Court Opinion

ID: 4951188
Source: CourtListenerOpinion
Date Created: 2021-09-24 13:08:03.287808+00
Date Added: 2024-06-11T08:15:22.024655
License: Public Domain

DEL SOLE, Judge,
dissenting.
The question for consideration is not as stated by the Majority, but is whether a judgment creditor who, following execution on the judgment, purchases the debtor’s real property at a sheriffs sale, has the right to liquidate a certificate of deposit assigned to it as collateral security on the underlying debt without complying with the Deficiency Judgment Act, 42 Pa.C.SA. § 8103 et seq. Since I conclude that a judgment creditor, who purchases the debtor’s real property at an execution sale on the judgment and fails to establish a deficiency as required by the statute, cannot seek further collection on the underlying debt, I must dissent.
In my view, the result reached by the Majority ignores the Deficiency Judgment Act and subjects debtors to repeated efforts by judgment creditors to collect a judgment without determining if there was a satisfaction of the indebtedness by the creditor’s purchase of the debtor’s property. Unfortunately in focusing on the Assignment of Deposits Instrument, the Majority does not discuss the requirement that in order to invoke redemption there must be an existing “indebtedness.” This record contains no indication of the fair market value of the sheriffs sale property and, since there was no at*1266tempt to fix that value within six months of the sale, the Act operates to satisfy the debt.
Appellants, Highland Financial and Mr. Walsh, filed a complaint seeking recovery of the proceeds from a certificate of deposit, treble damages and counsel fees. Moxham National Bank, the Appellee, filed preliminary objections which were denied in part and granted to the extent that a claim for punitive damages was dismissed. The parties then filed Motions for Summary Judgment. The trial court denied Appellants’ Motion and granted Appellee’s motion. Appellants filed this timely appeal.
On appeal, an entry of an order of summary judgment by a trial court will not be disturbed unless there has been an error of law. Today’s Express, Inc. v. Barkan, 426 Pa.Super. 48, 626 A.2d 187 (1993). The Superior Court will affirm a grant of summary judgment only where pleadings, depositions, interrogatory answers, and admissions on file, with affidavits, if any, show that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law. Id. When determining whether summary judgment was properly granted, we will examine the record in the light most favorable to the non-moving party. Id.
On February 4, 1988, Moxham National Bank loaned $120,000.00 to John Horbal, Anthony Horbal and Elaine Adams, d/b/a Potomac Associates II (the debtors), which was secured by a mortgage executed the same day on the debtors’ property and evidenced by a note. As additional security for the loan an instrument entitled “Assignment of Deposits” was executed. Therein Moxham was assigned all “right, title and interest” in a certificate of deposit (CD), in the principal amount of $25,000.00 to secure the payment of “any and all indebtedness” owed to Mox-ham by Potomac Associates.
In 1989, the debtors defaulted on the loan. Moxham commenced a mortgage foreclosure action alleging that the amount due on the loan was $130,946.83, which included a principal amount of $116,670.90, plus interest and attorney fees. Moxham obtained a default judgment for that amount and executed on the real property of the debtors. At the sheriffs sale, Moxham purchased the debt- or’s property for $666.40. The deed was delivered to Moxham and recorded on January 21, 1991.
On January 29,1991, shortly after delivery of the sheriffs deed, Moxham liquidated the certificate of deposit. It applied these proceeds to the amount it claimed was still owed by the debtors. Later that same year debtors assigned any causes of action arising from Moxham’s withdrawal of the CD to Appellants, Highland Financial Services, Ltd. and James R. Walsh. Appellants subsequently made demands to Moxham to return the proceeds of the CD, which it refused. This refusal prompted Appellants to commence the underlying action to recover the proceeds of the CD, counsel fees and treble damages. The complaint was premised on the principle that Moxham failed to comply with the provisions of the Deficiency Judgment Act, 42 Pa.C.S.A. § 8103(a) thereby making Moxham’s retention of the CD proceeds, wrongful. Thereafter, Moxham filed a Motion for Summary Judgment which was granted by the court, and affirmed by the Majority, accepting Moxham’s position that the Act did not apply because the Assignment arose as a separate contract, entirely distinct from the Mortgage. My reading of the Assignment instrument, the Deficiency Judgment Act and relevant case law, prompts me to reach a different conclusion.
