Foreclosure is a legal process that lenders use to recover unpaid mortgage debt from borrowers. If you’re a homeowner in PA who’s struggling to make your mortgage payments, it’s important to understand the foreclosure process and your rights as a borrower. In this guide, we’ll provide an overview of the foreclosure process in PA, including the different types of foreclosure, how to avoid foreclosure, and what to expect if you’re facing foreclosure. By understanding the foreclosure process, you can make informed decisions about your options and take steps to protect your home and your financial future.
Before we dive in…
Understanding the Foreclosure Process in PA
What is foreclosure anyway?
The legal process that lenders use to reclaim property securing a loan, usually after the borrower has ceased making payments, is called foreclosure. Although it is an unpleasant experience, it is not the end of the world. By understanding how foreclosure works in PA, you can equip yourself with the necessary knowledge to navigate the process well and emerge from it in the best possible manner.
The Basic Stages of A Foreclosure
The foreclosure process typically consists of several stages, which can vary depending on state laws and the lender’s policies. Here are the basic stages of a foreclosure:
- Missed Payments: The borrower misses one or more mortgage payments.
- Notice of Default: The lender sends the borrower a notice of default (NOD) after several missed payments, stating that the borrower is in default of the mortgage terms.
- Pre-Foreclosure: The borrower enters the pre-foreclosure stage, during which they may have the opportunity to work with the lender on a loan modification or repayment plan to avoid foreclosure.
- Auction: If the borrower is unable to work out a solution with the lender, the property is put up for auction, where it can be sold to the highest bidder.
- Real Estate Owned (REO): If the property does not sell at auction, it becomes Real Estate Owned (REO) by the lender, and the lender takes possession of the property.
It’s important to note that each stage of the foreclosure process has different legal and financial implications, and the borrower has different options and rights at each stage. If you’re facing foreclosure, it’s important to consult with a foreclosure attorney or housing counselor to understand your options and rights and to ensure that your interests are protected.
Under Judicial Foreclosure:
- Your mortgage lender must file suit in the court system.
- You’ll get a letter from the court demanding payment.
- Assuming the loan is valid, you’ll have 30 days to bring payment to court to avoid foreclosure (and sometimes that can be extended).
- If you don’t pay during the payment period, a judgment will be entered and the lender can request the sale of your property – usually through an auction.
- Once the property is sold, the sheriff serves an eviction notice and forces you to immediately vacate the property.
Under Power of Sale (or Non-Judicial Foreclosure):
- The mortgage lender serves you with papers demanding payment, and the courts are not required – although the process may be subject to judicial review.
- After the established waiting period has elapsed, a deed of trust is drawn up and control of your property is transferred to a trustee.
- The trustee can then sell your property to the lender at a public auction (notice must be given).
Anyone who has an interest in the property must be notified during either type of foreclosure.
For example, any contractors or banks with liens against a foreclosed property are entitled to collect from the proceedings of an auction.
What Happens After A Foreclosure Auction?
After a foreclosure is complete, the loan amount is paid off with the sale proceeds.
Sometimes, if the sale of the property at auction isn’t enough to pay off the loan, a deficiency judgment can be issued against the borrower.
A deficiency judgment is where the bank gets a judgment against you, the borrower, for the remaining funds owed to the bank on the loan amount after the foreclosure sale.
Some states limit the amount owed in a deficiency judgment to the fair value of the property at the time of sale, while other states will allow the full loan amount to be assessed against the borrower.
Here’s a great resource that lists the state by state deficiency judgment laws, since every state is different.
Generally, it’s best to avoid a foreclosure auction. Instead, call up the bank, or work with a reputable real estate firm like us at Property Buyer Today to help you negotiate discounts off the amount owed to avoid having to carry out a foreclosure.
Experienced investors can help you by negotiating directly with banks to lower the amount you owe in a sale – or even eliminate it, even if your home is worth less than you owe.
If you need to sell a property near Montgomery County, we can help you.
We buy houses in Montgomery County PA like yours from people who need to sell fast.
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Another Foreclosure Resource For Montgomery County PA HomeOwners: