If a homeowner or the owner of commercial property fails to pay property taxes, that property may eventually be sold by a city or county municipality at a tax sale (also known as a sheriff's sale or an upset sale). These sales are part of the foreclosure process as stipulated in Pennsylvania's Real Estate Tax Sale Act (RETSA).
In a tax deed sale, the property is often sold for the amount due in unpaid taxes, plus interest and fees. Acquiring a property at a deep discount may seem too good to be true; in some cases, it is. Veteran and inexperienced real estate investors alike have entered into tax sales they thought they researched thoroughly only to discover it wasn't the deal it appeared to be.
If you purchase a property at a Pennsylvania tax sale, it is important to understand that you take title to the property in the same position as the delinquent taxpayer. That is, the buyer is subject to all recorded mortgages, liens, claims or other Pennsylvania revenue liens not accounted for in the purchase price.
Research is key to avoiding an expensive mistake
As such, a thorough title search is necessary. A proper home inspection is also recommended, but not always possible for these sales. Buyers may discover that a home they now own has numerous code violations or environmental hazards such as radon.
Another possibility is that the original owner of a property has the right to buy back the home within one year of the title being transferred to the tax sale buyer in what is known as a redemption. The buyer needs to pay the amount bid at the tax sale, other fees paid at that time and any liens that were not discharged by the sale.
Tax sales are attractive to real estate investors who may look to flip a house or acquire a rental property at a discount. However, these transactions are loaded with complexities that can end up costing hundreds of thousands of dollars. It is always wise to work with an experienced real estate lawyer who can protect your interests.