It is not uncommon in a commercial credit transaction to have a loan to a business which is guaranteed by the principals and secured by a mortgage on the principals’ residence. When a default occurs, the creditor must choose how to proceed to collect, usually either by confessing judgment on the note or filing an action in mortgage foreclosure. Confessing judgment is highly efficient (see my previous blog on The Utility of Confessed Judgments) – it allows for an instant lien against all real property owned by the defendant in the county in which judgment is confessed. It further allows for execution against all types of property – personal property (bank accounts, cars, etc.) and real property owned by the judgment-debtor, even if the creditor does not have a mortgage on the real property.
Confessing Judgment On The Note
OR
Filing An Action In Mortgage Foreclosure
However, if the creditor is going to specifically target “residential real property” as the source of payment of the judgment, the creditor may gain nothing by confessing judgment. This is because when executing on a confessed judgment against residential real property (defined in Act 6 as “real property located within this Commonwealth containing not more than two residential units or on which not more than two residential units are to be constructed and includes a residential condominium unit”), the creditor must first file an action to conform its confessed judgment prior to obtaining a writ of execution. The action to conform is a de novo action, meaning that the defendant may raise defenses in the conform case, even if defendant ignored the confessed judgment for years or waived those defenses by failing to include them in a previous petition to open.
If the creditor wants to specifically pursue a sheriff sale of residential real property, the creditor may be better served by initially filing an action in mortgage foreclosure. Once suit is filed, normal timelines can be expected for service on defendant and filing of default judgment if the defendant does not file any responsive pleading. One advantage of a mortgage foreclosure over an action on the note is that a mortgage foreclosure case has extremely narrow grounds for counterclaims by defendants. Also, there is no right to a jury trial in a mortgage foreclosure action. There is no such ban on jury trials on actions under the note, unless the defendant waived the right to jury trial in the note itself. An uncontested mortgage foreclosure action with no service issues takes approximately six months to complete in Pennsylvania, from the date of filing the complaint.
If you are a creditor who needs assistance deciding whether to proceed with an action on a note vs. a mortgage foreclosure action, the law firm of Unruh Turner Burke & Frees, P.C. may be able to assist you.
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