Deficiency Judgments' Recoverable Interest and Attorneys Fees

In last month's Liberty Philadelphia REO, LP v. EFL Partners V, L.P., 989 EDA 2013 (Pa. Super. March 3, 2014) opinion, Pennsylvania's Superior Court addressed "deficiency judgments" and what attorneys fees and interest may be recovered on them.



Deficiency Judgments in Pennsylvania


If a mortgage foreclosure sheriff's sale proceeds are insufficient to satisfy the underlying judgment, the Deficiency Judgment Act, 42 Pa.C.S.A. §8103 allows for imposing personal liability against - - and executing upon the assets of - - a mortgagor for the judgment's unpaid balance.

Specifically, although mortgage foreclosure judgments are in rem against the property, and not in personam against the mortgagor, the Act provides that if the real property sheriff's sale price is insufficient to satisfy the judgment amount, interest and costs, the creditor may collect the balance due by petitioning the court to assess the sold property's fair market value following which the judgment creditor may execute against the debtor's personal assets to collect the debt's balance.  42 Pa.C.S.A. §8103(c).

The Deficiency Judgment Act's objective is to relieve a debtor from further personal liability to the judgment creditor when the real property executed upon has a fair market value on the sale date sufficient so that the judgment creditor can dispose of it to others without a further loss.  Home Sav. and Loan Co. of Youngstown, Ohio v. Irongate Ventures, LLC, 19 A.3d 1074, 1078 (Pa. Super. 2011).


Superior Court Limits Deficiency Judgment Interest and Attorneys Fees


The Liberty Philadelphia REO, LP v. EFL Partners V, L.P. court slashed $1,459,682.22 of attorneys fees deemed as "unreasonable and unconscionable" ruling that a $4 million deficiency judgment from a confession of judgment tacked onto an $8.4 million property value judgment needed "recalculation" by the trial court.

The Liberty Philadelphia REO, LP deficiency judgment arose out of a January 5, 2010  $11,214,861.05 confession of judgment, of which $1,459,682.22 was attorneys fees. 
Following the dispute's first appeal in which the confessed judgment was modified to $9,755,718.83 to reflect the attorney fees removal and a $2,444 per diem interest rate was affirmed, the judgment was executed upon via an October 5, 2010 sheriff sale of condominiums.

On February 19 2013, following a Deficiency Judgment Act petition, the Court assessed the property's fair market value at $8,400,000, entered a $4,005,226.47 deficiency judgment comprised of "January 5, 2010 through February 19 2013 $2,444 per diem interest" but, despite unpaid balance's post sheriff 's sale decrease, omitted any per diem interest rate reduction.  

Citing the Dearnley v. Survetnick, 63 A.2d 66, 69 (Pa. 1949) ruling, the Superior Court held that a plaintiff "cannot charge interest on the [principal] from the time of the sheriff's sale in 1933 [to the time the property was sold to him in 1941] ... any more than he could charge such interest if he had been paid that same amount in cash at the time of the sale".

The Liberty Philadelphia REO, LP court held that the assessing a $2,444 per diem interest rate from the October 5, 2010 sheriff's sale date to February 19, 2013, without crediting the unpaid balance with the $8.4 million plaintiff had recovered from the condominiums' sale, was erroneous and required "recalculation" by the trial court.