Quit Claim Deed or Quiet Title or Wait in Pennsylvania
Real Estate Agent · Brooklyn, NY · Member since 2017 · 88 posts · 14 votes
I purchased two properties at a judicial sale last year and am in the process of figuring the best way to create a marketable title. Would anyone with experience buying tax sales recommend a Quite Claim Deed or a Quiet Title as the best way to move forward? I also found out that after ONE YEAR of ownership you are likely to get a clear title from an Insurance Company, is this true, and if so are either of the above required at all? Thank you
@Milan Obradovic @Steve Babiak
I've only been buying Tax Sale properties since 1986 and have bought hundreds of Tax Sale properties, I've never found a title insurance company that would issue title insurance after 1 year.
The multiple title insurance companies in multiple counties have always required:
1. Quiet Title Lawsuit, if uncontested and no additional problems maybe 4-6 months and $2,000. On the high side we had one that was 9 years and cost $45,000.
2. Quit Claim Deed, we've paid as little as $zero up to $150,000 to get a Quit Claim Deed
3. Wait, the wait period in PA. (varies by state from 5 years to 30 years) is 21 years.
@Chris K. There is a provision in the Tax Claim Law where you are NOT compensated for improvements made, and I forget if its 2 or 3 years, unless the improvement is to save the property. like fix a roof leak. It is one of the many risks of Tax Sales, that if you do work and then lose the property back to the original owner, then you lose the vale of your improvements.
@Justin K. We had a Quiet Title take 9 years and cost $45,000. Tax Sales are the Wild West, buyer beware, no warranties, no home inspections, no do over. you would not believe how many people buy at tax sale, then after the sale realize the problems and the property comes back on the tax sale list two years later.
The link below describes what most PA Title Companies require for you to have an insurable title. I would say as a general rule, doing a quiet-title action is needed if you want marketable title.
http://pennattorneys.com/assets/pennattorneys/asse...
Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it as legal advice. Always consult with your attorney before you rely on the above information.
How do we ensure that the county has made 'valid personal service'. Will they provide their documentation of serving notice prior to bidding on one of these properties? The reason I have shied away from tax sales is fear that the county didn't do their notices correctly and I would lose the property. My title agent has given me the same advice, but wasnt sure how I could guarantee that the owner was 'properly notified' prior to me trying to purchase.
I also find it difficult to believe that any owner would sign a quit claim deed without being compensated.
My title agent suggested that any property I would bid on and win at tax sale I should secure and sit on for a year prior to renovating. Depending on the location of the property that can get costly from holding costs. Just not sure how I can verify the county did their part to offer the 'valid personal service' to the owner. Anybody have any advice on that?
Note --- there are also other kinds of tax sales in PA, but I'm going to assume we are talking about tax sales conducted by the Tax Claim Bureaus.
1. Judicial Sale. For judicial sales (i.e. "free and clear" sales), try checking the court documents. The title may differ a bit depending on the county, but you should find something along the lines of "petition to sell property at a judicial sale." Those petitions should give you some sense of how the Tax Claim Bureau notified the interest holders.
2. Service Against the Property Owners. I can't recall the statute off the top of my head, but I believe the statute always requires the Bureau to serve the judicial-sale papers to the property owner through a sheriff. If the sheriff could do so, he or she should have prepared an affidavit or certificate stating that he or she made service. If that wasn't possible, the Bureau needs to serve the property owner using another method. Again I don't have the statute in me, but I think it's typically by certified mail or registered mail first. At some point, the law allows the sheriff to "post" a notice as well (i.e. literally a piece of paper that the sheriff tapes to the property).
3. Guarantees? By nature, tax sales are one of the riskiest way to acquire property. It also often involves many additional steps (e.g. quiet-title action, waiting period for title insurance, etc.) that you often cannot avoid. Not surprisingly, many people I think that successfully has done tax sales often have a good system that they can implement at a large scale. Having such a system can reduce some of the risks and make it less of a gambling venture.
4. Vacant Property? Milan --- it doesn't immediately jump into my mind about what exceptions there are for vacant properties. Sometimes the court will consider the fact that the property is vacant when determining whether there is proper notice. But an exception for vacant properties don't immediately jump to mind when it comes to tax sales.
5. Other Interest Holders. Note that the Tax Claim Bureaus often not only need to name the property owner, but all other peoples and entities that hold an interest in the property. This can be tricky.
6. Due-Process Concerns. One last point to note: because of due-diligence concerns, PA Courts have historically required that the Bureau and the municipalities follow strict compliance with the laws when selling properties at a tax sale. At the same time, PA Courts also recognize that --- for the greater public good --- municipalities need the ability to collect delinquent taxes. As a practical matter, the above means that the party that gets screwed the most are buyers at a tax sale. These facts make tax sales one of the riskiest way to acquire property in PA.
Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it as legal advice. Always consult with your attorney before you rely on the above information.
Thanks Chris! I understand that buying in these sales is risky. In your experience have you seen the courts deciding that the property should be returned to the original owner (for whatever reason) and if so is the buyer compensated for the money and/or improvements they have invested in the property?
