Foreclosure is a legal process that allows a lender to recover the outstanding balance on a mortgage loan by selling or taking ownership of the property that secures the loan. While foreclosure can be a complex and stressful process, there are several misconceptions about it that can cause unnecessary anxiety for homeowners facing financial difficulties.

1. Foreclosure is unavoidable

First and foremost, it is important to understand that foreclosure is not an inevitable outcome. If you are struggling to make your mortgage payments, you have options to avoid foreclosure. These options may include loan modification, short sale, or deed in lieu of foreclosure. A knowledgeable attorney can help you explore these options and choose the best course of action to protect your interests.

2. A mortgage foreclosure is a rapid process

Another common misconception about foreclosure is that it happens overnight. In fact, the foreclosure process in Pennsylvania can take several months or even years to complete. During this time, you may have the opportunity to negotiate with your lender, file for bankruptcy, or sell your home to avoid foreclosure.

3. A foreclosure will ruin my credit

Many homeowners also believe that foreclosure will ruin their credit forever. While foreclosure can have a negative impact on your credit score, it is not a permanent mark on your credit report. With time and responsible financial management, you can rebuild your credit and move forward from this difficult experience.

Foreclosure is not inevitable

Foreclosure is a serious issue that can cause a lot of stress and anxiety for homeowners facing financial difficulties. It is important to remember that with time and responsible financial management, you can move forward from this difficult experience.

Property owners are responsible for paying their property taxes in Pennsylvania. When they fail to do that, a house can be put up for sale through a public auction. Homes sold in this way are often let go for a fraction of what the property’s price would be if secured via a private sale.

If a property doesn’t sell at an auction because of liens that exceed the property’s value or any other reason, the judicial tax sale process will start. Understanding the basics of this process may help buyers to decide if this is a viable option for investing in a property that is being sold in this way.

The judicial tax sale process

Judicial tax sales in Pennsylvania are conducted under the Real Estate Tax Sale Law, which is a more rigorous process compared to the upset tax sale. The judicial process is initiated after a property fails to sell at an upset tax sale, primarily due to existing liens that exceed the property’s value.

A court order must be obtained for a judicial tax sale, and all parties with an interest in the property are given notice. This legal proceeding ensures the removal of most liens and encumbrances on the property, making it a potentially cleaner title for the buyer compared to properties bought at upset tax sales.

Potential for a clean title

One of the main attractions of buying property at a judicial tax sale is the possibility of acquiring a property with a clean title. Because the sale is court-ordered and involves a legal process to notify all interested parties, many liens that might encumber the property are cleared. Buyers should be aware that not all encumbrances, such as certain federal liens or property covenants, are automatically eliminated.

Right of redemption

Buyers should know that, in Pennsylvania, there is a right of redemption for original property owners. This means that after a property is sold at a judicial tax sale, the original owner may have the opportunity to reclaim their property by paying the sale price, plus additional costs and interest, within a specific timeframe.

Conducting thorough due diligence by reviewing a property’s title history and seeking assistance from a legal representative familiar with real estate law is a good idea when purchasing property in this way. This may help a buyer to determine if this option is a good fit for their needs.

Upset sales are a unique feature of Pennsylvania’s property tax enforcement strategy. This approach is designed to recover unpaid property taxes, municipal claims and certain other debts without erasing existing liens or mortgages on a particular property owned by someone who is in debt. 

If you are looking to purchase a property that is subject to an upset sale, it’s important to understand what you’re getting into. While these properties can be good investments, there are risks attached to them that aren’t factors in more traditional real estate purchase scenarios. 

What are upset sales?

An upset sale is a public auction where properties affected by delinquent taxes are sold to the highest bidder. The term “upset price” refers to the minimum bid for a property, which typically includes the amount of unpaid taxes, accrued interest, penalties and any other charges the property owner has accrued. 

Unlike other types of tax sales, such as judicial sales, upset sales do not clear the title of a property. This means that any existing liens, mortgages or encumbrances remain in place, and the buyer will be held responsible for them going forward. If you purchase a property that is classified as an upset sale, your legal and financial burdens may be much greater than they would be normally. Therefore, only if the purchase price is sufficiently low is buying an upset sale property potentially a good investment. 

Buyer considerations

Under state law, property owners are granted until the day before an upset sale to pay their debts in full, including all taxes, interest, penalties and fees, to prevent their property from being auctioned. Partially because property owners are tied to their property up until the day before a sale, their financial situation can impact the burdens placed upon a potential buyer until that time. It isn’t always easy to know what obligations are attached to an upset sale property at the time of sale, as something new may have developed only days before. 

As such, potential buyers at an upset sale need to conduct thorough due diligence before participating. This includes researching the property’s title to understand any liens or encumbrances that will not be eliminated by the sale. It’s also advisable to physically inspect the property, as properties are sold “as is,” and there may be issues that could affect the value or usability of the property.

Given the complexities of upset sales and all that is at stake, it is generally a very good idea for potential buyers of upset sale properties to seek legal guidance before committing to a purchase.