What Exactly is a Mortgage?
Nowadays, when purchasing a home, most people get financing from a bank to pay for the Property. In all of that documentation exchanged at closing, a person is typically signing 2 main documents in order to obtain the loan from the bank. One is known as a promissory note and the other is called a mortgage that secures the property being purchased in case the payments on the loan cease. The promissory note establishes the terms of the taken from the bank, in turn allowing the bank to report on a person's credit and to come after him or her for the money owed in the event of non-payment.
The mortgage, on the other hand, is the document that signed which secures the Property and gives the Bank the ability to take it away through a process, most of the time governed by state law, known as a Mortgage Foreclosure. Luckily, Pennsylvania is a judicial foreclosure state, which means that the lender holding the mortgage on your property must initiate and be successful in a mortgage foreclosure action before selling your property through a sheriff sale.
What Happens When I Fall Behind on my Mortgage?
In most instances, as soon as a person falls behind on his or her mortgage and corresponding loan, he or she is bombarded with notifications by mail, email, phone, and texts from the Lender or Servicer letting the person know they failed to make the monthly payment. Most loans include a grace period after which time the loan servicer will assess a late fee. (The grace period and corresponding late fees can usually be found on the promissory note and monthly mortgage statements.)
Additionally, there are sometimes specific notices required to be given to the borrower which are set forth in the mortgage and /or promissory notice which must be given as well as specific Pennsylvania notices which must be sent by the Lender or Servicer to the borrower before initiating a Mortgage Foreclosure action.
One such notice required is something called a Notice of Intention to Foreclosure, otherwise known as an Act 6 Notice. This notice is governed by 41 Pa. Stat. Ann. § 403and essentially gives the borrower notice that he or she has 30 days to cure the default on the loan before the Lender or Servicer can proceed with a Mortgage Foreclosure action. During this time frame, the Lender or Servicer is prohibited from collecting any attorney or other collection fees.
Additionally, in most cases, the Lender or Servicer of the loan is required to send something known as an Act 91 Notice under 35 Pa. Stat. Ann. § 1680.403c. The Act 91 Notice explains the rights available to the borrower as well as the potentialfor help by the Pennsylvania Housing Finance Agency under the Homeowners' Emergency Mortgage Assistance Program. This is also known as the HEMAP Loan. This Act 91 Notice should also contain a list of the counseling agencies where the Borrower can apply for the HEMAP loan within the same county as where the property is located and should be similar to the form available on PHFA's website. The Act 91 Notice must also be sent to the borrower at the property as well as his or her mailing address, if different.
What if I Can't Reinstate the Mortgage or get Caught Back up on how far I am Behind?
Usually, the next step is for the Mortgage Lender or Servicer to initiate a mortgage foreclosure complaint by filing the complaint with the court in the county where the property is located. The complaint is then served to the borrower by a Sheriff. It is important that if you haven't already done so, to make sure you contact a mortgage foreclosure attorney at this point to review everything and let you know all of your options.
According to Pa.R.C.P. Rule 1147, the plaintiff shall set forth in the complaint:
(1) the parties to and the date of the mortgage, and of any assignments, and a statement of the place of record of the mortgage and assignments;
(2) a description of the land subject to the mortgage;
(3) the names, addresses and interest of the defendants in the action and that the present real owner is unknown if the real owner is not made a party;
(4) a specific averment of default;
(5) an itemized statement of the amount due; and
(6) a demand for judgment for the amount due.
The Borrower, who is now the Defendant in this mortgage foreclosure lawsuit, now has 20 or 30 days to have a mortgage foreclosure defense attorney file a written response to the complaint with the Court and essentially defend the action. The response time is either 20 or 30 days depending upon which type of response the Defendant wishes to respond with.
What is a Diversionary Program and/or Conciliation Conference?
Most counties in Pennsylvania, including Bucks, Montgomery, Lehigh, Northampton, Delaware, Chester, Philadelphia and many others have what are known as Conciliation Conferences and/or Diversionary Programs which were created to put a temporary stay on foreclosure proceedings. These Programs, depending upon the particular county, generally put the mortgage foreclosure on hold while the borrower applies for a loan modification with the Lender and/or Servicer of the Mortgage.
However, it is very important to know what is going on in these hearings and to know what orders are being entered by the Court because if a stay is lifted in the Conference and the Lender is allowed to proceed with the Mortgage Foreclosure, many borrowers have found themselves in default of the Foreclosure action and up for Sheriff Sale without ever knowing or having the chance to respond to the Mortgage Foreclosure action.
Do I Need to Respond to the Mortgage Foreclosure Complaint?
If a Borrower does not respond to the mortgage foreclosure complaint, the Lender will obtain a Default Judgment against him or her and be able to take the property to Sheriff Sale. Consequently, it is very important that the Complaint is thoroughly reviewed for any deficiencies and the appropriate responses are filed with the Court in the correct time frames. Failure to bring up certain defenses usually waives them from being able to be brought back up at a later time.
The time in which the Mortgage Foreclosure is being litigated is a good time for the borrower to attempt to obtain a loan modification if that is what he or she wishes to do, even if the borrower was unsuccessful with getting one through the Conciliation Process.
What happens if the Lender gets a Mortgage Foreclosure Judgment?
