to the letter. Thereafter, a series of telephone calls from Rauso to the Debtor ensued, culminating in Rau-so’s visit to the Debtor’s home on December 11, 2006. During that visit, Rauso orchestrated a transaction (“the December 11th Transaction”) pursuant to which the Debtor, acting on behalf of herself and her husband (collectively, “the Plaintiffs”),
inter alia:
(a)transferred, for no consideration, title to the Plaintiffs’ home to Rauso as “trustee;”
(b) agreed to pay Rauso an hourly fee for services he promised to provide for them in the future;
(c) granted a $60,000.00 mortgage on the Plaintiffs’ home to a company Rauso controlled, D
&
B Property Investors Corporation (“D & B”), and
(d) agreed to lease the Plaintiffs’ home from Rauso, with an option to repurchase it in one (1) year.
Shortly after completing the December 11th Transaction with Rauso, the Debtor and her husband concluded that it was not in their best interests and informed Rauso that they wanted to rescind it. Asserting he had no legal obligation to rescind, Rau-so refused to cancel and instead, in January 2007, arranged to sell the Plaintiffs’ home to two (2) third parties (Defendants David Borso and Corey Maness). Settle
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ment on the sale to Borso and Maness occurred in February 2007. Financing for the sale was provided, in part, through a mortgage loan currently held or serviced by Countrywide Home Loans, Inc. (“Countrywide”). The Plaintiffs received no notice of the sale and no share of the net proceeds. Further, in March 2007, Rauso filed a landlord-tenant complaint on behalf of Borso and Maness seeking to evict the Debtor from the property. Shortly after-wards, the Debtor filed a chapter 13 bankruptcy case and, joined by her non-debtor husband, commenced this adversary proceeding.
In this adversary proceeding, the Plaintiffs seek to invalidate the December 11th Transaction and restore their ownership of the subject property and invalidate both Borso and Maness’ title and Countrywide’s mortgage lien. The Plaintiffs assert that they are entitled to this relief under the Pennsylvania Unfair Trade Practices and Consumer Protection Law (“the UTPCPL”) and 11 U.S.C. §§ 544 and 522(h) and (g)(1). They also seek an award of actual and treble damages and attorneys’ fees and costs from Rauso.
In response, Rauso denies liability. Borso, Maness and Countrywide all claim to be bona fide purchasers for value entitled to retain their respective interests in the subject property notwithstanding the Plaintiffs’ claims against Rauso.
Trial of this adversary proceeding was held on February 20 and 23, 2009.
1
For the reasons that follow, I find that:
1.Rauso violated the UTPCPL;
2. the Plaintiffs are entitled to rescind the December 11th Transaction with Rauso and set aside the transfer of title to their home to Rauso as “trustee;”
3. Maness, Borso and Countrywide do not qualify for the protections accorded bona fide purchasers for value;
4. the Plaintiffs are entitled to have their title to the property restored;
5. Countrywide is entitled to an equitable lien in an amount equal to the enhancements it made to the value of the Plaintiffs’ property by paying off the Plaintiffs’ mortgage and certain other liens;
6. the Plaintiffs are not entitled to recover actual damages because the return of title to their property will adequately address the Plaintiffs’ financial harm;
7. the Plaintiffs are entitled to recover attorneys’ fees and costs from Rau-so.
I will enter an order providing for the relief described above and scheduling a status hearing to obtain further guidance from the parties with respect to certain unresolved details concerning the contours of Countrywide’s equitable lien.
II. PROCEDURAL HISTORY
On March 23, 2007, the Debtor filed a voluntary petition under chapter 13 of the Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Pennsylvania, Bky. No. 07-11692ELF. (Bky. Docket Entry No. 1).
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On March 30, 2007, the Debtor and her husband filed a Complaint commencing this adversary proceeding. (Adv. Docket No. 1). Initially, the named defendants were Rauso, D & B, Borso and Maness. Rauso and D & B filed an Answer to the Complaint. (Adv. Docket No. 9). Borso and Maness did not file a response to the Complaint. At no point, however, did the Plaintiffs seek a default judgment against Borso & Maness; further, Borso and Maness participated,
pro se,
in the pretrial hearings and conferences in the adversary proceeding.
By Order dated July 30, 2007, the court approved a stipulation that authorized Countrywide to intervene as a defendant.
2
(Adv. Docket No. 13). On August 1, 2007, Countrywide filed an Answer and Affirmative Defenses to the Complaint. (Adv. Docket No. 14).
Trial of this adversary proceeding was held on February 20 and 23, 2009.
3
Six (6) witnesses testified at the trial.
4
The par
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ties filed post-trial submissions, the last of which was filed on May 4, 2009.
III. FINDINGS OF FACT
After consideration of the testimony presented at trial, the documentary evidence, the pleadings, the parties’ submission of stipulated facts and their post-trial submissions, and based upon my assessment of the credibility of the testifying witnesses,
5
I make the following findings of fact:
A.
The Plaintiffs ’ Backgrounds
1. The Debtor is a 52-year-old high school graduate with a certificate in banking from a community college. (1 N.T. at 160; Stipulated Facts ¶ 40). She has worked in retail sales, (1 N.T. at 169, 171-72; Ex. D-15, at 9-11), in accounts payable for a school, (1 N.T. at 167-168), and for various banks in customer service, loan maintenance and assistant branch management/trainee positions. (1 N.T. at 162-167; Stipulated Facts ¶ 41).
2. The Debtor’s husband, Mr. Fowler, is also a high school graduate. He has an associate’s degree in law enforcement from a community college, but worked for more than ten (10) years as a mental health technician at various institutions. (Ex. D-15, at 11-14; Stipulated Facts ¶¶ 38, 39).
B.
The Debtor’s Real Property and the GMAC Mortgage
3. In February 2001, the Plaintiffs purchased residential real property located at 983 Allengrove Street, Philadelphia, Pennsylvania 19124 (“the Allengrove Property”). (Stipulated Facts ¶ 1; 1 N.T. at 118).
4. The Plaintiffs jointly held title to the Allengrove Property. (Stipulated Facts ¶1).
5. The Plaintiffs also own two (2) rental properties in Philadelphia. Each rental property is subject to a mortgage.
6
6. On February 8, 2001, the Plaintiffs executed and delivered a mortgage on the Allengrove Property to GMAC Mortgage Corporation (“GMAC”) in the principal amount of $126,976.00 (the “GMAC Mortgage”). (/¿¶3).
7. The GMAC Mortgage secured an underlying note for $126,976.00 between Mr. Fowler and GMAC (“the GMAC Note”). The GMAC Note bore an annual interest rate of 7.625 percent.
7
8. The GMAC Mortgage was recorded with the Philadelphia Department of Rec
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ords on March 13, 2001. (Stipulated Facts ¶ 4).
9. In 2006, the monthly mortgage payments due GMAC on the Allengrove Property mortgage were approximately $1,200.00 a month. (1 N.T. at 118).
C.
The Plaintiffs’ Deteriorating Financial Circumstances
10. Prior to August 2004, both the Debtor and her husband were employed.
11. In August 2004, the Debtor’s husband was incarcerated and began serving a criminal sentence of five (5) to seven (7) years. (Stipulated Facts ¶ 2; 1 N.T. at 114). Also in 2004, the Debtor lost her job. (1 N.T. at 167).
12. Subsequently, the Debtor and her husband defaulted on the GMAC Mortgage. (Stipulated Facts ¶ 5).
13. In April or May 2005, the Debtor regained employment.
14. Between May 2005 until December 2006, the Debtor made some, but not all, of the required monthly payments on the GMAC Mortgage. (1 N.T. at 193).
D.
The Debtor’s First Bankruptcy Case
15. On April 20, 2005, the Debtor filed a petition under chapter 13 of the Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Pennsylvania, Bky. No. 05-15637 (“the First Bankruptcy Case”). (Stipulated Facts ¶ 6).
16. During the pendency of the First Bankruptcy Case, the Debtor obtained a job managing accounts payable for a school. (1 N.T. at 168-169; Ex. D-15, at 9-10). The Debtor lost this job in 2006. (Ex. D-15, at 10; 1 N.T. at 169).
17. On August 15, 2006, the Debtor’s First Bankruptcy Case was dismissed for failure to make plan payments. (Stipulated Facts ¶ 6;
see also
Bky. No. 05-15637, Docket Entry Nos. 54, 58).
E.
The Debtor’s Husband Grants Her His Power of Attorney With Respect to the Allengrove Property
18. On July 18, 2006, the Debtor’s husband executed a power of attorney in favor of the Debtor with respect to the Allen-grove Property. (Stipulated Facts ¶7; Ex. R-ll).
19. Mr. Fowler’s power of attorney provides the Debtor with the power to:
exercise or perform any act, power, duty, right or obligation whatsoever that [the Debtor’s husband] now [has], or may hereafter acquire ... in connection with, arising from, or relating to the home, property and real estate located at 983 Allengrove Road, Philadelphia, PA 19124.
(Ex. R-ll ¶ 1).
20. The power of attorney further provides that such
rights, powers, and authority shall remain in full force and effect ... until such time as [the Debtor’s husband] is released from incarceration, or terminated prior to [his] release from incarceration by written notice signed by [him].
(Id.
¶ 8).
F.
GMAC’s Foreclosure Proceedings and Rauso’s Initial Contact With the Plaintiffs
21. On October 20, 2006, GMAC filed a foreclosure action against the Plaintiffs in the Court of Common Pleas, Philadelphia County with respect to the Allengrove Property.
(See
Stipulated Facts ¶ 9).
22. After GMAC filed the foreclosure proceeding, the Plaintiffs received letters from several parties offering to help the
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Plaintiffs avoid foreclosure. (1 N.T. at 119-20). One such letter, dated November 2, 2006, was signed by Lorraine Foster (“the November 2nd Letter”).
(See
Ex. P-1; 1 N.T. at 120). The November 2nd Letter stated:
Dear Owner,
You may or may not know that
a foreclosure action has been commenced against you.
In fact, you may have received this letter prior to even having been served with the complaint. I know it’s difficult to get letters like this because I, myself, was facing foreclosure years ago. The good news is
you still have a number of options at this point
of which you may not even be aware. In fact, if you have an FHA loan you could be eligible for a number of programs which would allow you to cure your entire default. Additionally, I have a number of contacts that will help you get refinanced, where others may not have been able to do so regardless of your credit score.
If either of these options fail, I would be interested in buying your property even if it doesn’t have any equity. If I purchased it, I would buy it subject to all the liens and encumbrances, would take all the headache of fighting the bank or mortgage company off your hands now before it’s too late, tell you how others in your situation have been successful in completely eliminating their personal debt and
not only allow you to stay in the property for less than what you were paying before but also allow you to buy the property back from us at a later date.
(Ex. P-1) (emphasis added). In closing, the letter provided a phone number the Plaintiffs could call to discuss a “potential solution to [their] problem.”
(Id.).
23. Foster sent the November 2nd Letter to the Plaintiffs at Rauso’s direction. (2 N.T. at 7).
24. The Debtor called the telephone number listed in the November 2nd Letter and reached Foster. (1 N.T. at 120). Foster told the Debtor that she was Rau-so’s secretary and that Rauso was the person to whom the Debtor needed to speak for assistance. (1 N.T. at 120-121).
25. The Debtor called Rauso and left a voice message. (1 N.T. at 121).
G.
Rauso’s Background and Business Model
26. Rauso claims to have worked in “real estate investing” for a number of years. (Ex. D-16, at 9).
8
27. Rauso’s initial business model for real estate investing involved what he termed “standard investor type” transactions using “conventional methods”. He would purchase property, make improvements to the property and try to “flip”
(ie.,
promptly resell) the property at a profit. (Ex. D-16, at 12,120).
28. By the time the Debtor received the November 2nd Letter, however, Rauso had become, by his terminology, “more sophisticated.” He offered what may be loosely termed “foreclosure prevention services,”
(see
Ex. D-16, at 12; 2 N.T. at 72-76), in which he targeted distressed properties that had entered foreclosure and attempted to persuade property owners, who were desperate to avoid foreclosure, to transfer title to him. Ostensibly, the purpose of the transfer was to facili
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tate Rauso’s ability to negotiate a loan modification or short sale with the owner’s mortgage company. As part of the arrangement, Rauso also would sometimes enter into a lease/buy back agreement with the property owners. (2 N.T. at 72-76).
29. Prior to sending the November 2nd Letter sent to the Plaintiffs, Rauso had determined that he wanted to do business with them,
i.e.,
he already had decided that he could expect to extract a favorable profit from engaging in a “foreclosure prevention” transaction with them. (2 N.T. at 9). The November 2nd Letter was a “door opener;” Rauso caused the letter to be sent to the Plaintiffs to invite them to call him and do business with him. (2 N.T. at 9).
H.
Rauso’s Telephone Contacts With the Debtor at the Plaintiffs’ Home
30. When Rauso telephoned the Debtor at her home, he told the Debtor that he understood her situation and had gone through “the same thing” himself,
i.e.,
foreclosure. He told her that he was well qualified to assist the Plaintiffs because he had been specially trained on how to stop foreclosures. (1 N.T. at 122).
31. The Debtor told Rauso that her husband was in prison and that this had compounded the Fowlers’ economic difficulties. (2 N.T. at 53). She also told him that her husband had given her his power of attorney regarding the Allengrove Property. (2 N.T. at 11).
32. The Debtor stressed to Rauso that she and her husband did not want to lose the Allengrove Property. From his first conversation with the Debtor, Rauso learned that the Plaintiffs were
not
interested in selling the Allengrove Property and would not entertain any transaction that involved transfer of title to Rauso
unless
they retained the right to “buy back” or regain title to the Allengrove Property.
