Inheritance Tax Escrowed by Title Company from Sheriff Sale Home?

3 Replies

Hello B.P. Community! 

Hope all is well! Not sure if anyone ran into this similar situation before, but I can see that it can become a big headache for many investors if this situation arises and hopefully there'll be a resolution for this. One of my Seller clients bought a Sheriff Sale property last year on September 2018. Seller fully renovated entire property from top to bottom and we just went to settlement on it this past week. Property was sold for $249,900 with 3% seller's assistance. 

Title company told us that they needed to escrow out $25K of Inheritance Tax for this deal (but originally, they were going to escrow out $53,000), but after some complaints by me & my client, they reduced it down to $25K requirement for escrow. Although we need this entire escrow amount to be refunded back to Seller ASAP. 

Title company told us that this property was owned by 2 foreclosed owners at the time of the Sheriff Sale. Here is the problem..... 1 of the 2 foreclosed owners was deceased on 11/23/2002, so the property became owned by the surviving owner (not sure of their relationships). This surviving owner is still alive as of today. According to Title Company, this surviving owner refinanced for a 30-year ARM mortgage in 1/25/2006. Title company told us that they will request for that mortgage & to see if there was a title insurance issued when that mortgage was given in 2006. Title company already obtained the mortgage and will review and get back to us. What IF there was no title pulled at the time of the mortgage re-finance in 2006, but there should be title pulled in order for mortgage company to give out a refinance loan, isn't it? Can the surviving owner take out a re-finance mortgage even with the deceased person passed away prior to this re-finance loan taking place?

My Seller is under the impression that ALL Sheriff Sales are free & clear of everything, but how come there is such an "Inheritance Tax" wanting to escrow when my client has no relation with these foreclosed owners? Especially the deceased person in this matter. 

Given the above situation, just wondering if anyone can help advise on how we can get this issue cleared up ASAP and for my Seller to get back his entire escrow amount? Seller do not want to pay any of this "Inheritance Tax" that doesn't even belong to Seller. Not sure if there's anything that we can do to expedite or ways of clearing up this "Inheritance" discrepancy so that Seller can quickly get his funds back. Or do we just sit back and wait patiently for the title company to investigate and get back to us and hoping that they'll find something that can satisfy that Inheritance issue to release all of the funds back to Seller? 

Lots of title companies tell me that this has been going on pretty recently throughout the entire state of Pennsylvania with requiring title companies to hold "Inheritance Tax" in escrow whenever there is anyone deceased where Sheriff took over a property & Investor re-selling out the purchased Sheriff property after doing renovations to it. My in-house title company told me that this has been a big nightmare for many transactions. I'm hoping that there are ways to prevent or resolution to clearing up such issue? 

Many thanks in advance for your time, help and feedback! 

Apparently from other posts here, that is the law in PA....buyers at foreclosure auctions need to be aware of it.

@Phong Lam

In Pennsylvania, the law allows inheritance taxes to attach to properties as a silent lien. This means that the lien attaches to the property the moment there is a taxable event. I believe the lien will exist for at least 20 years.

So let's say that when one of the original owners died in 2002, that was a taxable event. That lien would continue regardless of the 2006 mortgage. Even if the 2006 mortgagee foreclosed on the mortgage, it wouldn't affect the 2002 tax lien since the 2002 tax lien is senior to the 2006 mortgage. I suppose the 2006 mortgagee should've caught this when they gave the loan. But these mistakes happen all the time. 

Unfortunately for your folks, these liens are in rem. So if there was a taxable event in 2002, your folks are stuck with it and may have to pay it. 

The title company is absolutely taking the correct steps. This is pretty clear cut. 

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.

@Chris K. Does silent lien mean I wouldn't find it if I searched for liens against a property? I have been looking at auction properties along with other distressed sales which sometimes involve deaths/inheritances/foreclosed reversed mortgages etc.

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