Would my title agents recommendation to hold the property for a year and gain title insurance before beginning work help mitigate the losses I could be exposed to?
1. Compensation for Buyer. Good question --- not sure about the compensation issue. Generally speaking, there is a concept that a person who improves another person's property is entitled to some kind of just compensation for the improvements. How they calculate the amount gets a bit complicated. And I’m not sure how that applies in tax-sale situations. In most cases I've seen, the buyer will bring a quiet-title action before making any major improvements to the property. So many of the uncertainties surrounding title get resolved one way or another.
There is also the question of whether you can actually recover this amount. Most people who get their property sold at a judicial sale don't really have money. And it's not really clear whether other creditors or interest holders (e.g. United States/IRS) owe you any duty to compensate you for the improvements. Even if they did, you will end up spending a lot on attorney's fees to fight for that compensation.
2. Holding Period. Here is what I think is the rationale for holding a property for a year that you bought at a judicial. This gets a bit complicated, but PA has various statutes that refer to "judicial sales." One such statute says that all challenges or petitions to set aside a judicial sale must occur within six months of the sale. Courts have recognized that statute also applies to tax sales. So in theory, the owner and other interest holders are out of luck if they fail to challenge the sale within six months.
BUT the law recognizes number of exceptions to this time period. So perhaps the idea is that you should wait for twice the period to be safe. I presume this does in fact mitigate the risks a bit although it’s hard to say by what amount.
As a practical matter, you often can't avoid bringing a quiet-title action for tax-sale properties. So I would budget anywhere from $5,000 to $10,000 in legal fees and costs to bring a quiet-title action. That's what I would budget for if you have no "active" defendants --- due to how the law works, you are going to spend a decent money on costs and legal fees even if you don't have any defendants actively contesting the action. If you have an active defendant, the matter can drag on for a long time.
Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it as legal advice. Always consult with your attorney before you rely on the above information.
From what I've been told, by many folks, at PA tax sales, if the tax lien(s) was/were paid off after the Sheriff Sale, the winning bidder would get his/her 10% back, and an additional 8% from the property owner. The owner only has 9 months (maybe a year) to do this.
However, title companies are still wary because they believe the legal standing is still murky, and that an owner could actually have even more time to pay off the liens.
So...if you made capital improvements to the property you wouldn't get those back. You'd only get your 10/8%. And in many cases these properties are in bad condition, and require a lot of rehab work, so it's a risk to venture down that road.
I just deal with a woman who sat on a tax sale for 7 years. We're not worried about her, and I know of a number of title companies that will insure.
From what I've been told, by many folks, at PA tax sales, if the tax lien(s) was/were paid off after the Sheriff Sale, the winning bidder would get his/her 10% back, and an additional 8% from the property owner. The owner only has 9 months (maybe a year) to do this.
...
Sorry, but that does not apply to Tax Claim Bureau (TCB) sales in PA - TCB sales have no post-sale redemption rights.
That sounds like it might apply for tax sales in the City of Philadelphia - Philadelphia does not use a TCB.
yeah @Steve Babiak you are right....again :-)
@Steve Babiak is correct --- no redemption rights for TCB sales. The normal process is for the original owner or the other interest holders to file a petition to set aside the sale.
Still unsure about whether the buyer would get some kind of reimbursement. I never came across a case that expressly dealt with this issue. My theory is that this scenario does not come up too often. In most cases, the PA title companies will require the buyer to conduct a quiet-title action. So before making any major improvements, the buyers typically start with the quiet-title action. And in most cases, the quiet-title action will force a resolution on the title issues.
Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it as legal advice. Always consult with your attorney before you rely on the above information.
Maybe @David Krulac wants to chime in ...
@Milan Obradovic @Steve Babiak
I've only been buying Tax Sale properties since 1986 and have bought hundreds of Tax Sale properties, I've never found a title insurance company that would issue title insurance after 1 year.
The multiple title insurance companies in multiple counties have always required:
1. Quiet Title Lawsuit, if uncontested and no additional problems maybe 4-6 months and $2,000. On the high side we had one that was 9 years and cost $45,000.
2. Quit Claim Deed, we've paid as little as $zero up to $150,000 to get a Quit Claim Deed
3. Wait, the wait period in PA. (varies by state from 5 years to 30 years) is 21 years.
@Chris K. There is a provision in the Tax Claim Law where you are NOT compensated for improvements made, and I forget if its 2 or 3 years, unless the improvement is to save the property. like fix a roof leak. It is one of the many risks of Tax Sales, that if you do work and then lose the property back to the original owner, then you lose the vale of your improvements.
@Justin K. We had a Quiet Title take 9 years and cost $45,000. Tax Sales are the Wild West, buyer beware, no warranties, no home inspections, no do over. you would not believe how many people buy at tax sale, then after the sale realize the problems and the property comes back on the tax sale list two years later.
@David Krulac (and @Justin K. @Steve Babiak @Milan Obradovic )
Great insights! After reading your posts, I did a bit more research to see where the law stands on this issue. Here is a link to the case that appears to be the most relevant. Note that I spent less than 20 minutes looking into this, so I haven't done my full due diligence.
https://scholar.google.com/scholar_case?case=60012...
