Chambersburg, PA · Member since 2016 · 8 posts · 0 votes
I recently bought my second property since being on BP. Maybe I should have stuck to simpler routes, but I wanted to do PA Tax Deed sale. I did my homework, worked the numbers, and won the bid. After buying a nice smaller SFH and talking to a neighbor, I found out that the property I bought belonged to a deceased woman (died April 2014 the tax year of sale) with what appears to be no heirs.
There is no mortgage or other liens on the property. Someone appears to be mowing the lawn sporadically and someone has at least collected the mail at some point (though not recently). I get my title in 4 months after the waiting period is passed. My research recommends getting a Quiet Action title, but here are some concerns the experts or Pennsylvania natives could shed some light into:
What should/can I do with her personal property? Do tenant laws apply since she isn't a tenant of mine?
What can I do to the property? Can I change locks or winterize?
Should I be concerned about any inheritance tax?
Why was there no estate set up to handle the process of property and taxes?
Are there any other areas I should be concerned about?
1. At Tax Sale you do not buy the personal property.
2. There very well could be heirs, just because there is no will, doesn't mean no heirs.
3. I wouldn't change the locks until I had the deed.
4. Find out who's mowing the grass and why.
5. Yes you will owe the Pa. State Inheritance tax which starts at dollar one and will be in your case 15% of the value of the estate.
6. There can be many reasons for no estate, sometimes heirs don't want to spent the money.
7. There may be UNRECORDED liens, like welfare department, nursing home or mechanics leins, you would be responsible for all of those also.
8. Did you do a title search? Did you do a complete 60-100 year search, there could be liens judgments and taxes from prior owners. One case I'm familiar with there were unpaid taxes from 1919, yes 97 years ago, still due and accruing interest, fortunately the amount was small.
9. I say that Tax Sales are the most hazardous and dangerous ways to buy real estate, and I mean what I say.
10. At the SF bay Summit recently held by @J. Martin I spoke on tax sales.
I would recommend that you sit down with a lawyer to go over this one. I would especially consider discussing the first three issues since you are getting into an area where the law and actual practice doesn't really meet eye to eye.
For number 4, the two likely scenarios are: (1) the lady didn't have any heirs; or (2) the lady had heirs but the estate was insolvent. Unopened estates are fairly common in the foreclosure/tax-sale world. There are differing thoughts among lawyers on what's the best way to deal with it.
One question --- have you contacted a title-insurance company about getting insurance? If so, what did they say you need to do to make the title insurable?
One thing that makes me nervous about your post is that you found out about the lady being dead after the purchase. Did you conduct a title search before buying the property?
I also assume that you bought the property at a judicial sale?
Thanks for the response. I bought the sale at the Upset Sale after doing a title search and checking the recorders office. There was only one satisfied mortgage of $3000 from 1989 and nothing else.
I'll reach out to a lawyer and see what I can find out.
Did you hire a professional title company to do the search?
If you can't find a good lawyer in Chambersburg, send me a PM --- I'll try to reach out to my lawyer friends in Harrisburg to see if they have a recommendation for a lawyer who can answer your questions at a reasonable rate.
Hey Benjamin! I live in Beaver County, about 20 miles NW of Pittsburgh. I will share my experience with you since I had a similar situation. In my case there were heirs, but for some reason they didn't pay the taxes. Maybe too much work needed on the house and they didn't want any of it. But someone was mowing the lawn and to this day I don't know who that was.
I bought a house in 2014 at Judicial sale. I'm not brave enough to buy at upset sale without having a professional do a search and I don't want to spend money on a house I may not get; the competition here is fierce. There can be hidden liens on the property that aren't so easy to uncover. Hopefully that won't happen to you.
First off, no title company will insure title until you've owned it for a minimum of a year. There is a reason for this - someone can come back and say they didn't get a notice. Now we all know that in PA there is no redemption period, but a case can be made and upheld. Therefore, my real estate attorney advises to wait one year before doing any MAJOR work on the property. Because if someone comes back to try to claim the property, although you will get a refund of the purchase price, you can lose all the money you put into repairs. After a year I guess they feel it's seasoned and a person of interest had plenty of time to come forward.
Yes, you can change the locks, you can get the house rented if it's in good enough shape to do so without spending too much. But within that year I wouldn't do any work on it that I couldn't recoup in a year from a tenant.
