I want to buy a home in Pittsburgh, Pennsylvania in the next few months, but there isn’t anything for sale in the neighborhoods that I like. However, there are a few homes in foreclosure in areas that I’m interested in. A few of the houses look quite nice, from the outside at least. I’ve never purchased property at a foreclosure sale before. If I do, is there any way the former owners can get the house back after the foreclosure, like by catching up on the past-due amounts?
No, the former homeowners cannot get the house back if you purchase it at a foreclosure sale in Pennsylvania. Some other states have laws that provide the former homeowners a certain amount of time after the foreclosure to repurchase or “redeem” the property by reimbursing the party who bought it at the foreclosure sale for the full purchase price (not just the past-due amounts), plus various other costs. However, Pennsylvania has no such law.
While the former owners won’t be able to get the house back after you buy it, the IRS could potentially redeem the home -- but only if there was a federal tax lien on the property at the time of the foreclosure. The IRS doesn't redeem too often, though, so you don’t have to be too worried about this happening if you buy a home at a foreclosure sale.
Also, it is possible that the homeowners could prevent the sale from occurring by redeeming the home before the sale or by working out an agreement, such as a mortgage modification, with the lender. This wouldn’t affect you, obviously, because if this happens the home won’t go to sale and you won’t have the opportunity to buy it.
Foreclosures in Pennsylvania are judicial, which means the lender files a lawsuit in state court in order to foreclose the house. As part of the process, the court will enter a final judgment and then the home will be sold at a foreclosure sale.
The homeowners could potentially redeem the home, so long as they do it before the sale takes place. They would have to pay off the full amount of the unpaid mortgage debt, including costs and fees. However, once the sale takes place, the homeowners lose the chance to redeem.
Redemption before the foreclosure sale rarely occurs, for obvious reasons. A homeowner who is already far behind in his or her mortgage payments would have to quickly come up with sufficient funding to cover the full amount of the loan (plus expenses) to stop the foreclosure. Most foreclosed homeowners aren’t able to make this happen -- that's why they're in foreclosure in the first place.
If there was a federal tax lien on the home before the foreclosure, the IRS could redeem the house after you buy it. Following a foreclosure sale, the IRS gets a 120-day redemption period. However, the IRS doesn’t redeem in very many cases. It would do so only if it thought it could later sell the home for more than you paid at the foreclosure sale.
If the IRS does consider exercising this option, you’ll learn about it when you receive a notice from the IRS informing you that it is thinking about redeeming the house.
Ultimately, you don’t have to worry about the foreclosed homeowners redeeming the home, and it is not especially likely that the IRS would redeem, either. However, there are few other things you should consider if you’re seriously thinking about buying a home through a foreclosure sale.
When you buy a home in a regular sale, you’ll almost always get some disclosures from the current owners. The owners are generally required to let you know about problems, such as a bad foundation, moisture intrusions, or extensive termite damage, before you buy the home. You won’t get these types of disclosures with a foreclosure sale, since the lender doesn’t know much about the history of the house.
In addition, while the house might appear to be in good condition on the outside, the inside could be a complete disaster. Disgruntled homeowners going through a foreclosure sometimes strip the home of anything of value (including light fixtures, door knobs, faucets, and copper plumbing) before they leave. The foreclosing lender probably won’t make repairs and you’ll have to buy the house as-is. (Learn more in Nolo’s Buying Foreclosed Properties area.)