Hello,
I'm looking for some guidance on a defaulted private loan in Pennsylvania.
I'm the first-lien lender on a property in Pittsburgh, PA. The loan has been in default for quite some time, and the borrowers have stopped responding. I had a Notice of Default sent, but I never received a response.
Based on advice from another investor, I'd like to run a current owner/title search to see what liens, mortgages, judgments, or other encumbrances are currently attached to the property before deciding on my next steps.
What is the best way to obtain this information? Can a title company provide it, or is there another service or professional you would recommend? If you've been through a similar situation in Pennsylvania, I'd really appreciate hearing what worked for you.
Thank you!
Ria
@Ria Gupta, I am also in PA. Here are a few thoughts:
1. If you are in 1st lien position, why would you care about other mortgages and judgements? You are you ahead of them in line to be paid.
2. The thing that generally will be ahead of you to be paid is the GOVERNMENT! So, I think IRS tax liens, municipal liens, and estate taxes.
3. For IRS tax liens and municipal liens, I would search the Prothonotary's office in the county the property is in. That is where they should be recorded. Municipal liens in my area are usually for utilities provided by municpal government authorities like garbage and sewer.
4. Estate taxes are a little more nebulous as they are not specifically recorded as a lien to my knowledge. If you find the owner has died, check for an obituary and see who their closest relative was. That should give you a fair idea what tax rate needs to be paid for the estate taxes in PA. The rates are listed on this site:
5. Check property tax payment status! I am guessing that there were no escrowed taxes with your loan. So, you want to make sure that the property isn't headed to tax sale because the owner hasn't been paying taxes.
In PA, after 2 years taxes are delinquent, they can move the property to the 1st state tax sale/auction called the Upset Sale. Luckily, if someone buys the property at that sale, your lien remains in place for the new owner.
However, if the property does not sell at the Upset sale, the following year it generally goes to the Judicial Sale (Free & Clear Sale) where you lien would be wiped away! If that were happening, the tax claim bureau should be contacting you, but its a messy process so that may not always happen as it should. So, definitely check the status of the property taxes.
6. Since you are at the point where the owner is unlikely to pay, I would take all my research and hire a real estate lawyer to move to foreclose on the property. I would not try to handle it myself.
However, I would do this leg work ahead of time so that I could provide that to the lawyer and have a dialog with them with information in hand about the status of the property.
@Ria Gupta, I am also in PA. Here are a few thoughts:
1. If you are in 1st lien position, why would you care about other mortgages and judgements? You are you ahead of them in line to be paid.
2. The thing that generally will be ahead of you to be paid is the GOVERNMENT! So, I think IRS tax liens, municipal liens, and estate taxes.
3. For IRS tax liens and municipal liens, I would search the Prothonotary's office in the county the property is in. That is where they should be recorded. Municipal liens in my area are usually for utilities provided by municpal government authorities like garbage and sewer.
4. Estate taxes are a little more nebulous as they are not specifically recorded as a lien to my knowledge. If you find the owner has died, check for an obituary and see who their closest relative was. That should give you a fair idea what tax rate needs to be paid for the estate taxes in PA. The rates are listed on this site:
5. Check property tax payment status! I am guessing that there were no escrowed taxes with your loan. So, you want to make sure that the property isn't headed to tax sale because the owner hasn't been paying taxes.
In PA, after 2 years taxes are delinquent, they can move the property to the 1st state tax sale/auction called the Upset Sale. Luckily, if someone buys the property at that sale, your lien remains in place for the new owner.
However, if the property does not sell at the Upset sale, the following year it generally goes to the Judicial Sale (Free & Clear Sale) where you lien would be wiped away! If that were happening, the tax claim bureau should be contacting you, but its a messy process so that may not always happen as it should. So, definitely check the status of the property taxes.
6. Since you are at the point where the owner is unlikely to pay, I would take all my research and hire a real estate lawyer to move to foreclose on the property. I would not try to handle it myself.
However, I would do this leg work ahead of time so that I could provide that to the lawyer and have a dialog with them with information in hand about the status of the property.
Thank you for taking the time to write such a detailed and helpful response. I really appreciate you sharing your knowledge.
Your point about government liens and delinquent property taxes is especially helpful. I hadn't realized the distinction between the Upset Sale and the Judicial Sale in Pennsylvania, so that's definitely something I'll be looking into.
I will try to gather as much information as I can before engaging a Pennsylvania real estate attorney to proceed with foreclosure.
One question: since the borrowers have stopped communicating, is foreclosure essentially the only practical way for me to gain control of the property as the first-lien lender, or are there any other options I should be considering in Pennsylvania?
Thanks again for pointing me in the right direction. Your insights have been very valuable.
