Despite Court Orders and the just passed Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), in Pennsylvania lenders on mortgages that are not “Federally Backed” may still file and serve mortgage foreclosure complaints, default judgments and writs of execution so that properties are ready for Sheriff’s sale when Sheriffs reopen to sell properties.
The CARES Act provides that through May 17, 2020 there is a moratorium on foreclosure actions on “Federally Backed” Mortgage Loans and on service of non-judicial notice of intent to foreclose. Also, a borrower who affirms financial hardship due to the COVID-19 emergency shall be granted a forbearance of up to 360 days.
I. The CARES Act’s prohibitions only apply to Federally Backed Mortgage
Mortgage foreclosures are dealt with in the CARES Act in TITLE IV, Subtitle A, Sections 4022 (1 to 4 families) and 4023 (more than 4 families). This report deals with Section 4022 and not Section 4023.
CARES Act Section 4022 applies only to federally backed mortgage loans. Under the CARES Act, a “federally backed mortgage loan” is secured by a lien on real property with 1-4 families insured, guaranteed, made, purchased or securitized by the FHA, Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association or other federal agencies (“Federally Backed Mortgage Loan”).
II. For Federally Backed Mortgage Loans, there is a Moratorium through May 17, 2020 on Foreclosure Actions and Notices of Intent to Foreclose
The CARES Act Section 4022 (c)(2) provides that a servicer of a Federally Backed Mortgage Loan may not initiate “any judicial or non-judicial foreclosure process,” move for a foreclosure judgment, sale order or eviction through May 17, 2020. That stays Foreclosure actions and service of Notices of Intent to Foreclose. A Notice of Intent is required in Pennsylvania before a mortgage foreclosure complaint can be filed. It is a step in the process of mortgage foreclosure and therefore forbidden through May 17, 2020.
III. The CARES Act Provides Forbearance for Borrowers who Affirm Financial Hardship Due to COVID-19
It is not difficult for a borrower to receive forbearance from a mortgage servicer. A borrower may submit a request to the servicer for forbearance for financial hardship due, directly or indirectly, to the COVID–19 emergency. The CARES Act Section 4022 (c)(1) provides that a servicer upon receiving a request for forbearance “shall with no additional documentation required other than the borrower’s attestation to a financial hardship caused by the COVID–19 emergency and with no fees, penalties, or interest…provide the forbearance for up to 180 days.” (Emphasis added). That may be extended for up to an additional180 days at the request of the borrower.
IV. Mortgage Foreclosure in Pennsylvania State Courts
Today April 1, 2020, the Pennsylvania Supreme Court extended the closure to the public of all Pennsylvania state courts through April 30, 2020. The state courts, however, are accepting filing of complaints and process servers are open for business and serving complaints on defendants.
The Pennsylvania Supreme Court orders do not prohibit mortgage foreclosure complaints, default judgments and writs of execution requesting placement on a Sheriff’s sale list. The Court ordered the following restrictions during the “emergency period:”
no officer, official, or other person employed by the Pennsylvania Judiciary at any level shall effectuate an eviction, ejectment, or other displacement from a residence based upon the failure to make a rent, loan, or other similar payment.
Nothing herein is intended to preclude requests for orders of possession resulting from judgments entered in landlord-tenant actions to be filed by mail. However, any execution on an order of possession is stayed to a date on or after April 3, 2020, subject to further orders.
The limitations apply to acts that remove a person from residence and not acts prior to the actual eviction. The clause specifically allows for filing a request for order of possession and the stay only applies to the final act of the court executing the order of possession.
The acts of filing a complaint, taking a default judgment (which occurs often) and filing a writ of execution to place the property on Sheriff’s sale list do not remove a person from a residence. Those acts are not forbidden.
At this time a property cannot be sold at a Sheriff’s sale because Sheriff’s sales have been postponed. Lenders, however, at this time may accomplish the prerequisites for such sales and the property will be placed on the Sheriff’s sale list once those sales start again. Note that in the Court of Pleas of Philadelphia there is an additional step that cannot be accomplished now because required conciliation conferences between lender and borrower have been postponed.
I. Mortgage Foreclosure in Pennsylvania Federal Courts
In Pennsylvania, usually foreclosure actions are filed in state court and not federal court. State courts and Sheriffs have more experience handling mortgage foreclosure sales than federal courts and federal Marshalls. To file in federal court the lender has to prove jurisdiction- either diversity (plaintiff(s) and defendant(s) are citizens of different states) or the case involves a question of federal law (not present in standard foreclosure case). The additional step of litigating jurisdictional issues may delay the case and the sale of the property.
Generally, filing in state court remains the best option. If at some point it turns out that the COVID-19 pandemic causes more severe delays in the state courts than the federal courts, filing in federal court should be considered in cases where it is clear that the court would have jurisdiction.
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