(See
1 N.T. at 135; 2 N.T. at 12, 43).
33. Rauso told the Debtor that he “would be more than willing to help [the Plaintiffs] stop foreclosure.” (1 N.T. at 122). Rauso advised the Debtor that the Plaintiffs could avoid foreclosure by temporarily transferring title to the Allen-grove Property to him; he would lease the property back to them and they would have the right to buy it back in a year. (1 N.T. at 122-123).
34. A number of additional telephone calls followed the initial one, with Rauso initiating calls to the Debtor at her home more times than she called him. (1 N.T. at 123).
35. In these subsequent calls, Rauso pressured the Debtor to come to a decision. He told her that she needed to “hurry up” because time was running out; she needed to act quickly or the mortgage company would take her home. (1 N.T. at 123).
I.
GMAC Obtains a Default Judgment
36. On December 6, 2006, GMAC obtained a default judgment in its foreclosure action against the Plaintiffs with respect to the Allengrove Property. (Stipulated Facts ¶ 9).
37. GMAC’s initial judgment was for $136,206.87, but that judgment subsequently was amended to $149,357.71 plus interest at six (6) percent per annum from March 6, 2007 through the date of the sheriffs sale.
(Id.).
38. Following receipt of the default judgment notice,
9
the Debtor had an emo
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tional telephone conversation with her husband in which she suggested working with Rauso as a possible solution to their foreclosure problem. Mr. Fowler agreed that the Debtor should get more information from Rauso. (1 N.T. at 123-124).
39. Soon thereafter, the Debtor contacted Rauso, seeking more detailed information about how he could help the Plaintiffs. Rauso suggested that he come to the Plaintiffs’ home and explain what he could do for them. He told the Debtor that she should be prepared to make a decision at that time. (1 N.T. at 125).
10
J.
Rauso’s December 11, 2006 Visit to the Plaintiffs’ Home
40. On December 11, 2006, Rauso visited the Plaintiffs’ home. (1 N.T. at 17-18, 125, 139). His purpose was to convince the Debtor to agree to transfer title to the Allengrove Property to him, provided that the power of attorney the Debtor had from her husband seemed valid and durable. (2 N.T. 10-11).
41. Prior to Rauso’s December 11th visit, the Plaintiffs had not yet decided whether to do business with Rauso. (1 N.T. at 134).
42. In advance of his December 11th visit, Rauso (or his staff) prepared a number of documents to bring with him. (2 N.T. at 11-13).
43. In anticipation of obtaining the Debtor’s consent to transfer title to the Allengrove Property to him, Rauso also brought along a notary named James Chapis. (1 N.T. at 22-23, 125-126; 2 N.T. at 13).
44. Chapis is a licensed notary for Delaware County, Pennsylvania. (1 N.T. at 33).
45. Chapis introduced himself to the Debtor not as a notary, but as someone who was in training with
Rauso
— ie., he told the Debtor that Rauso was teaching him the business. (1 N.T. at 126, 141).
11
46. At the outset of his visit, Rauso asked to see a copy of the power of attorney the Debtor received from her husband with respect to the Allengrove Property. Presumably satisfied that it was valid and
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durable, he retained the original and made a copy for the Debtor. (2 N.T. at 15).
47. At the December 11th visit, Rauso outlined his proposal to the Debtor again. He told the Debtor that she and her husband could avoid foreclosure and permanent loss of the Allengrove Property if she temporarily transferred title to the property to him. He represented that he would lease the property back to them and that they would retain an option to buy back the Allengrove Property at the end of a year. (1 N.T. at 134). In the interim, Rauso told the Debtor, he would do what he needed to do “to keep the bank from getting the property.” (2 N.T. at 52).
48. While the Debtor was genuinely confused about the structure of the transaction, its details and whether it might be harmful to her and her husband’s interests, the Debtor understood that the transaction with Rauso involved some alteration of her and her husband’s ownership of the Allengrove Property, supposedly to permit Rauso to work out some forbearance agreement and/or loan modification with GMAC.
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K.
The Transactional Documents
49. At the December 11th visit, Rauso asked the Debtor to sign seven (7) different documents that he represented were designed to effectuate the transaction he had described to her. (2 N.T. at 15).
50. Rauso did not give the Plaintiffs copies of these documents to review prior to his arrival at the Allengrove Property. (2 N.T. at 12).
51. Rauso also did not explain any of the documents to the Debtor except as described below. (1 N.T. at 139; 2 N.T. at 15;
see also
2 N.T. at 98 (Rauso’s testimony: “[I]t’s the duty upon the person reading the document to understand the significance of that document.”)).
1. The Trust Agreement
52. The first document Rauso asked the Debtor to sign is titled “Land Trust Agreement” (“the Trust Agreement”). (Ex. P-2; Ex. R-12).
53. The parties to the Trust Agreement are identified as being the Plaintiffs, who are referred to by the defined term “Beneficiary,” and Rauso, who is identified
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as “Trustee for the Fowler Trust.” (Ex. P-2; Ex. R-12).
54. The Trust Agreement provides that it “contains the entire understanding between the parties hereto and may be amended, revoked or terminated only be [sic] written agreement,” (Ex. P-2 ¶ 17; Ex. R-12 ¶ IT).
13
55. The Trust Agreement purports to set up a “Fowler Trust”, the purpose of which was for Rauso to “take and hold title” in the Allengrove Property and “to preserve the same until its sale or other disposition.” (Ex. P-2 ¶ 2; Ex. R-12 ¶ 2).
14
56. The Trust Agreement purports to provide the Beneficiary and Trustee with certain rights and obligations:
a. The Trust Agreement provides the
Beneficiary
with the right to,
inter alia:
1. “lease, manage and control the Trust Property [ie., the Allengrove Property];”
2. “direct the Trustee with regard to the disposition of the title to the Trust Property;”
3. “receive the profits, earnings, avails and proceeds from the rental, sale, mortgage or other disposition of the Trust Property;”
4. “assign any part or all of their interests under [the] Trust;” and
5. terminate the Trust Agreement “thirty (30) days or more after the date upon which the Beneficiary agrees in writing to said termination”.
(Ex. P — 2 ¶¶ 13, 14, 22; Ex. R-12 ¶¶ 13, 14, 22).
b. With respect to the
Trustee,
the Trust Agreement states that he,
inter alia,:
1. “will hold the Trust Property according to the terms and conditions of this Land Trust Agreement for the purposes, terms and conditions contained herein until such time as all of the Trust Property has been sold or otherwise conveyed, or until this trust has terminated”;
2. “shall ... have the power to make and execute contracts for the lease or sale of the Trust Property, mortgages secured by the Trust Property ... to otherwise dispose of the
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Trust Property”
as directed by the Beneficiary
and
“shall exercise his powers only upon the written direction of a majority in interest in the Beneficiary
3. “shall give Rhodie D. Fowler and Larry D. Fowler the
first right to re-purchase the Trust property only if Rhodie Fowler complies with all of the terms and conditions of the lease agreement, dated December 11, 2006.... Said right to re-purchase the property will be rendered void and of no legally binding effect the day said lease is breached by either Rhodie D. Fowler or Larry D. Fowler
” (“the Buy Back Clause”);
15
and
4. shall be compensated $25.00 a hour for any and all services he renders for the Trust and shall have a lien on the Trust [Pjroperty for any unpaid compensation or un-reimbursed expenses.
(Ex. P-2 ¶¶ 2, 3; Ex. R-12 ¶¶2, 3, 4, 5 & Sch. D) (emphasis added).
16
2. The Warranty Deed to Trustee
57. The second document that Rauso asked the Debtor to sign on December 11th is titled “Warranty Deed to Trustee” (herein, “Fowler-Rauso Deed”).
(See
Ex. P-3; Ex. R-13).
17
58. The Fowler-Rauso Deed states that “for and in consideration of $5.00,” the
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Plaintiffs grant Rauso, as Trustee for the Fowler Trust, the Allengrove Property in “fee simple forever” for “the uses and purposes ... in said Trust Agreement”. (Ex. P-3, at 2; Ex. R-13, at 2).
18
59. Despite the reference in the Fowler-Rauso Deed to its having been executed in consideration for $5.00, Rauso did not pay any money to the Plaintiffs for the transfer of title. (1 N.T. at 134; 2 N.T. at 87).
3. Assignment of Beneficial Interest in Land Trust
60. The third document Rauso asked the Debtor to sign is titled, “Assignment of Beneficial Interest in Land Trust” (“the Beneficiary Assignment”).
(See
Ex. P-6; latter part of Ex. R-14).
19
61. The Beneficiary Assignment states that the Debtor and her husband (i.e., the beneficiaries of the Trust Agreement)
assign 100% of their rights and beneficial interests
under the Trust Agreement to REO Investment Corporation (“REO”). (Ex. P-6; latter part of Ex. R-14).
62. At the time, REO was a company owned and controlled by Rauso. (2 N.T. at 78-79).
20
4. Addendum Agreement
63. The fourth document that Rauso asked the Debtor to sign is titled “Letter of Agreement and Addendum” (herein, “the Addendum Agreement”).
(See
Ex. R-9). In the Addendum Agreement, the Debtor was required to initial certain statements regarding the Fowler Trust’s so-called “[pjurchase” of the Allengrove Property:
a. the Plaintiffs’ loan [with GMAC] will stay in their names until “it’s paid off or assumed by a future buyer;”
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the Fowler Trust has “no intentions of assuming said loan and ... no promises have been made ... that the loan will be assumed or paid off’; and
b. by signing the deed, the Plaintiffs are “relinquishing all ownership rights and interests in the Allen-grove Property and the Allengrove Property is “being purchased [by the Fowler Trust] subject to the liens and encumbrances of record” ”.
(Ex. R-9).
5.Power of Attorney
64. The fifth document that Rauso asked the Debtor to sign on December 11th is titled “Power of Attorney” (herein, “Debtor-Rauso POA”).
{See
Ex. P-4). This document states that the Debtor appoints Rauso her attorney-in-fact to “act in, manage and conduct all my estate and all my affairs.”
65. Rauso told the Debtor that this document would enable him to protect the Plaintiffs when he arranged to have their mortgage paid. (1 N.T. at 145).
66. Rauso gave the Debtor a Power of Attorney form for her husband and asked the Debtor to mail it to her husband and have it signed and mailed back to Rauso. (1 N.T. at 144).
6.The Fowler-D & B Mortgage and Defendant D & B
67. Rauso presented the Debtor with a sixth document to sign that is titled “Mortgage” (herein, “Fowler-D & B Mortgage”).
{See
Ex. R-8).
68. The Fowler-D & B Mortgage is dated December 11, 2006. In it, the Plaintiffs are identified as Borrowers and Mortgagors. Defendant D & B is identified as the Lender and Mortgagee.
69. D & B is an entity created and controlled by Rauso. (Stipulated Facts ¶ 14).
70. With respect to his transaction with the Plaintiffs, Rauso used D & B as a vehicle to obtain further compensation, derived from the equity in the Allengrove Property.
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71. The Fowler-D & B Mortgage purports to grant a mortgage to D & B to secure a $60,000.00 Note due to be paid in full “not later than January 10,
2007”
— i.e., less than 30 days after Rauso’s visit to the Debtor’s home.
{See
Ex. R-8).
72. Despite reference to it in the Fowler-D
&
B Mortgage, there is no note or indebtedness to D & B Mortgage underlying the Fowler-D & B Mortgage. (2 N.T. at 86-87). Neither Rauso nor D & B loaned and/or paid the Debtor or her husband any money. (2 N.T. at 134; 2 N.T. at 87).
7.Residential Lease
73. The seventh and last document that Rauso asked the Debtor to sign is titled “Residential Lease” (“the Lease”).
(See
Ex. P-5; Ex. D-14).
74. The Plaintiffs and D & B, as “property manager” for the Fowler Trust, are the parties to the Lease. (Ex. P-5, at 1; Ex. D-14, at 1).
75. The Lease provides that D & B will lease the Allengrove Property to the Plaintiffs from December 11, 2006 to November 30,2007. (Ex. P-5; Ex. D-14).
76. The Lease further states,
inter alia,
that the Debtor and her husband
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must pay rent of $1,000.00 per month in advance on the first day of each month. (Ex. P-5; Ex. D-14).
77. The Debtor balked at seeing the $1,000.00 amount for rent in the Lease. She told Rauso that she could not afford to pay it. (1 N.T. at 146; 2 N.T. at 20).
78. Rauso told the Debtor “not to worry about it.” He assured the Debtor that he would accommodate her inability to pay rent, ie., he would “work something out” for her and that she should call him when the rent was due and arrangements would be made. (1 N.T. 146).
22
L.
The Debtor Signs the Transactional Documents; the Right to Cancel
79.The Debtor, acting in her individual capacity, and pursuant to the Power of Attorney provided to her by her husband, signed the Trust Agreement, Fowler-Rau-so Deed, the Lease, Addendum Agreement, Fowler-D & B Mortgage,
23
the Debtor-Rauso Power of Attorney and Beneficiary Assignment.
(See
Stipulated Facts ¶¶ 10, 11, 42; 1 N.T. at 138 (Ex. P-2 to P-6), 140 (Trust Agreement), 142 (Fowler-Rauso Deed), 144-145 (Debtor-Rauso POA), 224 (Addendum Agreement)).
24
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80. The Debtor signed these documents in her home in Philadelphia. (1 N.T. at 141; 1 N.T. at 16).
81. Acting as notary public, Mr. Chapis witnessed the Debtor signing these documents. (1 N.T. at 17-22).
82. The Debtor had no role in preparing any of the any of the documents she signed. (1 N.T. at 142).
83. None of the documents that Rauso presented to the Debtor on December 11th contained or constituted a “Notice of Cancellation” as that term is described in 73 Pa. Stat. Ann. § 201-7.
