According to the Pennsylvania Housing Finance Agency, the Keystone State offers more homeownership assistance programs than any other state in the nation. Many people in Pennsylvania seek out hard money loans to help with purchasing or renovating an investment property or to find an alternative to borrowing from a standard lending institution. Hard money loans often fund much faster than a typical loan offered by a bank or mortgage lender and they can also require less paperwork. If a property owner is willing to use their home or other real estate as collateral, these loans are a popular way to go. Information about foreclosure law, borrower protections, lending regulations and other key issues specifically related to borrowing money for property in the state of Pennsylvania is provided below.
Pennsylvania Foreclosure Laws
Some states allow lenders to foreclose on a property in default without going through the court system. Those are called non-judicial foreclosures and they can move very fast because they are not bogged down by the slower processes associated with working through the courts. But Pennsylvania requires judicial foreclosure. Lenders wanting to foreclose must file suit with the courts and all matters in the process must be managed by the judicial system.
The following notices are required for foreclosure in Pennsylvania:
- Pennsylvania lenders must send a notice of intent to foreclose to the borrower before any foreclosure proceedings may begin.
- The notice of intent must be sent, by first class mail, to the borrower, at their last known address and if different, to the property secured by the mortgage. The notice should not be sent until the borrower is at least sixty (60) days behind in their mortgage payments.
- In the notice, the lender must make the borrower aware that his or her mortgage is in default and that it is their (the lender's) intention to accelerate the mortgage payments if the borrower does not cure the default within thirty (30) days. This means that the remaining balance of the original mortgage will come due immediately.
- If the borrower does not cure the default by paying the past due amount, plus any late charges that have accrued, within the thirty (30) days, the lender may then file a suit to try and obtain a court order to foreclose on the property.
- If the court finds in favor of the lender and issues an order of sale, the property will be sold at a Sheriff's sale under the guidelines established by the court. The borrower has the right to cure the default and prevent the sale at any time up to one hour before the Sheriff's foreclosure sale.
- Lenders have up to six months after the foreclosure sale to file for a deficiency judgment. Borrowers have no rights of redemption once the foreclosure sale is complete.
Property Redemption after Foreclosure Sale
In some states, you can redeem (repurchase) your home within a certain period of time after the foreclosure. In Pennsylvania, foreclosed homeowners cannot redeem the home following a non-judicial foreclosure.
Deficiency judgments are allowed in Pennsylvania. In cases where a foreclosure property is sold in Pennsylvania, but it does not bring in enough money to cover the debt, a borrower will be held responsible for any additional monies owed with what is called a deficiency judgment. If a borrower is assigned a deficiency judgment, they will have to make additional payments to the lender to take care of that remaining debt.
Pennsylvania lenders may obtain a deficiency judgment by filing a separate lawsuit within six months after the foreclosure sale. If the foreclosing party was the purchaser at the foreclosure sale, the deficiency is limited by the fair market value of the property. 42 Pa. Cons. Stat. Ann. §§ 8103, 5522(b)(2).
Deed in Lieu of Foreclosure
Sometimes a lender and borrower can work out an agreement called a Deed in Lieu of Foreclosure. The state of Pennsylvania allows for this kind of agreement where a homeowner can simply turn over possession of the property to the lender and the two part ways or “call it even”. The lender must also agree to the terms but this kind of arrangement can save both parties the time and cost of a full foreclosure process and in some cases, it is possible to negotiate a “cash for keys” settlement where the lender provides a small cash payment to help offset the cost of moving out in return for the easier, less costly process.
Grace Period Notice
Some states have a built in, required grace period for homeowners facing foreclosure. Once a foreclosure process has begun, they have a certain amount of time to make up past due payments and additional fees and then are able to keep their mortgage and their home. Part of the judicial foreclosure process in Pennsylvania provides a sort of grace period, by giving the borrower 30 days from the first filing in the process to catch up on payments. It is not specifically called a "grace period" as in some other states, but the option to make up past due payments and stave off foreclosure is built into the Pennsylvania judicial process.
Protections for Military Personnel
Pennsylvania National Guard members on active state service (and 30 days thereafter) are exempt from civil process (which means they cannot be served with a foreclosure complaint). 51 Pa. C.S.A. § 4105.
High Risk Mortgage Protections
In July of 2002, Pennsylvania law enacted a set of anti-predatory lending laws in order to help protect Pennsylvania homebuyers from predatory lenders. Some of the provisions of this new set of laws include the prohibition of a lender charging points and fees in excess of 6% of the total principal financed amount, the prohibition of a mortgage company issuing a loan to a borrower in an amount that the borrower could not reasonably afford to repay, and the prohibition of the financing of single-premium credit insurance, among others.
Additional State Laws
The maximum legal interest rate on a loan in Pennsylvania is 6%. Regardless of statutory limits on interest rates, consumers regularly agree to waive those limits and pay higher rates by clicking "I agree" online or signing a printed contract. Still, most states have so-called "usury" laws on the books, intended to prevent exorbitant rates. Under Pennsylvania law, creditors may charge up to 6 percent interest on debt.
Pennsylvania is a homestead state. Pennsylvania homestead law is very limited, allowing only a $300 exemption (applicable to any property, not just real estate) for property owned jointly by a married couple.
Lender Licensing Requirements
Mortgage Broker License
This license is required of any business entity who engages in the mortgage loan business by directly or indirectly negotiating or placing loans for others in the primary market for consideration.
Mortgage Consumer Discount Company License
This license is required of a business entity that holds a Consumer Discount Company License and has employees that act as mortgage originators, regardless of the statutory authority under which the Consumer Discount Company is operating.
Mortgage Lender License
This license is required of any business entity who engages in the mortgage loan business by directly or indirectly originating and closing mortgage loans with its own funds in the primary market for consideration.