Foreclosures in Pennsylvania

Foreclosure Review

• Mortgages are the only form of security instrument recognized in Pennsylvania.
• Mortgages must be foreclosed judicially.
• Judicial foreclosure of mortgages in Pennsylvania differs in several ways from judicial foreclosure in other states.
• Review of a judicial foreclosure requires review of the docket of the foreclosure action and some of the filings. Key documents are:
  • The court docket
  • The Complaint and any amended complaints
  • Any Sheriff returns of service
  • The Judgment of Foreclosure
  • The Writ of Execution
  • The 3129 Affidavit and any supplements thereto
  • NOTE: This list does not cover all of the requirements to ensure a valid foreclosure, but the basics that should be reviewed by a title examiner.
• Foreclosure is commenced with a Complaint filed at the county level in the Court of Common Pleas.
  • The Complaint must name as party defendants any parties who signed the mortgage as mortgagors and the record or real owners of the property. If the mortgagor is deceased, the personal representative, heir or devisee of the deceased party must be named. A mortgagor that is no longer a record owner may be left out as a defendant if the appropriate language is included in the Complaint releasing such person from liability. See Pa. Rule of Civil Procedure 1144.
  • The Complaint must name the IRS/USA or any branch of the federal government required to be named as a party defendant per federal law.
  • Other junior lien holders do not need to be named as party defendants but must be served with notice of the foreclosure and sale (see below).
  • Senior liens cannot be discharged in a foreclosure.
• Note that no Lis Pendens document is filed in the public records for a foreclosure even though it is commonly done with other lawsuits affecting real property in Pennsylvania. Any Lis Pendens filed in a foreclosure action will not have any effect on third parties.
  • Liens filed by other junior lien holders after the Complaint will still attach to the property.
  • Foreclosure attorneys will need to obtain updated foreclosure searches in order to serve additional parties until the Writ of Execution is filed in the case.
  • Once the Writ of Execution has been filed, any junior lien holders filing after that date are not entitled to service of any notices.
• Initial service on any party defendants must be done personally unless otherwise allowed by the rules of civil procedure.
  • Typically initial service will be done by the county Sheriff.
  • Service can be verified by reviewing the docket, or, if the docket is not clear, by reviewing the completed writs of service in the case file.
  • Once initial service has occurred, service of notices is done on party defendants by certified mail and posting the property.
• Service on any junior lien holders who are not party defendants must be by certified mail.
  • Service is typically handled by the foreclosure attorney.
  • Service can be verified by reviewing the 3129 Affidavit filed by the foreclosure attorney which usually includes copies of the certified mail receipts.
  • There may be multiple 3129 Affidavits in each case file due to junior liens being filed against the property prior to the Writ of Execution (see above).
• Failure to name and serve any party defendants may invalidate the foreclosure.
• Failure to serve any junior lien holders will result in their liens surviving the foreclosure.
• NOTE ON 3129 AFFIDAVITS: The Rules of Civil Procedure require notice on all junior lien holders including for liens that cannot be discharged by foreclosure such as real property taxes. As a result, the 3129 Affidavit must show service on these parties. Do not assume that because a party was given service in the foreclosure that the lien will be discharged at the conclusion of the foreclosure. Also, in an abundance caution, many foreclosure firms will name all governmental and other entities that could potentially have liens on the property even if no liens are found in a title search. Do no be surprised to find service on several branches of state and local government that do not have any liens of record.
• Once a Judgment of Foreclosure has been entered by the court, a Writ of Execution can be issued.
• Once the Writ of Execution has been issued, the property can be schedule for Sheriff Sale.
• Properties are sold publicly at Sheriff Sale in the county courthouse each month. Anyone may bid including the "attorney on the writ" who represents the foreclosing lender.
• There is no right of redemption in any parties once the sale has been completed except for those given for federal liens.
• Once the sale is finalized, the Sheriff's office will prepare a deed, sometimes called a "Deed Poll" to convey the property to the winning bidder.
• Title becomes vested in the purchaser at the foreclosure sale when the Sheriff's Deed is recorded. This may take several months in some counties.
• Actions to eject holdover tenants including the foreclosed borrowers must be pursued in a separate action from the foreclosure. The civil court records in the Prothonotary or its equivalent must be checked even after foreclosure has been completed to ensure that there are no pending ejectment actions.