So I waited my year...the house was in really bad shape and needed a total renovation to make it livable. After the year I started the rehab and then put it up for sale.
A buyer came along and, surprise, the lender's underwriter demanded a quiet title. The reason why was because the owners had passed and they wanted to make sure that every heir had received notice of the tax sale. That process would have taken months and cost me thousands of dollars. Luckily, I was able to talk them out of requiring the quiet title since the owners had passed 6 years ago and no one had come forth in all that time. But in your case the death was only 2014, so I don't know how that will work out.
My RE attorney advises that you get the title insurance before you get a buyer so things won't get delayed at sale. Not a bad idea.
The personal belongings are now yours. Sell them, throw them away, whatever. You bought them with the house.
Message me if you'd like a great resource for tax sales in PA. It's written by my Pittsburgh real estate attorney. He calls his courses lawyer in a box and they're cheap. I would post it here but I don't know if that is permitted.
1. At Tax Sale you do not buy the personal property.
2. There very well could be heirs, just because there is no will, doesn't mean no heirs.
3. I wouldn't change the locks until I had the deed.
4. Find out who's mowing the grass and why.
5. Yes you will owe the Pa. State Inheritance tax which starts at dollar one and will be in your case 15% of the value of the estate.
6. There can be many reasons for no estate, sometimes heirs don't want to spent the money.
7. There may be UNRECORDED liens, like welfare department, nursing home or mechanics leins, you would be responsible for all of those also.
8. Did you do a title search? Did you do a complete 60-100 year search, there could be liens judgments and taxes from prior owners. One case I'm familiar with there were unpaid taxes from 1919, yes 97 years ago, still due and accruing interest, fortunately the amount was small.
9. I say that Tax Sales are the most hazardous and dangerous ways to buy real estate, and I mean what I say.
10. At the SF bay Summit recently held by @J. Martin I spoke on tax sales.
As mentioned above, the tax sale in PA, only conveys the real estate. Personal property is not part of the real estate. Often times the stuff left is of little to no value, so that's no problem. But if there are heirs, and there almost always are heirs, whether you know about them or not. Even if there are no parents and children, there are often nieces, nephews, aunt and uncles, cousins and other further distant relatives, whether by blood or marriage. The heirs would have a claim on any personal property, and if you should find something of value, or extreme value you should handle carefully, maybe storing safely and protecting it for an heir who might come forward.
We got a house that was packed with furniture, clothes, household goods and even food. Family members had come and gotten a few, and I mean a very few valuables like cash, jewelry, and guns. Everything else they weren't interested in. We had somebody come and get the furniture and clothes to recycle. Then somebody came and got all the metal for scrap/recycling. The remainder filled 3 thirty yard dumpsters.
There was a post quite a while ago here on BP about what interesting things have you found in houses left by either former owners or tenants. Perhaps @Steve Babiak remembers or could locate that thread. Sorry that you missed the ring meeting last week in Philly where I spoke on Tax Sales,
Thanks for all the responses. I understood there would be risks and some extra work going into a Tax Sale. The price left lots of room to play with anything that came up. My goal is to get as "legal as possible" to cash flow on the property. Liens are not an immediate issue because I don't plan to sell right away.
@David Krulac can you expand more on how the inheritance tax works in this case?
If no one comes forward or I can find no one, would ejectment work to a deceased party?
1. As @David Krulac pointed out, tax sales do not transfer title to the personal property. Whether you should remove the property from the house depends on numerous factors such as: (1) value of the property; and (2) likelihood of a lawsuit. Many banks, for example, are fairly comfortable with cleaning out a foreclosed home since: (1) most of the stuff is likely rubbish; and (2) the fact that the debtor ended up in a foreclosure likely means they have no money, which in turn means that they can't hire a lawyer to fight a national or regional bank.
But if you find something valuable (like a diamond ring), you should take steps to ensure that it ends up in the hand of the right person. If it's a true no-heir case, the valuable items go to the Commonwealth. That's why there are --- albeit somewhat rare --- cases where a creditor like a bank will open an estate on behalf of the deceased debtor to force administration of an estate.
