In every homebuyer's journey, there's a point where they ask themselves if they should buy a foreclosure and save some money. With median Pennsylvania home prices up 10.70% in the past year and mortgage interest 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, as there are many pitfalls and rules that come with buying foreclosures.
Fortunately, Clever Real Estate can connect you with a local agent with expertise in buying foreclosures in Pennsylvania. Not all agents have experience with foreclosures, so this gives you a huge one-up on the competition. Plus, you can also earn a cash-back bonus when you purchase a qualifying home.
What is a foreclosed home?
When a homeowner fails to pay their mortgage or debts which use the house as collateral, the lender can take possession of the borrower's home to compensate them — 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 on.
A foreclosure auction takes place when the property has officially been foreclosed on 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.
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 more quickly. In fact, most REO departments won't even consider your offer without a pre-approval letter.
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.
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 with experience with foreclosures can make all the difference. They 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 could mean being the first person able to put in an offer on a property with great potential.
Talk to a Clever agent today to see what they can do to help you navigate the foreclosure process and find your dream home.
3. Find foreclosed homes in Pennsylvania
We recommend most buyers stick to pre-foreclosures and REOs in Pennsylvania. The processes for buying these properties are more similar to traditional home purchases.
You can find pre-foreclosures and REOs on the local MLS (e.g., PennLive MLS), as well as real estate sites like RealtyTrac, Zillow, and Realtor.com. For government-owned foreclosures, you can look on the HUD home store.
On the other hand, 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 your hand at an auction.
4. Tour foreclosures in person
If you decide to stick with pre-foreclosures and REOs, one major benefit is the ability to see it in person — auctioned properties are usually bought site unseen and as-is.
When touring a property, you'll want to look for any red flags that rule out this property. 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 give 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, you should probably have a contractor come out with or after your visit to provide an assessment of how much work they think needs to be done and what it will 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 are 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. Working with an experienced agent can help you effectively navigate this process.
REOs will usually have specific guidelines regarding terms and how to make an offer.
It's a major benefit, and often a requirement, to have a pre–approval letter included with your offer for both pre-foreclosures and REOs. These show 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 will 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 is extremely important that you protect yourself from additional risk. Getting the property inspected and conducting a title search are two of the most effective ways to do that, as 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.
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.
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 up to 0.5% cash back at 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.
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 situation to negotiate lower sale prices.
✅ Room to build in equity
Since many foreclosures have issues or have been neglected in some way, there's often an opportunity to build in equity by renovating or repairing the home.
For example, you might buy a foreclosure for $150,000, 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 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 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 pre-foreclosures could allow you to get a property for a discount, but you 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 to be repaired. 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 homebuyers feel like they're taking advantage of someone else's misfortune when they buy a foreclosure. In this case, the 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 them 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 visiting 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 headache 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, as auctions can be risky and cash-intensive.
In Pennsylvania, the pre-foreclosure process cannot 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 a longer timeframe 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 the risk of buying site-unseen homes at an auction. That said, there can be significant delays in dealing with REOs, so these are not for buyers who are in a hurry.
Since REOs have failed to sell either in the pre-foreclosure or auction stages, it is likely there is something wrong with them. You should approach these with the expectation of having to do some work on the property.
If you're ready to tackle a real fixer-upper, Home Advisor can connect you with top local professionals for any home project.
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.
That said, there is 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, as those are more likely to close quickly and allow for conventional financing.
Buyers who want a standardized 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 on, 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.
Consider talking to one of Clever's recommended agents to see how they can help you find and buy your next home.
Why trust us?
Clever always tries to provide the most up-to-date, accurate, and useful information available for our readers. We have done extensive research to locate and verify this information, and we have also consulted one of our top agents who has experience buying foreclosures in writing this piece.
The author, Alex Long, has been investing in residential real estate since 2016 and has bought homes in various states across the U.S. during that time.
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 can find foreclosures foreclosures and pre-foreclosures on sites like Foreclosure.com, RealtyTrac, and Zillow, as well as on the MLS, by searching with foreclosure filters.
Foreclosure auctions in Pennsylvania are listed on the county sheriff's website, as well as auction.com and local newspapers.
For many buyers, feeling like they're profiting from someone else'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.
This can vary a lot, but if you're buying a pre-foreclosure or REO with conventional financing, you'll need an inspection and appraisal, so closing will take at least 30-45 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.