{See, e.g.,
2 N.T. at 16).
84. Rauso did not orally advise the Debtor that she and her husband had a right to cancel their transaction with him.
25
85. Settlement on the Plaintiffs’ transaction with Rauso took approximately forty-five (45) minutes. (1 N.T. at 20, 137).
86. Rauso did not leave a copy of any of the signed documents with the Debtor on December 11, 2006. (1 N.T. at 137).
M.
The Plaintiffs Act Promptly to Cancel the December 11th Transaction; A Sheriff’s Sale is Scheduled for the Allengrove Property
87. After the completion of the December 11th Transaction, at the Debtor’s request, Rauso sent the Debtor copies of five (5) of the documents she signed on December llth:(l) the Trust Agreement, (2) the Fowler-Rauso Deed, (3) the Debtor-Rauso POA, (4) the Beneficiary Assignment and (5) the Lease. (1 N.T. at 137-138; 2 N.T. at 34;
see
Exs. P-2, P-3, P-4, P-5, P-6). He did not send her a copy of the Fowler-D
&
B Mortgage or the Addendum Agreement.
88. After receiving copies of the five (5) documents from Rauso, sending certain copies to her husband, and after consulting with her husband, the Debtor called Rauso on or about January 3, 2007 and told him that she and her husband wanted to cancel the transaction. (1 N.T. at 147-149, 213-214; 2 N.T. at 17).
89. In response to the Debtor’s statement that the Plaintiffs were cancelling the December 11th Transaction, Rauso told the Debtor that the Plaintiffs could not rescind. (1 N.T. at 150, 214).
90. Following her telephone conversation with Rauso, the Debtor consulted with a friend who was an attorney about the transaction. That attorney instructed the Debtor to call Rauso and ask him to call the attorney. (1 N.T. at 153). The Debtor did so. (1 N.T. at 153).
91. Also on January 3, 2007, the Debt- or’s husband sent a letter to Rauso, stating that, after reviewing certain documents, he believed that Rauso had “deceived [his] wife” and was not “working in [the Plaintiffs’] best interest” and that Rauso’s “questionable behavior and criminal-like acts demonstrate that [he][did] not have [the Plaintiffs’] best interest, legal or otherwise at heart.” He informed Rauso that, as of January 3rd, the power of attorney he had granted his wife with respect to the Allengrove Property was effectively revoked. (1 N.T. at 151; Ex. P-7).
92. On January 17, 2007, the Debtor followed up on her phone calls to Defendant Rauso by sending him (and D & B) a letter via certified mail to rescind the December 11th Transaction. (1 N.T. at 151— 152; Ex. P-8).
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93. After January 17, 2007, the Plaintiffs and Rauso had no further communications. (2 N.T. at 61).
26
94. Meanwhile, on January 11, 2007, GMAC’s foreclosure counsel sent the Plaintiffs notice that a sheriffs sale of the Allengrove Property had been scheduled for March 6, 2007. (Stipulated Facts ¶ 13).
N.
Rauso Sells the Allengrove Property
95. Unbeknownst to the Plaintiffs, on January 20, 2007, Rauso entered into an Agreement of Sale to sell the Allengrove Property to Borso and Maness. (Stipulated Facts ¶ 15; 1 N.T. at 155).
96. Prior to entering into Agreement of Sale with Borso and Maness, Rauso never offered to sell the Allengrove Property back to the Debtor and her husband. (2 N.T. at 45).
27
97. At the time Maness agreed to purchase the Allengrove Property, Maness already had worked with Rauso on other real estate transactions. (Ex. D-16, at 54; 1 N.T. at 231).
28
98. As between Maness and Defendant Borso, Maness was the more active, “instrumental” party in making the arrangements to purchase the Allengrove Property from Rauso. (1 N.T. at 230). Maness introduced Borso to ■ Rauso as someone who had “decent credit” and could get a mortgage to finance the acquisition. (Ex. D-16, at 53).
99. Rauso told Maness that the Allen-grove Property “was a good investment.” (1 N.T. at 233). Maness determined that there was “a lot of money to be made on the back end,”
i.e.,
upon resale of the Allengrove Property. (1 N.T. at 233-234).
100. Prior to agreeing to purchase the Allengrove Property transaction, Maness knew that the Allengrove Property “was a foreclosure.” (1 N.T. at 233).
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101. Prior to selling the Allengrove Property to Borso and Maness, Rauso told Maness that there was a “tenant” in the Allengrove Property, but that before Bor-so and Maness went to settlement, the tenant would be out of the property.
(Id.).
This was a condition of Maness’ and Bor-so’s “deal” with Rauso.
(Id.).
102. Rauso did not tell Maness that he had promised the Plaintiffs the right to buy back the Allengrove Property. (1 N.T. at 236). Nor did he tell Maness that the Plaintiffs had taken steps to rescind their transaction with Rauso. (1 N.T. at 246).
29
103. Prior to purchasing the Allen-grove Property from Rauso, Maness did not visit the Allengrove Property to see who was living there or whether the purported “tenant” claimed any rights to the property. (1 N.T. at 234-35).
O.
The Fowler-Rauso Deed and Fowler-D
&
B Mortgage Are Recorded
104. On January 24, 2007, in preparation for the sale to Borso and Maness, Rauso recorded the Fowler-Rauso Deed,
(ie.,
the warranty deed pursuant to which the Plaintiffs granted title to the Allen-grove Property to Rauso as “Trustee” of the Fowler Trust), with the Philadelphia Department of Records at document identification number 51618092. (Stipulated Facts ¶ 12).
105. Rauso recorded the $60,000.00 Fowler-D & B Mortgage on January 11, 2007 at document identification number 51609309.
(See
Ex. CW-4 at 5).
P.
The Title Agent’s Investigation Into Rauso’s Title
106. John DiGiacomo (“DiGiacomo”) is a licensed title agent who has owned an abstract title agency for approximately twenty (20) years. (1 N.T. at 85). He is also an attorney with the firm DiGiacomo & Levin. (1 N.T. at 83).
107. DiGiacomo was the Title Agent for the closing on the Rauso-Borso and Maness transaction, acting on behalf of Borso and Maness as well as Countrywide’s predecessor in interest.
108. First American Title Insurance Company (herein, “First American”) provided the title insurance policy for the Allengrove Property transaction between Rauso as seller and Borso and Maness as purchasers (“the Rauso-Borso/Maness Transaction”). (1 N.T. at 85-86; Ex. CW-11).
109. DiGiaeomo’s role with respect to the Allengrove Property closing involved ordering a title search, assessing the results of the title search, causing the settlement sheet to be prepared, reviewing the settlement sheet, holding the closing, issuing a mortgagee policy and giving a title policy to the mortgagee (ie., Money Warehouse) and the buyers (ie., Borso and Maness). (1 N.T. at 86).
110. DiGiacomo obtained a title search and title insurance commitment for the Allengrove Property through his underwriter. Exhibit CW-4 is the title insurance commitment document (“the Title Insurance Commitment”) that Mr. DiGia-como received from his underwriter with respect to the Allengrove Property. (1 N.T. at 87). Its effective date is January 29, 2007. (Ex. CW-4).
111. The purpose of the Title Insurance Commitment is tell “everyone what the title company agrees to and what ex
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ceptions there would be to the title policy.” (1 N.T. at 88). In addition to describing the interest in land that is being insured and identifying the person in whom title is vested and other salient details, the Title Insurance Commitment lists requirements that must be met before title will be insured and identifies exceptions to the title policy that will exist unless the exceptions are “removed” prior to closing. (1 N.T. at 106).
112. The Title Insurance Commitment states that, as of January 29, 2007, title to the Mengrove Property was held by “Gennaro Rauso, Trustee for the Fowler Trust, and not personally under the provisions of a trust agreement dated the 11th day of December 2006.” (Ex. CW-4 ¶ 3(B)). It also states that Rauso obtained title by warranty deed from the Plaintiffs on December 11, 2006.
(Id.).
113. Section One of the Title Insurance Commitment lists certain “Requirements” (“the Requirements”) that must be satisfied before First American would insure title on behalf of Borso and Maness and for the mortgage lender providing the financing for Borso and Maness’ purchase of the Allengrove Property.
(See
Ex. CW-4; 1 N.T. at 106-107, 249).
114. Included among the Requirements on the Title Insurance Commitment, were the following:
As to Gennaro Rauso, Trustee for the Fowler Trust, and not personally under the provisions of a trust agreement dated the 11th day of December, 2006, known as the Trust Number 983, proof must be furnished that:
a. The trustees have the authority to transfer.
b. That the trust is in existence
(has not been terminated or revoked
).
As to Gennaro Rauso, Trustee for the Fowler Trust, and not personally under the provisions of a trust agreement dated the 11th day of December 2006, known as Trust Number 983,
a copy of the trust agreement and all addendums and amendments thereto must be furnished.
(Ex. CW-4, at Requirement 9, at 2-3) (emphasis added).
115. DiGiacomo considered Rauso’s authority to transfer legal title to the Alien-grove Property important in deciding whether First American could or should insure title. (1 N.T. at 105).
116. Prior to settlement on the Allen-grove Property acquisition, DiGiacomo was provided with a copy of the Trust Agreement. (1 N.T. at 108,110).
117. DiGiacomo considered the Requirements discussed in Findings of Fact Nos. 113 and 114 to have been satisfied by his review of the Trust Agreement. (1 N.T. at 107-108,105-106,100-101).
30
118. Notwithstanding the inclusion of the Buy Back Clause in the Trust Agreement, Mr. DiGiacomo testified that he did not know that the Plaintiffs had been given
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the right to buy back the Allengrove Property. (1 N.T. at 97).
31
119. If DiGiacomo was aware that someone had an enforceable right to buy back the Allengrove Property, he would not have issued a title policy without first taking some other action
(e.g.,
discussing it with the parties and his underwriter). (1 N.T. at 96-97).
120. Prior to the settlement on the sale of the Allengrove Property to Borso and Maness, DiGiacomo did not attempt to ascertain whether someone other than the current titleholder,
i.e.,
Rauso as Trustee for the Fowler Trust, was living there. (1 N.T. at 91-92).
121. Section Two of the Title Insurance Commitment is titled “Exceptions” (“the Exceptions”). The Exceptions section of the Title Insurance Commitment contains,
inter alia,
a list of the liens and encumbrances that the title search on the Allen-grove Property revealed. This section lists,
inter alia,
the GMAC Mortgage, the Fowler-D & B Mortgage, certain judgments and a municipal lien for gas service. (Ex. DW-4, Schedule B).
122. DiGiacomo used “the Exceptions” section of the Title Insurance Commitment to prepare the HUD-1 settlement statement,
(see
Ex. CW-3).
123. Because outstanding liens and encumbrances were paid at the closing of the Allengrove Property acquisition, those exceptions in Section Two of the Title Insurance Commitment were marked REMOVED. (1 N.T. at 87-88; Ex. CW-4).
124. First American issued a Policy of Title Insurance, dated March 5, 2007, for the Rauso-Borso/Maness Transaction.
(See
Ex. CW-11).
Q.
The February 2007 Settlement; the Money Warehouse Mortgaye; the Borso Note; the Appraisal
125. Settlement on the Rauso-Bor-so/Maness Transaction occurred on February 15, 2007. (Stipulated Facts ¶ 16).
126. Money Warehouse, Inc. (“Money Warehouse”) provided financing for the purchase of the Allengrove Property.
127. Prior to financing the purchase of the Allengrove Property, Money Warehouse obtained an appraisal of the Allen-grove Property. (1 N.T. at 43).
128. The appraisal report describes the Allengrove Property as being
“tenant” occupied.
(See Ex. CW-2, Uniform Resi
*183
dential Appraisal Report, “Subject,” “Occupant” column) (emphasis added).
32
129. On February 15, 2007, Borso and Maness executed and delivered a mortgage on the Allengrove Property in the principal amount of $237,500.00 to Money Warehouse (herein, “the Money Warehouse Mortgage”). (Stipulated Facts ¶ 19; 1 N.T. at 48, 248-249; Ex. CW-7).
130. The Money Warehouse Mortgage secured a thirty (30)-year, Adjustable Rate Note (“Borso Note”) between Borso and the Money Warehouse. (1 N.T. at 49-50; Ex. CW-6).
33
131. Proceeds from the Money Warehouse Mortgage were used to pay,
inter alia:
a. the GMAC Mortgage, which at that time totaled $151,832.68, (Ex. CW-3 at line 504);
b. $45,000.00 on the Fowler-D & B Mortgage,
(Id.
at line 505);
34
c. $2,680.87 for 2007 Taxes to the Department of Revenue,
(Id.
at line 1501);
d. $732.59, $5,829.00, $17,776.49 and $203.42 to satisfy four (4) judgments entered in the Court of Common Pleas, Philadelphia County, docketed at Nos. 0607721085, 050730179, 050202334 and 070102703, respectively,
(Id.
at lines 1502 to 1505);
35
e. a municipal lien of $814.13,
(Id.
at line 1506);
f. $373.59 for “final water/sewer to Water Revenue Dept.,”
(Id.
at line 1507);
g. $100.00 for “Final Gas to PGW,”
(Id.
at line 1508); and
h. $1,200.00 for “Escrow Held at 15% based on 8,000.00,”
(Id.
at line 1509).
132. By deed dated February 15, 2007, Rauso, as Trustee for the Fowler Trust, granted and conveyed the Allengrove Property to Borso and Maness (“the Rau-so-Borso/Maness Deed”). (Stipulated Facts ¶ 17; Ex. CW-5; see 1 N.T. at 248). The deed states that it conveys the “same premises which Larry D. Fowler and Rho-die D. Fowler ... conveyed unto Gennaro Rauso, Trustee for the Fowler Trust ... [on] the 11th day of December, 2006.” (Ex. CW-5).