2. In terms of finding out who is mowing the grass, I would start with the municipality. Some municipalities are very strict about grass height. If they believe that the home is neglected, they will hire contractors to go in and mow at a nice premium. The current owner is of course responsible for those charges. I would then move on to the neighbors.
3. In terms of changing locks, it again depends on your risk tolerance. In this particular scenario, you maybe able to change the locks --- you just have to take certain steps to minimize the risk. But again, I don't know all the facts to give you specific legal advice over the internet.
4. In terms of inheritance tax, David is probably correct that you owe it. If so, you most likely need to open and administer the estate to cure the tax and title issues that can occur from nonpayment. This is both a tax issue and a title issue. You thus may end up having to bring a Quiet-Title Action and also pay all the fees associate with administering the estate. Most lawyers in my area will ask for a retainer around $5,000 for each of those steps. The actual fees could be lower or higher depending on the situation. Harrisburg lawyers typically charge more per hour than our area, but I don't know what the going rate is in Chambersburg. But you could probably estimate that you will need to spend around $10,000 for those two steps.
5. Just based on what you told me, I wouldn't bring an ejectment (or an eviction) action against the deceased party. Note that an ejectment action in this case will be costly due to you (or your lawyer) having to bring a motion to serve the defendant by "special order (a.k.a. by publication). Not only does this require you to do some due diligence on searching the whereabouts of the deceased person and their heirs, it requires you to present the motion and publish certain advertisements in a legal publication and local newspaper. In my area, each round of publication ends up costing between $600 to $1,000 --- you will need to do this at least twice.
Note that you would need to do take those steps for a quiet-title action and similar steps in administering the estate. So the cost of the ejectment action under this scenario is likely similar to the cost of a quiet-title action. In fact, it's probably more since you'll have to pay the sheriff to execute the writ.
Just out of curiosity, what is the ARV on this property?
1. Bank foreclosures Sheriff Sales in PA have totally different set of rules than Tax Sales. the banks lobbied for certain aspects like they don't have to pay the real estate taxes at the Sheriff Sale. They also don't have to follow the law governing personal property at a Tax Sale.
4. You don't need to open an estate to pay the Pa. State Inheritance Tax, its paid at the local courthouse. It would need to be paid to get title insurance and to either sell or re-fi the property. If you don't plan on selling or re-fi, then you can delay paying the tax, but it does accrue interest starting with the date of death. Also the tax applies even to out of state owners, who die owning real estate in PA.
5. There is no need for either ejectment or eviction if the house is unoccupied and the owner is deceased.
The PA State Inheritance tax is 15% for non-lineals. Its collected at the courthouse by the Register of Wills, as agents for the PA Department of Revenue. In some smaller counties the Register of Wills may be combined with the Recorder of Deeds or Prothonotary. In one county last year they collected over $26MILLION in state inheritance taxes, btw there are 67 counties in PA.
Thank you Chris and David. I'm learning a lot fast. I'm definitely going to have to read up more on the inheritance tax system and its legal workings. I wouldn't have thought that would have been something to address since I was buying and not inheriting the property.
@Chris K. the ARV of the property is max $115k (max because I haven't fully seen inside the full property yet).
1. What law allows a foreclosure lender to take title to personal property within the foreclosed home? There are circumstances where the lender may have a security interest in the personal property, but I'm not aware of any law that would allow a foreclosure lender to simply receive title to the personal property within the home.
2. You are correct that you don't need to open an estate to pay inheritance taxes. But I can see numerous pitfalls with not opening an estate in this situation --- especially when @Benjamin Orr bought it at an upset sale. Whether those factors exist, I don't know without looking at all the information he has. At minimum, he needs to pay the "correct amount" of inheritance taxes to avoid having to deal with the Department of Revenue.
3. Correct that you wouldn't need an ejectment or an eviction action if the property is unoccupied. The question is whether the property is actually "unoccupied." Here, there is arguably some evidence that the property is occupied (based on the cutting of grass, etc.). If so, the safest option is to proceed with the assumption that it is. That's what many national and regional banks do.
The other risk is that Benjamin hasn't seen the inside of the property. So he may not know of the other evidences (e.g. unspoiled food in the fridge, etc.).
But in any event, the level of risk that Benjamin is willing to take is something he needs to discuss with his counsel and advisers.
