Faulkner v. M & T Bank (In re Faulkner), 593 B.R. 263

Background

Debtor Mattie Mae Faulkner owns 5432 N. Fairhill St., Philadelphia; mortgage originated in 1994 to Provident; note was signed by her then-spouse Kevin Faulkner. Multiple foreclosures and three prior bankruptcies preceded this adversary.
M&T Bank filed a secured proof of claim in the Debtor’s 2017 Chapter 13 for $126,523.43 based on the Note and Mortgage. Debtor filed an Amended Complaint asserting eight counts seeking (inter alia) disallowance of the claim and damages.
Key contested facts include whether M&T actually possesses/is holder of the original Note; whether a 2003 default foreclosure judgment remains in effect or was validly vacated by a 2010 praecipe; and whether subsequent foreclosures and pre-foreclosure notices complied with Pennsylvania Act 6.
Procedurally M&T moved to dismiss under Fed. R. Civ. P. 12(b)(6). The court accepts Debtor’s pleaded factual allegations at this stage and addresses jurisdictional/preclusion doctrines where raised.
The court granted dismissal for two counts (Rooker–Feldman and res judicata based on the 2009 dismissal) and granted dismissal of the Debtor’s affirmative breach‑of‑contract damages claim; it denied dismissal as to claims that challenge allowance of M&T’s proof of claim (possession/holder status of the Note; merger effect of the 2003 judgment; Act 6 notice/disallowance; UTPCPL; FDCPA) so those proceed.

Issues

Issue	Debtor's Argument	M&T's Argument	Held
1) Authority to enforce the Note / allowability of proof of claim	Mx argues M&T is not in possession/holder of the Note; therefore claim unenforceable against property	M&T attached copy of endorsed note to proof of claim and claims prima facie validity and successor status	Denied dismissal: pleadings plausibly allege lack of possession; Debtor may challenge allowance of claim and seek disallowance if M&T cannot prove enforcement right
2) Application of Rooker–Feldman based on 2009 dismissal of a foreclosure	2009 state‑court dismissal (for improper verification) renders later collection impermissible; federal review required to disallow claim	M&T: Rooker–Feldman does not apply; dismissal was non-merits and later defaults occurred	Dismissed Count II with prejudice: 2009 order was not a bar to subsequent enforcement and Rooker–Feldman inapplicable
3) Res judicata based on 2009 dismissal	2009 dismissal precludes M&T from collecting	M&T: no preclusion; dismissal non‑merits or limited	Dismissed Count III with prejudice: same rationale as Rooker–Feldman rejection
4) Effect of 2003 foreclosure judgment and validity of 2010 praecipe vacatur (merger doctrine)	Debtor: 2003 default judgment merged mortgage into judgment; praecipe did not validly vacate judgment; merger limits post‑judgment charges	M&T: praecipe may ministerially vacate default judgment; no judicial action required; therefore no judgment to invoke merger	Denied dismissal as to Count IV: court predicts PA Supreme Court would not allow unilateral vacatur by praecipe without notice/ judicial involvement; 2003 judgment survives and merger doctrine claim stands pending facts
5) Applicability of Act 6 pre‑foreclosure notice and fee consequences	Debtor: 2008 amendment expanded Act 6 coverage; mortgage falls within current definition so failure to provide §403 notice supports partial disallowance of attorneys’ fees	M&T: mortgage not an Act 6 “residential mortgage” when executed (principal > statutory ceiling pre‑2008), so §403 inapplicable	Denied dismissal as to Count V: court applies precedent allowing retrospective application of procedural notice requirement; Act 6 notice claim plausibly affects allowable legal fees
6) Breach of contract (affirmative damages and defensive claim)	Debtor alleges HUD regulations and mortgage terms limited right to accelerate; seeks damages and partial disallowance of claim	M&T: claim precluded by state court dismissal; Debtor not party to mortgage so no privity for damages	Motion granted in part: affirmative damages claim dismissed (no actionable contractual promise — provisions are conditions to foreclosure); defensive claim survives to the extent it seeks reduction/disallowance of proof of claim
7) UTPCPL (PA consumer protection)	Debtor alleges deceptive loan‑servicing/forbearance demands caused reliance and ascertainable loss (payments misapplied)	M&T: preempted by Bankruptcy Code or not pled sufficiently	Denied dismissal: UTPCPL not preempted here; allegations of deception, reliance and monetary loss are plausibly pleaded
8) FDCPA (debt‑collector status and unlawful collection)	Debtor: if M&T is not holder, its collection efforts were on behalf of another — falls within FDCPA	M&T: under Henson, a creditor collecting its own purchased defaulted debt is not a "debt collector" as a matter of law	Denied dismissal: factual dispute over whether M&T is holder/creditor precludes resolution on 12(b)(6); claim survives to develop facts

Key Cases Cited

Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard for Rule 12(b)(6))
Ashcroft v. Iqbal, 556 U.S. 662 (legal conclusions not accepted as true on Rule 12(b)(6))
Rooker v. Fidelity Trust Co., 263 U.S. 413 (origin of Rooker–Feldman doctrine)
Dist. of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (Rooker–Feldman scope)
Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280 (Rooker–Feldman is narrow; federal courts cannot act as appellate review of state judgments)
Great W. Mining & Mineral Co. v. Fox Rothschild LLP, 615 F.3d 159 (3d Cir. test for Rooker–Feldman applicability)
Johnson v. Home State Bank, 501 U.S. 78 (bankruptcy claim includes claim against property)
In re Stendardo, 991 F.2d 1089 (merger of mortgage into judgment principles)
Henson v. Santander Consumer USA Inc., 137 S. Ct. 1718 (debt‑collector definition limits when purchaser of defaulted debt is a debt collector)
Schmidt v. Skolas, 770 F.3d 241 (documents integral to complaint may be considered on Rule 12(b)(6))