Buying Foreclosures in Pennsylvania

5 Replies

 I just moved from Allegheny County to the Allentown/Bethlehem area.

I've completed a number of successful flips through Allegheny's Sheriff Sale but they have all been Free and Clear Tax sales. Free and clears are harder to come by everywhere else in the state because you have to wait for yearly judicial sales (In Allegheny county they trickle in every month vs one big annual sale). I have a question about purchasing a foreclosure.

Example:

$200K home is getting foreclosed and there is $100K left on the mortgage in addition there are tax liens for $10K, I bid and win the house for $125K.

Does my $125K go towards paying off the previous mortgage and liens?

125K - 100K = 25K (Covers mortgage)

25K - 10K = 15K (Covers taxes)

15K left over. I know court costs and lawyers always have first position and get paid first so probably 2-3 thousand go to them making it really $12K. Where does the other $12K go? I've heard the previous owner but I am not sure.

Any thoughts?

Thanks,

-George

Maybd @David Krulac  will also join in on this topic. 

The Tax Claim Bureau sales are what you are referring to. The judicial variants of the TCB sales are only free and clear when all lien holders have been properly notified of the impending sale in advance. 

Many of the TCB upset sale properties will have little or no mortgage, and since the mortgage is the biggie that is divested in a judicial sale, you might find some of the upset sale properties worth a look. 

Then there are the sheriff sales for unpaid municipal liens. These might have redemption rights post sheriff sale. Portnoff is the law firm that handles the bulk of these for the municipalities. The various municipal taxing authorities can opt out of having the TCB hold the sale for the delinquent payments, and hire the likes of Portnoff to handle the collection. Portnoff will announce when a judge has been petitioned to allow the property to be sold free and clear - so you might consider some of these also. 

@George Lambrinos

@Steve Babiak

At Judicial Tax Sales, the overages go to the liens including judgments, mortgages, Federal Tax liens, state liens, etc in order of precedence.  Taxes, commissions, and other Tax Claim Bureau fees and expenses go first, then other state liens, Federal liens, municipal liens like water, sewer, trash, improvements like sidewalks, then mortgages, judgments and liens.  If the attorney for the defaulted mortgage has filed for Sheriff Sale, their fees and court costs could be $5,000.  There could be little or nothing left after everybody gets their piece of the pie.

There may even be a deficiency it the mortgage is not paid in full.  Besides their principle balance there will be attorney fees, late fees, and interest added on to the balance owed.

If the notice is good to the lien holder and it is a Judicial Tax Sale, then the lien will be wiped off the property and if there is a deficiency that would still go against the person owing the debt.

If after paying all the debts, if there is any money left it would go to the previous owner.   The county holds that money for 3 years then it is defaulted to the county and the municipalities.

If you get the property, you still have an imperfect third party title, which may require a Quit Tittle Action (a lawsuit) to perfect the title and make it possible to re-sell or finance the property. 

Got it, that's what its called "order of precedence" Thankyou.

But just to be clear. When I buy a foreclosure at upset sale, my winning Bid of $150K after paying off the back-taxes and lawyers fees etc, some of the money does go towards paying down he mortgage.

In addition, if I pay off all my debts why do I need to quiet title? I though quieting title was the legal process of expunging liens, you're telling me the procedure simply is there to "perfect" your title making it more transferable?

Quiet Title is not for debt relief it is to have a clear title.  Title companies don't like 3rd party deeds, particularly when there might not be good service and the party losing the property doesn't even know about the sale.  This happen more often than you would think.  Almost every PA court case overturning a tax sale is overturned on bad notice.

In one case I researched, the judge overturned the case, because notice was sent to "Smith Debbie", and it should have been either "Debbie Smith" or "Smith, Debbie".

Effectively there is not time limit on an appeal, only a time limit on the appeal AFTER the former owner finds out about the sale.  That could be 20 years down the road.  If the person moves and doesn't the forwarded mail, which is on 6-12 months, the notice is no good and you have a bad title even with the debts all being paid off.

In my 8 hour class we spend a long time on notice, its a critical issue. 

@George Lambrinos

Just today got something in the mail returned, where the person on the other end had type written there mailing address and after a month or so I got it back because it was "Unclaimed" .  I'm pretty sure the person is there as they gave me their address a month ago, but I also know that they did not get what I sent to them.  Probably a notice was put in their mailbox and they never either went to the post office or signed the paper for the postal carrier to leave the object.

If this had been a tax sale notice, it would have been sent to their correct and current address, but they did not get the notice, therefore bad title to the property.