PA Tax Sale and title insurance

Member since 2019 · 23 posts · 10 votes

Planning to look at a property in a town where I have other rentals. Long story short, the current owner recently purchased this property at a tax sale 2 months ago. Seller claims it’s a clean title, a new title search will be done regardless. My issue is that I don’t believe I’ll be able to get title insurance on this place for 12 months after the auction date. So I’ve got 10 months left. That’s 10 months of pretty high risk to me. Granted, this is a cheaper C class property, so it’s not like having 100,000 on the line. But still, I’d hate to purchase it, rehab it and potentially lose it due to the “Right of redemption” or some other law.

So I guess my question is this? Is it true I can’t get title insurance for 12 months?

How risky is not having it in a situation like this? How often are title insurance policies actually used anyway?

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David Krulac

Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes

I have used/employed many PA attorneys and spoken with many others, over this long journey, since buying my first Tax Sale property in 1986. We have never found a PA attorney that would write a title insurance policy. Somebody once told me there was an attorney in Lancaster that would write title insurance policies on Tax Sale properties, but the name of such attorney has been elusive and never detected. There was a company in Los Angeles that said they would issue tax sale title insurance for $5,000. They would conduct an investigation as to the viability of the notice procedure and if they were satisfied, they would then issue title insurance. I did contact them with a PA case and after they did an initial research, came back and said they would NOT issue title insurance. The problem is with "notice" there are many cases of property in PA being sold at Tax Sale where the "notice" to the former owner is incomplete, such as there are multiple owners and only one has provable notice, or no notice at all in the case of the owner being deceased and unlocatable. WE had one case where the owner called the Tax Office before the Tax Sale, but refused to tell the tax personal what his correct address. There was some unknown reason why he did not want to say where he was out of state. I speculated that he was wanted by the law, was involved in a nasty divorce, or owed money to some money source that does not recognize Federal Bankruptcy, take your pick. Therefore the "notice" was no valid as there was no written proof that he knew about the sale before it was sold by the government for taxes. The title companies don't want to insure Tax Sales, because the former owner can come back and say that they did not have notice, or proper notice and overturn the tax sale years after the tax sale happened. In another case we had, the wife had proper notice but testified in court under oath that she never told her husband, who was living in the same house as her of the sale, so he did NOT have notice. The judge sided with the former owner and overturned the tax sale. And with out having good title you can not sell the property or finance the property. And for some people that's ok because they just want to hold and rent out or just hold for future appreciation. In PA the requirement for Adverse Possession is 21 years so if you buy at Tax Sale and hold for 21 years in PA, you can then claim Adverse Possession and the statute of limitations for appealing the Tax Sale has expired. The Statute of limitation for Adverse Possession varies in every state, in CA it is 5 years, in Louisiana 30 years, Texas 25 years and Costa Rica 6 months. I've taught an 8 hour course in Tax Sale where I can't go over everything involved in that time, so obviously can't go over everything in a BP post. I am not an attorney and am now giving legal advise.

David Krulac Bigger Pockets Podcast #82

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Chad U.
Investor · Boca Raton, FL · Member since 2012 · 1k+ posts · 1k+ votes
5y
Originally posted by @Matt Lord:
Planning to look at a property in a town where I have other rentals. Long story short, the current owner recently purchased this property at a tax sale 2 months ago. Seller claims it’s a clean title, a new title search will be done regardless. My issue is that I don’t believe I’ll be able to get title insurance on this place for 12 months after the auction date. So I’ve got 10 months left. That’s 10 months of pretty high risk to me. Granted, this is a cheaper C class property, so it’s not like having 100,000 on the line. But still, I’d hate to purchase it, rehab it and potentially lose it due to the “Right of redemption” or some other law.
So I guess my question is this? Is it true I can’t get title insurance for 12 months?
How risky is not having it in a situation like this? How often are title insurance policies actually used anyway?

Was this an upset sale or a free and clear judicial sale? There's a big difference. In any event, you could do a quiet title to expedite getting title insurance.