133. The Plaintiffs were unaware that Rauso sold their property to Borso and Maness, that Money Warehouse financed the purchase or that the proceeds of the Money Warehouse had been applied as described above in Finding of Fact No. 131.
R.
The Sheriff’s Sale is Cancelled; New Deed and a New Mortgage Lien Are Recorded
134. On February 27, 2007, GMAC’s foreclosure counsel sent notice to the Philadelphia County Office of Sheriff staying the sheriffs sale of the Allengrove Property that was scheduled for March 6, 2007 due to payment of the account in full. (Stipulated Facts ¶ 28).
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135. On March 5, 2007, the Rauso-Bor-so/Maness Deed was recorded with the Philadelphia Department of Records at document identification number 51643524.
(Id.
¶ 18).
136. On March 5, 2007, the Money Warehouse Mortgage was recorded with the Philadelphia Department of Records at document identification number 5164525.
(Id.
¶ 20).
S.
Countrywide Purchases the Money Warehouse Mortgaye
137. On February 15, 2007, Money Warehouse assigned, sold or transferred its servicing rights under the Money Warehouse Mortgage to Countrywide. (Stipulated Facts ¶ 24).
36
138. This assignment was recorded with the Philadelphia Department of Records.
(Id.
¶ 25).
T.
The Debtor Obtains Additional Legal Advice
139. In early March 2007, the Debtor learned that Rauso had not rescinded the December 11th Transaction as the Plaintiffs had requested. She sought additional legal advice from Community Legal Services (“CLS”). (1 N.T. at 154).
140. Acting on CLS’ advice, the Debtor executed a Revocation of Power of Attorney form, which bears a notary stamp dated March 12, 2009, and sent it to Rau-so. (1 N.T. at 155; Ex. P-9).
U.Defendants File a Complaint Seeking to Evict the Debtor from the Allengrove Property
141. On or about March 6, 2007, Rauso, acting as “agent” for Borso, Maness and D & B filed a landlord-tenant complaint against the Debtor in the Philadelphia Municipal Court, at LT-07-03-06-3949, alleging nonpayment of rent in February and March 2007 and seeking eviction. (2 N.T. at 43; Stipulated Facts ¶ 29; Ex. P-10).
142. Prior to receiving the landlord-tenant complaint, the Debtor had not heard of Borso or Maness. (1 N.T. at 155).
37
*185
143. The Debtor attended the scheduled trial on the landlord-tenant complaint in the Philadelphia Municipal Court. No judgment was entered at the initial hearing The Debtor was advised to seek an attorney. (1 N.T. at 156). Her consultation with that attorney led to the filing of her pending chapter 13 bankruptcy case.
V.
The Debtor Files her Second Bankruptcy Case and this Adversary Proceediny
144. On March 23, 2007, Rhodie Fowler filed a voluntary petition under chapter 13 of the Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Pennsylvania, Case No. 07-11692ELF. (Stipulated Facts ¶ 30; Bankr.No. 07-11692, Docket Entry No. 1).
145. On March 30, 2007, the Debtor and her husband filed a Complaint commencing this adversary proceeding. (Adv. Docket No. 1).
W.
Other Relevant Facts
146. Throughout the relevant time period, the Debtor lived at the Allengrove Property. (Stipulated Facts ¶ 37).
38
Her possession of the Allengrove Property has been open and exclusive.
147. Had Borso, Maness or Countrywide spoken to the Debtor prior to purchasing or obtaining a mortgage on the Allengrove Property, they would have learned that the Plaintiffs had taken actions to terminate the Trust Agreement and the December 11th Transaction as a whole and that the Debtor was occupying the Allengrove Property pursuant to a claim of ownership.
148. In financing Borso’s and Maness’ acquisition of the Allengrove Property, Countrywide (and/or its assignor) did not act in bad faith towards the Plaintiffs.
IV. CONCLUSIONS OF LAW
In their Complaint, the Plaintiffs assert four (4) claims and seek various forms of relief.
In Count I, the Plaintiffs contend that Rauso violated Section 201-7 of the UTPCPL by failing to advise them of their right to cancel the December 11th Transaction in the manner required by 73 Pa. Stat. Ann. § 201-7 and by failing to honor the Plaintiffs’ later rescission request.
In Count II, the Plaintiffs challenge certain alleged defects in the notarization of the Trust Agreement and Fowler-Rauso Deed pursuant to 11 U.S.C. §§ 544 and 522(h) and (g)(1).
In Count III, they seek to void the December 11th Transaction with Rauso on the grounds that the Debtor’s husband did not consent to the transaction and that they terminated the transaction.
Finally, in Count IV, the Plaintiffs assert various UTPCPL claims premised,
inter alia,
on Rauso’s alleged misrepresentations concerning the nature of and his intentions in offering the services that gave rise to the December 11th Transaction.
The Plaintiffs ask the court to:
1. order the Defendants to reconvey title to the Allengrove Property to the Plaintiffs;
2. award them statutory damages of three (3) times their actual damages, and not less than $100.00; and
*186
3. award them reasonable attorneys fees and costs.
39
I start with an analysis of the Plaintiffs’ claimed right to rescind, asserted in Count I of the Complaint.
A. LIABILITY: Violation of Section 201-7 of the UTPCPL
1. The Statute: Section 201-7 of Pennsylvania’s Consumer Protection Law, the Right to Cancel Certain Transactions and the Enforcement of the Right to Cancel
Section 201-7 of the UTPCPL provides that buyers who enter into certain transactions involving the sale of goods or services resulting from the seller’s contact with the buyer at the buyer’s residence are entitled to a statutory “cooling off’ period during which they have a right to cancel the transaction.
See
73 Pa. Stat. Ann. § 201-7.
40
The right to cancel applies to
*187
transactions where “goods or services having a sales price of twenty-five dollars ($25) or more are sold or contracted to be sold to a buyer, as a result of, or in connection with, a contact with or call on the buyer ... at his residence either in person or by
telephone.Id.
§ 201-7(a).
When § 201-7 applies, the seller is required to notify the buyer
at the time of sale
of the right to cancel the transaction. This must be done in three (3) ways:
1. A reference to the right to cancel must appear on the contract, or on the receipt if there is no contract, in immediate proximity to the buyer’s signature line. 73 Pa. Stat. Ann. § 201-7(b)(l).
2. Two copies of a “notice of cancellation” must be attached to, and easily detachable from, the contract or receipt.
Id.
§ 201-7(b)(2).
41
3. Each buyer “shall be informed” of the right to cancel at the time the contract is signed.
Id.
§ 201-7(d).
42
The buyer’s right to cancel lasts three (3) business days. This three (3) day period does not begin to run, however, until the “buyer has been informed of his [or her] right to cancel and has been provided with copies of the Notice of Cancellation.” 73 Pa. Stat. Ann. § 201-7(e).
43
Pursuant to § 201-7(b)(2), a buyer determined to cancel a sales transaction may do so by signing and returning the “Notice of Cancellation” or by giving
any other
“written notice” to the seller. The seller must honor “[a]ny valid notice of cancellation” within ten (10) business days of its receipt and must not “misrepresent in any manner the buyer’s right to cancel.”
Id.
§ 201-7(g), (d).
The seller must honor the buyer’s notice of cancellation by (1) refunding “all payments made under the contract or sale,” (2) returning “any goods or property traded in, in substantially as good condition as when received by the seller” and (3) can-celling and returning “any negotiable instrument executed by the buyer in connection with the contract or sale and tak[ing]
*188
any action necessary or appropriate to terminate promptly any security interest created in the transaction.”
Id.
§ 201-7(g).
2. Section 201-7 Applies to the December 11th Transaction Between the Plaintiffs and Rauso
Plaintiffs contend that their December 11th Transaction with Rauso meets all of the elements necessary for it to fall within the purview of § 201-7 of the UTPCPL.
Rauso, on the other hand, contests the applicability of § 201-7 on three (3) grounds. First, he argues that the Plaintiffs do not qualify for protection under § 201-7 because they were the
sellers,
and not the
buyers,
in the December 11th Transaction.
See, e.g., DeFazio v. Gregory,
836 A.2d 935 (Pa.Super.Ct.2003) (§ 201-7 protects only buyers of goods and services and not persons who performed solely as sellers). Second, he contends that the Plaintiffs have failed to prove that the December 11th Transaction had a sales value of $25.00 or more. Third, he contends that the Plaintiffs’ claims are barred by the “gist of the action” doctrine.
I will examine each of Rauso’s contentions in turn.
a. the Plaintiffs were the buyers in the sales transaction Rauso devised
Rauso contends that the evidence “revealed a real estate transaction in which
the Fowlers sold Rauso, as trustee, the [Allengrove Property]
with the condition they would have the first right to repurchase the property at a later date.” (Defs. Rauso/D & B Post-Trial Mem. at 11 (emphasis added)). Rauso argues that evidence that he, and not the Plaintiffs, was the “buyer” in the December 11th Transaction is fatal to the Plaintiffs’ claim that § 201-7 applies. I disagree.
The evidence conclusively establishes that the Debtor and her husband were “buyers” for the purposes of § 201-7. They dealt with Rauso as “buyers” interested in “purchasing” Rauso’s “services”—
ie.,
his assistance in avoiding foreclosure on and permanent loss of the Allengrove Property. A number of considerations support this conclusion.
First, from the very outset of this transaction, Rauso marketed himself to the Plaintiffs, not as an ordinary home buyer, but as person possessed of certain unique training, contacts and information that would make him and his services valuable to homeowners interested in avoiding foreclosure.
44
He told the Debtor that he had been in her position before, that he had been specially trained on how to stop foreclosures, that he had helped others in her position keep (not sell) the properties and that he could help the Plaintiffs too.
Second, the evidence establishes that, in entering the transaction with Rauso, the Plaintiffs never had the slightest interest
*189
in selling the Allengrove Property. Indeed, the Debtor responded to Rauso’s solicitation letter for the opposite reason— to prevent a transfer of the property. The structure of the December 11th Transaction was entirely Rauso’s creation, presented to the Debtor as a means of avoiding foreclosure on, and permanent loss of, the Plaintiffs’ property. The Debtor was convinced to enter into the transaction only after Rauso pitched the idea that the
temporary
transfer of title to the Allen-grove Property to him would help the Plaintiffs avoid foreclosure and
keep
the property in the long term.
Additionally, when Rauso prepared and presented the maze of documents that papered the December 11th Transaction, he assigned himself and the companies he owned or controlled a variety of roles that are not consistent with those typically associated with the ordinary real estate buyer. For example, he created a “Fowler Trust” via the Trust Agreement in which he appointed himself Trustee, with the Plaintiffs (the purported “sellers”) as beneficiaries.
See
Part III.K.1,
supra.
He solicited the Debtor to sign a document granting him broad power of attorney rights, ostensibly so he could negotiate with the Plaintiffs’ mortgage company on their behalf. See III.K.5,
supra.
He appointed Defendant D & B, a company he owned and/or controlled, “property manager” of the Allengrove Property and set the terms of a lease of that property to the Plaintiffs.
See
Part III.K.7,
supra;
Ex. R-14.
That the transaction between the parties is not most aptly characterized as a sale of the Allengrove Property is further evidenced by the fact that Rauso never paid anything to the Plaintiffs in consideration for obtaining title to the Allengrove Property.
See
Part III.K.2 (Finding of Fact No. 59); Ex. R-9. On the other hand, the record is rife with “payment” or the transfer of things of value Rauso caused the Plaintiffs to convey or assign to him and/or corporations he owned and controlled in connection with the December 11th transaction.
45
In my view, the evidence is overwhelming in support of the conclusion that the December 11th Transaction is best characterized one in which the Debtor and her husband were the “buyers,” purchasing Rauso’s services to prevent the looming sheriffs sale of the Allengrove Property. Rauso convinced the Plaintiffs that he was going to intervene and prevent the foreclosure.
(See, e.g.,
1 N.T. at 217-220).
Accordingly, for the purposes of § 201-7 of the UTPCPL, I conclude that the Plaintiffs were “buyers” of Rauso’s foreclosure intervention and prevention services.
See generally Byrd v. Jackson,
902 A.2d 778 (D.C.2006) (affirming finding that, for the purposes of the District of Columbia’s Consumer Protection Procedures Act, plaintiff was a purchaser, and not the seller of her home where defendant presented himself as a “‘foreclosure specialist’ who would aid her in keeping her home,” sent plaintiff advertisement stating that defendant’s business was to help people keep the properties, initially assisted homeowner in filing bankruptcy petition to enable her to work out payment plan with
*190
mortgage company and where plaintiff did not intend permanent loss or sale of her home).
b. the $25.00 statutory threshold is satisfied
Next, Rauso contends that § 201-7 does not apply to his December 11th transaction with the Plaintiffs because the evidence does not establish that the transaction had a sales price of $25.00 or more.
(See
Def. Rauso/D
&
B’s Post-Trial Mem. of Law, at 11). Given my findings concerning the compensation the Plaintiffs promised to pay to Rauso as Trustee
(i.e.,
$25.00 an hour), I reject this argument.
46
c. the “gist of the action” doctrine does not bar the Plaintiffs’ claim
Finally, Rauso argues that the “gist of the action” doctrine bars the Plaintiffs’s § 201-7 claim. (Rauso/D
&
B’s Post-Trial Mem. of Law, at 8-9). Generally speaking, he accuses the Plaintiffs of “recasting” a breach of contract claim into UTPCPL terms.