4. Benjamin --- do you mind sharing what you paid for the upset price. I don't want to worry you, but there are many investors in Pennsylvania that only focus on tax sales. So at least in the area that I practice, it generally raises a red flag when these experienced investors don't bid on an upset-sale property that seems like a good deal on paper. I personally have no experience with the Franklin County area so I don't know how active the investors are there. But I'm curious to know what you paid and whether you had competing bids.
The property was bought at $15k hammer price. There was another local investor bidding who ended up getting two other houses. The house is smaller and not in Chambersburg so it's not as popular of an area. I chose the house because it played with in my grand house hacking/vacation rental plan.
Attorney from Adams and York county, occasionally passing through Franklin county. Just wanted to relieve your concerns on paying inheritance tax. You're not a beneficiary of an estate so no inheritance tax due. Similar to a person buying the diamond ring from the estate, the buyer doesn't owe inheritance tax.
That's unfortunately not the case. The law is clear that upon death, the Commonwealth gets an inheritance-tax lien on all properties of the decedent. It doesn't matter if it is unclear what the exact amount of taxes are. I don't have the exact caselaw and statute in front of me, but the following links give you a brief explanation.
Even in your example, if the estate fails to pay any inheritance taxes due on the diamond ring from the estate, the Department of Revenue can go after you based on its lien.
There are some narrow situations where you might be able to escape the inheritance tax lien. Those are too complicated to discuss on BP.
This is great stuff Chris! I presumed this was an insolvent intestate estate with no beneficiaries, which was likely far reaching on my part. I agree that the failure to pay the inheritance tax would allow Department of Revenue to go after based on the lien, but I'm not certain I would jump to the conclusion that the taxes would be owed at all if there are no beneficiaries present. I would appreciate your thoughts!
@Chris K. Thanks for sharing that wealth of information. I'm guessing being the 3rd party and holding the property for 20 years waiting for the inheritance lien to expire isn't the best strategy ;) I will start with seeing what I can find out about who is mowing the grass and hunting more diligently for heirs, relatives or anyone who knows the story better. I need to get into the property to see condition, what all is left, and the right next steps.
Hi @Clay Lingg: I think there are multi-layers to the issue you raise. I would have to look at all the relevant statutes, but let's think about some scenario. Let's start with the beneficiary issue. Imagine that this is a case where the decedent truly had no heirs and the property escheat into the Commonwealth. If so, i believe the inheritance-tax lien is a non-issue. But if there is a distant relative somewhere living in this universe, then the title to the property is with that person at the moment of death even if he or she is unaware of it. And if so, the inheritance-tax lien exists on the property.
As a practical matter, I would have to think that the Department of Revenue will place the burden on Benjamin to prove that the property does escheat into the Commonwealth. Assuming he could do it, I would imagine that this is costly and would exceed the amount he pays under the 15% inheritance tax.
Then there is the insolvency issue. So it is true that there is no inheritance tax to be paid if the estate is insolvent and the property must be sold to pay off the creditors. So who are the creditors here? Benjamin's title search showed that the property is mostly free of liens, but that doesn't rule out the possibility of other invisible liens. There is also the issue of non-secured creditors who should receive a pro-rata share of the estate.
In Benjamin's case, he bought the property at an upset sale. If so, my initial guess --- and again I would have to look into this --- would be that the non-secured creditors cannot hold Benjamin liable. In normal situations, the personal representative of the estate would be responsible for paying those taxes so that it protects the interests of the estate. Here, no estate is opened and I'm going to guess that the Benjamin's purchase of the property at the upset sale does not make him into some kind of quasi-representative. So the non-secured creditors likely have no remedy against Benjamin --- they may have some claims against the estate in general and limit the amount that goes to the beneficiaries, but that only matters if the decedent had more assets.
For the invisible liens, Benjamin is probably stuck with them.
So to sum this up, my guess is that the Department of Revenue will tell Benjamin to pay his taxes. If he tries to raise the lack of beneficiaries or insolvency as a defense, the Department will tell Benjamin to prove it. Short of opening the estate and doing taking all required steps, I can't immediately think of anyway for Benjamin to prove that.
@Benjamin Orr I'll send you a PM later, but one thing you need to do is talk to your title company. The title company will need to tell you what exactly you need to do to get marketable title for this property so that you can one day sell it or get financing on it. Without that, I would be hesitant to make any major repairs on renovations.