In this appeal, Appellants argue that Mox-ham was required to comply with the Deficiency Judgment Act prior to liquidating the certificate of deposit. Critical to a resolution of Appellants’ claim is an examination of the terms of the instrument entitled, “Assignment of Deposits.”
The Assignment recites that Moxham (the Bank) is to be assigned all “right title and interest” on a certificate of deposit, in the principal amount of $25,000.00. It provides that the assignment and security interest is granted to the Bank to secure the prompt payment of the “Indebtedness.” That term is defined in the document as:
Any and all indebtedness, obligations and liabilities of Potomac Associates II (hereinafter the “Debtors”) to the Bank, now or *1267hereafter existing or arising, due or to become due.
The Bank was also given power of attorney and the power to withdraw from the account without notice or consent from the debtors. In the event of any default for any indebtedness, the Bank was entitled under the terms of the Assignment, to receive or withdraw any or all funds in the account. The instrument also provides the following regarding release of the Assignment:
Upon the complete payment of the Indebtedness or upon the mutual agreement of the Assignors and the Bank, the Bank will release or partially release this Assignment.
Thus, according to the terms of the Assignment instrument, Moxham’s rights to the CD were created to ensure payment of the “Indebtedness” and continued until the “Indebtedness” was extinguished, or the parties agreed otherwise.
Appellants argue that the “Indebtedness,” the loan obligation of $120,000.00, no longer existed at the time Moxham liquidated the CD, because that loan was deemed to have been satisfied. This occurred as a result of the fact that Moxham purchased the realty at the Sheriffs sale and did not, within six months after the sale, seek to establish a deficiency under the Deficiency Judgment Act. Moxham responds to this argument by asserting that Assignment, which transferred to it all “rights, title and interest” in the asset, was a separate agreement from that upon which the underlying judgment and execution sale was based. Moxham also contends that the assignment was not type of in ;personam judgment or claim covered in the Act. Alternatively Moxham argues that its liquidation of the CD was proper since it occurred within six months of the sale and receipt of the deed, which was within the time allowed before a deficiency need be established.
The express terms of the Assignment agreement cause me to conclude that the Assignment does not stand alone, and that the provisions of the Deficiency Judgment Act must govern the actions taken in this case. The Assignment granting Moxham all rights to the CD was designed to continue indefinitely absent a mutual agreement or release, which are not at issue here, or until “complete payment of the Indebtedness.” The term “Indebtedness” included all obligations and liabilities due Moxham, which necessarily concerned the $120,000.00 loan. The facts indicate that a default on the loan prompted Moxham to purchase at a sheriff sale, the property which was offered as security for the loan. Moxham did not take action prior to that sale to enforce its security interest in the CD, to liquidate it, and apply those proceeds to the outstanding debt.
Whether the property alone had a value in excess of the amount due Moxham, or whether it was insufficient to cover the indebtedness and thus a deficiency existed, was not determined prior to Moxham’s actions with regard to the CD. Under the terms of the Assignment instrument, only if an indebtedness continued to exist was the assignment of all rights to the CD valid. Therefore, while the Assignment can be seen as a separate and distinct agreement, the terms of the agreement made it necessary to determine whether the “Indebtedness” was extinguished by Moxham’s receipt of the property in the sale. To be entitled to the proceeds of the CD, Moxham had to establish that a debt existed.
Where a creditor takes the position that the receipt of the debtor’s real property at a sheriffs sale is insufficient to satisfy the amount of the judgment, the Deficiency Judgment Act directs what actions should be taken to obtain satisfaction. First National Consumer Discount Company v. Fetherman, 515 Pa. 85, 527 A.2d 100 (1987). The Act governs situations where real property is sold to a judgment creditor and it must be determined whether the fair market value of the property is sufficient to satisfy the debt. It provides as a general rule:
Whenever any real property is sold, directly or indirectly, to the judgment creditor in execution proceedings and the price for which such property has been sold is not sufficient to satisfy the amount of the judgment, interest and costs and the judgment creditor seeks to collect the balance due on said judgment, interest and costs, the judgment creditor shall petition the *1268court having jurisdiction to fix the fair market value of the real property sold. The petition shall be filed as a supplementary proceeding in the matter in which the judgment was entered.