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Peter Walther
Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes
5y
Check with a local title company and ask if they'll insure title and if so what would the requirements be. Buying property w/o title insurance can be very risky and while the statistical risk of having a title claim is relatively low its higher for tax deed property. Additionally, even though the individual risk is low, if you happen to have a title claim, it's not something you want to deal with on your own.
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Chris K.
Attorney · Nashville, TN · Member since 2015 · 1k+ posts · 1k+ votes
5y
@Matt Lord
You likely need a quiet-title action. Without it, you could potentially wait a lot longer than just 12 months.
Buying without title insurance is risky. But the real problem is that if you have a title that a title company won't insurable, you don't have marketable title. If you don't have marketable title, you really can't do much with it. For example, you wouldn't be able to: (1) take out a mortgage on the property; or (2) sell the property at its market value.
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 for legal advice. Always consult with your attorney before you rely on the above information.

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David Krulac
Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
3y
@Matt Lord there is no "right of redemption" for PA Tax Sales. OTOH, we have been involved in mny Quiet Title Action Lawsuits, not the most pleasant ting to do. At the extreme we had one QTA that took 9 years and $45,000 in attorney fee and hadn't gone to court yet.
David Krulac Bigger Pockets Podcast #82
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David Krulac
Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
3y
@Chris K. Are you doing real estate law in Nashville, now?
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Chris K.
Attorney · Nashville, TN · Member since 2015 · 1k+ posts · 1k+ votes
3y
@David Krulac: not quite. I actually ended up becoming a General Counsel for a company that relocated its HQ to Nashville. So haven't spent much time on BP. :)

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 for legal advice. Always consult with your attorney before you rely on the above information.
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David Krulac
Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
3y
@Chris K. Best weishes on your new job.
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Philip Jackson
Member since 2023 · 16 posts · 2 votes
2y
Quote from @David Krulac:

@Matt Lord there is no "right of redemption" for PA Tax Sales. OTOH, we have been involved in mny Quiet Title Action Lawsuits, not the most pleasant ting to do. At the extreme we had one QTA that took 9 years and $45,000 in attorney fee and hadn't gone to court yet.
David Krulac Bigger Pockets Podcast #82
Can you give me a title company that gives title insurance in Pa for tax deeds @david krulac
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David Krulac
Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
2y
I have used/employed many PA attorneys and spoken with many others, over this long journey, since buying my first Tax Sale property in 1986. We have never found a PA attorney that would write a title insurance policy. Somebody once told me there was an attorney in Lancaster that would write title insurance policies on Tax Sale properties, but the name of such attorney has been elusive and never detected. There was a company in Los Angeles that said they would issue tax sale title insurance for $5,000. They would conduct an investigation as to the viability of the notice procedure and if they were satisfied, they would then issue title insurance. I did contact them with a PA case and after they did an initial research, came back and said they would NOT issue title insurance. The problem is with "notice" there are many cases of property in PA being sold at Tax Sale where the "notice" to the former owner is incomplete, such as there are multiple owners and only one has provable notice, or no notice at all in the case of the owner being deceased and unlocatable. WE had one case where the owner called the Tax Office before the Tax Sale, but refused to tell the tax personal what his correct address. There was some unknown reason why he did not want to say where he was out of state. I speculated that he was wanted by the law, was involved in a nasty divorce, or owed money to some money source that does not recognize Federal Bankruptcy, take your pick. Therefore the "notice" was no valid as there was no written proof that he knew about the sale before it was sold by the government for taxes. The title companies don't want to insure Tax Sales, because the former owner can come back and say that they did not have notice, or proper notice and overturn the tax sale years after the tax sale happened. In another case we had, the wife had proper notice but testified in court under oath that she never told her husband, who was living in the same house as her of the sale, so he did NOT have notice. The judge sided with the former owner and overturned the tax sale. And with out having good title you can not sell the property or finance the property. And for some people that's ok because they just want to hold and rent out or just hold for future appreciation. In PA the requirement for Adverse Possession is 21 years so if you buy at Tax Sale and hold for 21 years in PA, you can then claim Adverse Possession and the statute of limitations for appealing the Tax Sale has expired. The Statute of limitation for Adverse Possession varies in every state, in CA it is 5 years, in Louisiana 30 years, Texas 25 years and Costa Rica 6 months. I've taught an 8 hour course in Tax Sale where I can't go over everything involved in that time, so obviously can't go over everything in a BP post. I am not an attorney and am now giving legal advise.
David Krulac Bigger Pockets Podcast #82
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- Kristina Moukina
  Member since 2024 · 3 posts · 0 votes
  1y
  Quote from @David Krulac:
  
  I have used/employed many PA attorneys and spoken with many others, over this long journey, since buying my first Tax Sale property in 1986. We have never found a PA attorney that would write a title insurance policy.
  
