Various federal and state laws were passed following the foreclosure crisis to regulate loan servicing and foreclosure processes. Most of these laws give protections to homeowners. Servicers generally have to provide borrowers with loss mitigation opportunities, account for each foreclosure step, and strictly comply with foreclosure laws.
Also, most people who take out a loan to buy a residential property in Pennsylvania sign a promissory note and mortgage. These documents give homeowners some contractual rights in addition to federal and state legal protections.
So, don't get caught off guard if you're a Pennsylvania homeowner behind in mortgage payments. Learn about Pennsylvania's foreclosure laws and process, from missing your first payment to a foreclosure sale.
In a Pennsylvania foreclosure, you'll most likely get the right to:
Once you understand the process and your rights, you can make the most of your situation and, hopefully, work out a way to save your home or at least get through the process with as little anxiety as possible.
The period after you fall behind in payments, but before a foreclosure officially starts, is generally called the "preforeclosure" stage. (Sometimes, people refer to the period before a foreclosure sale happens as "preforeclosure," too.)
During this time, the servicer can charge you various fees, including late and inspection fees, and, in most cases, must let you know how to avoid foreclosure, and send you a breach letter (a preforeclosure notice).
If you default on your mortgage payments for your home in Pennsylvania, the foreclosure will be judicial.
Before officially starting the foreclosure process, Pennsylvania law requires the lender to give you (the borrower) a 30-day notice of intent to foreclose, providing the opportunity to cure the default. But this notice isn't required if you abandon the home. (41 Pa. Stat. Ann. § 403).
Also, in most cases, the lender must send a notice explaining the homeowner's rights and describing what help is available, including the right to apply to the Pennsylvania Housing Finance Agency under the Homeowners' Emergency Mortgage Assistance Program (HEMAP) for assistance. (35 Pa. Stat. Ann. § 1680.403c). But this requirement doesn't apply if the agency doesn't have any funds available. (35 Pa. Stat. Ann. § 1680.409c).
The notice must also tell the borrower of the default and give 30 days, plus three days to account for mailing time, to meet face-to-face with a local consumer credit counseling agency to try to resolve the default. If you meet with an approved credit counseling agency, the lender can't take any legal action, including starting a foreclosure, for 30 days after the meeting. (35 Pa. Stat. Ann. § 1680.403c).
While Pennsylvania doesn't have a statewide foreclosure mediation program, some Pennsylvania counties have foreclosure diversion (or conciliation) programs and offer conciliation conferences to help borrowers find ways to avoid foreclosure.
A "conciliation conference" is a meeting between the lender and the borrower to reach a workout and avoid foreclosure. Potential outcomes of a conciliation conference include a loan modification, repayment agreement, forbearance agreement, short sale, or deed in lieu of foreclosure.
The requirements and procedures vary widely between programs. For example, it's mandatory for the lender and borrower to participate in the program in some counties. Other programs are opt-in, which means the borrower can choose to participate. Moreover, some counties don't have mediation meetings but rather give the borrower the ability to postpone (or stay) the foreclosure for up to 90 days to provide time to work directly with the lender to avoid foreclosure.
Generally, participating in a foreclosure diversion program will delay the foreclosure process. The length of the delay depends on the county. Check the official court and county websites to find out if your county has a foreclosure diversion program. You can also ask a local foreclosure attorney if your county offers this kind of assistance.
A judicial foreclosure begins when the lender files a lawsuit asking a court for an order allowing a foreclosure sale. The lender gives notice of the suit by serving you a summons and complaint. If you don't respond to the suit, the lender will ask the court for, and probably receive, a default judgment, allowing it to hold a foreclosure sale.
But if you choose to defend the foreclosure lawsuit, the case will go through the litigation process. The lender might then ask the court to grant summary judgment. A summary judgment motion asks that the court grant judgment in favor of the lender because there's no dispute about the critical aspects of the case. If the court grants summary judgment for the lender or you lose at trial, the judge will enter a judgment and order your home sold at auction.
Notice of the foreclosure sale will be:
At the sale, the lender usually makes a credit bid. The lender can bid up to the total amount owed, including fees and costs, or it may bid less. In some states, including Pennsylvania, when the lender is the high bidder at the sale but bids less than the total debt, it can get a deficiency judgment against the borrower. If the lender is the highest bidder, the property becomes "Real Estate Owned" (REO).
But if a bidder, say a third party, is the highest bidder and offers more than you owe, and the sale results in excess proceeds, you're entitled to that surplus money.
A few potential ways to stop a foreclosure and keep your home include reinstating the loan, redeeming the property before the sale, or filing for bankruptcy. Working out a loss mitigation option, like a loan modification, will also stop a foreclosure. Or you might be able to work out a short sale or deed in lieu of foreclosure and avoid foreclosure. (But you'll have to give up your home with either of these options.)
Pennsylvania law allows reinstatement up to one hour before the bidding at the foreclosure sale, a maximum of three times in any calendar year. (41 Pa. Stat. Ann. § 404).
One way to stop a foreclosure is by "redeeming" the property. To redeem, you have to pay off the full amount of the loan before the foreclosure sale.
Some states also provide foreclosed borrowers a redemption period after the foreclosure sale, during which they can buy back the home. Pennsylvania law doesn't provide a post-sale redemption period.
If you're facing a foreclosure, filing for bankruptcy might help. Once you file for bankruptcy, something called an "automatic stay" goes into effect. The stay functions as an injunction prohibiting the lender from foreclosing on your home or trying to collect its debt, at least temporarily.
In many cases, filing for Chapter 7 bankruptcy can delay the foreclosure by a matter of months. Or, if you want to save your home, filing for Chapter 13 bankruptcy might be the answer. To find out about the options available, speak with a local bankruptcy attorney.
The Federal Servicemembers Civil Relief Act provides legal protections to military personnel about to go through a foreclosure. Under Pennsylvania state law, Pennsylvania National Guard members on active state service and 30 days after that are exempt from civil process. (Pa. Cons. Stat. Ann. tit. 51, § 4105).
In a foreclosure, the borrower's total mortgage debt sometimes exceeds the foreclosure sale price. The difference between the total debt and the sale price is called a "deficiency." For example, say the total debt owed is $400,000, but the home sells for $350,000 at the foreclosure sale. The deficiency is $50,000.
In some states, the lender can seek a personal judgment against the debtor to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amount (in our example, $50,000) from the borrower.
In Pennsylvania, a deficiency judgment is allowed if the lender files a separate action within six months. If the lender is the purchaser at the foreclosure sale, the deficiency is limited by the property's fair market value. (42 Pa. Cons. Stat. Ann. §§ 8103, 5522(b)(2)).
For more information on federal mortgage servicing laws and foreclosure relief options, go to the Consumer Financial Protection Bureau (CFPB) website.
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. Talking to a HUD-approved housing counselor about different loss mitigation options is also a good idea.