Is Pennsylvania a Foreclosure Recourse State?

When your home is foreclosed on, there might still be unpaid debts if the home was auctioned off for less than your total loan amount. In Pennsylvania, lenders have some foreclosure recourse and may demand payment of the remaining balance.

Pennsylvania is a judicial foreclosure state, meaning lenders must file a claim and sue for the foreclosure of your property. Like in many judicial foreclosure states, lenders may also sue for a deficiency judgment if the sale of your home does not bring in enough money to cover your loan. In Pennsylvania, deficiency judgments are not automatic and must be filed for in a separate claim. If your lender is moving for a deficiency judgment, you should talk to a lawyer about negotiating with the lender or possibly filing for bankruptcy. If possible, you may want to file for bankruptcy before your home is foreclosed on. If not, bankruptcy may still help you avoid a deficiency judgment.

If you are facing foreclosure, contact our Pennsylvania bankruptcy lawyers at Young, Marr, Mallis & Associates by calling (215) 701-6519 and schedule a private, free review of your case.

Foreclosure Recourse for Lenders in Pennsylvania

Many people often need a loan when buying a home or other real property. The lender, usually a bank, provides the loan in the form of a mortgage. Essentially, the mortgage is an agreement that you will continue to pay back the loan over time, including interest. If you fail to make payments and default on the loan, the lender can move to foreclose, sell your home, and use the proceeds from the sale to satisfy your debt.

One big question many people have is, what happens if the sale of your foreclosed home is not enough to satisfy your outstanding loan debt? The answer to this question varies by state. Pennsylvania is a foreclosure recourse state, meaning lenders can take legal steps to get the remaining balance on loans from borrowers after foreclosure.

One way lenders try to get the remaining balance on a loan is through deficiency judgments. Pennsylvania is a judicial foreclosure state that allows lenders to seek deficiency judgments against people in foreclosure proceedings. A deficiency judgment is when the lender files a petition with the courts for any remaining balance owed on the loan not covered by the foreclosure sale.

For example, suppose you owe $100,000 to the lender. Next, suppose the sale of your home in foreclosure proceedings brought in only $75,000. In that case, the lender could pursue a deficiency judgment and make you pay the remaining $25,000.

How Do Lenders Obtain Deficiency Judgments in Pennsylvania After a Foreclosure?

Exactly how lenders obtain deficiency judgments tends to vary by state. Some states allow lenders to obtain deficiency judgments as part of the foreclosure hearing. Pennsylvania follows a different rule that requires lenders to file a separate lawsuit after the foreclosure hearing to obtain a deficiency judgment.

In short, deficiency judgments are not automatic in Pennsylvania. The fact that you might owe money after the foreclosure of your home does not necessarily mean you will have to pay it to the lender. You might only have to pay if the lender decides to obtain and enforce the deficiency judgment.

In Pennsylvania, under 42 Pa.C.S. § 5522 (b)(2), the lender has only 6 months to commence an action for a deficiency judgment. If, for whatever reason, the lender fails to do so, you might be off the hook. On top of that, there can be no deficiency judgment if the sale of the house was enough to cover the entire loan.

What if I Cannot Pay a Deficiency Judgment in Pennsylvania?

Talk to a lawyer if you are facing a deficiency judgment or believe one might be in your near future and you cannot afford to pay. Our Philadelphia bankruptcy lawyers can help you explore possible legal options before and after foreclosure to help you avoid a deficiency judgment.

One method is to negotiate a waiver with the mortgage lender. This might be a good idea if the leftover debt from the foreclosure does not qualify you for bankruptcy. For example, your deficiency might be for only a few thousand dollars. You might not need to file for bankruptcy if you have a steady income or sufficient assets to cover that expense. Instead, you can work out a waiver with the lender where the deficiency is forgiven, or they accept a lesser amount instead.

Another option is filing for bankruptcy. This is sometimes a better idea when the leftover debt is too much to handle. For example, your loan might have been for $1,000,000 to buy a large home, and if the home only sold for $700,000 at auction, you would have a deficiency of $300,000. If your finances have changed since you initially took out the loan, you might qualify for bankruptcy.

Filing for bankruptcy sets an automatic stay in place, meaning any legal proceedings against you for debts must cease. The lender would not be able to obtain a deficiency judgment while we work out your bankruptcy case. Depending on how you file, the deficiency might be discharged, and you would not be liable to pay it.

When to File for Bankruptcy to Avoid a Deficiency Judgment in Pennsylvania

The next question is, when should you file for bankruptcy? If you believe bankruptcy is the best choice for your situation, speak to an attorney as soon as possible. If you are currently in foreclosure proceedings and your house has not yet been sold, the automatic stay mentioned above may halt the foreclosure process, and you might be able to remain in your house for a while longer. Ideally, we might get certain debts discharged, and you would hopefully avoid foreclosure altogether.

If your home has already been foreclosed upon and there is a significant deficiency, you should still talk to a lawyer about filing for bankruptcy. Doing so might help you get the deficiency discharged so you can truly have a fresh start.

Call Our Pennsylvania Bankruptcy Lawyers for Help

Speak to our Bucks County bankruptcy lawyers at Young, Marr, Mallis & Associates by calling (215) 701-6519 and arrange a confidential, free evaluation of your case.