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Judge Rejects Class Action Over Excess Sheriff's Sale Proceeds

By Amaris Elliott-Engel
April 2, 2013
The Legal Intelligencer

Judge Rejects Class Action Over Excess Sheriff's Sale Proceeds

By Amaris Elliott-Engel
April 2, 2013
The Legal Intelligencer

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Stephanie Kosta Alan KesslerA proposed class action of former Philadelphia property owners entitled to excess funds after their properties were sold at sheriff's sales was rejected by a Philadelphia judge because he said the property owners already have a remedy to regain their property.

Philadelphia Court of Common Pleas Judge Gary S. Glazer denied class certification because he said the proposed class had not shown that a class action was a fair and efficient method to vindicate the former property owners' interests, nor that the class was so numerous to make a class action a better option than individual remedies, nor that the putative class representative was adequate to represent the proposed class, nor that the putative class representative was typical of the proposed class.

The plaintiffs alleged that the class action could involve $56 million, said defense attorneys Stephanie L. Kosta and Alan C. Kessler, partners with Duane Morris.

The litigation was started after audits showed that the Philadelphia Sheriff's Office "failed to distribute millions of dollars in excess proceeds from foreclosure sales of real property to the former owners of such property," according to the judge's opinion.

Pennsylvania State Treasurer Rob McCord's office intervened in the case as a defendant in a "somewhat unorthodox, really bold decision" to maintain the current statutory scheme, Kessler said.

There was a co-defense agreement between the treasurer and the sheriff, Kosta and Kessler said. They primarily represented the treasurer.

Glazer agreed with the defendants that the former property owners could recover their money from the Sheriff's Office by filing exceptions to the office's proposed schedules of distribution or, after the money was not disbursed by the sheriff within five years and then transferred to the treasurer, seek recovery from the treasurer under the Disposition of Abandoned and Unclaimed Property Act (DAUPA).

The treasurer holds funds received from Pennsylvania sheriffs in perpetuity, Glazer said.

"The statutory scheme was enacted by the legislature specifically to address situations such as those facing the plaintiffs," Glazer said. "The system is designed to reunite prior owners of foreclosed homes with any excess proceeds due to them. There is no need for the prior owners to litigate their claims for such proceeds as a class before this court because each of them has the right to seek the funds due to him/her from the sheriff and the trial court under the Pennsylvania Rules of Civil Procedure and from the treasurer and the Commonwealth Court under DAUPA."

One of the proposed classes was every owner of real property sold at a sheriff's sale in Philadelphia during the time period running from the date of a judgment in the action back through the five preceding years, Glazer said.

The second of the proposed classes was each owner of real property sold at sheriff's sale between January 1, 1999, and the date of a judgment in the action who did not receive excess sheriff's sale proceeds after judgment liens and the office's costs and fees were paid out, Glazer said. The second proposed class did not include property owners whose excess proceeds were transferred to the treasurer under the DAUPA.

The classes are not well defined, including both classes asking the court to count backward from an unknown date in the future, Glazer reasoned, so the management of the class action would be too difficult.

"Given the shifting class definitions and the potential length of this litigation, it is possible that people whose properties have not yet been foreclosed upon and sold at sheriff's sale would fall within the time limits for the classes, whereas people who claim to be aggrieved now, such as the named plaintiffs, would no longer qualify," Glazer said.

Pennsylvania's standard for granting class certification is that they are to be "'liberally granted,'" so it is a "mountain to climb" in order to be able to defeat class certification motions, Kosta said.

Management of the class action also would be too difficult because notifying class members by mailing notices is not likely to be successful, as the last known addresses for the former property owners are the actual properties that were then sold, Glazer said.

The proposed class representative was Joseph O'Hara and his company, Finn Land.

According to Glazer, O'Hara and his firm are not typical of former Philadelphia property owners because he acts as a finder for former property owners unaware that they are entitled to refunds, as a real estate investor who sometimes is a mortgageholder seeking for mortgaged properties to be sold at sheriff's sale, and as a real estate investor who sometimes lets his investment properties go into foreclosure by "making business decisions not to pay real estate taxes."

O'Hara "has profited from the class members' ignorance of the refund system," Glazer said. "The named plaintiffs are savvy speculators who understand and benefit from the lien and foreclosure process currently in place. As such, they are not representative of a class of people who lost their homes due to the inability to pay real estate taxes and/or make timely mortgage payments."

Glazer issued his opinion in In Re Sheriff's Excess Proceeds Litigation March 12.

Plaintiffs counsel, Deborah R. Gross, could not be reached for comment.

Co-counsel included Robert Aversa, a deputy city solicitor with the city of Philadelphia Law Department, and Christopher Craig, general counsel for the treasurer.

Reprinted with permission from The Legal Intelligencer, © ALM Media Properties LLC. All rights reserved.