  Hi @David Krulac, do you typically file a quiet title action in order to have an insurable title, or do you just hold the properties without title insurance? I’m buying a property in PA from the tax claim bureau repository, my title company said they would only insure after 12 months assuming all of the parties were properly notified. The property is vacant and the plan is to hold and rent it out but it needs a lot of work to be livable. My concern is if I put a lot of money into renovations and then the former owner says they weren’t properly noticed and goes to court to get it back. I read that for vacant properties, parties only have 30 days to contest the sale, but I wasn’t sure if that only applies to lien holders and not owners. And whether that’s 30 days from when I get the deed, or from when the judicial sale (at which the property did not get sold) went forward (back in 2020). For your tax sales property purchases, have you waited until the title was insurable before doing any work to it or selling it? Are you still hosting classes on tax sales - I’d be super interested in learning from a pro!
  
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David Krulac
Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
2y
correction NOT giving legal advise!
2 Reply
David Krulac
Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
2y
In another Tax Sale case the owner of a property sold at Tax Sale was John Smith (not his real name), and on the tax records his last name was listed first so it read Smith John. And notice was sent to "Smith John" at his proper address. The property was sold at Tax Sale and John Smith appealed the Tax Sale on improper notice. The Judge rules that the notice should have been sent either to John Smith or Smith, John. Since the comma was missing between the last name and the first name the Judge ruled that the notice was not proper and the Tax Sale was over turned and property returned to John Smith or Smith, John.
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David Krulac
Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
1y
We have bought over 200 tax sale properties. We have gotten Quit Claim Deeds from the former owner, or filed Quiet Title Actions if former owner was not found or decesed, and we have also owned for over 21 years and claimed adverse possession. You will find that many former owners have NOT received notice. The must recieve all 3 notices. One is a certified letter which many don't bother to pick up. The statue of limitations does not start until the former owner gets notice. If the owner is deceased, then the heirs need to be notified also. We had one property where there were 21 heirs, and the former owner had died in 1910. It was a massive amount of research and costly Quiet Title Action. Another case we had to Quiet Title a person who didn't sign a deed from 1897.
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- Kristina Moukina
  Member since 2024 · 3 posts · 0 votes
  1y
  Quote from @David Krulac:
  
  We have bought over 200 tax sale properties. We have gotten Quit Claim Deeds from the former owner, or filed Quiet Title Actions if former owner was not found or decesed, and we have also owned for over 21 years and claimed adverse possession. You will find that many former owners have NOT received notice. The must recieve all 3 notices. One is a certified letter which many don't bother to pick up. The statue of limitations does not start until the former owner gets notice. If the owner is deceased, then the heirs need to be notified also. We had one property where there were 21 heirs, and the former owner had died in 1910. It was a massive amount of research and costly Quiet Title Action. Another case we had to Quiet Title a person who didn't sign a deed from 1897.
  
  Thank you so much for your response! Is it typical for a former owner to be willing to sign a Quit Claim Deed? Do you offer them money in exchange?
  0 Reply
David Krulac
Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
1y
yes we would usually offer an incentive, but depending on the overage, that might be more than enough overage. Sometimes the overage is plus $50,000 to $100,000
1 Reply
- Kristina Moukina
  Member since 2024 · 3 posts · 0 votes
  1y
  Quote from @David Krulac:
  
  yes we would usually offer an incentive, but depending on the overage, that might be more than enough overage. Sometimes the overage is plus $50,000 to $100,000
  That makes sense, thanks again, I appreciate you getting back to me! In this case there’s little to no overage so I’ll have some decisions to make after the title company completes its search.
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