What is a foreclosed home? | Pros and cons | Stages of foreclosure | Pennsylvania foreclosure laws | Should I buy a foreclosure? | FAQs
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As a home buyer, you might ask yourself if you should save some money and buy a foreclosure. With median Pennsylvania home prices up 5.44% in the past year and mortgage rates on the rise, finding an affordable foreclosure seems increasingly appealing.
Buying a foreclosed home in Pennsylvania could be a great opportunity, especially for flippers looking to cash in on increasing home prices. That said, you need to know what you're doing, because there are many pitfalls and rules that come with buying foreclosures.
⚡ Just looking for foreclosed homes in Pennsylvania? Gain instant access to local listings before they hit the market on Foreclosure.com!
How to buy a foreclosed home in Pennsylvania
1. Get pre-approved for financing
The first step a buyer should take when buying a foreclosure is lining up financing.
Whether you're interested in pre-foreclosures or REOs, being pre-approved and having a Proof of Funds letter will make your offer more competitive and allow you to close faster. In fact, most REO departments won't even consider your offer without a pre-approval letter.
Securing financing for a pre-foreclosure or REO is very similar to the process for a traditional property. It's important to schedule the pre-foreclosure sale before the foreclosure deadline. For professional help with foreclosure financing, fill out information about your purchase using Quicken Loans' automated tool.
For down payment assistance in Pennsylvania, the PA Housing Finance Agency has several options you might qualify for, such as the Keystone Advantage, K-FIT, and HOMEstead programs.
Generally, traditional financing is not an option for foreclosure auctions, so you'll need to either borrow from a hard money lender or use cash. Most buyers use their own cash at auctions because of the steep interest rates of hard money loans.
2. Hire a top Pennsylvania realtor with foreclosure expertise
Buying a foreclosed home in Pennsylvania can be a complicated process. That's why hiring an agent experienced with foreclosures can make all the difference. They'll help you navigate the additional risks, effectively negotiate with motivated and distressed sellers, and avoid missing important deadlines.
It's also possible your agent will have a relationship with REO departments of local lenders or other entities who deal with foreclosed homes. Having the inside track means you could be the first to put an offer on a great property.
Looking for a realtor who specializes in foreclosures? Clever can match you with experienced local agents who'll help you find the right property and get a great deal. You can also get cash back when you close on your Pennsylvania property.
Requesting agent matches is free, and there’s no obligation. Just complete the form below to get agent recommendations sent straight to your inbox!
3. Find foreclosed homes in Pennsylvania
We recommend that most buyers stick to pre-foreclosures and REOs in Pennsylvania. The process for buying these properties is more similar to traditional home purchases.
The best way to find foreclosed homes in Pennsylvania is through a service like Foreclosure.com. You'll get direct access to local foreclosure listings before they hit the mass market!
There are also free options for finding foreclosures, but often these sites are unreliable or provide out-of-date information.
Pre-foreclosures and REOs are generally listed on the local MLS (e.g., PennLive MLS). Only licensed real estate agents have access to the MLS, but you can ask your agent to alert you before the properties are syndicated to popular real estate sites. If you need an agent with experience in foreclosure sales, Clever can match you with top agents in your area. Enter your zip code here to get started!
If you're experienced in real estate, have substantial cash reserves, and are willing to take the risk of buying a home site unseen, you might try an auction.
You can find auctions listed in the real estate or legal notices section of your local newspapers or by searching "foreclosures" on pa.publicnotices.com and auction.com.
4. Tour foreclosures in person
If you decide to stick with pre-foreclosures and REOs, one major benefit is the ability to see them in person. Auctioned properties, on the other hand, are usually bought site unseen and as is.
When touring a property, you'll want to look for any red flags. These might include significant damage to the foundation, evidence of harmful substances, or multiple distressed properties in the area. You can get an inspection later to get a more comprehensive idea of issues with the property, but this initial visit will tell you if it's even worth pursuing.
If you're an investor, consider having a contractor come with you on your visit or after to provide an assessment of how much work they think needs to be done and what it'll cost. This is crucial for determining the after repair value (ARV) of the home, which can help you determine your potential profit when reselling the home.
» LEARN: More about how ARV works
5. Submit an offer
Making offers on pre-foreclosures and REOs is quite similar to conventional purchases. The major differences? Pre-foreclosures often have distressed sellers who are dealing with losing their home. And with REOs, you're buying from a bank instead of a person. REOs usually have specific guidelines regarding terms and how to make an offer.
For both pre-foreclosures and REOs, it's a major benefit, and often a requirement, to have a pre-approval letter included with your offer. This letter shows the seller you're serious and ready to close.
Auctions are a different experience entirely. Since you probably won't have traditional financing, pre-approval letters won't be a concern. However, you'll need to submit bids according to the auction rules and be prepared to pay within the required timeframe — usually 10 days after the auction.
Buyers should contact the auction's trustee for specific instructions on minimum bids, bid increments, and how to submit offers.