42 Pa.C.S.A. § 8103(a)
In this case it is undisputed that Moxham was the judgment creditor in the execution proceeding. Further, it is Moxham’s position that the property it received was insufficient to satisfy the amount of the judgment. However, Moxham never filed a petition to fix the fair market value of the property, The legal result of this inaction is set forth in the statute, which provides:
If the judgment creditor shall fail to present a petition to fix the fair market value of the real property sold within the time after the sale of such real property provided by section 5522 (relating to six months limitation), the debtor_may file a petition, ... setting forth the fact of the sale, and that no petition has been filed within the time limited by statute after the sale to fix the fair market value of the property sold, whereupon the court, after notice as prescribed by general rule, and being satisfied of such facts, shall direct the clerk to mark the judgment satisfied, released and discharged.
42 Pa.C.S.A. § 8103(d).
These provisions of the Act have been interpreted to create “an irrebuttable presumption” that a creditor has been paid in full where that creditor has failed to file a petition to fix the fair market value of the real estate sold within six months after the sale. Fetherman, 515 Pa. at 93, 527 A.2d 100, citing Valley Trust Co. of Palmyra v. Lapitsky, 339 Pa.Super. 177, 488 A.2d 608, 610 (1985), quoting McGrath Estate, 159 Pa.Super. 78, 80, 46 A.2d 735, 736 (1946). The Fetherman court stated:
We hold that where a judgment creditor purchases the debtor’s real estate at a sheriffs sale and then fails to petition to fix the fair market value of that real estate within the statutory time limitation, the judgment creditor is deemed to have received full satisfaction in kind of the underlying debt obligation.
In this case the appellee judgment creditor purchased the Fetherman’s real estate at the sheriffs sale. The appellee did not bring a petition to fix the fair market value of the real estate within six months after the sheriffs sale. Thus, the appellee is deemed to have been satisfied in full in kind and will not be heard to say it did not receive full satisfaction.
Fetherman, 515 Pa. at 97, 527 A.2d at 105. The rationale for the creation of this statutory presumption was also detailed in Fether-man:
[T]he Deficiency Judgment Act, ... was enacted to remedy an inequity resulting to judgment debtors when the judgment creditor bought the debtor’s property at a forced sale. Prior to adoption of the Act, a judgment creditor could purchase, at sheriffs sale, valuable real estate of the debtor for a nominal sum, (i.e. costs and taxes), and yet retain the full amount of his judgment. The debtor was to be credited only for the actual sum realized at the sale. Under the Deficiency Judgment Act, the creditor’s judgment is to be reduced by the fair market value of the property bought by the creditor rather than by the sale price. If no petition to fix the fair market value of the property is timely brought by the creditor, the judgment in favor of the creditor is satisfied, released and discharged as a matter of law.
Id., 515 A.2d at 96, 527 A.d at 105. (citations and footnote omitted.)
In the instant case Moxham, as the creditor, purchased the debtors’ property at a sheriffs sale, and believing that the debtors’ debt had not been satisfied by that action, it sought and obtained the proceeds of the certificate of deposit. The fault with Moxham’s actions lies in the fact that it was unknown at the time whether or not the receipt of the mortgaged property at the sheriffs sale was sufficient to satisfy the debtors’ debt. Because an “Indebtedness” remained only if the fair market value of the property was insufficient to cover the amount of the debt, Mox-*1269ham was not free to seize additional collateral in an attempt to cover an undetermined loss. Moxham had no right or power regarding the CD, absent an existing indebtedness.
