Solutions for Problems with Sheriff Tax Sale Properties
A property owner who fails to pay real estate taxes may lose the property to a sheriff’s auction. The sheriff will transfer the property to the winning bidder after full payment is made. The winning payment will be used to pay the taxes and possibly other liens depending upon the county in which the property is located.
Investors who purchase tax sale properties often acquire properties at a significant discount. However, there are many pitfalls to purchasing tax sale properties. One pitfall is failing to understand that a buyer of a tax sale property is taking “defeasible title” due to the right of redemption. A limited right of redemption is available for Philadelphia property owners whose property was sold at a tax sale. The winning bidder becomes the new owner after the auction with the caveat that the property must be transferred back to the original owner if successfully redeemed. The original owner can successfully redeem if the legal requirements are met and the original owner pays the redemption amount in full.
Below are seven common pitfalls of buying tax sale properties.
#1. Investing in improvements to the property other than structural repairs when title insurance has not been issued.
The law permits a former owner to redeem a property lost at a tax sale within nine months of delivery of the deed. The original owner must pay the winning bidder the “redemption amount.” The redemption amount is approximately the amount of the winning bid plus ten percent. A purchaser who makes improvements other than structural repairs may lose the investment in improvements if the owner successfully redeems.
#2. Failing to pay the balance of the purchase price within thirty days.
The winning bidder may lose their deposit if the balance of the price is not paid within thirty days. A bidder can petition the court for a second chance under some circumstances.
#3. Buying a property without checking for excess water, gas or tax liens.
The winning bid may not cover all of the water, gas or tax liens. The sheriff will announce at the auction that the property is “sold free and clear.” That is not always the case.
#4. Buying a property without knowledge of unpaid Pennsylvania Inheritance Taxes.
The Pennsylvania Department of Revenue has taken the position that any Pennsylvania Inheritance Taxes unpaid by the heirs are an automatic lien against tax sale properties. The Department may seek to enforce payment of the taxes even when a lien is not formally filed of record.
#5. Confusing “vacant” properties and “owner occupied” properties.
There is no right of redemption for “vacant” properties. However, tax sale bidders often believe that the previous owner may redeem only if the former owner lives in the property. However, a former owner can redeem as long as the property is not legally “vacant” as defined by the law. A tenant or other residential occupant with permission will suffice.
#6. Failing to understand how long it can take to remove an occupant.
Removing an occupant from a tax sale property can be an expensive and time consuming process. The timeline is thirty days to one year depending on the circumstances.
#7. Placing bids with the expectation of receiving title insurance in less than one year.
Depending on the title insurance company involved, it can take between one to two years from the date of deed recording to obtain title insurance. While there are legal options to shorten this time period, investors should not rely upon obtaining title insurance in less than a year when placing bids.
As a real estate attorney, I help property owners resolve problems involving tax sale properties. If you know someone with a real estate problem, please forward our contact information:
Phone (484) 690-4613
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