Deficiency Judgment Laws in Pennsylvania

Can your lender get a deficiency judgment against you after a Pennsylvania foreclosure?

By , Attorney · University of Denver Sturm College of Law

If you go through a foreclosure in Pennsylvania, the foreclosure auction could result in a deficiency. In most states, including Pennsylvania, if a foreclosure sale results in a deficiency, the lender may get a "deficiency judgment" (a personal judgment) against the borrower for the deficiency amount.

But in Pennsylvania, the lender must seek a deficiency judgment in a separate action within a limited amount of time after the foreclosure. And, if the lender does seek one, the amount is limited by the home's fair market value.

What Is a Mortgage Deficiency in a Foreclosure?

When the foreclosure sale price doesn't cover the borrower's mortgage debt balance, the difference between the total debt and the sale price is called a "deficiency." For example, if your total debt is $400,000, but the home sells to the highest bidder at a foreclosure sale for $350,000, the deficiency is $50,000.

What Is a "Deficiency Judgment" After a Foreclosure Sale?

If state law allows it, the lender can seek a personal judgment against the borrower to recover the deficiency, if one exists. This kind of money judgment is called a "deficiency judgment."

How Does the Lender Get a Deficiency Judgment?

In some states, the lender may ask for a deficiency judgment as part of a judicial foreclosure process. In other states, the lender has to file a separate lawsuit against the borrower after the foreclosure to get a deficiency judgment.

Are Deficiency Judgments Allowed in All Foreclosures?

If the sale price is equal to, or more than, the mortgage debt amount, you're off the hook because no deficiency exists. And if the sale results in a surplus, you might be entitled to those funds after the foreclosure auction.

However, if any junior liens were on the property, such as a second mortgage or home equity line of credit, or if the property is subject to a judgment lien, those creditors get first crack at the surplus. Any money remaining after paying off these liens belong to you (the foreclosed homeowner).

Are Deficiency Judgments Allowed in All States?

State law sometimes prohibits or limits deficiency judgments. Some states restrict deficiency judgment amounts. Other states set a deadline for the lender to get a deficiency judgment.

What Are the Legal Requirements for a Deficiency Judgment in Pennsylvania?

To get a deficiency judgment against you, the lender must first foreclose. Foreclosures in Pennsylvania are judicial, which means the lender must foreclose through the state court system.

After the foreclosure, if the sale fails to bring in enough money to pay off the debt, the lender may file a separate lawsuit against you to get a deficiency judgment.

What Is the Statute of Limitations for a Deficiency Judgment in Pennsylvania?

In Pennsylvania, the lender may obtain a deficiency judgment in a separate action filed within six months of the transfer of the deed to the new owner after the sheriff's sale. (42 Pa.C.S. § 5522). This six-month period basically acts as a statute of limitations.

If the lender doesn't file a suit for a deficiency judgment by the deadline, you have a defense.

How to Calculate the Deficiency Judgment Amount in Pennsylvania

If the lender buys the property at the foreclosure sale, the deficiency is limited by the fair market value of the property. (42 Pa. Cons. Stat. Ann § 8103). So, the deficiency judgment amount is the total debt minus the property's fair market value.

When the lender files its lawsuit for a deficiency judgment, it must ask the court to determine the property's fair market value. The lender will present evidence that the home's value is as low as possible, which would maximize your deficiency liability.

It's a good idea to present evidence showing that the home's fair market value is as high as possible to minimize your potential deficiency liability. (42 Pa. Con. St. Ann. § 8103(c)).

Can You Avoid a Deficiency Judgment in Pennsylvania?

Even if your lender gets a deficiency judgment, you can probably eliminate your liability for a deficiency judgment, like many other dischargeable debts, in a Chapter 7 or Chapter 13 bankruptcy. Or you might have a defense to the deficiency, such as the deadline to get this kind of judgment has passed.

Getting Foreclosure Help in Pennsylvania

If you have questions about Pennsylvania's foreclosure process or want to learn about potential defenses to a foreclosure and possibly fight the foreclosure in court, consider talking to a foreclosure attorney.

Talk to a HUD-approved housing counselor if you want to learn about different loss mitigation options. You can use the Consumer Financial Protection Bureau's Find a Counselor tool to get a list of HUD-approved housing counseling agencies in your area. You can also contact the Homeownership Preservation Foundation (HOPE) Hotline.

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