By Randall L. Saunders, JD, and Jonah D. Samples, JD
Participating in the tax sale process in Pennsylvania is a predictably complicated venture normally. With the COVID-19 pandemic, though, added stress has been placed on interested parties due to uncertainties surrounding the process. Staying informed and adapting to the ever-changing tax sale landscape will be necessary for success in this field since the shake-up will likely be felt for years to come.
Pennsylvania Tax Sales Normally
Each county is responsible for conducting its own tax sales. The tax sale process varies across Pennsylvania’s 67 counties, and Pittsburgh, Philadelphia, Scranton, and Allegheny County have their own special sale and redemption provisions. There are, however, generally four distinct tax sale opportunities in Pennsylvania.
Upset Sale – After two years of delinquency and after sending the required notifications, the upset sale is the first opportunity for investors to purchase delinquent property. The yearly upset sale takes place in the fall, and may be adjourned, rejourned, or continued. Properties sold at the upset sale are sold subject to any liens or judgments, and the minimum bid is “upset” from the price of all back taxes, current taxes, and costs to the county.
Private Sale – If properties are not sold at the upset sale, Pennsylvania allows counties to opt in and permit properties to be sold at a private sale. In these counties, an investor may submit a bid to the county tax claim bureau for approval. Once approved, required notices are to be published in the event an interested party disapproves of the sale.
Judicial Sale – Much like the upset sale, the judicial sale is held once a year, traditionally in the spring. Similar to a private sale, the judicial sale includes properties not sold during the upset sale. Unlike the upset sale, though, properties sold by judicial sale are not subject to mortgages, private liens, encumbrances, or back taxes.
Repository List – If delinquent properties are still not purchased at the judicial sale, they are often put on a repository list. Investors may make bids on properties on the repository list, and if the purchases are approved by all taxing districts, the property may be purchased free and clear of all taxes and liens. Most counties have a minimum bid for these properties.
Pandemic’s Impact on Tax Sales
Due to COVID-19, it is likely tax sales in Pennsylvania will be affected both in the short and long terms. In the short term, social distancing could change the tax sale process. For instance, indoor gatherings in Pennsylvania are currently limited to 25 as of this writing. Many counties conduct indoor upset sales, so they may, and some already have, begun to postpone the September sales or they will choose to conduct these sales in an online forum as other states have elected to do.
Legislative action impacting 2020 tax sales could be on the horizon. At the end of May, the Pennsylvania House of Representatives voted on Amendment 5803 to House Bill 1647, which would have canceled or postponed all upset sales until 2021. The amendment failed by a slim margin (94-108), indicating the Pennsylvania General Assembly may attempt to dramatically alter the traditional tax sale process this year.
As noted, the earliest a delinquent property may be sold is after two years of delinquency. The federal CARES Act includes a mortgage forbearance provision that allows homeowners with federally backed mortgages to request leave to delay mortgage payments. To the extent a homeowner’s mortgage payment includes escrow for property taxes, it appears the CARES Act could delay or otherwise impact the timing of payment of those taxes. It remains to be seen how this issue will be addressed by the federal government or the local county tax claims bureaus.
As new questions arise, staying informed is more important than ever for tax sale investors. Read the fine print of any federal, state, or local guidance and stay informed regarding the current status of delinquent taxes and tax sales in Pennsylvania. It will also be important to monitor each county, as many county tax claim bureaus will respond differently.
Randall L. Saunders, JD, is a partner with Nelson Mullins Riley & Scarborough LLP in Huntington, West Virginia. He chairs the tax lien and litigation group, and his practice focuses on banking, financial services, business, taxation, and real estate matters. He can be reached at email@example.com.
Jonah D. Samples, JD is an associate at Nelson Mullins Riley & Scarborough LLP in Huntington, West Virginia, with his practice focusing on commercial litigation and business torts, banking and financial services, and real estate. He can be reached at firstname.lastname@example.org.
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