The “gist of the action” doctrine, sometimes known as the “economic loss doctrine,”
47
originates from the principle that contract remedies should be distinguished from tort remedies. The doctrine is designed to preclude plaintiffs “from recasting ordinary breach of contract claims into tort claims.”
eToll, Inc. v. Elias/Savion Adver., Inc.,
811 A.2d 10, 14 (Pa.Super.Ct.2002). The purpose of the doctrine is to avoid the perceived harm that would result from permitting “a promisee to sue his promisor in tort for breaches of contract inter se [thereby] eroding] the usual rules of contractual recovery and inject[ing] confusion into our well-settled forms of actions.”
Id.
The doctrine bars tort claims where the “gist” of the underlying claim sounds in contract rather than tort.
Id.
at 14-15 .
48
One means of determining whether the asserted claim sounds in tort or contract is to identify the source of the underlying duties that the defendant is alleged to have violated. “The important difference between contract and tort actions is that the latter lie from the breach
*191
of duties imposed as a matter of social policy while the former lie for the breach of duties imposed by mutual consensus.”
Clark,
2009 WL 229761 , at *3. Pursuant to the “gist of the action” doctrine, “if the source of the duty that [the plaintiff contends] was breached arose from the parties’ agreements rather than social policy, the plaintiff is limited to a contract claim.”
De Lage Landen Fin. Serv., Inc. v. Barton Nelson, Inc.,
2008 WL 4791891 , at *6 n. 11 (E.D.Pa. Nov.4, 2008) (citing
Owen J. Roberts Sch. Dist. v. HTE, Inc.,
2003 WL 735098 , at *2 (E.D.Pa. Feb.28, 2003)).
Here, Rauso contends that, through their UTPCPL claim, the Plaintiffs are attempting to “recast” their “confusion” concerning the import of the contracts the Debtor signed into a fraud claim. (Rau-so/D
&
B’s Post-Trial Mem. of Law, at 9). He argues that the “gist of the action” doctrine bars that attempt.
I disagree with Rauso’s characterization of the Plaintiffs UTPCPL claim.
The issues the Plaintiffs raise with respect to their § 201-7 claim do
not
recast or duplicate the elements of a breach of contract claim. The “gist” of the Plaintiffs claim is not that Rauso failed to abide by his contractual promises, but rather that he failed to comply with his
statutory
obligation to disclose the Plaintiffs’ right to cancel the December 11th Transaction. That legal duty was not derived from the various contracts entered into that day, rather, it was imposed on Rauso solely by law: the UTPCPL. Accordingly, the “gist” of the Plaintiffs’ claim for violation of 73 Pa. Stat. Ann. § 201-7 does not sound in contract.
d. summary
In sum, I conclude none of Rauso’s defenses to the Plaintiffs § 201-7 claim have merit and that the Plaintiffs are entitled to the protections of § 201-7 with respect to their December 11th Transaction with Rauso.
More specifically, in addition to finding that the transaction was one in which the Plaintiffs were the “buyers” of services with a sales price of $25.00 or more, I find that the transaction between Rauso and the Plaintiffs was made “as a result of, or in connection with, a contact with or call on the buyer or resident at his residence.” 73 Pa. Stat. Ann. § 201-7(a). Rauso solicited the Plaintiffs at their home. The transaction was the result of Rauso’s repeated contacts with the Plaintiffs’ home, starting with the “door opener” he mailed to the Plaintiffs inviting them to do business with him, and including telephone calls he initiated to the Plaintiffs’ residence. The transactional documents were signed in the Plaintiffs’ home. Additionally, Rauso visited the Plaintiffs’ home, not as the result of some pre-existing social relationship between the Debtor and Rauso, but for the purposes of closing the deal with the Plaintiffs and obtaining an original of the power of attorney that the Debtor had for her husband (a document required to close the transaction).
Cf. Lou Botti Constr. v. Harbulak,
760 A.2d 896 (Pa.Super.Ct.2000) (finding that § 201-7 did not apply to transaction between contractor and homeowner where visits to plaintiffs residence were made, not in connection with gaining the plaintiffs business, but from pre-existing personal relationship).
3. Rauso Violated Section 201-7
Having found that § 201-7 applies to the transaction between the Plaintiffs and Rauso, it follows that the Rauso was required to comply with that section’s notice of cancellation requirements at the time of sale.
Rauso did not comply with § 201-7. None of the documents he presented to
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the Debtor on December 11th contained a “Notice of Cancellation” as required by § 201-7. Additionally, Rauso did not orally advise the Plaintiffs that they had a right to cancel. Thus, pursuant to § 201-7(e), the Plaintiffs’ three (3) day right to rescind never commenced and did not expire before the Plaintiffs exercised that right.
Also, Rauso violated § 201 — 7(f), which requires that a seller “not misrepresent in any manner the buyer’s right to cancel” when he told the Debtor that she had no right to cancel the December 11th Transaction.
All of these acts or failures to act violated § 201-7 of the UTPCPL
See generally Burke v. Yingling,
446 Pa.Super. 16 , 666 A.2d 288 (1995).
4. Rauso’s Violation of Section 201-7 of the UTPCPL Entitles the Plaintiffs to Remedies Under Section 201-9.2
The Plaintiffs here seek equitable relief (to effect restoration of their title to the Allengrove Property) or, in the alternative, monetary damages. They also seek an award of reasonable attorneys’ fees and costs.
The UTPCPL provides a private right of action as follows:
§ 201-9.2. Private actions
(a) Any person who purchases or leases goods or services primarily for personal, family, or household purposes and thereby suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment by any person of a method, act or practice declared unlawful by section 3 of this act, may bring a private action to recover actual damages or one hundred ($100) dollars, whichever is greater. The court may, in its discretion, award up to three times the actual damages sustained, but not less than one hundred dollars ($100), and may provide such additional relief as it deems necessary or proper. The court may award to the plaintiff, in addition to other relief provided in this section, costs and reasonable attorney fees.
73 Pa. Stat. Ann. § 201-9.2.
Case law under § 201-7 holds that violations of that provision may be remedied through § 201-9.2.
See Culbreth v. Lawrence J. Miller, Inc.,
328 Pa.Super. 374 , 477 A.2d 491, 500-01 (1984);
49
see also Christopher v. First Mut. Corp.,
2008 WL 1815300 , at *12 (E.D.Pa. Apr.22, 2008) (“[vjiolations of § 201-7 can be remedied through UTPCPL § 201-9.2”). No party in this litigation has argued otherwise. Rather, in contesting the Plaintiffs’ claim for equitable relief, the Defendants either
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disputed the merits of the asserted § 201-7 violation (Rauso’s defense) or, as discussed in detail below, asserted that the violation may not be remedied by restoring the Plaintiffs’ title to the Allengrove Property (Borso, Maness and Countrywide’s defense).
Having concluded that the Plaintiffs are entitled to relief for their § 201-7 UTPCPL claim, I next determine what remedies should be granted.
B. REMEDIES
1. Restored Title to the Allengrove Property
As one remedy for Rauso’s violation of the UTPCPL, Plaintiffs seek an order that restores their title to the Allengrove Property and that nullifies the title of any purchaser or mortgagee that occupied a position downstream from Rauso, as Trustee for the Fowler Trust. While Rauso’s violation of § 201-7 ordinarily would entitle the Plaintiffs to the right to rescind their entire transaction with him (including the transfer of title) if title to the Al-lengrove Property remained in the name of his entity, the subsequent sale of the property to Maness and Borso, and the creation of a mortgage in favor of Countrywide’s assignor (Money Warehouse), complicates things considerably.
As a result of Rauso’s violation of § 201-7, he obtained title that was voidable (as opposed to void
ab
initio).
See generally, Kepler v. Kepler,
330 Pa. 441 , 199 A. 198, 202 (1938) (where grantor has been induced by fraud to transfer title to real property, grantee obtains voidable title);
Puharic v. Novy,
317 Pa. 199 , 176 A. 233, 234 (1934) (same). Under Pennsylvania law, bona fide purchasers for value without notice of the property claims of third parties may hold title free and clear of any intermediate fraud by a grantee holding voidable title.
50
Defendants Borso, Maness and Countrywide (when referred to collectively herein, the “Downstream Title Defendants”) contest Plaintiffs’ right to regain title on precisely that ground.
51
These defendants
*194
claim to be subsequent, good faith, bona fide purchasers/mortgagees for value without notice of the Plaintiffs’ claims to ownership of the Allengrove Property (“the BFP Defense”). They contend that under Pennsylvania law, they may retain their title (or, in Countrywide’s case, its mortgage lien) regardless whether Rauso obtained his title by fraud.
a. void
ab initio
vs. voidable title
Before undertaking an analysis of the Defendants’ BFP Defense in the context of Rauso’s § 201-7 violation, I must digress briefly.
The Plaintiffs asserted several claims that they contend render Rauso’s title to the Allengrove Property void
ab initio
as opposed to voidable. If the Plaintiffs were correct, there would be no need to analyze the BFP Defense. If Rauso obtained
void
title, he had no title to pass on to the Downstream Title Defendants.
See generally, Harris v. Harris,
428 Pa. 473 , 239 A.2d 783, 784-85 (1968) (transfer based on forged deed cannot pass title, even to a good faith purchaser);
accord Bennerson v. Small,
842 F.2d 710, 714 (3d Cir.1988). As a result, I consider those claims first.
In assessing the Plaintiffs’ other claims, however, I conclude that either: (1) they lack merit or (2) they would have rendered Rauso’s title merely voidable (and not void), if proven. Accordingly the Downstream Title Defendants’ BFP Defense must be considered.
The Plaintiffs’ first such “voidness” claim is in Count II of their Complaint. There, the Plaintiffs challenge the sufficiency of the notarization on the Trust Agreement and the Fowler-Rauso Deed on the grounds that: (1) the notary public, Mr. Chapis, was from Delaware County and not Philadelphia County, where the Allengrove Property is located and (2) the acknowledgment for the Trust Agreement and Fowler-Rauso Deed states that these two documents were executed in Delaware County when they were actually executed in Philadelphia County. The Plaintiffs assert these two challenges to the notarization of these documents pursuant to 11 U.S.C. § 544 and § 522(h) and (g)(1).
The allegations raised in Count II of their Complaint, if proven, would not render Rauso’s title void. Under Pennsylvania law, notaries have the authority to perform their duties on a statewide level. Accordingly, that the notary public is from a different county than the county where the lands being conveyed lie is not grounds for invalidating an otherwise proper deed.
See, e.g., Davey v. Ruffell,
162 Pa. 443 , 29 A. 894 (1894);
see also In re Jones,
308 B.R. 223 (E.D.Pa.2003);
In re Wagner,
353 B.R. 106, 118 (Bankr.W.D.Pa.2006) (“Pennsylvania notaries continue to possess jurisdiction and authority to perform their duties on a statewide level”). Similarly, the erroneous reference in the acknowledgments to the Trust Agreement and Fowler-Rauso Deed that these documents have been executed in Delaware County also is not the sort of defect that would void an otherwise valid conveyance.
See, e.g., Angier v. Schieffelin,
72 Pa. 106 , 1872 WL 11508 (Pa.1871);
see also Wagner,
353 B.R. at 116 (because notary’s failure to date the acknowledgment does not undermine the purpose of the acknowledgment — “verifying] that the signed document is the intentional and voluntary act or deed of the signing party — such failure does not render the document void”).
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At trial, the Plaintiffs expanded the challenges they asserted in Count II of their Complaint to include a challenge to certain interlineations that appear on the acknowledgment page of the Fowler-Rau-so Deed and the Trust Agreement. Specifically, it appears that the typed acknowledgment page had at one time erroneously stated that the Debtor’s husband, who was incarcerated, appeared “personally” before the notary. When this error was discovered, a handwritten interlineation was made to note that the Debtor’s husband appeared through his wife, who had his power of attorney. The parties dispute whether this interlineation was made in the Debtor’s presence or outside the Debtor’s presence and prior to recording. I need not resolve that dispute because I find that the Debtor did execute these two documents on both her own behalf and her husband’s, and that the notary witnessed her signature. In these circumstances, the correction of the acknowledgments would appear to fall within those category of correctable defects that do not rise to such level that they would void the deed or Trust Agreement.
See, e.g., Angier,
72 Pa. 106 , 1872 WL 11508 ;
Wagner, 353
B.R. at 116-17.
Next, in Count III of their Complaint, the Plaintiffs assert that their transaction with Rauso is null and void (and that, in effect, he obtained no title) because the Debtor’s husband did not consent to the December 11th Transaction. I also find that this claim lacks merit. The Debtor’s husband provided her with a power of attorney that contained a very broad grant of authority that would encompass the actions she took in entering into the December 11th Transaction.
52
Mr. Fowler did not testify at the trial and no evidence was introduced to suggest that the Debtor acted outside the boundaries of the power of attorney he granted to her. Indeed, the Debtor’s testimony concerning the nature of the telephone conversations she had with her husband leads me to conclude that Mr. Fowler authorized the Debtor to enter into the transaction with Rauso provided she found the details acceptable.
Also in Count III, the Plaintiffs contend that they terminated the Trust Agreement within the SO-day cancellation period provided and did so prior to Rauso’s having entered into an agreement to sell the Al-lengrove Property. They imply that this fact renders Rauso’s title void. However, the Plaintiffs’ argument ignores the fact that, by signing the Beneficiary Assignment, the Debtor immediately assigned the right to terminate the Trust Agreement to REO, a company controlled by Rauso. Accordingly, at the time the Plaintiffs attempted to exercise the contractual right to terminate, they apparently no longer possessed that right. They also do not offer any legal authority that would suggest that the termination of the Trust Agreement, after the initial transfer of the property, rendered the Fowler Trust’s title void rather than voidable.
Finally, in Count IV, the Plaintiffs asserted a “general” UTPCPL claim, a claim that is a statutory analogue to a common law fraud claim. If successful, such a claim, like the § 201-7 claim, this
*196
claim would render title voidable, rather than void.
