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Pappas v. Eastern Savings Bank

December 7, 2006


Appeal from the Superior Court of the District of Columbia (CA4592-01) (Hon. Melvin R. Wright, Trial Judge.

The opinion of the court was delivered by: Thompson, Associate Judge

Argued October 25, 2006

BEFORE FISHER and THOMPSON, Associate Judges, and NEWMAN, Senior Judge.

This case is the continuation of a dispute that arose several years ago between lienholders of a property located at 2507 33rd Street, S.E. ("the 33rd Street property"). Appellants, who obtained judgment liens against the 33rd Street property to satisfy certain debts, complain that their liens were not satisfied from the proceeds of a foreclosure sale of the property conducted at the instance of appellee/mortgagee Eastern Savings Bank ("ESB"), and ask that the sale be set aside. The trial court granted summary judgment in favor of ESB. We affirm.

I. Background

The early history of this dispute is set out in Eastern Savings Bank, FSB v. Pappas, 829 A.2d 953 (D.C. 2003) ("Pappas I"). We borrow liberally from that description.

In 1980, Aphrodite Pappas, who was the owner of the 33rd Street property, conveyed the property to Vasiliki Pappas in fee simple. Soon thereafter, Aphrodite Pappas died, leaving her three children as heirs.*fn1 Vasiliki Pappas was named personal representative of the Aphrodite Pappas estate. In 1986, however, the Probate Court removed Vasiliki Pappas as personal representative because of numerous improprieties with respect to her fiduciary responsibilities.

On April 18, 1990, Vasiliki Pappas executed a deed of trust on the 33rd Street property to secure a loan made to her by CitiBank Federal Savings Bank ("CitiBank") in the amount of $159,000, which deed of trust was recorded at about the same time. In 1992, and again in 1996, the successor personal representative of the Aphrodite Pappas estate obtained judgments against Vasiliki Pappas personally for breach of fiduciary duty. These judgments, too, were duly recorded in the land records, and they became effective as judgment liens against all real property titled in the name of Vasiliki Pappas, including the 33rd Street property. The record discloses that the total value of those liens is in excess of $240,000. In March 1999, the Probate Court ordered that portions of the judgments obtained by the successor personal representative of the Aphrodite Pappas estate be distributed to the beneficiaries, the Pappas heirs.*fn2

By 1998, Vasiliki Pappas was in default on the CitiBank deed of trust, and CitiBank instituted foreclosure proceeding. In November 1998, Vasiliki Pappas secured a loan from ESB and executed a promissory note in the amount of $168,000 payable to ESB, $153,800 of which was used to refinance and discharge the earlier CitiBank loan. This note was secured by a new deed of trust with respect to the 33rd Street property, which was recorded on November 6, 1998. The CitiBank deed of trust was released by an instrument dated September 15, 1999, and recorded January 15, 2000. The interest rate on CitiBank's promissory note had been approximately 10.5%; the rate on ESB's note was 14.25%.

Soon after executing the promissory note and deed of trust in favor of ESB, Vasiliki Pappas defaulted on the ESB loan. ESB prepared to foreclose. In connection with that preparation, counsel for ESB caused the title to be examined, and ESB learned for the first time that there were judgments in favor of the Pappas heirs against Vasiliki Pappas individually and also learned the amount of the total judgment debt. The record discloses that on February 4, 2000, a lawyer for the estate of Frances Papageorge (one of the Pappas heirs), wrote to ESB's counsel about ESB's foreclosure sale notice published sometime prior to that date, noting that the foreclosure sale was being delayed because of Vasiliki Pappas' bankruptcy petition and inquiring about how ESB would handle the judgment liens.

On December 19, 2000, ESB brought a suit for declaratory relief against the Pappas heirs in their individual names, claiming that its lien had priority over the heirs' judgment liens under the principle of equitable subrogation. The trial court held that the heirs' liens, which were recorded first, were first in right, but this court reversed, holding that ESB, having paid CitiBank to satisfy Vasiliki Pappas' indebtedness to CitiBank, had the superior lien by virtue of the doctrine of equitable subrogation. See Pappas I, 829 A.2d at 960.*fn3 We remanded the case to the trial court to determine "whether, and to what extent, [ESB] is entitled to equitable subrogation for interest on the $153,800 4 it paid CitiBank to release CitiBank's Deed of Trust." Id. at 960 n.13 (emphasis in the original). The trial court eventually determined, by order dated January 27, 2005, that ESB's superior lien was to the extent of the original $153,800 indebtedness plus interest at 10.5%, for a total of $181,100.71.

In the meantime -- while Pappas I was pending in the trial court, and before the appeal to this court and the resultant remand -- ESB proceeded with foreclosure against the 33rd Street property. The foreclosure notice was sent to Vasiliki Pappas on March 16, 2001. Notice was also sent on that date to the (former) personal representative of the closed Aphrodite Pappas estate (which was the record holder of the 1992 and 1996 judgment liens). No notice was sent to the individual Pappas heirs. Notice of the foreclosure was published in the newspaper beginning on March 23, 2001. On April 3, 2001, the property's substitute trustees (co-appellees here) sold the property to ESB, the high bidder at the sale, for $171,000 -- an amount that, in light of the trial court's determination about the extent of ESB's superior lien, turned out to be less than the amount of the superior lien and insufficient to cover any portion of the Pappas heirs' subordinate judgment liens.*fn4

On June 19, 2001, the Pappas heirs filed suit (a "creditors' bill") in the Superior Court against ESB, the substitute trustees, and Vasiliki Pappas, asserting that their judgment liens had not been satisfied from the foreclosure sale proceeds and asking the court to set aside the foreclosure sale and to conduct a judicial sale of the property from which their liens could be satisfied. ESB counterclaimed for a declaration as to the rights between the parties and reasserted its claim of subrogation. The trial court stayed the proceedings until the conclusion of Pappas I, and thereafter, on August 4, 2005, entered summary judgment for ESB. The court held that appellants' judgment liens had been "extinguished by the foreclosure sale conducted on April 3, 2001."

There followed this appeal. The Pappas appellants do not challenge the holding that ESB had a subrogation lien superior to theirs to the extent of $181,100.71, but contend that ESB waived or should be estopped from asserting its subrogation rights. Appellants also argue that their own judgment liens were not extinguished through the April 3, 2001 foreclosure sale. They seek to invalidate the ...

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