The Pennsylvania Doctrine of Mortgage Merger Revisited

The doctrine that upon the entry of a judgment in mortgage foreclosure, the mortgage instrument merges and no longer exists independent of the judgment has been a long-standing legal maxim in Pennsylvania. However, its significance to mortgage lenders and servicers has only become apparent in the last thirty years.  

Starting with the 1993 3rd Circuit U.S. Court of Appeals case of Stenardo v. First National Mortgage Association, the federal court interpreted Pennsylvania law on merger of judgments to hold that no other sums incurred by the lender post-judgment could be recovered, including, but not limited to, contractual interest and advances for legal fees, court costs, taxes and property preservation. Consequently, post-Stenardo mortgage documents required amendment to provide for recovery of such expenses post-judgment which Stenardo suggested the law would allow.  

This concept was further extended in EMC Mortgage, LLC v. Biddle where the Pennsylvania Superior Court (appellate level just prior to the Supreme Court of Pennsylvania) held that such post-judgment expenses could be recovered so long as they were specifically set forth in the mortgage document. Failure to specify property preservation, for example, would prohibit such recovery. Biddle also held that the Court may amend the judgment as many times as necessary in order to add such recoverable expenses.  

The Superior Court has recently extended the doctrine to act as res judicata (the thing that has been judged) to future foreclosure actions. In Wilmington Trust v. Brolley the court held that once a foreclosure judgment is entered it bars the mortgagee from obtaining another judgment in mortgage foreclosure even for successive defaults. This concept runs afoul of Pennsylvania’s Act 6 of 1974 which provides that a mortgagor can cure the default post-judgment up to two hours prior to a sheriff’s sale. This cures the default and discontinues the foreclosure; yet the judgment remains. Consequently, under Brolley no further foreclosure action may be brought no matter how delinquent the mortgagor becomes post-cure.  

What should the mortgagee do in such a case? Most county clerks will only permit a satisfaction of the foreclosure judgment once entered. This is problematic as there is case law that suggests that if a foreclosure judgment is satisfied it terminates not only the judgment but the mortgage and all obligations of the mortgagor to pay. Accordingly, it is now necessary under Brolley to file a motion to vacate the previous judgment based on the cure (or other reasons) which will permit a new foreclosure action on a subsequent default. Since this has not been the state practice previously, a new referral will now necessitate a review of title to determine if a prior judgment on the same mortgage exists and then take appropriate action before proceeding with first legal.

Fortunately, the Superior Court in Polao v. Deutsche Bank chose not to extend the doctrine to judgments in favor of the mortgagor. Hence, should a borrower succeed in defeating a foreclosure action based on the then-current default, res judicata would not defeat a subsequent action by the lender for a future default.