Facts
Rukuson ("Owner") owns a property in Dauphin County. He fails to pay taxes so the Tax Claim Bureau ("TCB") eventually sells the property at a judicial sale. Dantzler ("Buyer") buys the property at a tax sale. After the sale, she DIYs some of the rehab and hires an electrician to do some wiring work. During this rehab, the Owner challenges the validity of the judicial sale.
The trial court agrees with the owner that the TCB failed to give proper notices so it sets aside the sale. The trial court, however, notes that the Owner must pay the Buyer for improvements that she made on the property (came to about $14,000 in 2002 money). Owner files an appeal and asks the Commonwealth Court (one of the appellate courts in PA) to overturn the decision requiring him to pay the Buyer.
You can read more about what happens from there: but essentially the Commonwealth Court did agree with the Owner old Pennsylvania law prevented a tax sale buyer from "any recovery from the owner of the cost or value of improvements made within two years of the sale...." See 72 P.S. Section 5875. The Court basically says that this law does not apply anymore to sales conducted by the TCB under the Real Estate Tax Sale Law. The court also recognized that it is inequitable for the Owner to walk away without paying the Buyer anything for the money and time she spent.
I'll have to look into how later cases applied this law. But it looks like --- in some cases --- the buyer could recover some amount of money from the original owner for improvements. But again, the appellate cases relating to tax sales are a bit of a mess in PA.
Disclaimer: While I
@David Krulac (and @Justin K. @Steve Babiak @Milan Obradovic )
Great insights! After reading your posts, I did a bit more research to see where the law stands on this issue. Here is a link to the case that appears to be the most relevant. Note that I spent less than 20 minutes looking into this, so I haven't done my full due diligence.
https://scholar.google.com/scholar_case?case=60012....
Facts
Rukuson ("Owner") owns a property in Dauphin County. He fails to pay taxes so the Tax Claim Bureau ("TCB") eventually sells the property at a judicial sale. Dantzler ("Buyer") buys the property at a tax sale. After the sale, she DIYs some of the rehab and hires an electrician to do some wiring work. During this rehab, the Owner challenges the validity of the judicial sale.
The trial court agrees with the owner that the TCB failed to give proper notices so it sets aside the sale. The trial court, however, notes that the Owner must pay the Buyer for improvements that she made on the property (came to about $14,000 in 2002 money). Owner files an appeal and asks the Commonwealth Court (one of the appellate courts in PA) to overturn the decision requiring him to pay the Buyer.
You can read more about what happens from there: but essentially the Commonwealth Court did agree with the Owner old Pennsylvania law prevented a tax sale buyer from "any recovery from the owner of the cost or value of improvements made within two years of the sale...." See 72 P.S. Section 5875. The Court basically says that this law does not apply anymore to sales conducted by the TCB under the Real Estate Tax Sale Law. The court also recognized that it is inequitable for the Owner to walk away without paying the Buyer anything for the money and time she spent.
I'll have to look into how later cases applied this law. But it looks like --- in some cases --- the buyer could recover some amount of money from the original owner for improvements. But again, the appellate cases relating to tax sales are a bit of a mess in PA.
Disclaimer: While I
also @
I have bought a house in the city of Philadelphia July 2016, the recording happened on that time and it has been a year so far , I was selling the property but the buyer insisted on using certain title company which made all things complicated and asked about the notices were sent by the sheriff's office to the old owner, which I never had or received or even sent to me that the Sherrif's send a notice to the old owner.
Philadelphia county law said if it is a vacant property the redemption period is nothing ( this property was vacant for 10 years) if the property was occupied it is 9 months from the sale ( usually becomes a year with the recording time ), which already also elapsed, the title company who was closing the deal refused closing and asked me to do A quiet title action or lawsuit , so the old owner or his hires won't have any rights or legally won't have any rights in the property, then I was about to file that but the City officials who are responsible for the court process advised me that this case will be complicated because I will have to find that old owner who does not have any rights legally now already and service him the court case or his hires if he is dead.
I am seeking your advice on the matter, and if you know any title company that is aware of the right laws and will to close for me this deal with any buyer please help me
Ehab T.
I'm not an attorney and don't know anybody to recommend in Philly. If I was there I was search other Tax Sale suits to see who the attorneys are that handled suits for others. I would ask my title company, and ask other title companies.
Thanks, David Krulac, that is exactly what I have been doing this morning, I kept checking this property delinquent tax account with the attorney's office who handled the sale until I bought it, and got another title company who would close the deal without title insurance if the buyer is ok, but still looking for local title company at Philly to do that
thanks again
@David Krulac
If a owner files to set aside a upset sale and the judge finds that tax claim bureau has done everything correctly and does not overturn the sale. Will title insurance companies then issue title insurance ?
@Tom Mongold Some title companies will not issue title insurance on any tax sale purchase in PA, unless there is a Quiet title Action Lawsuit or a Quit Claim Deed from the former owner. Some title companies will issue title insurance after a certian period of time has elapsed from the date of the tax sale deed, like 1 year or maybe 3 years, etc. Call an individual title insurance company to see what there specfic policy is.