6. Conduct due diligence on the property
When buying a foreclosure in Pennsylvania, it's extremely important to protect yourself from additional risk. Getting the property inspected and conducting a title search are two of the most effective ways to do that, because they'll protect you from most legal and physical issues. Pennsylvania law requires that all home inspections be conducted by a member of the National Home Inspection Association.
» MORE: Learn how inspections work and what happens after
Auctioned foreclosures don't usually allow buyers to get inside the home, let alone have it inspected. Most of the due diligence in auctions involves driving by the property, researching the tax history, and learning about the surrounding area. Ultimately, the discount on these properties is largely the result of the substantial risk buyers take in buying them.
7. Get the home appraised if you plan to finance it
Whenever a lender loans someone money to buy a property, they want assurances that their money is being invested wisely. That's why they usually require a formal appraisal to determine the property's fair market value.
» MORE: Find out what appraisals are and if you need one
If the appraisal comes in low, you'll need to come out of pocket for the difference. For example, if you offer $250,000 for a Pennsylvania home and it appraises at $240,000, then the lender will only finance $240,000. You'll need to cover the remaining $10,000 or renegotiate the sale price.
8. Close on the purchase
Closing on a pre-foreclosure or REO is a lot like conventional purchases — you go to a title company, fill out the paperwork, and pay the seller for the property.
The title company will tell you in advance what's expected from you, but it helps to have an expert on your side to guide you. If you use an agent recommended by Clever, you'll have the peace of mind knowing an experienced agent has your back — and you could even get cash back after closing!
If you purchase a home at a foreclosure auction, you'll usually need to pay your deposit (about 5–20% of the bid) the day of the auction with cash or certified funds and the remaining funds within 10 days.
What is a foreclosed home?
When a homeowner fails to pay their mortgage or debts that use the house as collateral, the lender can take possession of the borrower's home as compensation. This is called a foreclosure.
The term "foreclosure" is often used more generally to apply to a property in any stage of the foreclosure process: pre-foreclosure, auction, and real estate owned (REO).
A pre-foreclosure is when a lender or the government issues notice to a homeowner that they must repay their debt or have their house foreclosed.
A foreclosure auction takes place when the property has officially been foreclosed and the lender or government tries to sell the property at an auction to recoup the money they're owed.
If a property does not successfully sell at the auction, then it becomes a bank-owned (REO) foreclosure.
Pros and cons of buying a Pennsylvania foreclosure
✅ Lower purchase price
The major benefit of buying a foreclosed home is the possibility of getting it for below market value. Most sellers are in a tight place financially, so savvy buyers can leverage that to negotiate lower sale prices.
✅ Room to build equity
Since many foreclosures have issues or have been neglected in some way, there's often an opportunity to build equity by renovating or repairing the home.
For example, you might buy a foreclosure for $150,000 and spend $25,000 renovating it, and it could be worth $190,000 after all the work is done — that's $15,000 of equity you just created!
✅ Fewer title concerns
In many states, concerns over title issues are common when buying foreclosures. Pennsylvania law, however, requires lenders to run a title search to make sure the home is free from other encumbrances before they can request a foreclosure suit. So you don't need to worry about whether the owner of the property has the legal right to sell it to you.
✅ No redemption period
Since Pennsylvania doesn't have a redemption period, you can rest assured that when you buy a foreclosed home, it's yours. Unlike other states, there are no laws in place that allow the previous owner to retake possession of the property.
✅ Win-win scenarios
Buying a pre-foreclosure could allow you to get a property for a discount, but you could also save the seller from having their credit ruined and paying for legal fees — not to mention the stress of being forcefully evicted from their own home.
🚫 Damaged property
Many foreclosures have been vacant or neglected for an extended period, so they may have substantial damage that needs repair. There are also occasions when distressed sellers intentionally damage property on the way out because they're angry about being forcefully removed from their home.
🚫 Ethical concerns
Some home buyers feel like they're taking advantage of someone's misfortune when they buy a foreclosure. In this case, peace of mind outweighs the potential profit you could achieve by purchasing one of these homes.
🚫 Inheriting tenants
Due to the Protecting Tenants at Foreclosure Act of 2009, you're required by federal law to honor the lease for tenants in a property if you buy a foreclosure and intend to rent it out. If you plan to live there, you still need to give tenants 90 days to vacate.
Since Pennsylvania is a judicial foreclosure state, the foreclosure process can experience delays through every stage of foreclosure. For example, auctions can be postponed up to 100 days for a myriad of legal reasons.
🚫 Old homes
Many of the major cities in Pennsylvania are historic cities. This is great for tourists, but it also means a lot of the homes can be quite old, and old homes usually mean more problems. The fact that foreclosures are often neglected only increases the potential headaches with old homes.
Stages of a foreclosure in Pennsylvania
The basic stages of foreclosure in Pennsylvania are pre-foreclosure, auction, and REO property. We recommend that you stick to pre-foreclosures and REOs if you're not a professional investor, since auctions can be risky and cash-intensive.
