When Can I Redeem My Pennsylvania Property From Tax Sale? It Depends On Where The Property Is…

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Renowned Pennsylvanian Benjamin Franklin famously wrote that “in this world, nothing can be said to be certain except death and taxes.”  A recent decision of the Pennsylvania Supreme Court demonstrates that, even in the certain realm of taxes, there is still room for uncertainty.

At issue in Fouse v. Saratoga Partners was the difference between the real property tax collection procedures in more populous first and second class counties and in less populous counties.  The Municipal Claims and Tax Liens Act (“MCTLA”) governs the procedures for collecting real property taxes in the first and second class counties of Philadelphia and Allegheny.  The Real Estate Tax Sale Law (“RETSL”) governs the procedures for collecting real property taxes in all other counties unless a county that is not a first or second class county elects to have the MCTLA apply.

In all counties, when real property taxes are delinquent, the taxing authority conducts an auction conducted by the county sheriff at which the amount of the unpaid taxes is generally set as the minimum “upset bid.”  The sheriff then issues a deed to the property to the highest bidder at the auction.  The MCTLA provides that the property owner or any party whose lien was discharged by the sale may redeem the property at any time within nine months of the sheriff’s deed by paying all taxes, various expenses incurred by the tax sale purchaser, and interest at a rate of 10% on the amount of the purchaser’s bid.  The RETSL, on the other hand, expressly prohibits redemption once the sheriff’s deed has been delivered to the tax sale purchaser.

The Fouses lived in Huntingdon County.  After they became delinquent in paying $16,747.50 in real property taxes, their residence, which had an assessed value of $152,800, was sold at auction to Saratoga Partners, L.P. for $27,795.45.  Within nine months after the auction, the Fouses filed a petition to redeem their property from the tax sale, alleging that they had escrowed the amount that they would be required to pay to redeem under the MCTLA and asserting that the RETSL’s prohibition of post-sale redemption violated the equal protection clauses of the United State and Pennsylvania Constitutions.

Having purchased a $152,800 property for $27,795.45, Saratoga Partners predictably opposed the Fouses’ petition.  The Huntingdon County Tax Claim Bureau opposed the petition as well.  The trial court and the intermediate appeals court ruled against the Fouses.  The Pennsylvania Supreme Court granted discretionary review.

The Fouses argued that the right to “freely hold and dispose of one’s property” is a fundamental right under both the United State and Pennsylvania Constitutions and that whether a statute restricting that right is constitutional had to be judged by a “strict scrutiny” standard.  Under that standard, a statute is constitutional only if it is “narrowly tailored to support a compelling government interest.”

Saratoga and the Tax Claim Bureau, on the other hand, argued that what was at issue was not the right to freely hold and dispose of property, but the right to redeem property from tax sale, which is not a fundamental right.  Consequently, they argued that the proper standard was the “rational basis” standard under which a statute is constitutional if it “promotes a legitimate state interest” and the challenged classification is “reasonably related to accomplishing that articulated state interest.”

The Pennsylvania Supreme Court sided with Saratoga and the Tax Claim Bureau.  It noted that it had held previously that the right to redeem property from tax sale is not a “vested right,” but a “right subject to the control of the Legislature.”  Such a right is not a “fundamental” one.  Consequently, whether the differences between the MCTLA and the RETSL were constitutional had to be judged by the rational basis standard.

The Court identified providing for “prompt and certain availability” of assessed taxes as the applicable legitimate state interest.  Moving to the question of whether the denial of the right to redeem under the RETSL was reasonably related to accomplishing that interest, the Court said that ensuring certainty and finality in tax sales likely encourages higher bids at tax sales and thus furthered that interest.  The Supreme Court quoted from a passage from the opinion of the intermediate appellate court which it described as “central to the instant appeal” in which the intermediate appellate court noted that there were likely to be more bidders at tax sales in the more populous counties so that a right to redeem would not suppress bidding as much as in the less populous counties and that the more populous counties with larger tax bases “can afford a less efficient process for collecting delinquent taxes.”

The Supreme Court also noted that there are differences between the MCTLA and the RETSL other than the limitations on the right to redeem that mitigate the effects of the prohibition of redemption under the RETSL.  The RETSL requires more notice to the property owner before the tax sale auction than the MCTLA.  The RETSL also affords the property owner an option to stay the tax sale by paying 25% of the delinquent taxes and agreeing to pay the balance over the course of a year before the auction.  The MCTLA affords no such right.  Noting that legislation is entitled to a “strong presumption of validity,” the Court said that because arguments could be made that either of the two statutes afforded more protections to property owners than the other, the Fouses could not carry the burden of showing that the statutory scheme was discriminatory.

If having to know the differences between the procedures in first and second class counties and other counties to preserve property rights was not challenging enough, the Supreme Court’s opinion reveals still more challenges.  First, as noted above, the MCTLA allows counties that are not first or second class counties to opt in to the MCTLA.  Determining whether a county has done that may be easier said than done as suggested by the Supreme Court’s statement that “Huntingdon County apparently has not adopted these procedures.”  Second, the Supreme Court noted that the procedures in the City of Pittsburgh, which is in second class Allegheny County, are governed by the Second Class City Treasurer’s Sale and Collection Act which affords property owners 90 days from the auction date, instead of 90 days from the date of the sheriff’s deed, in which to redeem properties from tax sale.

The safest course for property owners and lenders whose mortgages are subject to being wiped out by tax sales is to pay the taxes before the tax sale.  As Ben said, they are certain anyway.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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