@Ria Gupta, a few thoughts on possible ways to remediate the situation short of foreclosure:
1. Go to the door and knock! If you are local, that may be an option or if you have anyone who is local who can do that for you. It would be good to have someone go to the door simply to see if they are still living there. Sometimes people abandon a place before its gets foreclosed on.
2. Send more letters to them (not certified), explain to them that its in their best interest to communicate and cooperate to resolve the issues.
3. If they communicate, you might be able to rework the loan. Even re-amortizing the debt to stretch out the payments might make it much more affordable to them and encourage them to start paying again.
4. If the debt is so much that they are likely to let the house get foreclosed on, the last ditch option might be a "friendly foreclosure" aka deed in lieu of foreclosure where the owner simply gives you a deed and walks away so that you do not have to spend the time and money to foreclose.
5. With a "friendly foreclosure" you might even offer to PAY THEM to do that. Look at what it will cost you to foreclose on them, paying them a couple thousand may be cheaper and help them get moved out and for someone struggling that is the kind of incentive that can make a difference. Think of it as being similar to the "Cash For Keys" strategy landlords sometimes use instead of evicting.
Interesting situation. I’m curious to see what experienced lenders recommend here. Out of curiosity, what made you choose a private lending structure for this deal in the first place?
Hi @Kevin Sobilo,
I wanted to thank you again for your advice.
Unfortunately, I'm not local to Pittsburgh, so going to the property myself isn't an option, and I don't really know anyone local who could do that for me.
I've reached out to the borrowers multiple times without success, but your suggestion about a deed in lieu of foreclosure is very interesting. I hadn't considered that as a potential option if they become willing to communicate.
The owners/borrowers are on social media, and they appear to be active and doing well. This was an investment property, so they were never expected to live there.
I've been working through the due diligence you recommended, and it's already been very helpful. So far, I've confirmed that my mortgage is recorded, the property taxes have been unpaid since 2024. Based on your initial response, does this mean there could be an Upset sale? Is this good or not so good :) ?
Also, there are several Magisterial District Court cases filed by the Commonwealth related to the condition of the property, some are inactive and there is one active case with a trial scheduled in a few weeks.
Thanks again!
@Ria Gupta, you're very welcome. Happy to try to help.
1. So, this was an investment property loan and they ended up making it their primary. Many loans allow a change of use after a period of time. More often people buy a primary residence and then convert it to an investment because conventional conforming loans, FHA, VA, etc are great loans often with low down payments, no prepayment, good fixed rates etc.
2. Yes, you should check the county's tax claim bureau website to see if the property was included in a tax sale this year. Perhaps even call the office to check.
With the 1st stage aka Upset Sale, your lien would stick with the property. So, the new owners would be obligated to pay it or risk foreclosure. Often if the liens on the property are too significant, the property will simply go unsold at this 1st stage sale.
3. So, it sounds like the municipality is enforcing against them because of the property's condition. This is becoming more common in PA the last 10 years.
In my area mostly there are municipal citations where the owner can fight them in court if they choose. Its pretty uncommon to fight these citations/tickets in my area though.
4. What I would be concerned about with a court action is if the municipality is looking to take more aggressive action such as tear the property down. Since you are not local, you probably would not know if the property had been marked "uninhabitable" or "condemned".
If the condition is this poor, THAT could be why the owners are not communicating. They may have determined the property is worth LESS than what is owed at this point factoring in the condition.
5. Considering the municipal action, I would probably try contacting the code enforcement department and ask them what is going on with the property. If this is a problem property for them, they would probably welcome you foreclosing because they turns the property over to a new owner who would hopefully remedy the issues without the municipality having to go through the time and expense to enforce much further.
6. One other option you may consider in a case like this is selling the non-performing note. There are investors who buy those and take on this sort of problem. Of course you would be selling at a loss, but given the costs and work to foreclosure that is somewhat of a given at this point ESPECIALLY if the property is worth considerably less than what's owed.
7. In case you aren't familiar with a judicial state foreclosure. The court will order the sheriff to auction off the property but then to make sure the property doesn't sell for an unfairly small amount, the moving party (YOU) would typically send a lawyer to bid on your behalf.
Auctions typically start with your lawyer giving what's called the "upset price" which is an unofficial indication of the maximum bid you would make on the property. So, for example, if $100k is owed on the property and you think its worth maybe $80k, you might give an upset price of $60k knowing the costs involved if you end up owning the property and have to resell it to recoup your money.
Then the real bidding begins. If a bidder is willing to bid over $60k, they generally start the bidding there, but often times nobody bids because they were not willing to pay over $60k, in which case you end up buying the property for the minimum bid which simply covers the auction costs etc.
Then you are stuck with trying to resell the property, which may require cleaning it out etc. So, its an involved process especially from a distance.