Navigating foreclosure proceedings can be a daunting task, especially as rules and regulations can vary significantly from state to state. In Pennsylvania, the legal framework for foreclosures is defined in the Pennsylvania Rules of Civil Procedure – rules 1141 to 1150 – and by the Pennsylvania Statutes Annotated Title 35 and 41. As a judicial foreclosure state, Pennsylvania only allows for foreclosure cases to be resolved within the court system, and lenders must bring a foreclosure lawsuit against delinquent borrowers.
Step 1: Pre-foreclosure
Per the Consumer Financial Protection Bureau’s 2014 rulings, federal law requires any lender or mortgage servicer to provide a 120-day loss mitigation window for a delinquent borrower between the first missed payment and the filing a foreclosure suit. This is to provide borrowers with an opportunity to become current with payments and avoid a foreclosure suit.
Missing one payment
Generally speaking, most loans include a grace period of 15 days after the due date of the first missed payment, during which no late fees are incurred. However, after the grace period ends, the lender will start charging a late fee, details of which are listed on the promissory note, but are also readily available on the borrower’s monthly mortgage statement.
Missing several payments
Lenders will usually try to bring a borrower current and avoid going through a foreclosure suit. As such, lender will usually send several letters to the borrower to try and collect the missed payments. This is a great time for borrowers to explore loss mitigation options with the lender and avoid foreclosure through a loan modification or payment plan, among other options.
Pennsylvania mortgages commonly feature a breach letter clause, that requires the lender to send the borrower a breach letter – also known as a demand letter – to notify them that loan is in default. The breach letter also contains details such as the outstanding balance, due date and possible loan acceleration if the default is not repaid.
Notice of Intent & HEMAP
Commonly known as an Act 6 Notice in Pennsylvania, Pennsylvania state law requires the lender to send the borrower a notice of intent to foreclose 30 days prior to filing a foreclosure suit. The notice of intent must be followed by a second letter detailing the homeowner’s rights as well as available resources such as the Pennsylvania Housing Agency’s Homeowner’s Emergency Mortgage Assistance Program (HEMAP). This program has a limited amount of funding though, and as a result if the program has already run out of its yearly funds, this second notice is not legally required.
The latter involves the owner simply handing over the property deed to the lender to avoid being foreclosed upon, losing all property rights. The advantage from a delinquent borrower’s perspective is, that if the lender agrees to this method of curing the delinquent loan, they may not pursue a deficiency judgement against the former owner afterwards.
Step 2. Foreclosure
Per Pennsylvania law, the lender or their representative may file a foreclosure suit in the county in which the property is located in.
The foreclosure complaint
A foreclosure complaint must contain the name, address and interest of both plaintiff and defendant – in this case most likely the lender and the borrower –, the date of the mortgage and any assignments, the description of the property, an itemized statement of the due amount, and a demand for judgement for the due amount. Pennsylvania law also allows for foreclosure actions to be combined with other actions into one complaint.
Defendants in Pennsylvania foreclosure suits are served according to the requirements of civil actions. As such defendants are usually served by the sheriff, but if the borrower cannot be served in person alternate methods of service will come into play, such as service via publication or post. The alternate method is chosen by the court.
Pennsylvania foreclosure proceedings require the foreclosure notice to be served along with a 20-day summons. If no response is received, the borrower must receive a second, 10-day summons. As such, borrowers may file a response to the foreclosure complaint within 30 days of receiving the complaint. Per Pennsylvania law, the answer must contain an itemized list of responses to each claim in the complaint.
Although Pennsylvania has no state level foreclosure mediation program, a number of counties have implemented the option. Among them are Philadelphia’s Foreclosure Diversion Program and Allegheny County’s Save Your Home program, but counties such as Fayette, Butler, Schuylkill, Somerset and Northampton among others also have some form of foreclosure conciliation available.
Default and summary judgement
If the borrower does not answer the foreclosure complaint or fails to answer in the required timeframe, the lender may file for a default judgement. If the court rules in favor of a default judgement, the borrower automatically looses the case, and the lender forecloses on the property. If a homeowner does file an answer according to state requirements, the lender may not seek a default judgement.
Usually in this case the lender will file for a summary judgement, asking the court for a swift, favorable decision without going to trial. Lenders will usually argue in favor of a summary judgement based upon the borrower’s weak defense or lack thereof, the undisputable facts of the suit itself or if there is no proof of wrongdoing such as predatory lending. If a summary judgement is denied, the case goes to court. If the borrower looses at trial, the court will issue a final judgement of foreclosure and the property will be put up for sale at a foreclosure auction.
Step 3. The foreclosure auction
When a lender secures a favorable final judgement of foreclosure, the property is listed for sale at a foreclosure auction. The sale must be advertised in a newspaper of local circulation once a week for three consecutive weeks, with the first date of publication no less than 21 days before the sale. 30 days prior to the foreclosure auction, the notice of sale must be posted on the property, as well as served to the borrower and any parties with a stake in the property.
Also known as a sheriff’s sale, foreclosure auctions take place at the courthouse, and the highest bid wins the auction. The winning bidder must provide a 10% deposit of the final sale price immediately, with the remaining balance due within 20 days. If the deadline is not meant, the property is re-listed for sale. Lenders will often bid on the property as well, usually through a representative. If the lender wins the auction, the property will revert to the bank and become real estate owned or REO.
Right of redemption and reinstatement
After a property is sold at a foreclosure auction, the borrower looses all property rights. Although some states feature a post-sale right of redemption period during which a borrower may regain ownership even after a sale is made, Pennsylvania offers no right of redemption. Pennsylvania’s foreclosure timeline does, however, allow for reinstatement up until one hour before the foreclosure auction begins.
A borrower can be reinstated even after a final foreclosure judgement is handed down, provided they bring the delinquent loan current by paying all past due mortgage payments, as well as all late fees and incurred costs. Per Pennsylvania law, a borrower can successfully pursue reinstatement a maximum of three times per calendar year.
If a property sells for a lower price than the total debt owed, a lender may sue a borrower for a deficiency judgement. If the court rules in favor of the lender, the borrower will be held liable for the outstanding balance between the auction sale price and the total debt, and the lender can generally collect the amount from the delinquent borrower. However, lenders must file within 6 months of the sale. Additionally, if the property reverted to the lender’s ownership at the foreclosure auction, the lender may seek a deficiency judgement no larger than the difference between the outstanding balance and property’s fair market value, regardless of what the lender bid and paid at the sheriff’s sale.
Step 4. Foreclosure eviction
If the previous owner does not voluntarily vacate the property following a successful foreclosure sale, the new owner will usually either offer a cash for keys deal or pursue eviction. The former involves the lender paying out a financial incentive to the previous owner to voluntarily vacate the property. If this option is not be pursued, the new owner must file a separate eviction suit against the former owner.
Legal Resources in Pennsylvania:
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