Commercial lenders in Philadelphia and elsewhere routinely protect themselves by requiring borrowers to secure repayment of the loan by granting a mortgage that gives the lender the power to sell the land if the borrower defaults on repayment of the loan. In times of inflating real estate values, a mortgage usually provides adequate protection to the lender.
But when, as now, real estate values decline after a loan is made, lenders want additional protection, and one of the most common ways to obtain this is by seeking a deficiency judgment against the borrower if the land is not worth enough to pay the loan in full. Obtaining a deficiency judgment is a complex process that requires strict adherence to the real estate laws of Pennsylvania. In a recent real estate dispute arising out of a loan default, the Pennsylvania Supreme Court clarified an ambiguity in the law.
A real estate development group defaulted on a bank loan, but, when the bank bought the property at a sheriff’s sale after foreclosure, it discovered that the land was not worth enough to pay the balance on the loan. The bank then sought a deficiency judgment requiring the borrowers to pay the balance on the loan from their own pockets. The statute requires that any such action be commenced within six months after delivery of the deed to the sheriff’s office.
In this case, the sheriff’s office first delivered a deed containing an inaccurate legal description. Five weeks later, the sheriff’s office delivered a corrected deed to the bank. The bank then commenced its suit for a deficiency judgment; the lawsuit was started within six months after delivery of the corrective deed but not within six months from delivery of the first deed.
The debtors argued that the suit was barred because it was untimely. The state supreme court disagreed, ruling that the erroneous deed could not convey title to the property and that the statute’s deadline depended upon delivery of a valid deed. Therefore, the bank’s petition was timely.
This case may, at first impression, appear to involve only an arcane point of law, but details such as filing deadlines and correct legal descriptions often affect the outcome of real estate disputes involving large amounts of money. Anyone facing such an issue will find consultation with an experienced real estate attorney very helpful. A knowledgeable lawyer can provide an analysis of the case and a useful estimate of the likelihood of prevailing.
Source: The Legal Intelligencer, “Clock Doesn’t Start Until a Corrective Deed Is Recorded,” Frank Kosir, June 28, 2016