Krishnan, M. v. Deutche Bank, 3713 EDA 2015

Background

In August 2004 Mohan and Vasanthallazmi Krishnan (Plaintiffs) sold real property to Joye McDonald‑Hamer; financing consisted of a Long Beach institutional purchase‑money mortgage (~$558,750) and a seller purchase‑money mortgage from the Krishnans (~$186,250) plus a cash assist.
The HUD‑1 and closing documents reflected both mortgages; Long Beach’s mortgage appeared as first priority on multiple documents (loan application, underwriting files, title commitment, homeowners insurance), and Long Beach’s mortgage was recorded minutes before the Krishnans’ mortgage.
McDonald‑Hamer defaulted; Long Beach (through successors, ultimately Deutsche Bank as trustee) foreclosed. The Krishnans obtained a consent judgment in their own foreclosure action against McDonald‑Hamer and purchased the property at sheriff’s sale in 2011.
The Krishnans then filed this quiet title action seeking to divest Deutsche Bank’s mortgage, arguing it was not a prior lien and therefore should have been divested on the sheriff’s sale under 42 Pa.C.S. § 8152.
At bench trial the court admitted documentary evidence showing the parties treated Long Beach as first lien (title commitment, insurance, underwriting files), and the Krishnans’ calls to the lender where they identified themselves as second lienholders. The trial court found an agreement (implied by the parties’ conduct and documents) that the Krishnans’ mortgage was subordinate.
The trial court entered judgment for Deutsche Bank; the Superior Court affirmed, concluding the trial court’s factual findings were supported by competent evidence and it properly considered any agreement altering statutory lien priority.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Deutsche Bank’s mortgage was a prior (first) mortgage and thus protected from divestiture at the sheriff’s sale	Krishnans: no written subordination/agreement exists; HUD‑1, title policy, and absence of explicit priority language means Deutsche Bank should not be treated as prior	Deutsche Bank: record evidence and parties’ conduct show Long Beach intended/was treated as first lien; statutory priority and documents support first‑lien status	Held for Deutsche Bank: trial court’s finding that an agreement (by conduct and documents) established Long Beach as first lien was supported by competent evidence
Whether the trial court misapplied 42 Pa.C.S. § 8141 by considering extra‑statutory factors to determine priority	Krishnans: court improperly relied on bank policies, third‑party documents, witness demeanor and other factors beyond an agreement between lienholders	Deutsche Bank: court properly considered recorded documents and parties’ actions/representations to determine whether an agreement changed statutory priority	Held: court correctly followed § 8141 and considered both recorded instruments and evidence of an agreement affecting priority; credibility assessments were proper
Whether parties needed a written subordination agreement to alter recorded priority	Krishnans: absent a written agreement, priority cannot be reallocated	Deutsche Bank: an agreement may be shown by conduct and contemporaneous documents; writing not required	Held: no writing required; agreement may be established by documents and conduct, which the court found present
Whether the Krishnans met their burden in quiet title to show Deutsche Bank’s mortgage was divested at the sheriff’s sale	Krishnans: claim that sheriff’s sale should have divested Deutsche Bank as not first in priority	Deutsche Bank: as first mortgage, its lien was protected by statute from divestiture	Held: Krishnans failed to carry burden by preponderance; Deutsche Bank’s first‑lien status meant its mortgage survived the sheriff’s sale

Key Cases Cited

Regions Mortg., Inc. v. Muthler, 889 A.2d 39 (Pa. 2005) (standard of review for quiet title judgments)
Farmers Trust Co. v. Bomberger, 523 A.2d 790 (Pa. Super. 1987) (recorded priorities are prima facie evidence; courts may consider parties’ agreement to change priority)
First Citizens Nat. Bank v. Sherwood, 879 A.2d 178 (Pa. 2005) (recording provides constructive notice of mortgage)
Public Federal Sav. & Loan Ass’n v. Neumann, 483 A.2d 505 (Pa. Super. 1984) (effect of sale on mortgage liens)
Birdsboro Mun. Auth. v. Reading Co., 758 A.2d 222 (Pa. Super. 2000) (appellate standard: defer to trial court absent legal error or capricious disregard of evidence)
Grace Building v. Parchinsky, 467 A.2d 94 (Pa. Cmwlth. 1983) (plaintiff bears burden in quiet title action)