The Execution Sale of 'Homestead' Properties

We frequently enforce judgments through real property executions. This ancient writ remains at the very core of modern judgment enforcement practice. A judgment may be enforced by delivering an execution to the Sheriff of any county where the judgment debtor owns real property, directing him to levy on and sell it via an execution sale. The property must be located in the county where the judgment was entered or where the judgment has been docketed, which is done by filing a transcript of judgment.

Where the property is commercial or non-owner occupied, the process can be straight-forward, e.g., a court order is not required. But if the target is a “homestead,” which is an owner-occupied principal residence, it may only be sold by execution sale pursuant to a court order. The order should be sought via a special proceeding commenced pursuant to CPLR 5206(e).¹

The primary purpose of the proceeding is to determine whether there is value to the property over the applicable homestead exemption amount.² The homestead exemption applies to the value above existing liens and encumbrances, such as mortgages. The court has discretion in ruling on the application, but it must be exercised with due consideration of the importance to the judgment creditor of securing satisfaction of the judgment. The court may consider whether the judgment can be satisfied by other means; the value of the property; the amount of the judgment; and the rights of other persons in the property. A court is not likely to issue a homestead order for a valuable property to satisfy a small judgment, for example. Nor will a homestead order be appropriate where the judgment debtor’s equity is little more than the exemption amount.

Generally, a homestead order will be granted upon a showing that there is significant equity in the property after application of the homestead exemption and the balance due on prior liens. See CPLR 5206(a). Accordingly, the judgment creditor should support his application with proof of the prior liens, typically obtained by a title report, and by an appraisal or other records, such as a tax assessment valuation, to show the market value of the property.

CPLR 5206(e) requires the court to “marshal the proceeds of the sale” in its order. This is to ensure that the rights of all persons with an interest are adjusted equitably. Most importantly, the order will require that the judgment debtor receive the exemption amount out of the sale proceeds, after deduction of the sheriff’s poundage and the other expenses of the sale, and before any monies go to the judgment creditor. A judgment creditor considering “credit bidding” on the property at the execution sale should remember that he will nonetheless have to pony up live funds to the sheriff to satisfy the judgment debtor’s homestead exemption.

Note, unlike at a mortgage foreclosure auction, a purchaser at a sheriff’s execution sale does not receive clean title; he is taking title subject to all liens of record, which are not extinguished. This means that none of the sale proceeds go to holders of prior consensual liens. The only exception is for the holder of a prior judgment lien, who has the right to proceeds if he delivers an execution to the sheriff prior to the sale. See CPLR 5236(e).

Another important fact to be considered is the nature of the judgment debtor’s interest in the property. If it is joint with a spouse, it is almost certainly a tenancy by the entireties. This form of ownership presents another hurdle for a judgment creditor. While a judgment creditor can execute on and sell the judgment debtor’s ½ undivided interest, see, e.g., In re Weiss, 4 B.R. 327, 330 (Bankr. S.D.N.Y. 1980), this may not accomplish much. The purchaser becomes a co-tenant with the non-judgment debtor spouse, but has no right of occupancy. Moreover, the purchaser cannot bring a partition action to force a sale of the property because the spouse continues to have a right of survivorship. She will upon the judgment debtor’s death become owner of the whole property, extinguishing the interest acquired by the purchaser from the judgment debtor.

A judgment creditor with a lien on a judgment debtor’s property should not hesitate to execute upon it. But success in this endeavor, as in judgment enforcement in general, requires knowledge of the rules, persistence, and patience.

¹CPLR 5206 (e) provides that:

A judgment creditor may commence a special proceeding in the county in which the homestead is located against the judgment debtor for the sale, by a sheriff or receiver, of a homestead exceeding one hundred sixty-five thousand five hundred and fifty dollars . . . in value. The court may direct that the notice of petition be served upon any other person. The court, if it directs such a sale, shall so marshal the proceeds of the sale that the right and interest of each person in the proceeds shall correspond as nearly as may be to his right and interest in the property sold . . . .

² The once-modest ($10,000) but now generous homestead exemption amounts vary from $179,500 in counties in and around New York City to $89,975 in most upstate counties.