The opinion of the court was delivered by: Delehey
This case presents a simple issue: Following the auction of assets at a sheriff's sale, how is the amount of credit against the judgment determined? By the highest bid at the sheriff's sale? By the fair market value of the items sold? Or, by some other guideline or formula?
Defendant-judgment debtor, Paul Lopez, seeks credit predicated upon the fair market value of his automobile sold at a sheriff's sale. Plaintiff-judgment creditor, Kathleen Smith, asserts that defendant's credit against the judgment is limited to the auction price at the sheriff's sale.
This case arises from proceedings in the Family Part. On May 6, 1994, the court entered an order requiring defendant to pay plaintiff $20,495.05 to satisfy child support arrearages and credit card indebtedness. On November 30, 1994, the order was reduced to a judgment. In December, 1994, pursuant to a writ of execution, defendant's 1990 Nissan 300ZX was seized and auctioned at a sheriff's sale.
At the sheriff's sale there was only one bidder -- plaintiff's attorney, who on behalf of plaintiff purchased defendant's automobile for $100. The automobile was encumbered by a $5,406 obligation to Chemical Bank. Following purchase of the vehicle at the sheriff's sale, plaintiff sold the car to Acres Auto, a used car dealership, for $7,400. After payment of the Chemical Bank lien ($5,406) and attorneys fees and costs ($600), she realized a $1,394 net recovery.
The court accepts arguendo defendant's contention that the fair market value of the automobile at the time of the sheriff's sale was $13,750. Defendant now contends that he should be credited in the amount of $8,344, which is the difference between the fair market value of the automobile ($13,750) and payments made to satisfy the lien ($5,406). Plaintiff contends that defendant's credit is limited to $100, the purchase price at the sheriff's sale.
The judicial process does not require a fair market value appraisal of an item prior to a sheriff's sale. Only in those rare instances where a judgment debtor seeks the statutory exemption of $1,000 is an appraisal required. The appraisal process is not designed to assess true and intrinsic value, but only to inventory those items subject to the statutory exemption. N.J.S.A. 2A:17-19 to 25. In addition, courts have recognized that sheriff's sales rarely produce fair market value bids.
The theory behind the public sale of mortgaged premises is to afford special protection to the debtor-owner, first by insuring the return of any equity, represented by the surplus of the sale over the mortgage debt, and second by effectively establishing the fair market value of the mortgaged premises to avoid oppressively high deficiency judgments. . . . However, foreclosure sales rarely, if ever, bring the fair market value of the foreclosed property.
Cognizant that sheriff's sales seldom produce fair market value bids, the Legislature created a statutory scheme that permits certain foreclosed debtors to dispute the amount of the deficiency by demonstrating fair market value of the property foreclosed. See N.J.S.A. 2A:50-3 and N.J.S.A. 2A:50-22. The court is empowered to determine and thereafter credit the mortgagor the difference between the debt owed and the fair value of the real property regardless of the price obtained at sheriff's sale. Carteret, 105 N.J. at 351-352.
Fulfillment of the statutory scheme designed to protect mortgage debtors, N.J.S.A. 2A:50-3, is embodied in several reported cases, among them: Citibank, N.A. v. Errico, 251 N.J. Super. 236, 597 A.2d 1091 (App.Div. 1991); Morsemere Fed. Sav. & Loan Ass'n v. Nicolaou, 206 N.J. Super. 637, 503 A.2d 392 (App.Div. 1986), and RTC v. Berman Ind., 271 N.J. Super. 256 (Law Div. 1993).
In Citibank the defendant executed a $5.5 million note secured by a first mortgage against real property. Defendant defaulted and a judgment reflecting the debt plus interest and costs was entered in the amount of $7.1 million. Plaintiff, Citibank, sold the mortgaged property to the lone bidder at public auction for $5.9 million. Earlier appraisals had fixed the fair market value of the premises at $9.5 million. Citibank then sued defendant seeking a deficiency judgment. Defendant claimed that he was entitled to credit for the fair market value, not the amount produced at the single-bidder sheriff's sale. Re-asserting its Conclusions in Moresmere, supra, the court applied equitable principles to impose a fair market value credit thereby preventing a windfall. Citibank, supra, 251 N.J. Super. 236.
In Moresmere the court, noting the provisions of N.J.S.A. 2A:50-3 that gives a mortgagor a right to dispute a claim of deficiency and determine the fair market value of the premises foreclosed, asserted its inherent equitable authority to bar double recovery or windfall where a judgment creditor had purchased mortgaged property at a foreclosure sale. Moresmere, supra, 206 N.J. Super. at 643-644. Similarly, in RTC the court permitted the defendant to obtain a fair market ...