See generally Puharic,
176 A. at 234 (a deed procured by fraud is ordinarily merely voidable);
Empire Fire & Marine Ins. Co. v. Banc Auto, Inc.,
897 A.2d 1247, 1250 (Pa.Super.Ct.2006) (title to goods obtained by fraud is voidable while title obtained from goods obtained by theft or from thief is void);
In re Estate of Long,
419 Pa.Super. 389 , 615 A.2d 421, 422 (1992) (“[u]nder general contract principles, however, a material misrepresentation renders a contract voidable not void”).
Having rejected the Plaintiffs’ claims that Rauso’s title was void and not merely voidable, I next address the Downstream Defendants’ BFP Defense.
b. Pennsylvania Law on Bona Fide Purchasers for Value Without Notice
Pennsylvania law protects subsequent purchasers of real property from prior, unrecorded interests
only if
the subsequent purchaser took the property for value and without notice of any defect in title.
See, e.g., Ingomar Ltd. P’ship v. Current,
2008 WL 660099 , at *6 (M.D.Pa. Mar.6, 2008);
see also Roberts v. Estate of Pursley,
718 A.2d 837, 841 (Pa.Super.Ct.1998);
Long John Silver’s, Inc. v. Fiore,
255 Pa.Super. 183 , 386 A.2d 569, 573 (Pa.Super.Ct.1978). A bona fide purchaser, or bona fide mortgagee (as the case may be) is insulated from the claims or interest of third parties. A bona fide purchaser obtains title that is essentially purged of the fraud of his or her predecessors in interest.
See Puharic,
176 A. at 233 (“a purchaser of land who pays value for it and has no knowledge, express or implied, of the existence of any equities in third parties, holds the title so purchased, free and clear of secret liens or equities”);
In re Lauver,
372 B.R. 751, 760 (Bankr.W.D.Pa.2007) (under Pennsylvania law, “a purchaser of real property without actual or constructive notice of a third party’s claims with respect to the property takes it free of the claim of that party”).
There is no dispute in this case that the Downstream Title Defendants provided consideration (or “value”) in connection with the purchase of the Allengrove Property and the financing of that purchase. The issue warranting further examination is whether the Downstream Title Defendants were “without notice” of the Plaintiffs’ competing claim to title to the Allen-grove Property.
c. The Downstream Title Defendants’ Notice of the Plaintiffs’ Unrecorded, Equitable Claim to Ownership of the Allengrove Property
Following their transaction with Rauso, the Plaintiffs’ claim to ownership of the Allengrove Property was
unrecorded.
Record title to the Allengrove Property rested in Rauso’s name, as Trustee for the Fowler Trust. However,
[i]t is well settled that purchasers and mortgagees of real estate are affected not only by matters of which they had actual knowledge and by what appeared in the office of the recorder of deeds and in the various courts of record whose territorial jurisdiction embraced the land in dispute,
but as well by what they could have learned by inquiry of the person in possession and of others who, they had reason to believe, knew of facts which might affect the title.
Sidle v. Kaufman,
345 Pa. 549 , 29 A.2d 77, 82 (1942) (emphasis added) (internal quotations omitted). As one court explained:
A purchaser of real property must exercise ordinary diligence to qualify as a bona fide purchaser.
Knowledge of every fact which “the exercise of ordinary diligence would have put
*197
him in possession” is imputed to that purchaser.
Constructive knowledge ... consists of what a purchaser ... would have discovered from inspecting the public record in the office of the recorder of the deeds
as well as from inquiring of the person in possession of the property or anyone else the purchaser has reason to believe has knowledge of facts which might affect title to the property.
Lauver,
372 B.R. at 760 (emphasis added);
see also Ingomar,
2008 WL 660099 , at *6.
In this case, the evidence establishes that Maness, Borso and Countrywide (through its assignor, Money Warehouse)
53
were on notice of the certain facts and circumstances derived from the publicly-recorded documents within the chain of title or from documents their title agent
54
reviewed:
1.the Plaintiffs held title to the Allen-grove Property before Rauso did, (see Ex. CW4 (Title Insurance Commitment, at 1, 7));
55
2.the Plaintiffs transferred title to Rauso not personally, but as Trustee of the Fowler Trust, (see Ex. CW-4 (Title Insurance Commitment, at 1), Exs. P-2 & R12 (Trust Agreement));
56
3. that Rauso’s authority to transfer title to the Allengrove Property was governed by a Trust Agreement, (see Exs. P-2
&
R-12 (Trust Agreement); Exs. P-3, CW-4, at 1
&
R-13 (Fowler-Rauso Deed));
57
4.the Trust Agreement provided Rau-so with the authority to sell the Al-lengrove Property only as directed by the “Beneficiary,” a term that is defined in the Trust Agreement to mean the Plaintiffs, (Ex. R-12);
58
*198
5. the Trust Agreement provided the “Beneficiary,” defined in the Trust Agreement to mean the Plaintiffs, with a 30-day right to terminate the Trust Agreement, (Exs. P-2
&
R-12); and
6. distinct from the right to terminate the Trust Agreement, the Plaintiffs had been granted the first right to re-purchase the Allengrove Property from Rauso with that right negated only if the Plaintiffs breached the terms of a lease agreement they had with Defendant D
&
B, (Ex. R-12 ¶ 4).
59
Second, throughout the relevant time period, the Debtor maintained clear, open and exclusive possession of the Allengrove Property. As our Court of Appeals observed in reviewing Pennsylvania law:
in Pennsylvania, clear and open possession of real property generally constitutes
constructive notice to subsequent purchasers of the rights of the party in possession. Such possession, even in the absence of recording, obliges any prospective subsequent purchaser to inquire into the possessor’s claimed interests, equitable or legal, in that property.
McCannon v. Marston,
679 F.2d 13, 16 (3d Cir.1982) (emphasis added) (citing
Kinch v. Fluke,
311 Pa. 405 , 166 A. 905 (1933));
see also Long John Silver’s, Inc.,
386 A.2d at 573 .
Consistent with our Court of Appeals’ observation, a long line of Pennsylvania courts have held that, as part of the duty to exercise ordinary diligence in the purchasing process, a buyer of real property
is obliged to ask those in physical possession of property
(who are not also the current record titleholders) if they have some title to, or interest in, the occupied property that is adverse to the prospective buyer’s title.
60
Pennsylvania imposes the
*199
same duty of inquiry on a mortgagee.
61
A purchaser or mortgagee who fails to make such inquiry concerning the basis of the possessor’s interest takes title
subject to
the possessor’s interest.
62
Does this general rule regarding a purchaser’s duty of inquiry as to persons in physical possession of real property apply in the circumstances of this case? Answering this question requires consideration of a potentially applicable exception to the rule.
(1) The Debtor’s Status As A Former Record Titleholder Does Not Discharge the Downstream Title Defendants’ Duty of Inquiry
In certain circumstances, Pennsylvania courts have recognized an exception to a subsequent purchaser’s duty to inquire about a property occupant’s rights
when the current occupant was previously the record title owner of the property
(as the Debtor was here).
63
See, e.g.,
*200
Stiffler v. Retzlaff,
11 A. 876 (Pa.1887);
Scott v. Gallagher,
1826 WL 2271 (Pa. Jun.28, 1826);
Hunter,
20 Pa. D. & C.3d 96 . In application, this exception appears to be reserved for cases in which a court is convinced that the former record titleholder (and current occupant of the property): (1) participated in some manner in misleading the subsequent purchaser about the occupant’s claim to title and (2) failed to act promptly to assert his or her ownership rights.
An early Pennsylvania Supreme Court case,
Scott v. Gallagher,
aptly illustrates this exception.
Gallagher
involved the transfer of a deed to 100 acres of land from Gallagher to McCormick. The purpose of the transfer was to enable McCormick to sell the land on Gallagher’s behalf. Gallagher recorded the deed that granted title to McCormick and McCormick executed a bond to Gallagher. The condition of the bond was that: (1) McCormick was to go to Philadelphia to try to sell Gallagher’s land for a certain sum, (2) if McCormick sold the land, he was to return the proceeds to Gallagher, and (3) if he could not sell the land by a certain date and for a certain sum, McCormick was to return the deed to Gallagher. 1826 WL 2271 , at *2. The terms of this arrangement were
not
recorded.
McCormick went to Philadelphia, but never sold the land. Thereafter, neither he nor Gallagher ever took any steps to have the property deeded back to Gallagher. Consequently, when McCormick died, the land was treated as part of McCormick’s estate and his heirs inherited it and sold it. A number of subsequent sales of the property by persons claiming under McCormick’s chain of title followed. All the while, Gallagher and his family maintained open, physical possession of the land
(ie.,
they cleared land on the property and built a house). The last buyer in the McCormick chain of title (Scott) brought the
Gallagher
case as an action to recover possession of the land from Galla-ghers.
The Pennsylvania Supreme Court ultimately affirmed a judgment against the Gallaghers and in favor of the buyer in the McCormick chain of title, finding that the buyer was a bona fide purchaser, protected from the Gallaghers’ claim to title. In reaching this ruling, the court rejected Gallagher’s argument that the buyers failure to inquire about the Gallaghers’ rights to the property they occupied precluded any finding that the subsequent buyer was a bona fide purchaser.
Important to the court’s ruling was that Gallagher voluntarily participated in conduct that had the effect of misleading subsequent purchasers about the nature of his claimed interest in the land he deeded to
McCormick
— ie., Gallagher could have and should have recorded the terms of his arrangement with McCormick and the limitations on McCormick’s title and “spread it upon the records of the county, in order to prevent innocent purchasers from being deceived.”
Id.
at *2. The court also was influenced by the fact that it did not “appear that Gallagher ever took any steps whatever to obtain a reconveyance of the land, or a surrender of the deeds placed in the hands of McCormick.”
Id.
at *3:
[Gallagher] rests merely upon his possession, without having given any notice whatever of the real nature of the transaction between him and McCormick, or making any application to the court for a rule on McCormick, to compel him to reconvey and redeliver a deed placed in his hands.
Id.
The later Pennsylvania cases apply this exception narrowly in circumstances involving equitable concerns similar to those present in
Gallagher.
Generally, the cases
*201
all appear to involve a “secret agreement” between the former record titleholder, a “straw” titleholder and a failure by the current occupant/former record titleholder to act promptly or diligently to assert his or her claims to title to the prejudice of the subsequent purchaser.
See, e.g., Stiffler,
11 A. 876 (father deeded land to son, deed was recorded, then father and son privately agreed that certain portions of land in the deed should not pass, but father never arranged to record a correction and the property was subsequently transferred to third party);
Hunter,
20 Pa. D.
&
C.3d 96 (parents deeded property to son “for their own financial convenience,” not intending that son have beneficial interest, and son subsequently mortgaged property).
I acknowledge that the language employed in some of these cases is sometimes very broad. For example, in
Hunter ,
the court stated:
A purchaser or encumbrancer from the grantor’s grantee is not required to inquire of the grantor in possession whether such grantor reserved any interest in the land conveyed. The grantor’s deed is held to be conclusive. In effect, by conveying such a deed, the grantor raises a presumption that he has made no reservation, that his continued possession is merely permissive and not antagonistic to his grant and that such continued possession is not a notice of other rights.
20 Pa. D. & C.3d at 100 .
However, when viewed in context of the facts and circumstances presented in the cases, the quoted proposition applies only to narrowly circumscribed situations where there are equitable concerns at play due to the occupant’s own conduct. For example, in the passage that immediately follows the portion of
Hunter
that is quoted above, the court noted:
If there are any secret agreements or other secret rights not recorded on the deed, it is the possessor’s duty to enter such agreements or rights upon the records of the county to prevent innocent purchasers from being deceived.
Id.
In other words, the line of cases discussed above does not establish the broad principle that, in all circumstances, a purchaser is entirely relieved from a duty of inquiry when a former owner is the current occupant of a property. Rather, the case law suggests only that the failure to make that inquiry may not vitiate bona fide purchaser status if the inadequate inquiry is outweighed by certain equitable circumstances.
Based on this reading of Pennsylvania case law, I conclude that the limited exception to a subsequent purchaser’s/mortgagee’s duty of inquiry does not apply to the facts and circumstances of this case.
To start, the Plaintiffs are not guilty of voluntarily participating in an effort to mislead subsequent purchasers. They had no “secret agreement” with Rauso. True, the Trust Agreement was not recorded. But, it was not left unrecorded at the Plaintiffs’ behest. Further, and more importantly, it was no “secret.” The Trust Agreement was referenced in the recorded Fowler-Rauso Deed and its importance to Rauso’s authority or ability to transfer title to any subsequent purchaser was in plain view of the Downstream Title Defendants’ title agent. He required that he be provided a copy of the agreement before insuring title. He received and reviewed a copy of the agreement. Apparently, he either misinterpreted it or failed to grasp the import of the information contained in it. As a result, the Downstream Title
*202
Defendants are imputed with notice regarding the terms of the Trust Agreement.
Furthermore, the Plaintiffs acted promptly and diligently in asserting their claimed rights to the Allengrove Property. On January 3, 2007, the Debtor’s husband wrote a letter to Rauso, and the Debtor called Rauso to cancel the transaction. The Debtor also consulted with a friend who was an attorney and acted on that attorney’s advice. The Debtor sent notice of her intent to cancel the December 11th Transaction by certified mail on January 17, 2007. Further, the Debtor consulted additional attorneys at CLS. Acting on CLS’ advice, she sent a revocation of the power of attorney she had granted Rauso. She also consulted with counsel about further means of undoing the Plaintiffs’ transaction with Rauso, which resulted in the filing of this bankruptcy case in March and the prompt commencement of this adversary proceeding.
