Mortgage Foreclosure Process (continued)
So we have been served with mortgage foreclosure paperwork or notices of an intention to do so in Pennsylvania, now what? We know that “they” are not going to kick in our door and throw us out in the street in the next few days. That is a good start. Knowing that we have some options is also a good start. Obviously, if you have been making your payments or have some other valid defense to the action, a lawyer is needed immediately. But if you haven’t been making payments, you have the following options:
If you can sell your property and have enough money to pay the mortgage off, this avenue is appealing. You will still take a credit hit for nonpayment of the mortgage. But you will be able to close out the mortgage obligation with payment in full. Be advised, even under the best circumstances, selling real property takes time. Once you have a buyer, they usually need to get a loan, which takes even more time. If you are not making your mortgage payments during this period of time, the amount you owe is also increasing. What might be feasible in the beginning of the process may not be by the time the sale rolls around due to these increased obligations.
If you cannot sell the property with enough to cover the mortgage in full, then, in some situations, the bank will accept less money than they are owed and satisfy the mortgage to allow another person to purchase the property. This is called a short sale and is often negotiated by a real estate agent working together with a real estate attorney. This will obviously result in a credit hit as the bank is not being paid in full what you owe them. This may also result in the bank seeking repayment of the deficiency owed from you, although this is almost always negotiated out in the short sale process.
Deed In Lieu of Foreclosure
If a lender is not willing to take less money, perhaps you can negotiate the same result as a short sale without the need for a foreclosure by doing what is generally referred to as a deed in lieu of foreclosure. The process is exactly as it sounds. In lieu of a foreclosure, a deed is drafted transferring ownership of the property to the lender to help them skip the expense of a foreclosure. In exchange for this, some lenders are willing to waive any deficiency they experience in selling the property to recoup their losses. Usually, a reasonable time period for removing all persons and possessions from the property can also be negotiated.
The bank will enter judgment against you and the property. The bank will proceed to levy on the property and then sell the property at a judicial sale. Any deficiency (difference between the amount which was borrowed and the amount which the property sells for, minus costs) can be sought by your lender (not as common on residential loans), or they can issue you a 1099 tax form forgiving the deficiency obligation, allowing the lender to write off the loss you have caused them. You would normally have to include this amount as income on your tax return, however, up through 2016, as long as the property is your primary residence, tax on this figure does not have to be included up to a certain amount.
The process of service of the Complaint through actual sale of your property usually takes months, sometimes years to complete. It is after the actual judicial sale that you will then be served with what is called an Ejectment Action. It is this action that will eventually force you from the property. It is receipt of this notice that starts the hard countdown until you have to be out of the property, usually around 30 days. If you have not received this, then you know you at least have that time. In the meantime, you should be saving as much money as you can which would have been applied to the mortgage to allow a smooth transition when the time to move comes.
Knowing that even in the worst case situation there is a substantial period of time before someone has to remove themselves from the property causes my clients a good bit of relief. Knowing there are multiple options along the way is also very helpful. Perhaps one of these options is better than the other for you.
Count on Mooney
One thing is clear, if you are having issues with your mortgage, do not hesitate to get legal help. Our legal team has decades of experience in complex foreclosure situations. We stand ready to assist you in your time of need and you know you can Count on Mooney, whatever your legal need.
Mooney & Associates has 15 offices spread throughout Central Pennsylvania including: