Real Estate Investing: Understanding PA Tax Sales

While sheriff’s sales have received a great deal of publicity due to the wave of foreclosures taking place around the country, great mystery still surrounds the tax sale procedures pursuant to the Pennsylvania real estate tax sale law. Any real estate investor who is considering acquiring property through a tax sale needs to understand the basics in order to avoid the numerous pitfalls that have befallen many a well-intentioned buyer.

A tax sale is a step in the foreclosure of the lien imposed under the Real Estate Tax Sale Act (“RETSA”). RETSA provides that all taxes lawfully levied on property in the Commonwealth of Pennsylvania are a first lien on the property, with priority over all other liens, including mortgages. Within each county around the Commonwealth there is a Tax Claim Bureau which receives and collects the property taxes within the county. Taxes become delinquent in May of the year following the year in which the taxes were due. When that happens, the tax collector commences proceedings to collect real estate taxes under RETSA by submitting to the County Tax Claim Bureau a listing of all delinquent accounts. By no later than July 31st of each year, the Tax Claim Bureau gives notice to each delinquent taxpayer by registered or certified mail, return receipt, postage prepaid, addressed to the owners, at the address listed on the tax duplicate of the entry of the claim. If notice is not delivered by the post office, then it must be posted on the property. Notice provisions of RETSA have been closely construed by courts, so as to avoid deprivation of property rights without due process, so it is critical that the notice procedure be reviewed by experienced real estate attorney prior to bidding on a property at such sales.

Upset Tax Sales

Upset sales are the first step in the sale process. The title conveyed to a purchaser at an upset sale is subject to the claim of every recorded mortgage, lien, claim, ground rent or PA Revenue lien not included in the upset price. In other words, you effectively take title to the premises in the same position as the taxpayer who has been divested of the property. If they granted three mortgages, you take the property subject to those same three mortgages. Accordingly, a thorough title search review, prior to the sale, is an absolute necessity. Again, obtain such a search review from experienced real estate counsel. Hundreds of thousands of dollars (or more) may be at risk.

Judicial Tax Sales

If the upset price is not realized at the upset sale, the Tax Claim Bureau may petition the local Court of Common Pleas to schedule a judicial sale, the second step in the tax sale process. After rule to show cause is issued, and the rule becomes absolute, the Court sets a sale date. The title conveyed to a purchaser at a judicial sale is free and clear of all taxes, liens, and mortgages (ground rents are still effective). Then the Court must confirm the final sale before title is transferred to the buyer. Even in the judicial sale setting, an up-front title search/review is a necessary step in the process. That search/review will also review whether or not the county properly followed RETSA procedures.

Redemption

Even after a successful bid at a tax sale, the buyer/investor still may have hurdles to overcome. The owner of any property sold at a tax sale may redeem (buy back) the property ay any time within one (1) year from the date of the acknowledgement of the sheriff’s deed transferring title to the tax sale buyer. In order to redeem, the prior owner must be prepared to pay the amount bid at the sale, other costs, and any liens or encumbrances that were not discharged by the sale but which were paid. An exception to this right is for vacant property, which is any property that was not occupied by the same individual or family unit as a residence for specific periods under RETSA.

Conclusion

 

Tax sales provide great opportunity for investors, but there are many traps for the unwary. Therefore, it is advisable for anyone considering this source for properties to be sure to engage an experienced real estate attorney who can review the title and the sale procedures BEFORE you go to the tax sale.

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