Friday, September 22, 2006

Deficiency Judgment Act - 42 Pa. C.S 8103

Muñoz v. Sovereign Bank - ED Pa. - September 18, 2006

Judgment creditor's motion to dismiss denied on plaintiff-debtor's action under the Pennsylvania Deficiency Judgment Act, 42 Pa. C.S. 8103. The creditor foreclosed on debtor's business property, which it purchased at execution sale. The debtor then received substantial money from the consensual judicial sale of debtor's home. Debtor then sued under the DJA, and creditor moved to dismiss.

The DJA requires that before a creditor who has bought its debtor's real property in execution proceeding seeks to collect the balance alleged to be due, the creditor must petition the court to fix the fair market value of the real property sold, 42 Pa. C.S. sec. 8103(a). The creditor did not file such a petition in this case.

"The Act prevent creditors from purchasing a debtor's real property, often at below market value, and continuing to execute on the debtor's other property to satisfy the judgment, without considering the fair market value of the previously executed-upon property, when determining the balance due on the judgment."

A judgment creditor must file its petition to fix fair market value within 6 months of the execution sale at which it buys the property, 42 Pa. C.S. sec. 5522(b)(2). If the creditor fails to do that, the debtor may petition the court, which "shall direct the clerk to mark the judgment satisfied, released and discharged" if the debtor alleges and proves "the fact of the sale, and that no petition has been filed within the time limited by section 5522 to fix the fair market value of the property sold...."

The judgment creditor did not file a timely petition to fix fair market value in this case. Its "obligations under the Act were triggered by the receipt of the deed" for the debtor's commercial property. It could not act against the residential property without first petitioning the court even if the debtor purported to agree, since any agreement to waive the benefits of the Deficiency Judgment Act "shall be void." 42 Pa. C.S. 8103(e).