How a Deficiency Judgment Works in Pennsylvania
Are you subject to a deficiency judgment in PA? Learn from a top Philadelphia bankruptcy lawyer what a deficiency judgment is, how a deficiency judgment is created, the limits on deficiency judgments in Pennsylvania, how Pennsylvania law limits collecting on deficiency judgments, and how you can get rid of deficiency judgments.
If you are having financial difficulties and find you must also pay a deficiency judgment, call us to discuss your situation – free of charge! We can help.
Deficiency Judgments Explained
A deficiency judgment is a creation of law. First, because Pennsylvania is a judicial foreclosure state, a mortgage lender must file a foreclosure lawsuit in order to repossess the property. Once the mortgage lender files a foreclosure action and forecloses on a home, they sell that property at auction, often for less than what the debtor owed on it.
The deficiency balance is the amount of that difference plus any fees and charges permitted under the mortgage contract. A deficiency judgment is based on the deficiency balance.
Limits on Deficiency Judgments in Pennsylvania
In PA, if the mortgage lender forecloses on your home and sells it at auction for less than what you owed on it, they must take separate legal action to create and collect on the deficiency balance and they have limited time to do so under 42 Pa. Con. St. Ann. § 5522(b)(2).
In a deficiency lawsuit, the lender will present evidence of the property’s value and the sale price, as well as the applicable fees and other charges due under the contract. The court will then determine the amount of the deficiency balance and enter a deficiency judgment against the debtor in that amount.
A similar process is also available to junior lien holders such as second mortgage or HELOC lenders, who may sue a debtor on the promissory note and get a money judgment against the debtor if they receive no proceeds or insufficient proceeds from the sale of the property following foreclosure. Under PA law, junior lien holders have four years to file suit.
A Deficiency Judgment Can Be Unsecured or Secured Debt in PA
Most often a deficiency judgment is a personal judgment against the debtor and therefore is unsecured debt. In PA, a creditor cannot garnish wages for this type of debt. For this reason, a creditor can only collect on a deficiency judgment via levy on bank accounts and liens on other property.
In PA, a deficiency judgment can become a lien on the debtor’s other real property. The lienholder has the right to be paid if the debtor sells or refinances that property, and may have the right to foreclose on that property. This is how a deficiency judgment becomes secured debt.
Limits on Collecting Deficiency Judgments in PA
- A mortgage lender must take separate legal action to create a deficiency judgment
- A mortgage lender has only six months from the date the deed transferred to file this action against the debtor
- In calculating the amount of the deficiency judgment, the court will takes into consideration the property’s fair market value, which the lender will then argue is low to increase the amount owed and the debtor should argue is higher
- Deficiency judgments are subject to 6% interest from the date they are entered
- A deficiency judgment is unsecured debt unless the debtor owns additional property in PA and the creditor takes additional action to create a lien on that property
- A creditor cannot garnish wages to satisfy a deficiency judgment
When a Mortgage Lender is Likely to Seek Deficiency Judgments
A mortgage lender knows the homeowner’s financial situation. If the homeowner has no assets other than the property that the lender is foreclosing, it is probable that the lender will not waste time and money seeking a deficiency judgement. However, if the homeowner does have other assets such as other real property or bank accounts, the mortgage lender will have more incentive to seek a deficiency judgment.
How a Deficiency Judgment Becomes Secured Debt in PA
If a debtor owns other real property in the county where the deficiency judgment gets entered, the deficiency judgment becomes a lien on that property. A creditor can transfer a deficiency judgment to any county in PA. Therefore, if the debtor owns other real property anywhere in PA the deficiency judgment may become a lien on that property.
What Happens After a Deficiency Judgment?
After the court enters a deficiency judgment against the debtor, the creditor will likely attempt to collect on the judgment with levies on the debtor’s bank accounts. If the debtor owns other real property in PA, the creditor will likely take action to create and enforce its lien on that property.
Is Pennsylvania an Anti-Deficiency State?
Pennsylvania is not an anti-deficiency state. Pennsylvania law permits mortgage lenders to file a separate action to create a deficiency judgment within six months of the deed transfer following foreclosure and sale of the property.
Pennsylvania also has no right of redemption, meaning that a mortgage foreclosure sale is final and the debtor has no recourse.
Work With a PA Bankruptcy Lawyer to Get Rid of Deficiency Judgments
If your home was foreclosed and sold for less than what you owed on it, call us. Our PA foreclosure lawyers can help you avoid a deficiency judgment by negotiating a waiver of the deficiency balance or executing a deed in lieu of foreclosure.
If you are served with deficiency action papers, we can help you by challenging the lender’s valuation of the property and by negotiating with the lender to avoid a judgment against you.
A deficiency judgment is usually unsecured debt that you can get discharged in bankruptcy. If a lender has a deficiency lawsuit or judgment against you, call us for help immediately. We can protect your assets by preventing or stopping levies on your bank accounts and liens on your real property.
If a deficiency judgment created a lien on your PA real property, we can help. Schedule your free consultation with our PA bankruptcy lawyers today.