Judgment Creditor Must File Petition to Fix Fair Market Value to Preserve Deficiency

It is extremely important for judgment creditors to file a petition to fix fair market value in order to preserve its right to pursue a deficiency judgment.

 

In an opinion filed on November 21, 2011, the Bucks County Court of Common Pleas decided the case of Atlantic Nat’l Trust v. Fonthill Corp. et al., No. 2004-01944. 

 

The case has a long and complex factual history, but the basic facts are that a mortgage note holder filed a Complaint in Mortgage Foreclosure after the borrower defaulted on the loan. After the mortgage note holder obtained a judgment against the borrower, the property was sold at sheriff sale and the judgment holder filed a Petition to Fix Fair Market Value in the mortgage foreclosure action. The Court then issued an Order fixing the fair market value as set forth in the judgment holder’s Petition. 

 

The borrower entity appealed the Order fixing the fair market value to the Pennsylvania Superior Court, arguing that there had been no “in personam” judgment obtained and, therefore, the Court should not have fixed the fair market value. In response to the appeal, the Court of Common Pleas issued this decision. 

 

In its decision, the lower court thoroughly reviewed the historical case law on the matter and noted that prior law directed that it was necessary for a judgment creditor to obtain a personal judgment against the judgment debtor prior to petitioning to fix the fair market value. However, the requirement for “in personam” judgment was recently superseded by the Pennsylvania Superior Court last year in the case of Home Savings & Loan Corp. v. Irongate Ventures, LLC, 19 A.3d 1074 (Pa. Super. 2011). In that case, the Superior Court affirmed that, under the Deficiency Judgment Act, where a judgment creditor fails to file a Petition to Fix Fair Market Value in the foreclosure action within six (6) months of the foreclosure judgment, the debtor is permitted to have the judgment marked satisfied, released and discharged.

 

In Home Savings & Loan, the judgment creditor filed its petition to fix fair market value in the separate confession of judgment action, not the mortgage foreclosure action, well after the six (6) month statutory period. This, the Superior Court held, did not preserve the judgment creditor’s right to seek a deficiency judgment.

 

Based on the Home Savings & Loan case, the Court of Common Pleas held that it was proper for the judgment creditor to file its Petition to Fix Fair Market Value in the mortgage foreclosure action even though a separate “in personam” judgment had not been previously pursued. 

PA Superior Court Upholds Personal Liability Judgment Against Homebuilder

In an opinion filed on March 6, 2012, the Pennsylvania Superior Court decided the appeal of Bennett, et al. v. A. T. Masterpiece Homes, et al., No. 1302 MDA 2011.  At issue in Bennett was the question of whether a homebuilder could be found personally liable for breach of contract, breach of warranty, and  violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) resulting from defective construction work.  Let this case be a lesson to all homebuilders.

The Bennetts & the Hoefferles contracted with A.T. Masterpiece Homes for the construction of their respective residences in a York County, PA development.   During construction of the homes, both couples noticed numerous building deficiencies.  One of the named defendants was the managing member of A.T. Masterpiece Homes, who was the couples’ primary contact during the construction process.  He assured the couples regarding the quality of the work on their homes.  Such assurances were specific, direct, and often in the form of personal guarantees.  Once construction finished, the Bennetts and the Hoefferles discovered their newly-constructed homes were in various states of disrepair and structural failure.

 

At the lower court, the jury found A.T. Masterpiece and the managing member, individually, liable for breach of contract, breach of warranty, and violations of the UTPCPL.  Further, the jury concluded that the managing member’s representations and guarantees regarding the homes exposed him to personal liability.  The case then moved to the damages phase, where the jury found the managing member liable to the Hoefferles for $26,000.00 and to the Bennetts for $85,000.00.  The court doubled the damages, pursuant to the UTPCPL, and assessed counsel fees of $3,250.00.  As a result, the total judgment against the managing member was $173,250.00 for the Bennetts and $55,250.00 for the Hoefferles.

 

The managing member argued he should be shielded from personal liability because he was at all times acting only as an agent on behalf of a limited liability corporation, A.T. Masterpiece, and that any statements attributed to him (such as “I will take care of it” or “I guarantee it”) were simply figures of speech and did not amount to an express assumption of personal liability.   

 

Nevertheless, the Court found that a person acting as an agent may assume personal liability on a corporate contract where he executes a contract in his own name or voluntarily undertakes a personal responsibility.  Although the couples officially contracted with A.T. Masterpiece, the managing member voluntarily assumed personal liability on the building contract when he guaranteed the final quality of the home.  His statements were intended to calm fears about the building deficiencies and reasonably led the couples to believe he would personally ensure the completed home was built properly.