Often, when foreclosing on a piece of real property, a secured creditor’s focus and objective is limited to the recovery of the property. However, in this economic climate, more and more secured creditors are electing to pursue a deficiency balance against the debtor because the underlying debt owed exceeds the value of any real property that is recovered.
Deficiency Judgments in Pennsylvania are governed by statute. 42 Pa.C.S. § 8103. In order to establish a deficiency balance, a judgment creditor must first file a Petition to Fix the Fair Market Value of Real Property Sold. This Petition must be filed within six (6) months, “following execution and delivery of the sheriff’s deed for the property sold in connection with the execution proceedings.” 42 Pa.C.S. § 5522(b)(2). Therefore, it is important that a creditor make the decision to pursue a deficiency balance as soon as possible.
The purpose of the petition is to establish a fair market value of the real property sold, so that figure can be offset against the total amount of the debt owed. This process recognizes that the secured creditor who purchases the real property at foreclosure sale for Sheriff’s costs, usually a couple thousand dollars, cannot then pursue the debtor for the full remaining balance of the debt. Establishing the fair market value and crediting it against the debt owed prevents the secured creditor from receiving a windfall.
The Petition is filed as a supplementary proceeding on the same docket in which the judgment was entered. If an answer is filed to the Petition alleging that the fair market value of the property is more than the value stated in the petition, then the court shall hear evidence and fix the fair market value of the property sold. This is usually a battle of appraisals that turns on what parties’ appraiser appears more qualified and credible to the court.
While the deficiency judgment process in Pennsylvania seems quite simple, there are two important factors that cannot be overlooked: 1) Timing; and 2) Hiring a qualified appraiser. These are both issues that can easily be address by your creditors’ rights attorney.