The Deficiency Judgment Act was designed to prevent the action taken by Mox-ham in this case. The Act provides the means whereby a creditor can seek to obtain the debtor’s other property in order to receive full satisfaction of the debt when the initial receipt of real property through a sheriffs sale is insufficient. The Act’s pronouncement that a judgment creditor is deemed to have received full satisfaction if the provisions in the Act for establishing a deficiency are not followed, ensures that debtors are protected from the seizure of their property even after their debt has been extinguished. Even if the parties agreed to the value of the real estate sold at the sheriffs sale, it was still necessary for Moxham to formally utilize the procedures outlined in the Act to obtain a finding in an appropriate court proceeding of the property’s fair market value. See Auerbach v. Com Exchange National Bank & Trust Co., 148 F.2d 709, 712 (3rd Cir.1945). Because such action was not undertaken by Moxham, an irrebuttable presumption was created that it, as the creditor and mortgagee in the underlying foreclosure, was paid in full, in kind.
As an alternative argument, Moxham asserts that at the time it liquidated the CD, it could not have been presumed to have had its debt satisfied because a six month period for filing a petition under the Act had not passed. It contends that under the terms of the Act it had six months after the sale of the property in which to file a petition for a deficiency judgment. Because it took action against the CD within one month of obtaining its deed from the sheriffs sale, Moxham claims it acted properly.
This argument must also be dismissed. While it is true that a judgment creditor may petition the court within six months to fix the fair market value of the property sold and establish a deficiency, it is necessary for the creditor to file a petition before it seeks to recover additional property as satisfaction. While a proceeding must be commenced within six months or it will be barred, 42 Pa.C.S.A. § 5522(b)(2), and the presumption that the judgment creditor has been satisfied will apply, it is nevertheless necessary to first file a petition before proceeding to seize other property in order to obtain satisfaction. The Act requires that a petition be filed. Moxham, as a creditor, did not file a petition within the six month limitation period, and, therefore, it could not proceed against the CD. Because of this inaction, the presumption arose and the debtors became entitled, upon petition, under 42 Pa.C.S.A. § 8103(d) to have the judgment marked, “satisfied”.
In Com. Bank and Trust Co. v. Hemsley, 395 Pa.Super. 447, 577 A.2d 627 (1990), as security for a mortgage loan, three parcels of property were pledged. The Bank obtained a judgment in mortgage foreclosure and bought a parcel at sheriffs sale. When it failed to file a deficiency petition within six months of the sale of the first parcel of secured property, the court ruled that an irrebuttable presumption was created that it had been paid in full. The court cited to Valley Trust Company of Palmyra v. Lapitsky, 339 Pa.Super. 177, 488 A.2d 608 (1985), where a bank sought to foreclose on each of three separate properties which it held to secure an indebtedness. After it executed on two of the properties, the bank sought to execute on the third. A motion was filed by the debtors to stay the sheriffs sale on the third, arguing that the creditor failed to comply with the provisions of the Deficiency Judgment Act. The court held that it is best, for the protection of the debtor, to mandate compliance with the Act after the first parcel is sold. Because a petition was not filed within six months of the first sale, the court ordered the execution to be stricken. In so ruling, the court rejected the claim made by Moxham that First Pennsylvania Bank N.A. v. Lancaster County Tax Claim Bureau, 504 Pa. 179, 470 A.2d 938 (1983) compelled a different result. The language cited by Moxham was found to be of “little precedential value” because it did not command a clear majority of the votes on that issue. Lapitsky, 339 Pa.Super. at 183, 488 A.2d 608. Further, when focusing_ on the purpose of the Act, to protect the debtor by having a determination made as to the fair *1270market value of the realty, the court concluded that the “better result” is to require the Act to be followed. Id. Moxham’s failure to follow the provisions of the Act in seeking to receive full satisfaction for the “Indebtedness” caused an irrebuttable presumption to arise that the “Indebtedness” no longer existed and that Moxham had been paid in full. Accordingly, because no amount was due and owing to Moxham, it had no right to obtain the proceeds of the CD. The trial court’s decision awarding Moxham summary judgment, based upon the conclusion that the liquidation was proper, should, in my judgment, be reversed. As a result, I dissent.
WIEAND, HUDOCK and SAYLOR, JJ. join.