A lot of Pennsylvania homeowners who are facing foreclosure have contacted me regarding the lender’s ability to receive a default judgment if the lender files a foreclosure action. Most lenders do not pursue deficiency judgments since they understand that most borrowers in default simply do not have the assets or means to pay their mortgage, much less a deficiency judgment. However, if the lender is aware that a borrower has other assets, such as a second home with equity, the lender has the ability to pursue a deficiency judgment.
A deficiency judgment cannot be obtained until after the lender obtains a judgment in mortgage foreclosure and sells the property at a sheriff’s sale. Assuming that the proceeds from the sheriff sale are insufficient to pay the judgment, a deficiency exists.
In order for the lender to collect the deficiency from the borrower, the lender must file a separate action against the borrower within six (6) months of the sheriff’s sale. The law regarding deficiency judgments has be codified in 42 Pa. C.S. ยง 8103. In order to proceed with a deficiency action, the lender must petition the court to fix the fair market value of the property sold within six (6) months of the sheriff’s sale.
The lender must then give the borrower notice that they they are filing a petition with the court to determine the fair market value. If the borrower is not given notice, they will be discharged of any personal responsibility on the debt. Service of the Petition is accomplished by having a sheriff personally serve the Petition or by certified mail, return receipt requested pursuant to Rule 3283. However, if the borrower is represented by an attorney, service can be accomplished by regular mail on the attorney.
After receiving notice of the lender’s petition to fix the fair market value, the borrower can contest the action and obtain a hearing to present their case for the fair market value of the property. Once the court determines the fair market value, the borrower is released from liability to the extent of the fair market value (less the costs to satisfy any liens, costs, taxes, etc.).
For example, if the lender receives a judgment for $300,00 and obtains the property at a sheriff’s sale and pays just a few thousand dollars for the property, the lender must then petition the court to establish the fair market value. If the fair market value is $250,000, the lender can obtain a deficiency judgment for $50,000. However, they can only obtain a deficiency judgment by filing a petition with the court to determine the fair market value of the property and a copy of the petition or notice of the petition must be served on the borrower.
If you are facing a deficiency judgment in Pennsylvania, call us for a free consultation at (610) 417-6345. We are foreclosure defense attorneys located in Bethlehem, PA, primarily serving Lehigh and Northampton County.
Zachary Zawarski, Esq.