64
Consequently, I do not find that the circumstances of this case warrant application of this limited exception to the long line of cases that impose a duty upon a purchaser or mortgagee to inquire about a current occupant’s claimed interests in real property where the occupant’s interests are not recorded.
(2) Other Considerations
Furthermore, circumstances other than the Debtor’s physical occupation of the Allengrove Property, required further inquiry or investigation on the part of the Downstream Title Defendants to justify according them BFP status.
The Downstream Title Defendants were on notice that Rauso’s authority to transfer title was highly “contract-dependent.” Rauso obtained both his title and his authority to transfer title subject to the terms of the Trust Agreement. The Trust Agreement conditioned his authority to sell on the agreement of the Beneficiary (defined to mean the Plaintiffs). It also
*203
contained a 30-day right to terminate and a Buy Back Clause. The Buy Back Clause, in turn, guaranteed the Plaintiffs the first right to re-purchase the property, with that Clause being conditioned on the Plaintiffs’ adherence to the terms of the lease.
Notwithstanding this knowledge and these contingencies, there was no evidence at trial that either the Downstream Title Defendants nor their title agent made any inquiry of the Plaintiffs concerning whether,
inter alia:
(1) the Plaintiffs had terminated (or believed that they had terminated) the Trust Agreement and were continuing in possession of the Allengrove Property pursuant to their claim that they had validly terminated it;
(2) the Plaintiffs had complied (or believed that they had complied) with the lease; and
(3) whether, pursuant to the Buy Back Clause, Rauso had offered the Plaintiffs the opportunity to re-purchase the Allengrove Property before offering to sell the property to Borso and Maness (or whether the Plaintiffs believed Rauso breached that duty).
Yet, the answer to any one of these questions easily could affect Rauso’s authority to transfer title.
Furthermore, the record suggests that the Downstream Title Defendants
recognized
that at least certain of these contract terms had the potential to completely change the complexion of Rauso’s prospective sale of the Allengrove Property to Borso and Maness. For example, Maness testified that, had he known that the person who was living at the Allengrove Property had attempted to rescind her transaction with Rauso, he would have walked away from the purchase.
(See
1 N.T. at 246). Additionally, with the respect to the existence of a “buy back” right, the title agent testified that if he had known that someone had an enforceable right to buy back the Allengrove Property, he would need to pursue additional steps
(e.g.,
discussing it with the parties and underwriting, etc.) before determining whether a title insurance policy could be issued. (1 N.T. at 96-97). Surely, ascertaining
whether
anyone had such right falls within the scope of the required duty to exercise reasonable diligence in purchasing real property.
d. The Downstream Title Defendants Are Not Bona Fide Purchasers
For the reasons set forth above, I find that in the “exercise of ordinary diligence,”
see Lauver,
372 B.R. at 760 , the Downstream Title Defendants had a duty to ask the Debtor whether she claimed any rights to the Allengrove Property. Not having discharged that duty, they are charged with notice of facts that they would have learned in the proper discharge of that duty.
See, e.g., Malamed, 80
A.2d at 855.
Had they spoken to the Debtor, the Downstream Title Defendants would have learned that the Plaintiffs had repeatedly notified Rauso of their intent to terminate the Trust Agreement and that the Debtor was occupying the Allengrove Property pursuant to a claim of ownership.
Imputed notice of these facts is fatal to the Downstream Title Defendants’ BFP Defense.
See Stonecipher,
112 A. at 234. Essentially, the Downstream Defendants took title subject to the Plaintiffs’ claim that the Fowler Trust’s title to the property was voidable and, as it turns out, that claim is meritorious.
Accordingly, by virtue of their § 201-7 claim, the Plaintiffs are entitled to regain title to the Allengrove Property and
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to have Borso’s and Maness’ title and Countrywide’s mortgage lien set aside.
2. Countrywide Is Entitled to An Equitable Lien
As a fallback to its bona fide purchaser defense, and in the event that the court held that the Plaintiffs are entitled to restoration of their title to the Allengrove Property, Countrywide requested that the court impose an “equitable mortgage” or “equitable lien” in its favor, either:
(1) in the full amount of its previous mortgage on the Allengrove Property, or
(2) alternatively, in an amount equal to the proceeds of its mortgage that were used to pay off the GMAC Mortgage and other liens that encumbered the Allengrove Property on the date of the February 15, 2007 closing.
(See
Countrywide Trial Brief, Adv. Docket No. 67).
Countrywide argues that, absent such a remedy, the Plaintiffs would receive an unintended and inequitable windfall,
i.e.,
the Plaintiffs would regain title to the Allengrove Property without
any
mortgages, liens or judgments encumbering property due to Countrywide’s payment of these debts and expenses.
65
As explained below, I agree with Countrywide.
a. the court’s power to impose an equitable lien under Pennsylvania law
“A court, exercising its equitable powers, may impose an equitable mortgage or lien on a property under the proper circumstances.”
Phillips v. Resolution Trust Corp.,
1995 WL 230993 , at *2 (E.D.Pa. Apr.19, 1995). In
Phillips ,
the court explained the difference between the doctrines:
[A] court creates an equitable mortgage to give an effect to an intention of the parties to create a mortgage, typically where a defect in an instrument renders an intended mortgage invalid; it creates an equitable lien regardless of the intent of the parties, as a remedial device to protect a party against inequitable loss and to prevent unjust enrichment.
Id.
at *2 ;
see also First Fed. Sav. & Loan Ass’n v. Reedy,
35 Pa. D. & C.2d 299 (Luzerne Cty. C.P. Ct.1964) (“an equitable lien is recognized where improvements have been made to one person’s property
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with another person’s money or property so as to amount to unjust enrichment”).
In this proceeding, because the relief Countrywide seeks is premised on preventing the unjust enrichment of the Plaintiffs, the proper terminology for the form the remedy it seeks is an “equitable lien.”
In recognizing the judicial power under Pennsylvania law to impose equitable hens, the Pennsylvania Supreme Court has cited with approval section 161 of the Restatement (First) of Restitution.
See Gladowski v. Felczak,
346 Pa. 660 , 31 A.2d 718, 720 (1943);
Gen. Casmir Pulaski Bldg. & Loan Ass’n v. Provident Trust Co. of Philadelphia,
338 Pa. 198 , 12 A.2d 336, 338 (1940). Section 161 states:
Where property of one person can by a proceeding in equity be reached by another as security for a claim on the ground that otherwise the former would be unjustly enriched, an equitable lien arises.
Restatement (First) of Restitution § 161 (1937) (“Restatement”).
The question here is whether the Pennsylvania Supreme Court would impose a equitable lien under the facts presented in this case.
My research has not uncovered a case decided under Pennsylvania law regarding a mortgagee’s entitlement to an equitable lien that is on all fours with the circumstances presented in this case
(i.e.,
where (1) a mortgagee financed the acquisition of real property pursuant to a mistaken, good faith belief that the purchaser was acquiring clear title to the property; (2) the true property owner played no role in creating and had no prior knowledge concerning the mistake of fact; (3) unbeknownst to the true owner, the loan proceeds were used, in part, to pay off existing liens on the property and obligations of the true owner; and (4) the mortgagee’s lien is voided solely due to the imputation of constructive notice regarding the true owner’s property rights).
66
The absence of such precedent, however, does not detract from the court’s power to do equity.
See Farmers Nat’l Bank of Bloomsburg v. Albertson,
203 Pa.Super. 205 , 199 A.2d 486, 489 (1964) (“On questions of this nature no two cases are alike. Each case rests upon its own peculiar facts and the general equitable principles relative thereto”).
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b. legal standards for imposition of equitable lien in Pennsylvania
The cases Countrywide has cited in support of its request for equitable relief all involve a variant of the “good faith improver
doctrine”
— ie., the concept that “when a bona fide possessor of property makes improvements upon [real property], in good faith and under an honest belief of ownership, and the real owner for any reason seeks equitable relief, the court, applying the familiar principle that he who seeks equity must do equity, will compel him to pay for the improvements to the extent that they have enhanced the value of the land.”
Stanko v. Males,
390 Pa. 281 , 135 A.2d 392, 395 (1957);
see Nebesho v. Brown,
846 A.2d 721, 725 (Pa.Super.Ct.2004). The “improvements” in this instance would be the enhancements to the value of the Plaintiffs’ real property caused by Countrywide’s payment of outstanding liens and judgments from the proceeds of its loan to Borso and Maness.
The doctrine of unjust enrichment in connection with the satisfaction of liens on real property is described in § 43 of the Restatement, titled “Performance of Another’s Duty or Discharge of Lien Against His Property.” Section 43, which was cited and applied by the Pennsylvania Supreme Court in
Gladowski v. Felczak,
31 A.2d at 720 , states the equitable rule this way:
Where a person lends money to another who contracts to use the money for the discharge of a lien upon property which the other represents as belonging to him and where the money so lent is used for the discharge of the lien, the lender is entitled to have the lien reinstated for his benefit if,
unknown to him,
the property was not owned by other or was subject to a junior hen.
Restatement § 43.
The primary difficulty in applying § 43 of the Restatement to the facts in this case stems from the phrase “unknown to him.” Certainly, § 43 suggests that granting equitable relief is contingent upon the lender or mortgagee’s lack of knowledge regarding the property rights of the “other” (here, the “other” being the Plaintiffs). If equitable liens could be obtained only by parties who conferred improvements on the real property of others based on a mistaken belief as the property’s true owner and who also met the definition of a bona fide purchaser for value, Countrywide would not be entitled to such a lien. Countrywide does not qualify as bona fide purchaser due to its assignor’s “constructive notice” of the Plaintiffs’ rights to the Allengrove Property.
The question, then, is whether the Pennsylvania Supreme Court would deny Countrywide equitable relief under the circumstances of this case because of its assignor’s constructive knowledge (knowledge that is imputed by law as something that “should have been known,” even though not actually known) of the Plaintiffs’ property rights. After careful consideration of the relevant cases and authority, I am convinced that the Pennsylvania Supreme Court would
not
find that constructive notice automatically defeats the right to equitable relief.
Gladowski v. Felczak
is seminal in providing guidance and in defining the circumstances pursuant to which equitable relief may be provided to a lender whose mortgage lien has been voided through a failure of title. In
Gladowski
the American Citizens Club (“the Club”) acquired property from the Polish Falcons of America (“the Falcons”). The deed was recorded. Subsequently, the Club obtained a mortgage
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loan from the Gladowskis to repair the property, pay off a judgment hen and pay past due real estate taxes.
Id.
at 719 . Through separate litigation, and after the mortgage was made, the conveyance to the Club was judicially determined to be invalid due to the Falcon’s failure to follow procedures set forth in the constitution of their national organization. Because the deed was invalid, the mortgage was “necessarily also invalid.”
Id.
The Gladowskis commenced litigation seeking to have the amount of the invalid mortgage declared a lien on the property. The Pennsylvania Supreme Court determined that the Gla-dowskis were entitled to an equitable lien, noting:
The
crucial fact
is that the
mortgage money was used wholly for the benefit of the property
which has now been restored to the ownership and possession of the [owner]. As already stated, when the latter conveyed the property to the Club the building, due to the ravages of the flood, was totally unfit for occupancy, and it was saddled with a judgment lien which the [owner] had no means to satisfy. If the [owner] were to be allowed, without any equitable obligation on its part, to hold the property freed of that judgment and with it clubhouse restored by the repairs made upon it, and plaintiffs were to be denied the right to recover the money
loaned by them in good faith
and used, in the manner indicated, for the ultimate benefit of the [owner], every proper conception of morals and fair dealing would be violated.
* * *
Plaintiffs’ right to equitable relief is
dependent upon their innocence
in making the mortgage loan, but there is nothing in the record which militates against the presumption that they acted without knowledge of the invalidity of the Club’s title.
[T]he most that can be said is that [Gladow-ski] made the loan and accepted the mortgage through a mistake of fact.
Id.
at 663-665 , 31 A.2d 718 (emphasis added).
The
Gladowski
court emphasized the need to examine the equities and the innocence or good faith of the lender in reaching a determination whether to award an equitable lien. In
Gladowski
the decisive considerations were that the owner had received a large windfall and benefitted from improvements that rendered previously uninhabitable property habitable due to the mortgage proceeds. These same factors are echoed as considerations in other Pennsylvania jurisprudence.
See, e.g., Stanko,
135 A.2d at 395 (where wife forged husband’s signature on deed conveying land formerly held by entireties and transferred deed to third parties who paid mortgage, third parties were entitled to equitable relief because of their “innocence” in paying money and
“good faith and under an honest belief in ownership
”) (emphasis added).
Thus, to the extent that Pennsylvania law conditions the right to equitable relief upon a showing of the lack of knowledge and “innocence” of the improver/mortgagee, and in the absence of any relevant authority addressing the effects of constructive notice on the entitlement to equitable relief, I predict that the Pennsylvania Supreme Court would construe this reference to “innocence” or like concepts to protect not only bona fide purchasers/mortgagees, but also parties who have acted in “good faith”
and
“without
actual
notice” of other claims of property ownership. To rule that imputed, constructive notice also renders a good faith mortgagee ineligible for equitable relief, could serve merely to confer an unintended and unjust
*208
windfall on the Plaintiffs and an undeserved punishment on the mortgagee.
See generally
Restatement § 59 (“A person who has conferred a benefit upon another by a mistake is not precluded from maintaining an action for restitution by the fact that the mistake was due to his lack of care.”).
In a nutshell, like the court in
Williard v. Millersburg Trust Co.,
I conclude that the outcomes in those Pennsylvania cases denying equitable liens to “mere volunteers,” are not based on a strict application of the requirements necessary to achieve bona fide purchaser status, but rather to a fact-intensive “balancing of the equities.” 48 Pa. D. & C.2d at 157.
