On August 4, 2010, the New Jersey Superior Court, Appellate Division extended equitable principles previously applied in mortgage foreclosure cases to how far an unsecured judgment creditor could go to satisfy its lien against a debtor, deciding to follow a line of cases standing for the principal that “even in the absence of express statutory authorization, a court has inherent equitable authority to allow a fair market value credit in order to prevent a double recovery by a creditor against a debtor.” Moreover, in the case, MMU of New York, Inc. v. Grieser, the Appellate Division even went so far as to hold that if the unsecured judgment creditor has been compensated beyond the value of its lien, it could owe a money judgment to the debtor, in order to prevent a windfall to the creditor.
After filing for bankruptcy in April 1991, defendant Gary Grieser defaulted on rent payments as a tenant under a 10-year commercial lease from landlord, 200 Ocean Boulevard Associates (“200 Ocean”). 200 Ocean obtained a default judgment against Grieser in the amount of $1,630,481.69 for unpaid rent for the entire 10-year term of the lease. 200 Ocean later assigned its default judgment to MMU of New York (“MMU”), which in 2001, caused a sheriff’s sale of Grieser’s Monmouth Beach property, and purchased it at the sale for $100. Some months later, MMU sold Grieser’s former property for a total of $1,389,444. Grieser was able to convince the Appellate Division that the landlord did not deserve a judgment for the full 10-year term lease because the landlord had re-rented the premises and sold it two years later. Taking this into consideration, the trial court on remand reduced the judgment to $643,134.60.
The trial court also ruled that Grieser was entitled to a credit against this reduced judgment for the full amount the MMU had realized from sale of property owned by Grieser. The Appellate Division affirmed, holding that when calculating the amount of a satisfaction of a judgment, a judgment debtor should get a credit for the fair market value of the real property subject to execution by a judgment creditor and later purchased by the judgment creditor at a sheriff's sale for a nominal amount.
According to the Appellate Division, a court has inherent equitable authority to allow a judgment debtor a fair market value credit in order to prevent a double recovery by a judgment creditor. The Appellate Division pointed to several factually similar decisions involving secured creditors and commercial mortgage holders to guide its decision in MMU of N.Y. The full text of the opinion is available at MMU of New York, Inc. v. Grieser, No. A-2484-08T3, 2010 BL 180436 (N.J. Super. Ct. App. Div. Aug. 04, 2010).