More good news: a good tenant is out there... they may be your next call or showing.Also, because the application was defective/incomplete (maybe borderline fraudulent) I would say your risk of any later action is low to nil.Best of luck!

I wouldn't hesitate to purchase a home with known defects if the deal was right but depending on what the defects were I wouldn't live there or allow tenants to live there.  

There is a new bread of pro-tenant attorneys who file rent escrow cases based largely upon the ability to extract attorney fees--translation--a small damage dollar technical defect (shared meter) but you must pay big dollars to settle or to contest the case. 

Not sure about the litigation rules in PA but in CA not entity can protect you from these. you are on the hook for construction defect litigation for 10+ years or whatever your state's statute of limitations. 

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Should I be concerned about being sued after the fact over roof, siding, defects, etc. 

Pay for a title search and ensure:You are bidding on a first mortgage (not a second or third, and not an HOA lien)There are no title defects that would not be cured by the foreclosureThere are no large liens on the property you'd be inheritingThere are no open code enforcement cases or liens on the propertyAmount of past due property taxesThis is just off the top of my head.

The basement sewage issue is a red flag - what other hidden defects are there?

Yes they can - it's happened to me and once a City Inspector pays you a visit it is open season on any other defects they find irrespective of whether they were reported.

@Viktor Bokun You'll want to check the auction Terms and Conditions regarding the type of deed the seller will execute plus the proposed Sales Contract regarding title defects and how they are dealt with.Sometimes this particular auction company will only convey via special warranty deed if you use their title company!