In the event the Lender prevails in the mortgage foreclosure, a judgment will be entered in its favor against the Defendant. This entry of a foreclosure judgment generally fixes the amount that is due and merges the mortgage and promissory note into the judgment. The debt secured by the mortgage is accelerated and is immediately due and payable in its entirety as set forth in the judgment. Essentially, according to In re Cohen-Harvin, 571 B.R. 672, 675 (Bankr. E.D. Pa. 2017), "the right to collect any pre-judgment amounts which could have been included in the judgment, and the right to collect any post-judgment charges provided for by the note and mortgage are extinguished.”
It should be known that this judgment is not a money judgment that is owed by the Debtor but rather is in place, in rem, or against the property, only to effectuate a foreclosure sale of the property subject to the mortgage lien. In re Reed. 274 B.R. 155 (Bankr. W.D. Pa. 2002).
After this judgment is entered, the Lender's attorney then usually files for the next available Sheriff Sale available in the county with the Sheriff. The filing usually includes a Notice of Sheriff Sale, various Affidavits, and information for advertising of the Property for Sheriff Sale.
According to Pa.R.C.P.Rule 3129.2(b), The Notice for the sheriff's sale must contain (1) a brief description of the property to be sold, its location, any improvements, the judgment of the court on which the sale is being held, the name of the owner or reputed owner, and the time and place of sale, and (2) a notice directed to all parties in interest and claimants that a schedule of distribution will be filed by the sheriff on a date specified by the sheriff not later than thirty days after the sale and that distribution will be made in accordance with the schedule unless exceptions are filed thereto within ten days after the filing of the schedule.
Additionally as provided by Pa.R.C.P., Rule 3129.2(d), Notice containing the information required in the handbill must also be given by publication by the sheriff once a week for three successive weeks in a newspaper of general circulation in the county and in the legal publication, if any, designated by rule of court for publication of notices, the first publication to be made not less than 21 days before the date of sale.
Furthermore, If the sheriff sale is stayed, continued, postponed or adjourned to a date certain within one hundred thirty days of the scheduled sale, notice of which sale was given as provided by Rule 3129.2, and public announcement thereof, including the new date, is made to the bidders assembled at the time and place fixed for the sale, no new notice as provided by Rule 3129.2 shall be required, but there may be only two such stays, continuances, postponements or adjournments within the one hundred thirty day period without new notice. Pa.R.C.P., Rule 3129.3
Can I Still Save My House Once it is Scheduled For Sheriff Sale?
Even if a property is listed for Sheriff Sale, the homeowner still has the ability and absolute right to pay the back amount of the mortgage, otherwise known as the arrearages, in order to reinstate the loan. Pennsylvania law specifically allows reinstatement up to one hour before the bidding at the foreclosure sale, a maximum of three times in any calendar year. Title 41 P.S. Interest § 404.
The full statute can be found at Title 41 P.S. Interest § 404.
Additionally, a person may be able to save his or her property at any time before the house is sold at Sheriff Sale with the filing of a Bankruptcy provided all the requirements are met.
What is a Deficiency and can the Mortgage Company sue me for the Difference if my House Goes to Foreclosure Sale?
A deficiency action is a legal action brought by the mortgage company or anotherlender's foreclosure attorney holding a lien against your property in the event the property goes to sheriff sale. It is brought to collect on the balance owed on the loan if the proceeds from sale do not cover the amount owed as well as all the related collection fees. This remaining balance is what is referred to as a deficiency.
As an example, if you owe $250,000 on your home and stop making payments, the balance may go up to $300,000 by the time it goes through the foreclosure process and up for sheriff sale. If the property sells at the sale for $260,000, there would be a $40,000 deficiency that the lender would have a choice of coming after you for.
But whether a lender would come after you for the deficiency is an entirely different story and is subject to many different factors. In many cases, it's just notworth it for the foreclosing mortgage company to come after the borrower. This is something that is usually very carefully reviewed by it's mortgage foreclosure lawyer before proceeding. But in my experience, it's very rare that a first mortgage company institutes a deficiency action.
One reason is that borrowers who have stopped paying their mortgages have done so for a reason and that reason is usually severe financial difficulties and a lack of assets. These borrowers usually don't have the assets or income available to pay off a deficiency balance and with the process of another legal action being as expensive as it is, the costs just don't justify the probability of a return.
In Pennsylvania, deficiency judgments are governed by statute 42 Pa.C.S. § 8103 and 42 Pa. Con. St. Ann. § 5522[b]. The statutes generally provides, with certain exceptions, that the mortgage company or other creditor must take steps to pursue the deficiency within 6 months. The full statute can be found at 42 Pa.C.S. § 8103.
However, second mortgages and home equity lines of credit are a totally different story and usually do come after individuals after a sheriff sale for any deficiency amount. They usually proceed against people on the non-secured promissory note aspect of the amount still owed. However, these companies must initiate their actions with a lawyer / attorney within the 4-year time period set forth in the Pennsylvania statute of limitations.
Alex Tuttle has been recognized and rated as a Top Attorney and Distinguished Attorney in the area of Civil Litigation as well as a Client Choice and Top Contributor by Avvo and regularly represents clients in Bucks, Chester, Delaware, Montgomery, Lehigh, and Northampton Counties. If you are in need ofany assistance or have any questions, please contact us to go over your situation. We would love the opportunity to help you and get your life back to normal.