Federal Liens

Senior Federal Liens

Federal liens which are recorded prior to the mortgage cannot be divested by foreclosure unless expressly agreed to by the federal government. See 28 USC 2410(c). There is an exception for federal tax liens and purchase money mortgages: If a federal tax lien is recorded against a grantee prior to obtaining the property, that federal tax lien attaches to the after-acquired property. However, if the grantee obtains a purchase-money mortgage to obtain the property, the purchase-money mortgage takes priority over the previously recorded federal tax lien in relation to that property. See IRS Publication 785 (10-2005). So if a purchase-money mortgage is foreclosed, it may divest a "senior" federal tax lien if the procedure below is followed.

Junior Federal Liens

If a federal lien is filed after the foreclosed mortgage was recorded, or the lien is considered junior to a purchase-money mortgage or through subordination, the United States must be made a defendant to the mortgage foreclosure action under 28 USC § 2410 in order to divest the federal lien. This is unusual under Pennsylvania law where other lienholders are not made party to the action. In addition, these requirements must be followed:

• The Complaint shall set forth with particularity the nature of the interest or lien of the United States;
• If it is an IRS lien, the complaint shall include (1) the name and address of the taxpayer whose liability created the lien and, (2) if a notice of the tax lien was filed, the identity of the internal revenue office which filed the notice, and the date and place such notice of lien was filed;
• Service of the Complaint must be made on both (1) upon the United States attorney for the district in which the action is brought or upon an assistant United States attorney or clerical employee designated by the United States attorney in writing filed with the clerk of the court in which the action is brought and (2) by sending copies of the process and complaint, by registered mail, or by certified mail, to the Attorney General of the United States at Washington, District of Columbia;
• The USA is given 60 days to file an answer
• If the lien is an IRS lien, the USA has 120 days from the sale to redeem the property;
• For all other federal liens, the USA has 1 year from the sale to redeem the property.

Redemption is unique to the federal government, or otherwise expressly provided by statute (such as certain tax sales), as Pennsylvania law does not recognize a general right of redemption after the "fall of the hammer" in a mortgage foreclosure sheriff's sale.

Federal Tax Liens filed during Mortgage Foreclosure Action

If a federal tax lien is filed during a mortgage foreclosure action, the action will divest the lien according to local law. See 26 USC § 7425; Tres. Reg. § 301.7425-1(c); Internal Revenue Manual 5.17.5.19.1). Therefore, the procedure of 28 USC § 2410 does not need to be followed. However, Notice of the Sheriff's Sale must still be sent as though the federal tax lien were like any other junior lien on the Property.

COVID-19 Moratoria

Federal

CARES Act

March 20, 2020 - July 31, 2021

• Applies to federally-backed mortgages
• Excepts vacant/abandoned properties

See WFG Underwriting Bulletin NB 2021-02 (March 12, 2021)

CFPB Final Covid Rule

August 1, 2021 - January 1, 2022

• Technically effective August 31, 2021, but some servicers, such as FNMA and FHLMC, began complying on August 1 to avoid gap from CARES Act
• Applies to most servicers
• Applies to loans secured by principal residences (i.e. not investment properties or 2nd homes)
• Does not apply to reverse mortgages
• Excepts mortgages that were more than 120 days in default prior to March 1, 2020
• Excepts cases where Statute of Limitations would expired before January 1, 2022
• Can proceed if certain safeguards are met (proof may not be available from docket and may require supporting documentation directly from the foreclosure attorney or the lender)

See Final Rule under RESPA Regulation X

Local

Delaware County

March 20, 2020 - April 16, 2021

By various Emergency Court Orders, all Sheriff's Sales were postponed from March 20, 2020 until April 16, 2021. New Notice under 3129.2 was specifically NOT required.

See Orders listed on Sheriff's website.

Philadelphia County

March 17, 2020 - August 31, 2021

By administrative Orders, in residential mortgage foreclosure actions, where the Sheriff's Sale was originally scheduled between March 17, 2020 and August 31, 2021, a special Motion must be filed to obtain Court permission to proceed to sale after September 1, 2021. The Motion should set forth the basis why the Property does not fall under a moratorium. The Motion and Order should be reviewed. Ostensibly, sales originally scheduled for after September 1, 2021 (or sales that were stayed and then re-scheduled after September 1, 2021 by filing of a new Writ of Execution) were not subject to this procedure, but the action may otherwise violate a local, state, or federal moratoria (such as the filing of the Complaint or entry of Judgment).

See Admin. Orders 18, 20 of 2021.