## Facts

- West Point National Bank held a mortgage on Harold Dean Pearman’s real property securing a debt of $44,271.03 plus interest.
- In the foreclosure action, the property was appraised at $45,000 under Kentucky foreclosure procedures.
- At the master commissioner’s sale, the bank was the sole bidder and purchased the property for $31,000 (about two-thirds of the appraised value), producing a nominal shortfall against the debt.
- The trial court confirmed the sale and entered a deficiency judgment against Pearman exceeding $16,000.
- Before the deficiency judgment was entered, the bank contracted to sell the same property to third-party purchasers for $45,000 (an amount exceeding Pearman’s total indebtedness), later conveying the property after receiving the commissioner’s deed.
- The bank later sued to enforce a judgment lien, based on the deficiency judgment, against other real property owned by Pearman.
- Pearman challenged enforcement of the deficiency on the ground that the bank’s resale for the full appraised value eliminated any real deficiency; the circuit court acknowledged the economic reality but still enforced the deficiency and ordered sale of Pearman’s other property.

## Issues

1. Whether a creditor may enforce a deficiency judgment arising from a foreclosure sale bid at two-thirds of appraised value when the creditor, through a prearranged and completed resale of the collateral, realizes an amount equal to or greater than the debtor’s total indebtedness.
2. Whether equitable principles bar collection of a deficiency that would result in recovery beyond satisfaction of the underlying debt.

## Decision

- The Kentucky Court of Appeals reversed the judgment and order of sale enforcing the deficiency lien.
- The court agreed that the circuit court erred in recognizing and enforcing the deficiency judgment under the circumstances.
- The court held that, because the bank’s purchase-and-resale of the collateral yielded value sufficient to satisfy the indebtedness, the claimed deficiency was not enforceable.
- The court distinguished prior Kentucky precedent upholding deficiencies where the record lacked comparable facts showing the creditor’s realization of value eliminating any shortfall.

## Legal Principles

- A deficiency judgment is not enforceable when the creditor’s realization from the collateral, viewed in substance, satisfies the debt so that no actual deficiency remains.
- Equity disfavors creditor recovery that would exceed satisfaction of the underlying obligation, including attempts to collect a paper deficiency after being made whole from the collateral.
- In assessing deficiency enforcement, courts may consider the full transaction context, including a creditor’s pre-confirmation arrangements to resell foreclosed property at or above the debt amount, rather than relying solely on the foreclosure bid arithmetic.

## Conclusion

The court reversed enforcement of the deficiency lien because the bank’s foreclosure purchase followed by an immediate resale for the property’s full appraised value satisfied the debt in substance, making collection of an additional deficiency against Pearman improper.


Pearman v. W. Point Nat’l Bank, 887 S.W.2d 366 (Ky. Ct. App. 1994)