67
This balancing analysis includes,
inter alia,
a consideration of the relative culpability and innocence of the parties.
See generally Park v. Greater Delaware Valley Sav. & Loan Ass’n,
362 Pa.Super. 54 , 523 A.2d 771, 775 (1987).
c. balancing the equities in this case
In this case, I have determined that Countrywide is not entitled to protection as a bona fide purchaser because its assignor, the original lender that financed the Borso/Maness acquisition of the Allen-grove Property and took a mortgage on the property (Money Warehouse), was on constructive notice of the Plaintiffs’ equitable claim to ownership. Nonetheless, after considering the circumstances presented here and balancing the equities, I find it appropriate to impose an equitable lien against the Allengrove Property in Countrywide’s favor.
While certain aspects of the Allengrove Property acquisition and the Debtor’s physical possession of the Allengrove Property were such that Countrywide’s assignor was placed on
constructive
notice of the Plaintiffs’ equitable claims, I do not find that the assignor had
actual notice
of the Plaintiffs’ claims. Nor do I find any evidence that Countrywide’s assignor entered into the mortgage loan transaction with Borso and Maness (resulting in the pay off of existing liens against both the Allengrove Property) in bad faith or with an intent to harm the Plaintiffs. At most, its title agent performed an inadequate review of the transactional and title documents. Thus, for purposes of § 43 of the Restatement, I consider the assignor (and Countrywide in succeeding to the assign- or’s position) to have acted in good faith.
In balancing the equities, I also must consider the Plaintiffs’ position. Certainly, the Plaintiffs were also innocent in the sense that they were victimized by Rauso’s failure to comply with his statutory obligations under the UTPCPL. However, before Countrywide’s assignee paid the GMAC Mortgage, GMAC had obtained a default judgment and the Allengrove Property apparently was moving briskly towards a sheriffs sale. The Plaintiffs were on the verge of losing the Property altogether. By virtue of Countrywide’s assignor’s payment of the Plaintiffs’ mortgage, the Plaintiffs avoided imminent foreclosure and the Debtor has been living in the Property for the past two (2) years rent free (while her husband has been incarcerated) and have made no mortgage payments.
By virtue of my rulings that Borso, Maness and Countrywide are not bona fide purchasers/mortgagees and that the Plaintiffs are entitled to an order setting aside the property interests of those defendants,
the law has already adjusted the property rights of the interested parties to the Plaintiffs’ benefit.
If the Plaintiffs were to be allowed, without any equitable obli
*209
gation on their part, to take back the Allengrove Property free of the GMAC mortgage, and other liens satisfied by Countrywide’s assignor and Countrywide’s mortgage, the Plaintiffs would obtain a significant, unintended windfall that I conclude would be unjust.
68
Further, permitting the Plaintiffs to regain ownership of the Allengrove Property free and clear of all liens would be inconsistent with the general purpose of the statutory right of rescission, which is to restore, insofar as possible, the status quo ante.
See generally Gilmore v. Northeast Dodge Co., Inc.,
278 Pa.Super. 209 , 420 A.2d 504, 507 (1980) (involving equitable rescission);
Parker v. Long Beach Mortg. Co.,
534 F.Supp.2d 528 , 537 n. 9 (E.D.Pa.2008) (involving statutory rescission under the federal Truth in Lending Act);
Mayfield v. Vanguard Sav. & Loan Ass’n,
710 F.Supp. 143, 147 (E.D.Pa.1989) (same);
Valentine v. Influential Sav. & Loan Ass’n,
572 F.Supp. 36, 40 (E.D.Pa.1983) (same).
For these reasons, I construe Pennsylvania law to permit Countrywide to obtain equitable relief even though its assignor had constructive notice of the Plaintiffs’ equitable ownership interests in the Allen-grove Property, and that the imposition of an equitable lien in this case is appropriate.
d. the extent of the Countrywide’s equitable lien
As discussed above, I am convinced that Countrywide is entitled to have an equitable lien imposed on the Allen-grove Property. However, that lien shall be imposed, not for the entire amount of the current Countrywide Mortgage, but in an amount equal to the expenditures that were made that benefitted the Allengrove Property and/or enhanced its value.
See, e.g., Nebesho,
846 A.2d at 729 .
Very little evidence was introduced at trial to provide an explanation of the basis and reasons for the disbursements made with the proceeds of the mortgage loan that Countrywide’s assignor granted to Borso and Maness. However, it is clear from the nature of certain of the expenditures (and from the additional information I can deduce from my review of the HUD-1 (Ex. CW-3)) and the title insurance work-up that led to the creation of the HUD-1 (Ex. CW-4) that the part of the mortgage loan proceeds provided benefit to the Plaintiffs’ and/or enhanced the value of the Allengrove Property. Those expenditures include:
1. $151,832.68 paid to GMAC to satisfy its mortgage on the Allengrove Property
(see
Ex. CW-3, at 1);
2. $732.59 paid to the City of Philadelphia on Judgment No. 0607721085, entered against Mr. Fowler
(see
Ex. CW-3 & Ex. CW-4 at page 5);
3. $5,829.00 paid to the City of Philadelphia on Judgment No. 0510730179, entered against Mr. Fowler
(see
Ex. CW-3 & Ex. CW-4 at page 5);
4. $17,776.49 paid to Commercial Credit Plan CDC to satisfy Judgment No. 050202334, entered against the Plaintiffs
(see
Ex. CW-3
&
Ex. CW-4, at page 5);
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5. $814.13 paid to the City of Philadelphia on a municipal lien in for gas service provided to the Allengrove Property
(see
Ex. CW-3
&
Ex. CW-4, at page 5);
6. $373.59 paid to the Philadelphia Water Revenue Department on a water and sewer bill
(see
Ex. CW-3); and
7. $100.00 paid to the Philadelphia Gas Works on a bill for gas service
(see
Ex. CW-3).
The record is devoid of evidence that permits me to find that any of the remaining expenses or disbursements on the HUD-1 should be included within the scope of Countrywide’s equitable lien.
69
The Plaintiffs are
not
responsible, under notions of unjust enrichment, for appraisal, tax service, processing, underwriting, flood certification, closing, document preparation, notary or other fees associated with the mortgage granted to Countrywide’s assignor. Additionally, title or hazard insurance that named as beneficiaries parties other than Plaintiffs are not reimbursable by Plaintiffs.
The $203.42 payment made on Rauso’s behalf with respect to Judgment No. 070102703 that was entered against him is also properly excluded from the amount of Countrywide’s equitable lien. No evidence was introduced to suggest that this judgment benefitted the Plaintiffs. Indeed, the Philadelphia County dockets suggest this was related to the Stephanie Lawson Trust.
See Commonwealth of Pa. v. Rauso,
Philadelphia Cty. C.P. Docket No. 070102703.
Additionally, the $45,000.00 paid to D & B with respect to the mortgage Rauso recorded as a means of gaining extra compensation for himself with respect to the December 11th Transaction is also excluded.
Accordingly, I find that Countrywide is entitled to an equitable lien of $177,458.48.
70
Additional issues remain to be resolved with respect to the details of Countrywide’s equitable lien. These issues include:
• what interest rate should apply to this lien and when should that interest begin to apply?
• what terms should apply to the payment of this lien?
Because I do not believe the parties had an opportunity fully to consider, research and discuss these issues, I will defer a decision on them at this time. Instead, I will schedule a status hearing to permit the parties to advise the court regarding their respective positions. If the parties cannot reach agreement on payment terms for the equitable lien, I will devise an appropriate process for resolving any remaining issues and then set the terms.
3. Actual Damages, Treble Damages, Attorney’s Fees and Costs
As an alternative to the remedy of regaining title to the Allengrove Property, the Plaintiffs requested actual and treble damages pursuant to 73 Pa. Stat. Ann. § 201-9.2(a).
The Plaintiffs concede, as a general proposition, however, that an award of rescission precludes an award of actual
*211
damages.
(See
Plaintiffs’ Posh-Trial Mem. at 9);
see also In re Steinbrecher,
110 B.R. 155, 159 (Bankr.E.D.Pa.1990) (“As a general principle, the rescission of an agreement precludes an award of actual damages”);
Wedgewood Diner, Inc. v. Good,
368 Pa.Super. 480 , 534 A.2d 537, 539 (1987) (party cannot obtain both rescission and restitution). Having succeeded in restoring title to the Allengrove Property in their names, invalidating the transfers of title to the Downstream Title Defendants (subject to the equitable lien in favor of Countrywide), the Plaintiffs have been restored, as closely as possible, to the position they occupied before the December ■11th Transaction and would appear to have suffered no actual, monetary harm. Accordingly, no “actual damages” shall be awarded or trebled.
With respect to the Plaintiffs’ request for an award of attorneys’ fees and costs, the Plaintiffs having succeeded in establishing a violation of the UTPCPL, I find that the Plaintiffs are entitled to an award of attorney’s fees and costs for filing and prosecuting this adversary proceeding. I will therefore, allow Plaintiffs’ counsel to file a motion for award of counsel fees and costs, to be awarded against Rauso.
71
V. CONCLUSION
In sum, for the reasons set forth above, I have determined that:
1. 73 Pa. Stat. Ann. § 201-7 applies to the Plaintiffs’ December 11th Transaction with Rauso.
2. Rauso violated § 201-7.
3. The Plaintiffs’ are entitled to rescind the December 11th Transaction with Rauso.
4. The Plaintiffs are entitled to regain title to the Allengrove Property.
5. Borso, Maness and Countrywide are not bona fide purchasers/mortgagees for value. Accordingly, these parties took title in the Allen-grove Property subject to the Plaintiffs’ equitable rights.
6. The Plaintiffs are entitled to the restoration of their title to the Al-lengrove Property free and clear of Borso’s and Maness’ title and Countrywide’s mortgage.
7. Countrywide nevertheless is entitled to an equitable lien on the Allengrove Property in the amount of $177,458.48. The repayment terms of the equitable lien will be the subject of further proceedings.
8. Having recovered title to the Allen-grove Property, the Plaintiffs are not entitled to recover actual or treble damages from Rauso, but are entitled to recover attorneys’ fees and costs from him.
9. Judgment shall be entered against Rauso, Borso, Maness, D & B and Countrywide and in favor of the Plaintiffs on Count I of the Complaint; and
10.Judgment shall be entered against the Plaintiffs and in favor of Borso, Maness, D & B and Countrywide on the remaining counts of the Plaintiffs’ Complaint.
An order consistent with these conclusions will be entered.
1
. The bankruptcy court has jurisdiction in this proceeding under 28 U.S.C. § 1334 (b) because the proceeding is “related to” the bankruptcy case. Specifically, the terms and confirmability of the Debtor’s proposed chapter 13 plan are dependent upon the outcome of this adversary proceeding. Because all of the parties have consented to the entry of a final judgment by the bankruptcy court, (2 N.T. at 150), the court will do so, rather than enter proposed findings of fact and conclusions of law.
See
28 U.S.C. § 157 (c)(1);
In re Allegheny Health Educ. & Research Found.,
383 F.3d 169, 175-76 (3d Cir.2004).
2
.The Plaintiffs did not name Countrywide as a defendant in their Complaint. Approximately four (4) months after the Plaintiffs commenced the adversary, by stipulation of the parties, Mortgage Electronic Registration Systems, Inc. ("MERS”), in its capacity as "nominee for Countrywide Home Loans, Inc,” intervened as a parly defendant in this adversary proceeding.
(See
Adv. Docket Entry Nos. 12, 13).
The record is unclear regarding the nature of the respective interests of MERS and Countrywide.
The Intervention Stipulation filed by the parties (Adv. Docket Entry Nos. 12) refers to MERS as "the holder” of the mortgage on the subject property "as nominee for Countrywide,” thus suggesting that Countrywide holds the beneficial interest in the mortgage.
Accord, In re Mitchell,
2009 WL 1044368 , at *1 (Bankr.D.Nev. Mar.31, 2009) ("MERS is a national electronic registration and tracking system that tracks the beneficial ownership interests and servicing rights in mortgage loans,” designed to eliminate the need to prepare and record assignments when trading residential and commercial mortgage loans).
The parties’ Pretrial Statement, however, states that Countrywide obtained an assignment of the “servicing rights” of the subject mortgage through an instrument that was "recorded with the Philadelphia Department of Records.” To further confuse things, the Pretrial Statement also suggests that Countrywide is not just the servicer, but rather is the holder of the mortgage, by repeating the statement made in the Intervention Stipulation that the mortgage is "currently held by [MERS] as nominee for Countrywide.”
(Compare
MERS’ Pretrial Statement ¶¶ 27-29 (Adv. Docket Entry No. 39)
with
Plaintiffs’ Pretrial Statement Part II (Adv. Docket Entry No. 41) (acknowledging that facts set forth in ¶¶ 27-29 of MERS’ Pretrial Statement are uncontested)).
At trial, still another description was provided. A Countrywide representative testified that Countrywide bought the mortgage from Money Warehouse, then bundled it together with mortgages and sold it to Bank of New York, (“BONY”), while retaining the servicing rights.
I consider it most likely that the trial testimony accurately portrays Countrywide’s present interest in the subject mortgage. More to the point, it appears that the parties implicitly agree that MERS is nothing more than a straw party with no beneficial interest in the mortgage, that Countrywide’s servicing agreement with BONY grants Countrywide the authority to act on BONY’S behalf in this litigation and that Countrywide (and ultimately BONY) will be bound by MERS’ intervention in this adversary proceeding. I will not disturb the parties’ apparent agreement on this issue.
Finally, I note that in its Pretrial Statement and Trial Brief, MERS, the record intervenor-defendant, refers to itself as "Countrywide.” In th

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/1883437. Public record. Not legal advice.