In Pennsylvania, the pre-foreclosure process can't begin until the borrower has missed at least 120 consecutive days of payments. During that time, the lender must call the homeowner to notify them of delinquency and offer them options to get caught up. After an additional 45 days of missed payments, the lender must also send a letter to the homeowner to the same effect. The foreclosure process begins only if the borrower fails to respond or meet the lender's proposed conditions.
The benefit of this lengthy process is that it gives delinquent homeowners more time to sell their home, which could mean a pre-foreclosure deal for you. Contact a top-quality Clever agent now to seal the deal.
If a property doesn't sell during the pre-foreclosure period, it goes to foreclosure auction. Pennsylvania law requires that all foreclosed properties must go through a public auction before becoming real estate owned (REOs).
Auctions can be held in person (usually at the county courthouse) or online, though online auctions are becoming increasingly popular.
To find details like time, date, and location of the auction, read the description of the auction advertisement, which you can find on your county sheriff's website or on sites like auction.com.
Popular areas for foreclosure auctions include:
Real estate owned (REO) foreclosures
If a property doesn't sell at auction, the lender or government takes possession of the property — these are called REOs.
REOs are good properties for buyers who want to avoid taking advantage of distressed sellers or avoid the risk of buying site-unseen homes at an auction. That said, there can be significant delays in dealing with REOs, so these aren't for buyers who are in a hurry.
Since REOs have failed to sell either in the pre-foreclosure or auction stages, it's likely there's something wrong with them. You should approach these with the expectation of having to do some work on the property.
Pennsylvania foreclosure laws for buyers
The laws governing foreclosures in Pennsylvania are mixed from a buyer's perspective.
Pennsylvania is a judicial state, meaning the foreclosure process takes longer and has more potential complications than a non-judicial state, which could result in your deal falling through.
Due to the Protecting Tenants at Foreclosure Act, investors who buy properties with tenants in place must honor the original lease. Anyone who intends to live in the home must give the current tenants at least 90 days to vacate the property.
Deficiency judgments are allowed in Pennsylvania, which means properties can be sold for less than is owed on them (also called a short sale), but this requires a separate lawsuit to be filed within six months of the deed being transferred to a new owner after a sheriff's sale. So it's possible that you could purchase a property below fair market value, but it's not quite as likely or easy as it would be in other states with simpler deficiency judgment laws.
There's no redemption period in Pennsylvania, and state law requires lenders to ensure a property is free of additional encumbrances before foreclosing, which eliminates a major risk for buyers.
Should I buy a foreclosed home in Pennsylvania?
The decision to buy a foreclosed house or not depends on your circumstances and the type of foreclosure you're interested in.
We recommend buyers who are in a hurry focus on pre-foreclosures, because those are more likely to close quickly and allow for conventional financing.
Buyers who want a standard experience working with professionals should consider REOs as a primary focus. These transactions go slower, but REO departments handle foreclosures all the time and have a tried-and-true method of selling them. These properties are also required by law to have the title checked and cleared before being foreclosed, so there's an additional safety net for buyers.
We recommend you avoid auctions unless you're a professional investor, flipper, or contractor. Auctioned foreclosures usually require substantial cash up front and may need significant rehabbing.
If you decide to buy a foreclosure, we also recommend working with an experienced agent that can help you get the first crack at great opportunities and avoid money pits.
Talk to one of Clever's recommended agents to see how they can help you find and buy your next home!
Why trust us?
Clever strives to provide the most up-to-date, accurate, and useful information available for our readers. We've done extensive research to locate and verify this information, and we've consulted one of our top agents who has experience buying foreclosures.
The author, Alex Long, has been investing in residential real estate since 2016 and has bought homes in various states across the U.S.
FAQs about buying a foreclosed house in Pennsylvania
There are three main stages to foreclosure in Pennsylvania: pre-foreclosure, foreclosure auctions, and real estate owned (REO) foreclosures.
Buying pre-foreclosures or REOs is a lot like buying conventional homes — you find a property, make a written offer, negotiate terms and price, and then close.
Buying foreclosures at auctions requires registering with the trustee, attending the auction, bidding on a property, and paying for it in cash or certified funds.
You'll find foreclosures (and pre-foreclosures) on Foreclosure.com. You can also find them on the MLS by searching with foreclosure filters.
Foreclosure auctions in Pennsylvania are listed on the county sheriff's website, as well as on auction.com and in local newspapers.
For many buyers, feeling like they're profiting from someone's misfortune makes buying foreclosures not worth it, particularly since they may need additional work.
That said, foreclosures can result in below market sale prices and opportunities for sweat equity, so they can be worth it to patient buyers who wait for the right property to come along.
The time it takes to buy a pre-foreclosure or REO in Georgia can vary a lot. If you're purchasing with conventional financing, you'll need an inspection and appraisal, so closing will take at least 30 to 45 days. The foreclosure process itself can take months, but you can shorten that wait time by purchasing during the pre-foreclosure stage.
Auctions can't be scheduled until the foreclosure process is complete, and they can be postponed up to another 100 days after the initial scheduled date. That said, paying for and closing on an auctioned property shouldn't take more than a couple of weeks.
federalreserve.gov. "Protecting Tenants at Foreclosure." Accessed June 28, 2022.